Opportunities that Bangladesh offers for further Japanese investment
Bangladesh Bank Governor Atiur Rahman delivered a welcome address at Japan-Bangladesh Business Forum at Sonargaon Hotel in the capital yesterday. The event drew together government and business leaders of Japan and Bangladesh to highlight the unexploited potential for a major boost in trade and investment relationships between the two countries. Here is the abridged version of his speech.
The Bangladeshis are very grateful for Japan's generosity of prompt support response in all natural and humanitarian disasters the country faced, as also for equally generous official grant and concessional financing support for economic and social development. The retrofitting financing assistance offer for apparel manufacturers and exporters of Bangladesh immediately following last year's Rana Plaza collapse disaster is just one recent example among numerous others.
Growth of trade and investment relationships between businesses in Japan and Bangladesh has, however, remained sluggish and far below potential. Bilateral trade totalled under $2 billion in fiscal 2014, but Bangladesh's bilateral trade growth with Japan is lagging her overall external trade growth. Bangladesh remains in trade deficit with Japan unlike with most other advanced economies, although exports are lately showing some signs of pickup.
Bangladesh exported apparel items worth $572.27 million to Japan in fiscal 2013-14 against a meagre $74.37 million in fiscal 2008-09, an eight times growth in just over five years. Surely, Bangladesh can have a larger share of $35 billion Japanese apparel market if the country can play its card well and remain compliant in labour and environmental standards. As of today, Japanese foreign direct investment inflows into Bangladesh remain small, under $100 million in 2013 even after more than trebling from the preceding year's figure.
This minuscule engagement level between businesses in Japan and Bangladesh is surprising, given the outward looking resurgence thrust in the Japanese economy imparted by Prime Minister Shinzo Abe; and given Bangladesh economy's growth dynamism evident in the ongoing sustained spell of more than 6 percent annual average real GDP growth for well over a decade now.
That the Bangladesh's financial sector is stable and resilient has been confirmed repeatedly by favourable ratings of top global rating agencies like S&P, Moody's and of late the Fitch; its stability remained unimpaired during episodes of major external turbulences like the East Asian currency crisis and the subsequent global financial crisis. Bangladesh is continually strengthening its financial sector management and supervision practices and norms in line with global best practice standards. Risk-focussed Basel II capital adequacy regime is already in place, and work is underway for adoption of its Basel III version with revised capital norms and new liquidity coverage and leverage criteria.
As a WTO founder member, Bangladesh is fully open in external trade, and as a low income economy enjoys favoured access to most of the advanced economy markets. Current global economic and geopolitical developments have led Bangladesh to focus more on Asia and the East for acquiring new trade and investment; and Bangladesh is deeply grateful for Japan's eagerness in helping it get into the Regional Comprehensive Economic Partnership (RCEP). Bangladesh's inclusion in this regional value chain will be to the country's mutual advantage; with Japanese businesses using Bangladesh as a cost-efficient manufacturing base for such items as automobile parts, electrical and electronic goods, apparel items and various other consumer goods.
Bangladesh's policy stance on FDI and FPI (foreign portfolio investment) inflows are among the most liberal in South Asia region; and the central bank of Bangladesh is continually engaging with local foreign investor communities in Bangladesh for facilitation of all kinds of business-related external transactions including inflows of equity and debt, and outflows of royalty/technical fee, profits/dividends and disinvestment proceeds including capital gains. Major recent new facilitations include enhancement of family remittance ceiling for expatriates to 75 percent of salaries, and repatriability of sale proceeds of foreign equity in unlisted companies at fair value based on assets, income and earnings trends instead of solely at net asset value. Foreign businesses can now access local and external financing on the same basis as for locally owned businesses, and their interest-free short term borrowings from their parent businesses at home require no prior approval of the central bank.
Countrywide chains of job-oriented vocational training in Bangladesh are continually adding into its large pool of semiskilled manpower whose skills are further upgradable easily with some hands on training in actual job environment. Tech savvy young science and technology graduates are also coming out of universities in large numbers every year. Foreign investors in Bangladesh can hire from these manpower pools at much lower cost than elsewhere. Besides scope for cost-efficient labour-intensive manufacturing, there are ample opportunities for big ticket Japanese investments in Bangladesh in areas like energy, development of deep-sea port, LNG storage terminals and other physical infrastructure, tourism, tertiary healthcare and so forth.
In addition, Bangladesh is indeed so pleased to see Japan willingly coming forward to invest in some of these mega projects. Bangladesh has a vibrant SME light engineering sector that Japanese automakers and machine builders can take advantage of with orders for parts and spares. Manufacturing of solar PV panels, energy efficient LED lamps, TVs, computer monitors and other electrical and electronic appliances are also likely to be cost-efficient.
Japanese businesses would also find Bangladesh attractive as an outsourcing destination for software development and other IT-enabled back office services. Relocation of export manufacturing units in Bangladesh will give Japanese businesses the advantage of favoured access to many advanced economy markets, besides cost efficiency. Manufacturing for Bangladesh's own large domestic market with a large and growing middle to higher income population segments would also be attractive for Japanese entrepreneurs. Both wholly foreign ownership and joint venture options with the private and public sector are open for Japanese and other foreign investors.
Bangladesh government has already promised a sizable new special economic zone in Chittagong specifically for Japanese investors, and is further considering a generous set of incentives for investors in SEZs including time-bound full and partial waivers on tax/VAT/stamp duty.
As Japanese businesses are looking towards new investment destinations and as Bangladesh authorities are eager and willing to facilitate Japanese investments as part of the look East re-orientation of trade and investment promotion, the Japanese and Bangladeshi business leaders should work together in taking full advantage of all the existing and new facilities and bring about a major new upturn in bilateral trade and investment relationships.
Comments