Industrial Situation of Bangladesh
1.1 General Background
Bangladesh has received over $30 billion in disbursed grant aid and loans from foreign donors since its independence in 1971, but remains one of the world's poorest and most densely populated countries. The country historically has run a large trade deficit, financed primarily through foreign aid and remittances from the many Bangladeshi workers abroad (largely in the Persian Gulf region). Overall, foreign aid provides Bangladesh with around 40 percent of government revenues and 50 percent of foreign exchange. According to the World Trade Organization (WTO), Bangladesh's main problems include civil unrest, political instability, natural disasters, and inadequate infrastructure.
Although urbanization is proceeding rapidly, agriculture, which employs about two-thirds of the labor force and accounts for 35 percent of the gross domestic product (GDP), remains Bangladesh's primary sector. The heavy reliance on agriculture makes Bangladesh vulnerable to natural disasters such as cyclones, floods, and droughts, as well as to fluctuations in world commodity prices. Severe flooding in 2004, which is reportedly the worst in a decade, damaged crops and infrastructure.
While the majority of large enterprises remain under state control, Bangladesh has been moving towards a market-oriented economy since the mid-1970s. In an attempt to diversify its economy away from agriculture, industrial development has been made a priority. Bangladesh is attempting to attract foreign investment, and has established export-processing zones (EPZs) in Chittagong (the country's major port), Dhaka and Comilla. Exports of natural gas could provide an additional revenue source, but the issue remains controversial, and no final decision has been made.
Bangladesh (along with Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka) is a member of the South Asian Association for Regional Cooperation (SAARC), which seeks to promote regional economic cooperation, as well as economic and social development in South Asia. In 2004, the seven SAARC members agreed to create a South Asian Free Trade Area (SAFTA) by 2006.
Bangladesh has small reserves of oil and coal, but very large natural gas resources. Commercial energy consumption is around 66 percent natural gas, with the remainder mostly oil (plus limited amounts of hydropower and coal). About 20 percent of the population (25 percent in urban areas and 10 percent in rural areas) has access to electricity, and per capita commercial energy consumption is among the lowest in the world. Noncommercial energy sources, such as wood, animal wastes, and crop residues, are estimated to account for over half of the country's energy consumption. The World Bank has estimated that Bangladesh loses around $1 billion per year in economic output due to power outages and unreliable energy supplies.
Bangladesh's Ministry of Energy and Mineral Resources (MEMR) has overall responsibility for the country's energy sector, controlling both policy formulation and investment decisions. Within MEMR, the "Power Cell" acts as a single point of contact to facilitate the electricity reform and restructuring process, including the development of Independent Power Projects (IPPs)
Bangladesh contains proven oil reserves of 56 million barrels and produces around 6,725 barrels per day (bbl/d), of which 6,000 bbl/d is crude oil. Until the early 1990s, the state oil and gas company Petrobangla, along with its eleven operating companies, was the sole player in the Bangladeshi oil and gas sectors. Since then, Bangladesh has encouraged foreign oil companies to do business in the country. Foreign companies currently hold ten blocks through eight Production Sharing Contracts (PSCs) with Petrobangla. Petrobangla serves as the sole purchaser of oil and gas from the companies. Around 65 percent of Petrobangla's gross revenues are paid to the government in the form of taxes and compulsory dividends. A third licensing round for blocks is expected before the end of 2005. To date, oil exploration has proven largely unsuccessful.
Bangladesh has one refinery, a 33,000-bbl/d unit at Chittagong. In December 2000, TotalFinaElf announced plans to set up a $16 million plant to bottle liquefied petroleum gas (LPG), in a joint venture with Bangladesh's Premier LP Gas Ltd. LPG is used in Bangladesh for domestic cooking, as well as in some industries and vehicles.
In July 1999, Bangladesh decided to remove lead from gasoline sold in the country, mainly due to health and environmental concerns, particularly in Dhaka. In 2003, the Bangladeshi government approved price increases on retail sales of petroleum products by the Bangladesh Petroleum Corporation (BPC). The move reduced consumption subsidies and helped to reduce border smuggling, which had existed due to the price differential between retail petroleum in Bangladesh and India. The government also reportedly has considered allowing firms other than BPC to enter the downstream market.
