Investment scenario | The Daily Star
12:00 AM, March 11, 2015 / LAST MODIFIED: 03:55 PM, March 11, 2015

Investment scenario

Investment in Bangladesh has been taking a steep rise, with sustained growth from 2009 and policy regimes becoming more conducive. Since time immemorial, Bangladesh has harboured the spirit of free enterprise and innovative entrepreneurship, which is well-knit into the economic fabric of Bangladesh. 
'Vision 2021' envisions a Bangladesh which “will be a middle income country where poverty will be drastically reduced, where our citizens will be able to meet every basic need, and where development will be on fast track, with ever-increasing rates of inclusive growth." The key milestones of Vision 2021 are as follow:    
*  Democracy and strong democratic institutions
* Accountability of the government and an effective parliament
Local government institutions of adequate strength and jurisdiction
Rule of law and good governance
 *Establishment of human rights (political, legal, social, economic, cultural)
 *Separation of power with independent judiciary
* Delegation, decentralisation, de-concentration and devolution of power at local levels of government.
* Meeting basic human needs
* Alleviation of poverty from 45 percent to 15 percent
* Social safety nets for the extreme poor
* Autarky in food production
* Universal primary healthcare and sanitation
* Housing for all 
* Comprehensive handling of the fallout effects of climate change
* Planned reduction of air, land and water pollution and congestion
* Formation of a comprehensive regional water policy
* Rights to information
* 100 percent enrolment in schools by 2010
* Elimination of illiteracy by 2014
* High priority to information and communication technology sector
* Transformation of political culture
* Elimination of religious bigotry, terrorism, violence, organised crime and corruption from the society
* Effective mechanism for dissent and conflict management/resolution in a spirit of respect and tolerance
* Elevating Bangladesh to the level of a middle income country 
*The benefit of adopting digitisation as a tool to attain Vision 2021 and improve the quality of life of the people was embraced in the philosophy of 'Digital Bangladesh', whose salient features include:
* The use of information and communication technology (ICT) in all walks of life to provide the goods and services needed for human subsistence and growth
* The importance of people's democracy, basic rights, transparency, accountability, equity,  justice and an optimal public delivery system of services including public goods
* The inclusion of all classes of citizens on the principles of non-discrimination and non-exclusion
* Equal access to technology and knowledge-based services for all

ECONOMY OF BANGLADESH AT A GLANCE
Per capita income    : 1192 USD 
GDP             : 130 billion USD
GDP growth        : 6.2 percent p.a
FDI inflow        : 1.6 billion USD (CY 2013)
Export            : 30.1 billion USD (FY 2014)
Import            : 37.18 billion USD (FY 2014)
FOREX Reserve     : 21.59 billion USD (Nov, 2014)  

INVESTMENT CLIMATE OF BANGLADESH
The government of Bangladesh has given highest priority to augmenting private investment in Bangladesh. The incentives offered are considered as the most competitive in South Asia.
There is no restriction on the amount of share of investment. Foreign investors are eligible to take advantage of a wide range of generous tax concessions and other fiscal incentives and facilities. 
Investment in Bangladesh is secure vis-à-vis nationalisation and expropriation. To facilitate investment Bangladesh became a signatory to the Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group, Overseas Private Investment Corporation (OPIC) of the US, and International Centre for Settlement of Investment Disputes (ICSID), as well as a member of World Association of Investment Promotion Agencies (WAIPA), World Intellectual Property Organisation (WIPO) and World Trade Organisation (WTO). 
General packages of incentives for investment include:
* Reduced import duty on machinery and spares 
** Bonded warehousing facility for export-oriented industries
* 90 percent loans against letters of credit (by banks)
* Funds for export promotion
* Export credit guarantee scheme
* Domestic market sales up to 20 percent allowed to export-oriented companies outside EPZ  (relevant duties apply)
* Cash incentives and export subsidies granted on the FOB values ranging from 5 percent to 20 percent on selected products
* Corporate tax holiday from 5 to 7 years in certain areas and sectors
* Tax exemption on capital gains from the transfer of shares of public limited companies listed with a stock exchange
* Accelerated depreciation on cost of machinery for new industries in lieu of tax holiday
* Avoidance of double taxation under bilateral tax convention 
* Tariff concessions on import of raw materials of the export-oriented industries
* Duty free market access to EU and most developed countries
* 100 percent foreign equity is allowed
* Unrestricted exit policy
* Remittance of royalty, technical know-how and technical assistance fees
* Full repatriation of dividends and capital is allowed
* Income derived from any Small and Medium Enterprise (SME) engaged in production of any goods and having an annual turnover of not more than BDT 24 lakh is exempt from tax 
* An amount equal to 50 percent of the income derived from export business is exempted from tax 
* Listed companies are entitled to 10 percent tax rebate if they declare dividend of 20 percent or more
*Incentives for power generation projects and coal-based power plants: 
*As per Private Sector Power Generation Policy of Bangladesh, any power generation company established within 31 December, 2014, and any coal-based power plant established within 30 June, 2020, will have the following benefits:
* Exemption of tax for 15 years from date of commercial operation
* Income tax exemption of the expatriates for three years 
* Exemption on the interest of the foreign borrowings 
* Exemption on the tax of royalties, technical know-how and technical assistance fees
* Exemption on the capital gain 
Industries which started power generation after 1 January, 2015, will enjoy tax tholiday in the following manner:
Counry credit ratings:

