Progress in business climate laudable, but further improvement needed

The relationship between Japan and Bangladesh is a trusted and time-tested one. Bangladesh became Japan's biggest recipient of the Official Development Assistance in 2020. Since the Covid-19 pandemic started more than a year ago, there has been a lot of talks and anticipation about Japanese businesses moving base to Bangladesh. In a series of high-profile interviews, The Daily Star tries to understand the increasing interest of Japanese investors in Bangladesh, its growth prospects, barriers to growth, ground realities, and on how to attract more Japanese investment. As part of a series, today, we are running the interview of Yuji Ando, country representative of the Japan External Trade Organisation (Jetro) in Bangladesh.

DS: Japan is one of the largest and most developed economies in the world. What can Bangladesh learn from Japan's growth trajectory?

Yuji Ando (YA): Japan has realised economic growth by developing industrial sectors through diversifying and upgrading industrial structures. We had started from textile sectors when we started industrialisation in Meiji Era more than 100 years ago.

After World War II, the Japanese government had a policy to industrialise by starting from light engineering sectors to two-wheelers sectors and backward linkage industries. I think Bangladesh is coming to the same way steadily.

Japanese companies have led this industrialisation, and they always focus on improving the operation in the field.

The government is also trying to listen to the private sector to support the industries. Improvement of the business environment, regulatory reform and support schemes (including subsidies) are continuously taken by the government. An interactive discussion and actual initiatives bring the appropriate environment for economic growth.

Nobody denies that Bangladesh has huge potential for growth, and many companies are showing interests in this country. The next five years are really important for Bangladesh, and the government should prepare for graduation from the grouping of the least-developed country (LDC) by introducing digitalisation and a better investment climate.

DS:  How would you assess Japan's role in developing our economy?

YA: Japan is the best development partner for Bangladesh. We can collaborate to develop infrastructure, including through the public private partnership (PPP) initiative. Also, I believe Japanese companies can contribute to the improvement of the life of Bangladeshi people by providing the best consumer goods made by Japanese companies.

If the market volume of the two-wheelers reaches a good number, like 10 lakh per year, from five lakh per year, component suppliers may come to this country. This will help develop the backward linkage industry in this country. It is also essential to create huge employment and educate high-skilled human resources in Bangladesh through investment. I believe that Japanese companies will be able to take important roles in developing the country's economy.

DS: Many Japanese companies are shifting from China to other countries, especially to Vietnam. Is there any possibility that they will shift to Bangladesh?

YA: I don't think Japanese companies are shifting from China, but they are trying to diversify the supply chain to other countries.

According to a Jetro survey of 876 respondents in 2020, some 36.6 per cent of the Japanese companies in China are going to expand their business in the next one to two years. Some 55.6 per cent of the companies said that they would keep the current business operation. On the other hand, 6.7 per cent will reduce the business scales, and only 1 per cent said they might relocate to another country or withdraw from China.

China has huge markets, and many Japanese companies will tend to expand business operation for domestic markets. But, the labour-intensive sector (the number of respondents was 28), like RMG, has a lower ratio of expansion (14.3 per cent), and 25 per cent said they might reduce the operation volume or relocate to a third country.

I think that Bangladesh has competitive labour resource and the possibility to receive new orders or investment shifting from China. However, we could have seen this trend before the Covid-19 pandemic because of the wage hike in China.

DS: What are the steps Japan or Jetro is taking to motivate Japanese investors to come to Bangladesh with their investment?

YA: As an official trade and investment promotion agency of the Japanese government, we facilitate Japanese investment through various supports. As a first contact point for Japanese companies, we provide different supports to Japanese companies, like providing regulatory information, market information, and business-matching opportunities.

Also, we work with the Bangladesh government to improve the business environment. We always focus on how to support existing Japanese companies in Bangladesh to operate their business activities smoothly.

DS: What are the potential sectors that can draw Japanese investment?

YA: For Japanese investors, there are many potential sectors in Bangladesh.