1.4 Natural Gas
Natural gas is Bangladesh's only significant source of commercial energy, with 2003 production of 420.2 billion cubic feet (Bcf). Bangladeshi natural gas production began in 1960 from the Chattak Field. There is much uncertainty and debate about the size of Bangladesh's natural gas reserves. Whereas January 1, 2005 estimates by the Oil and Gas Journal put the country's proven natural gas reserves at 10.6 trillion cubic feet (Tcf), mid-2004 estimates from Petrobangla put net proven reserves at 15.3 Tcf. The US Geological Survey has estimated that Bangladesh contains 32.1 Tcf of additional "undiscovered reserves." Bangladesh may have the potential to become a major gas producer, as well as supplier to the vast potential market in neighboring India.
Natural gas exports are controversial within Bangladesh as many people feel that the gas resources first should be used for domestic purposes. In addition, the size of the country's gas reserves remains highly uncertain, particularly in relation to future domestic demand projections. Both major political parties officially are committed to considering natural gas exports only if Bangladesh's proven reserves will cover 50 years of domestic demand.
In March 2005, the state-run Gas Authority of India Ltd. (GAIL) signed a memorandum of understanding (MOU) with the Bangladesh Business Development Corp. Ltd. (NNCL) to co-operate gas transmission, pipeline and distribution network development in Bangladesh. This follows a February 2005 MOU signed by GAIL and Bangladesh's Spectra Group to develop compressed natural gas (CNG) pipelines and retail outlets in Bangladesh. Tullow Oil also won state approval in March 2005 to build a pipeline and gas processing plant.
In January 2005, Bangladesh agreed to allow a proposed 559-mile pipeline to transport natural gas from Burma (Myanmar) to India through its territory. Bangladesh's approval for the tri-nation gas pipeline, however, was contingent upon several trade concessions including the removal of tariff, non-tarriff and administrative barriers to help Dhaka close its trade deficit with India, access to hydroelectricity from Nepal and Bhutan and the establishment of a free trade corridor to these countries. According to the plans, Bangladesh's Gas Transmission Co. would manage the 180 miles of the pipeline in its territory and the country would earn annual transit fees of $125 million dollars. As Bangladesh has continued to demand these trade concessions, India and Burma (Myanmar) have begun to consider alternatives such as a pipeline that bypasses Bangladesh (undersea or on land through northeastern India) or LNG shipments. These options, however, are more costly. While India and Bangladesh continue their bilateral negotiations to resolve these issues, the future of the pipeline project remains uncertain.
Bangladesh began its first significant coal production in April 2003 at the Barapukuria coal mine in the Dinjapur area of northwest Bangladesh. In June 2005, a consortium of the China National Machinery Import and Export Corporation (CMC) and the Xuzhou Coal Mining Group Company Ltd. signed a contract to run the management and production of the Barapukuria mine. The project is expected to produce about one million short tons of coal per year, primarily for electricity generation. A possible coal mining project at Khalashpir is also under consideration.
In July 2005, Australia's Asia Energy Corp. submitted a $1.4 billion plan to develop a coal mine in the Phulbari region. The Phulbari mine, which is located approximately 12 miles from the Indian border, is expected to begin production in 2009.
Bangladesh's installed electric generating capacity in 2003 was 3.6 gigawatts (GW) (94 percent – thermal, 6 percent – hydroelectric), at 18 power stations. However, only two-thirds of Bangladesh's total electric generating capacity is considered to be "available." Problems in the Bangladeshi electric power sector include high system losses (up to 40 percent), delays in completion of new plants, low plant efficiencies, natural gas availability, erratic power supply, electricity theft, blackouts, shortages of funds for power plant maintenance, and unwillingness of customers to pay bills. Overall, the country's generation plants have been chronically unable to meet system demand over the past decade. With only about 20 percent of the population connected to the electricity grid, and with power demand growing rapidly, Bangladesh's Power System Master Plan (PSMP) projects a required doubling of electric generating capacity by 2010. In addition, Bangladesh may need to replace 30 to 40 percent of its current generating capacity, due to aging infrastructure.
The Padma-Jamuna-Meghna river system divides Bangladesh into Eastern and Western zones. The East contains nearly all of the country's electric generating capacity, while the West, with almost no natural resources, must import power from the East. A 230-kilovolt (kV) power transmission line, completed in 1982, connects the East to the West. The vast majority of Bangladesh's electricity (78 percent) is consumed in the East, with greater Dhaka alone consuming around 50 percent.