Moody's Investors' service has rated Bangladesh BA3, and Standard and Poor's has rated it BB- for the consecutive 5th year. Stable real GDP growth and strong external balances has also helped Bangladesh to achieve BB- rating with Stable Outlook from Fitch Ratings for the first time.

Public private partnership (PPP):
PPP is a key element of the 6th Five Year Plan to deliver infrastructure investments required to achieve middle income status by 2021. As of now 42 projects worth approximately USD 14 billion are in various stages of implementation.
Economic zones:  

To mitigate land crisis for industrial use and create fully serviced industrial zones, the government has taken measures to build economic zones inside the country. As of now, 8,827 acres of land were demarcated in the areas of Mongla, Sirajganj, Anowara, Mirershorai and Moulvibazar. Japan and China have shown particular interest in these zones.   
One stop service at Board of Investment (BOI):
One stop service at BOI has been established to serve the investors at one stretch in pre- and post-investment facilitation. Officials of related agencies such as the Power Division, Petro Bangla, National Board of Revenue, WASA, Department of Environment, BTCL and Bangladesh Bank, have been deputed in BOI to facilitate investors in their utility needs.
Acclamation on Bangladesh:
* Citi Investment Research & Analysis stated that Bangladesh, alongside China, Egypt, India, Indonesia, Iraq, Mongolia, Nigeria, Philippines, Sri Lanka and Vietnam, is having the most promising (per capita) growth prospects. 
* Goldman Sachs branded Bangladesh in its 'Next 11' list after the BRIC nations
* The International Monetary Fund (IMF) termed the economy of Bangladesh as resilient, its export and remittance flows bolstering growth and external stability
* The Wall Street Journal (WSJ) dismissed the previous branding of Bangladesh as a 'Basket Case', adding that with a higher growth rate, lower birth rate, and a more internationally competitive economy, Bangladesh is an emerging market economy of high potentials
* JPMorgan Chase commented that Bangladesh ranks fourth in growth of economically active population
Morgan Stanley announced that Bangladesh is at the very early stages of an investment boom
* New York Times has termed Bangladesh as “an unlikely corner of Asia, with strong promise of growth”
* A 2012 HSBC report titled The World in 2050, listed Bangladesh as one of the top 7 countries expected to deliver the fastest growth en route to 2050
* “World Economic Situation and Prospects 2013” of the United Nations state that Bangladesh's “…strong growth performances (have) continued.”
* McKinsey & Co.  in its latest survey remarked that “Bangladesh is still No. 1” as  the global sourcing hub for RMG 
* The Deutsche Bank AG, Germany, described Bangladesh as having  a robust economic growth pattern, a comfortable buffer against external shocks, and a favourable external liquidity profile

PRESENT TREND IN PRIVATE INVESTMENT


a. Local investment Trends
It is seen from the above table that the amount of local investment since 2009 is increasing.
b. Foreign Investment Trends
FDI is coming in the following forms:
 Equity capital: direct investor's purchase of shares of an enterprise in another country
 Intra-company loans: debt transactions between parent enterprises and affiliates
 Reinvested earnings: direct investor's share of profits not distributed as dividend or remitted which is reinvested.
FDI can be of the following types:
* Greenfield FDI which entails establishment of new production facilities and movement of intangible capital (in services) contributing to capital formation and employment generation
 Cross-border mergers and acquisitions which end up transferring production assets to foreign investors and do not increase capital stock.
Achievement of Bangladesh in terms of receiving FDI 
In 2013, Bangladesh received FDI of USD 1,599 million which is 24 percent higher than 2012. Since 2009, FDI has been growing by 20 percent on average.
The following table depicts the trends of FDI inflow in Bangladesh:
During the first six months of 2014, USD 829.43 million of FDI has flowed in to Bangladesh.
The sectoral analysis of the above years has been shown below:
The investment scenario of the South Asian region is as shown below:
In recent times, foreign borrowings for project financing have increased mostly due to funding by multilaterals and investment banks. These are seen as a low cost finance to implement the projects more viably, and are mainly allocated to textile and power sector projects to supplement foreign currency financing needs. This trend can be seen from the table below:
These multipronged efforts will definitely increase the volume of investment.
 