Infrastructure development and the energy sector (including public-private partnership projects and energy-saving projects) are areas of interest because this country is going to graduate from the LDC group, and society is stepping to the next level.

For the huge population, consumer goods industries and the two-wheelers industry are potential sectors. Especially, the backward industry of automobile has huge potential in this country if the market size reaches enough number, like the Asean countries. We believe two-wheeler and their components' industries will be the key to diversifying and upgrading industries in Bangladesh.

The ICT sector is spotlighted by Japanese companies. In Japan, Bangladesh is becoming one of the major countries for IT outsourcing and good human resources. For the higher cost of outsourcing in other countries, like China and Vietnam, Bangladesh is very competitive as an off-shore development destination.

DS: As we celebrate the 50th anniversary of Independence, how significant has the contribution of Japanese companies been in this journey?

YA: We have been one of the closest friends of each other, and Japanese companies have contributed to the development of this country even from the East Pakistan period. Chattogram is the first place for Japanese companies to start businesses, and it has been an important place for us. As everyone knows, we are developing Matabari port, and it will bring drastic changes to this country in terms of both infrastructure and connectivity.

Japanese companies have always been with Bangladesh, and we have seen a lot of growth together. We will celebrate the 50th anniversary of diplomatic relationship the next year, and we believe we can deepen our economic relationship by welcoming more investment from Japan.

DS: How has Jetro facilitated investment and trade relations among Bangladeshi and Japanese entrepreneurs?

YA: Since our inception in 1973, we have contributed to the development of the business relationship between the two friendly countries. It is coincident that we have started our operation just after Bangabandhu's visit to Japan.

Through the historic visit to Japan by the Father of the Nation, we have deepened an excellent economic relationship.

The Jetro has always tried to bridge both countries through investment facilitation. We have arranged business delegation programmes from Japan to see the business opportunities and environment in Bangladesh.

Through the delegation programmes, several Japanese companies have decided to invest in the EPZs and other areas. We have invited Bangladeshi business leaders to Japan to make business-matching events. We are confident that many Bangladesh companies have started businesses thanks to our invitation programme.

As a future initiative, we hope to initiate the discussion for a free trade agreement (FTA) between Japan and Bangladesh to facilitate more business opportunities after the LDC graduation in collaboration with the Japan-Bangladesh Chamber of Commerce and Industry. We believe riding on the FTA, both countries can go to the next level of economic relationship.

DS: Are you happy with the current investment climate in Bangladesh? Which are the areas Bangladesh needs to improve further for making the investment climate more investor-friendly?

YA: I would appreciate the government for taking the initiatives to improve the business environment even amid the Covid-19 pandemic. But we think that there are a lot of challenges in doing business and drastic improvement is needed.

The first challenge is foreign exchange policy. We are facing challenges when we do business here. Trade transaction is limited in LC (letters of credit) settlement, but terms and conditions for opening LC are quite complicated in comparison to other countries. Businesses are requested to submit unique documents by banks which are not requested in other countries. LC opening should be simplified.

Moreover, telegraphic transfer (TT) is the standard way of transaction in other ASEAN countries, but in Bangladesh, TT is not available for imports. Very ironically, in South Asia, Bangladesh and Pakistan are the only countries that cannot transfer remittance.

I think that Bangladesh should enter the supply chain in Asean or South Asia regions to have more manufacturing industries. In this connection, the transaction system should be internationalised by introducing a TT settlement facility.

The procurement of fund in Bangladesh is another challenge. Foreign companies face difficulties in procuring fund in Bangladesh, and the only way is to inject capital from the parent company. Under the circumstances, business expansion is hard to make. In this connection, working capital loan from the parent company should be more relaxed.

The second aspect is tax policies. We do not see consistency in tax policy and transparency in the tax administration. Especially, we would expect further policies to promote domestic industries and differentiate from trading.

As the last point, we would request the government to digitalise the administrative procedures to ensure transparency and predictability in paperwork. We need this digitalisation in custom clearance because we have a lot of hassles at the import stage.