Through the Ministry of Energy and Mineral Resources, the Bangladeshi government owns and supervises the Bangladesh Power Development Board (BPDB). BPDB is an integrated utility that distributes electricity to retail consumers, as well as to two other distribution utilities — the Dhaka Electric Supply Authority (DESA, established in 1991), and the Rural Electrification Board (REB, established in 1977).
Given Bangladesh's electricity supply shortage, in 1996 the government issued the "Private Sector Power Generation Policy of Bangladesh" and began to solicit proposals from international companies for IPPs. Among the first IPPs were a 360-MW gas-fired combined-cycle plant at Haripur, which began operation in October 2001, and a 450-MW gas-fired combined-cycle plant at Meghnaghat, which began operation in November 2002. Both plants were sold to the British firm CDC Globeleq in December 2003. India's Bharat Heavy Electricals Ltd. (BHEL) completed a 124-MW gas-fired Baghabari generating unit in November 2001. BHEL currently is planning a 280-MW gas-fired plant for Sylhet. A power purchase agreement for a barge-mounted unit at Baghabari, which will have a 130-MW capacity, was signed with Malaysia's Westmont Power in May 2004. A consortium of Chinese firms concluded an agreement with Bangladesh in June 2001 for the country's first coal-fired power plant, to be located at Barapukuria near the country's main coal deposits. It is expected to start generation in October 2005. In May 2005, U.S.-based Global Vulcan Energy International announced plans to build several power plants with a total generating capacity of 1,800 MW, including at least one 100-MW gas-fired plant, which may be online by the end of 2006, and two 450-MW coal-fired plants. In 2005, India's Tata Group proposed a 1,000-MW coal-fired power plant.
In addition to large IPP projects, in April 1998, Bangladesh adopted a "Small Power Generation Policy," which encourages development of small local generation projects of up to 10-MW in capacity in underserved areas. The country has an active rural electrification program, which is to receive $280 million from the Asian Development Bank (ADB) under a program announced in December 2003. All of these initiatives aim to increase power generation and to reduce the country's power shortage significantly, with a goal of universal electrification by 2020.
In April 2005, China and Bangladesh signed an agreement on nuclear cooperation. Under the agreement, Bangladesh is to receive Chinese assistance in exploration for nuclear materials and construction of a 600-MW nuclear power plant.
Foreign Investment Policy
2.1 Foreign Investment Policy in Bangladesh
The Government of Bangladesh has put in place a comprehensive array of policies aimed at bringing about significant socio-economic improvements to the people of Bangladesh and ultimately, self-reliance, for the nation. In recognition of the private sectors ability to contribute towards achievement of these goals, the government has recently implemented a number of significant policy reforms. These are designed to create a more open and competitive climate for foreign investment.
In order to achieve the objective of accelerating industrial growth and to gain a greater share of industry in the Gross Domestic Product (GDP) as well as to make the industrial policy responsive to the changes occurring in the global economy, the present government announced a new Industrial Policy-2005.
The main features of the Industrial Policy 2005 are as follows:
• To expand the production base of the economy by accelerating the level of industrial investment.
• To promote the private sector to lead the gorwth of industrial production and investment.
• To focus the role of the government as a facilitator in creation an enabling environment for expanding private investment
• To permit public undertaking only in those industrial activities where public sector involvement is essential to facilitate the growth of the private sector and/or where there are over riding social concerns to be accommodated.
• To attract foreign direct investment in both export and domestic market oriented Industries to make up for the deficient domestic investment resources, and to acquire evolving technology and gain access to export markets.
• To ensure rapid growth of industrial employment by encouraging investment in labor intensive manufacturing industries including investment in efficient small and cottage industries.
• To generate female employment in higher skill categories through special emphasis on skill development.
• To raise industrial productivity and to move progressively to higher value added products through skill and technology up gradation.
• To enhance operational efficiency in all remaining public manufacturing enterprises through appropriate management restructuring and pursuit of market oriented policies.
• To diversify and rapidly increase export of manufactures.
• To encourage the competitive strength of import substituting industries for catering to a growing domestic market.
• To ensure a process of industrialization which is environmentally sound and consistent with the resource endowment of the economy?
• To encourage balanced industrial development throughout the country by introducing suitable measures and incentives.
• To effectively utilize existing production capacities.
• To coordinate trade and fiscal policies.
• To develop indigenous technology and to expand production based on domestic raw materials.