REFORMS INITIATIVES


Many reform initiatives have been taken by this government to augment investment and further ease conducting business in Bangladesh. For the purpose of business regulation simplification 18 reforms have been made; in the area of legal/policy amendments and new laws 12 reforms have been made; and in private-public joint efforts four efforts have been made. Some of the efforts have been detailed below:
 Automation of investor registration processes at BOI
BOI introduced an automated registration system for both local and foreign investors in Bangladesh in December 2010. The online platform enables potential investors to complete the entire registration process, including submitting the application, attaching relevant documents, tracking the registration status, providing interactive feedback and seeking approval, without visiting the BOI office or using an intermediary. As a result, the average time taken to register has reduced from 42 days to 12 days in 2012 to less than a week in recent times), while the average cost to register has reduced by 81.8 percent. Automation of registration services has yielded USD 16 million in total aggregated compliance cost savings (USD 0.14 million in direct compliance cost savings and USD 15.9 million in indirect compliance cost savings). Recent surveys show that 18 percent of industrial projects are now being registered within 10 days. This has benefited all industrial projects (local, joint-venture and foreign) that obtained registrations post-automation.

 Automation of export permit issuance at DEPZ
Bangladesh Export Processing Zone Association introduced an automated export permit issuance process at the Dhaka Export Processing Zone in June 2010. Once the export permit application gets submitted, the system automatically notifies the applicant through a return email and/or an SMS as soon as it is approved. As a result, the average time to issue an export permit has reduced by 33 percent.  Number of interfaces between companies and DEPZ authority has reduced to zero from four in obtaining export permits. As of 2011, 77 firms used the automated export permit system which is 91 percent of firms operating in DEPZ, and a total 48,871 export permits were issued by BEPZA for that year. Automated export permit issuance system is expected to save USD 1.9 million in direct compliance cost in four years. Beneficiaries of the system include all active firms currently operating in DEPZ.

 Automation of Company Registration with RJSC&F
Registrar of Joint Stock Companies & Firms introduced online name clearance in February 2009 and automated business registration in March 2009. The automated system allows businesses to complete the entire registration process online. The number of visits has reduced by 40 percent since initiation. Furthermore, there has been a 26 percent reduction in time required for registration (23 days in 2009 to 17 days in 2012) and 98 percent reduction in time required to obtain name clearance (nine days in 2009 to 1.58 hours in 2012). This will benefit all businesses (public, private, partnerships, societies and associations) that obtained registrations post-automation and all future business registration applicants.

 Cash subsidy claim process simplification of Bangladesh Bank
Following Core Group recommendations, Bangladesh Bank passed a circular in September 2009 for streamlining the cash subsidy claim procedure and reducing the time taken by firms to obtain their cash subsidies. Manufacturers of export products get cash subsidies on domestic raw materials used as inputs. Subsidy rates vary from sector to sector between 5 to 20 percent of the value of the local inputs. Prior to this circular, firms' claims were only disbursed after a full audit by Bangladesh Bank and subject to fund availability. Smaller firms were suffering more from uncertainty in disbursement time before the circular and are thus benefited the most. As of 2011, firms were getting 70 percent of a claim on the same day after a preliminary verification by commercial banks. The remaining 30 percent is received within 15 days. The steps to obtain a cash subsidy have reduced from seven to two. Simplification of cash subsidy claim procedure was expected to save USD 20.7 million in direct compliance cost within 4 years of initiation.

 Bonded warehouse licensing simplification
The Customs Bond Commissionerate (an agency under the purview of National Board of Revenue) implemented the bonded warehouse licensing simplification process, with support from BICF. In June 2008, the government issued a set of rules to streamline the licensing

process and reduce uncertainty and discretion. The new rules stipulated a reduction in required documents, set a time limit for issuance of the license and omitted the requirement to get approval from an additional agency. Furthermore, through the Business Initiative Leading Development - BUILD (a platform for public-private dialogue), the bonded warehouse licensing process was further simplified in July 2012. The overall time taken to obtain a bonded warehouse license reduced by 53.5 percent by 2013.
Contrary to popular perception investment in Bangladesh has been steadily raising since 2009, FDI in particular. In 2013, annual growth was a robust 24 percent – the highest ever in the history of the country. In the years to come this will increase even further. Bangladesh as an investment destination of prime value is an idea whose time has certainly come.  
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Dr. Syed Abdus Samad is the Executive Chairman and Md. Ariful Hoque is the Deputy Director of the Board of Investment.

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