‘Horizon is bigger than we imagined’
Since the Bangladesh Bank began allowing outward investment in 2014, Akij Group has availed permission for the biggest amount. In an interview with The Daily Star's Sohel Parvez, Akij Group Managing Director SK Bashir Uddin shared his experience.
Akij Jute Mills Ltd has poured the whole $20 million, which the Bangladesh Bank in November 2017 granted, from its export retention quota into its subsidiary Akij Resources SDN BHD in Malaysia. The quota specifies the amount of export earnings that can be retained by a business in foreign currency in an account.
The subsidiary spent $77 million in 2018 to acquire Robin Resources and its subsidiary Robina Flooring that manufacture reconstituted wood products and export to about 60 countries.
This created a high level of debt, which has over the years been substantially reduced with retained earnings.
"The factory in the Southeast Asian country has been doing well," said SK Bashir Uddin, managing director of Akij Group.
"I must say we are doing good but not as well as we had expected. But it is not bad."
Akij Group is one of Bangladesh's largest business houses with diverse interests ranging from textiles, cement, ceramics, printing and packaging, pharmaceuticals to tobacco, food, beverage and consumer products.
The group could take only 25 per cent equity from Bangladesh to invest in the Malaysian subsidiary as the central bank allowed it to take only $20 million.
"We had to source the remaining 75 per cent. And our debt cost was high as we did not have any credential there. Our debt is now about 25-30 per cent," said Bashir.
However, the journey had not been all smooth sailing.
The group ventured out at a time when Malaysia's economy was suffering from a slowdown, especially because of currency fluctuations and certain political developments. This affected activities of Akij Resources to some extent.
"We could not run the factory for three months after the Covid-19 outbreak. We had gone through a learning phase, and now I can tell that we are doing good," said Bashir.
The group has been making particle boards, medium-density fibreboards, plywood, and doors for the last 20 years. Now, it sources some raw materials from the Malaysian factory for use here.
"So, the move has built a foundation for us and encouraged us to go beyond borders," he said.
Having plants in two countries has given some advantages to the group.
"There are certain cost advantages in both countries. We can make some products in Bangladesh's factory cheaper than the factory in Malaysia. So, we can export from here by diverting export leads from there. That augments," said Bashir.
Bashir acknowledges that the investment abroad has also given the 75-year-old group a big boost in confidence.
"We as a company learned that the horizon is bigger than we imagined."
"We gained more confidence that we can manage a company not being present there with our system of management and our IT and with the talented people with the group."
As for the technological aspects, the group attained certain manufacturing knowledge that helped reduce costs locally and improve product types, he said.
"Certain innovations were gained through that acquisition. And very interestingly, we were also able to add certain things to our Malaysian company from our Bangladesh base."
"So, by doing this, we also felt that confidence, that it is not that we are incapable. That is probably the most important lesson."
On locals being allowed to invest abroad, the entrepreneur says Bangladesh is not rich in industrial raw materials and needs to import huge amounts of certain raw materials.
And entrepreneurs always try to get as close as possible to sources of raw materials, which enables them to reduce production costs and bring back dividends.
"I think we are the 42nd largest economy in the world, and we are aiming to become the 30th biggest economy by 2030. The only enablers would be foreign direct investment and local firms going global. So, I think it should be addressed in a systematic approach."
Despite massive economic development in recent decades, Bangladesh is still a poor country, so Bashir emphasises on the responsible use of resources.
"I think the free flow of resources (dollars) should not be allowed," he said.
"It should be with a purpose…that it is ultimately adding value to the economy in the form of cost advantage to the domestic economy or bringing in very good amounts of dividends back home so that the economy gets benefits out of it."
An enabling regulatory environment is also needed, points out Bashir.
Companies doing business abroad pay corporate taxes there, and when they bring back their earnings, they face taxation for a second time here. "This should be addressed," he said.
He believes that Bangladesh's image abroad also needs to improve.
"When we went to Malaysia to invest, Bangladesh's image there was that we were labourers.
"The factory that we bought, we had union-related problems because everyone thought that we were going to fire everybody and then bring cheap workers from Bangladesh to run the company," he said.
They also had a hard time comprehending how people who they thought to be basically all labourers and street cleaners are all of a sudden owning a company in Malaysia, and that too a reasonably big company.
"So, image is an issue which we need to improve, and that has to come by a systematic approach," said Bashir.
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