• To rehabilitate deserving sick industries.
2.2 Reserved sector (public sector) industries:
The following areas are reserved for public sector investment:
a) Arms and ammunition and other defence equipment and machinery.
b) Forest Plantation and mechanized extraction within the bounds of reserved forests.
c) Production of nuclear energy.
d) Security printing (currency notes) and minting.
2.3 Foreign investment:
a) Foreign investment, with particular preference to foreign direct investment will be encouraged in all industrial activities in Bangladesh including service industries and toll manufacturing, excluding those in the list of "Reserved Industries" and ready made garments, banks, insurance companies and other financial institutions. Such investments may be undertaken either independently or through joint ventures, either with the local private or public sector. The capital market will also remain open for portfolio investment.
b) The policy framework for foreign investment in Bangladesh is based on Foreign Private Investment (Promotion and Protection) Act, 1980 which provides for;
– Non-discriminatory treatment between foreign and local investment
– Protection of foreign investment from expropriation by the state and
– Ensured repatriation of proceeds from sale of shares and profit.
c) For foreign investment, there will be no limitation pertaining to equity participation, i.e. 100 percent foreign equity will be allowed. Fully foreign owned firms or joint ventures will in no way be obliged to sell their shares through public issues, irrespective of the amount of their paid-up capital. However, foreign investors or companies with foreign investment will be eligible to buy shares through the stock exchange. Foreign investors on companies may obtain full working capital loans from local banks. The terms of such loans will be determined on the basis of bank client relationship.
d) Foreign entrepreneurs will enjoy the same facilities as the domestic entrepreneurs in respect of tax holiday, payment of royalty, technical know-how fees etc. A foreign technician employed in foreign companies will not be subjected to personal income tax up to 3 years, and beyond that period his/her personal income tax payment will be governed by the existence of non-existence of agreement on abidance of double taxation with country of citizenship.
e) Full repatriation of capital invested foreign sources will be allowed. Similarly profits and dividend accruing to foreign investment may be transferred in full. If foreign investors reinvest their repairable dividends and or retained earnings, those will be treated as new investment. Foreigners employed in Bangladesh are entitled to remit up to 50 percent of their salary and will enjoy facilities for full repatriation of their savings and retirement benefits.
f) The process of issuing work permit to foreign experts on the recommendation of investing foreign companies or joint ventures will operate without any hindrance or restriction. "Multiple entry visa" will be issued to prospective foreign investors for 3 years. In case of experts, "multiple entry visa" will be issued for the whole tenure of their assignments.
g) Foreign investment in "Thrust Sectors", particularly in small industrial units, will be given priority in allocation of plots in BSCIC industrial estates.
h) Investment of non-resident Bangladeshis will be treated as par with foreign direct investment.
i) Measures will be taken to protect the intellectual property rights of new products and processes.
j) Investment guarantee and dispute settlement will be guided by international arrangements and provisions.
Facilitative role of the public institutions:
The following is the investment framework for the development of the private sector:
a) All foreign investments shall be registered in the prescribed manner with the concerned promotional body before setting up an industry.
b) Prior clearance will be required for setting up of ready-made garments (RMG) units, banks, insurance companies and other financial institutions.
c) Bangladesh Small and Cottage Industries Corporation (BSCIC) will allot industrial plots to respective industrial units in its own industrial estates and estates developed by it under special orders. Similarly, Bangladesh Export Processing Zones Authority (BEPZA) will allot land in its own estates. Board of Investment (BOI) will recommend and pursue allotment of public land wherever available.
d) Concerned facilitating agencies will, after discussion with the relevant authorities, determine the time limit for receipt of power, gas, water, drainage and telecommunication connection as well as provide clearance relating to environment pollution. These facilities will be provided by the "One Stop Service" cell of the facilitating agencies.
e) BOI, BEPZA and BSCIC will approve, wherever necessary, the payment of any royalties, technical assistance fees and approve appointment and payment of remuneration of foreign personnel.
f) Private sector is allowed to set up export processing zones and develop industrial parks. Government will extend support to these zones and parks. Industries located in the private zones (EPZs) will enjoy the same facilities as those enjoyed by the units located in the public EPZs.
2.4 Board of Investment (BOI)
The Government of Bangladesh established the Board of Investment (BOI) in 1989 for accelerating private investment in Bangladesh. The Board, headed by the Prime Minister of the Republic is vested with necessary powers to take decisions for speedy implementation of new industrial projects and provide operational support services to the existing ones.
The major functions of Board of Investment (BOI) include the following:
• Undertaking investment promotion activities at home and abroad
• Providing all types of facilities for promotion of capital investment and rapid industrialization.
• Registration of industrial projects as well as royalty, technical know-how and technical assistance agreements wherever required
• Approval of payment of royalty, technical know-how and technical assistance fees to foreign nationals/ organizations beyond the prescribed limits.
• Issuing work permit to expatriate personnel working in private sector industrial enterprises
• Providing import facilities to industrial units in the private sector.
• Approval of the terms and conditions of foreign private loan and suppliers credit
• Allotment of land in the industrial areas/estates for industrial purpose
• Conciliation of disputes relating to foreign investors and
• Providing assistance to avail infrastructure facilities for industries.
2.5 Procedure for obtaining work permit for foreign nationals:
Work permit for foreign nationals is a pre-requisite for employment in Bangladesh. Private sector industrial enterprises desiring to employ foreign nationals are required to apply in advance in the prescribed form of BOI. For expatriate employment the following guidelines are followed:
a) Nationals of the foreign countries recognized by Bangladesh are considered for employment.
b) Employment of expatriate personnel be considered only in industrial establishments which are sanctioned/registered by the appropriate authority.
c) Decision of the Board of Directors of the concerned company for new employment/ extension and the certified copy of the Memorandum and Articles of Association duly signed by the share holders are to be furnished.
d) Experts/Technicians in the irrespective fields are required to furnish their certificate of educational qualifications and experience through their employers.
e) Service contract/agreement/appointment letter/buyer's nomination along with the copy of passport is to be furnished.
f) The Number of foreign employees should not exceed 15% of the total employees including top management personnel.
g) Initially employment of any foreign national is considered for a term of one year which can be extended on the merits of the case.
h) Necessary security clearance by the Ministry of Home Affairs is required.
Procedure for obtaining industrial plots:
Entrepreneurs requiring industrial plots for setting up of an industry in any industrial area/estate apart from BEPZA and BSCIC may approach BOI mentioning the size of plot required by them along with copies of registration/sanction letter and industrial layout plan for lifting actual requirement. After receiving an application the BOI provides assistance to the entrepreneur in getting an industrial plot. Most of the industrial areas/estates are owned/controlled by the city development authorities in three divisional head quarters, RAJUK in Dhaka, CDA in Chittagong and KDA in Khulna. Besides these, there are a few industrial estates owned and controlled by some other government agencies namely, (a) Public Works Department and (b) Housing and Settlement Directorate. BOI recommends for acquisition of land to the concerned authorities if required by the industrial units, In such case the entrepreneurs required to submit relevant papers and information in connection with the land to be acquired by the Deputy Commissioner concerned.
Facilities and Tax Incentives for Foreign Investors
3.1 General Incentive
Foreign investors are also entitled to the following:
• Tax exemption on capital gains from the transfer of shares by the investing company;
• Avoidance of double taxation in case of foreign investors on the basis of bilateral agreements
• No restriction in issuing work permits to foreign nationals in Bangladesh
• Facilities for repatriation of invested capital, profits and dividends
• Provision for transfer of shares held by foreign shareholders to the local shareholders/investor with the permission of the BOI and the Exchange Control Department of the Bangladesh Bank
• Treatment of reparable dividends as new foreign investment
• Allowing long term loan and working capital loan to foreign investors from local commercial banks; and
• Permanent resident ship to a foreign citizen investing a minimum of US$ 75,000 or equivalent amount (non.repatriable) ; similarly city hip to any foreign citizen investing US$ ~,000 or transferring US$ 1,000,000 to any recognized Bangladeshi financing institution (nonrepatriable).
3.2 Additional Incentives for Export Oriented/Linkage Industries
Encouraging export-oriented industries is one of the major objectives of the Industrial Policy, 1991 and as such government ensures all support and co-operation on priority basis as per export policy. Some of the facilities and incentives offered are as follows:
• Concessionary duty is allowed on the import of capital machinery and spare parts for setting up export oriented industries or BMRE of existing industries. For 100 percent export oriented industries no import duty is payable;
• Facilities such as special bonded warehouse against back-to-back letter of credit or national import duty and payment of value added tax (VAT) facilities are available;
• The system of duty drawback is being simplified and streamlined. Back loan up to percent of the value against irrevocable and confirmed letters of credit/sales agreements available;
• With a view to ensuring backward linkages, export oriented industries including export oriented readymade garment industries using indigenous raw materials instead of imported ones, are given additional facilities and benefits at prescribed rates. Similar incentives are extended to the suppliers of raw materials to export oriented industries;
• The expert oriented industries are allocated foreign exchange for publicity campaigns and for opening offices abroad;
• The entire export earning from handicrafts and cottage industries is exempt from income tax. In case of all other industries, proportional income tax rebate on export earnings is given between 30 and 100 percent. Those industries which export 100 percent of their products are given tax exemption up to 100 percent;
• For manufacturing exportable commodities, import of raw materials under the Control List is allowed;
• The import of specified quantities of duty free samples for manufacturing exportable products is allowed. The quantity and value of samples an determined jointly by the concerned sponsoring agency and the National Board of Revenue;
• The local products supplied to local projects against Foreign exchange international tender are treated as indirect exports and the producer is entitled to all export facilities;
• Export oriented industries producing toys, luggage and fashion articles, electronic goods, leather goods, diamond cutting and polishing, jeweler, stationery goods, silk cloth, gift items, cut and artificial flowers and orchid vegetable processing and engineering constancy Aces are 3dentiiied by the government thrust sectors and provided with special facilities through cash incentives, venture capital and other facilities; and
• Export-oriented industries are exempt from paying local taxes such as municipal tax.
3.3 Remittance Facilities
Remittance of profits of branches of foreign firms/companies, dividends/capital gains, salaries and savings by expatriates, royalty and technical fees, training and consultancy fees, receivables collected by shipping companies and an lines towards freight and passage can be effected through authorized dealers without prior approval of the Bangladesh bank.
3.4 Additional Incentives for EPZ Industries
In addition to the incentives and facilities available to industries in general, the industries in the Export Processing Zones are allowed to enjoy the following facilities:
• Freedom from National Import Policy restrictions;
• Offshore banking facilities;
• Relocation of existing industries from abroad;
• Back to back letter of credit facility for certain types of industries for import of raw materials;
• Availability of food stuff and beverage on payment of nominal tax for foreigners working in EPZ;
• Exemption of customs duties and sales tax on imported motor vehicles for executive of enterprises;
• One stop service> to investors; and
• All customs formalities, within EPZs.
Additional Incentives for Small and Cottage Industries BSCIC registered units are exempt from payment of advance income tax on import of their raw materials.
3.5 Foreign Investment Protection Act
The Foreign Private Investment (Promotion and Protection) Act, 1980 provides for fair and equitable treatment to foreign private investment. It ensures legal protection to foreign investment in Bangladesh against nationalization and expropriation. It also guarantees repatriation of capital and returns from it and equitable treatment with local investors with regard to indemnification compensation etc., in the event of loss due to civil commotion etc. Similarly, adequate protection is available for intellectual property rights, such as patents, designs, trademarks and copyrights.
3.6 Investment Treaties & Bilateral Agreements
Investment treaties for promotion and protection of investment between Bangladesh and the following countries have been concluded:
USA, Republic of Korea, UK, Thailand, Germany, Turkey, Romania, France, Belgium, and Italy. Negotiations are going on with a few other East Asian and European countries including the Netherlands and Switzerland.
Avoidance of Double Taxation – Bilateral Agreements
Bilateral agreements have been concluded by the Bangladesh government with the following countries for avoidance of double taxation:
Japan, Italy, Singapore, Sweden, Republic of Korea, United Kingdom (including Northern Ireland), Canada, Malaysia, Romania, Sri Lanka, France, Germany, Indian Pakistan.
Guarantees through Multilateral Agencies
Bangladesh is a signatory of HIGA (Multilateral investment Guarantee Agency), OPIC (Overseas Private Investment Corporation) of America and ICSID (International Center for Settlement of Investment Disputes). MIGA is the Multilateral Investment Guarantee Agency of the World Bank group to encourage the flow of foreign direct investment (FDI) to, and among, developing member countries by providing guarantees to foreign investors against loss caused by non-commercial risks. MIGA's guarantee protects investors against losses arising from the risks of currency transfer, expropriation and war and civil disturbances. MIGA may only ensure new investment, privatization and financial restructuring.
OPIC is the most important US government agency which is in a position to promote greater investment interest in countries including Bangladesh by providing loan financing and investment insurance to American investors.
Government initiatives for attracting FDI
With the dawning of the new century not too far away, Bangladesh stands poised to enter an era of unprecedented opportunities to achieve sustained industrial development and technological progress. The present government has adopted an economic strategy to create a suitable environment to make Bangladesh a very attractive destination for foreign investors in the South Asian region. The Prime Minister has given the highest priority to attracting foreign direct investment into Bangladesh. S/he has personally spearheaded the drive for foreign direct investment through her visit during the past two and a half years to a number of countries such as United States, United Kingdom, Germany, Italy, India, Pakistan, China, Hong Kong, Japan, Turkey and Iran. During her visits abroad, her direct participation in discussions with the leading businessmen of international repute and the Chief Executives of Industrial multinational yielded very fruitful results. The positive outcome of her dialogue with them is evidenced by the highly encouraging response from internationally reputed companies to invest in Bangladesh, especially in the fields of oil and gas exploration and power generation. During her visits abroad, Prime Minister also made a fervent appeal to the overseas Bangladeshi communities to invest in Bangladesh and become development partners in the progress of the country.
Bangladesh wants to be an active partner in the world economic community. We are one of the most open economies among the developing countries. The Bangladesh economy has already been liberalized extensively and we are vigorously pursuing a private sector-led, export oriented growth strategy. The private sector has been accorded a predominant role in the country’s development. Our policies are geared towards creating an environment where the private sector can play its role effectively as the engine for economic growth. The present government has very clear and well-defined economic policies, geared to promoting foreign direct investment. Like other developing countries, we actively encourage foreign direct investment in Bangladesh with a view to creating jobs for our vast labor force, increasing our foreign exchange earnings, acquiring new and modern technology and management skills, accelerating the overall growth and development of the economy and accessing new market. The present government welcomes participation of foreign investors in our development efforts. To this end, the present government pledges good governance, functionally free convertibility of currency, developing export processing zones by both the public and the private sectors and making BOI more responsive to foreign investment. The government regards BOI as the key organization in promoting foreign direct investment in the country. The government has also constituted a high-powered committee to speed up the approval process of the foreign investment proposals. The BOI has been given the responsibility to help and assist all domestic and foreign investors.
Private investment – both local and foreign is welcome in all areas with the exception of only five sectors on strategic grounds. There is no restriction on the amount of investment or in the share of equity. 100% foreign investment and joint venture with local private partners or with the public sector is freely allowed. Foreign investors now enjoy the same treatment as provided to the domestic investors. Foreign investors are eligible to take advantage of a wide range of generous tax incentives, other fiscal incentives and facilities.
The government is giving special importance to building up the infrastructure in the country. With this in mind a number of policy initiatives have been introduced – to pursue private participation in infrastructure projects on a Build Operate and Own (BOO) and Build Operate and Transfer (BOT) models in the following areas:
Some of the incentives allowed recently in Bangladesh are:
(i) The private power companies shall be exempted from corporate income tax for a period of 15 years.
(ii) The Companies will be allowed to import plants and equipment without payment of customs duties, VAT and any such surcharges as well as import permit fees except for indigenously produced equipment manufactured according to international standards.
(iii) Repatriation of equity along with dividends will be freely allowed.
(iv) Exemption from income tax in Bangladesh for foreign lenders to such companies.
(v) The instruments and deed required to be registered under local regulations will be exempted from stamp duties.
(vi) Due to power generation being declared an industry, companies are eligible for all other concessions available to industrial projects.
(vii) Private parties may raise local and foreign finance in accordance with regulations applicable to industrial projects as defined by the Board of Investment (BOI).
(viii) The exemption on capital gains from transfer of shares by the investing company.
(ix) Avoidance of double taxation in case of foreign investors on the basis of bilateral agreements.
(x) Investment Treaty for promotion and protection of investment between Bangladesh and a number of countries concluded.
(xi) The government is giving special importance facilities for repatriation of invested capital, profits and dividends.
(xii) Provision of transfer of shares held by foreign shareholders to local shareholders/investors.
(xiii) The Taka, the national currency, will be convertible for international payments on current accounts.
Some of the Major reforms undertaken by the Government are:
Private Export Processing Zone Act. A private EPZ is being set up at Chittagong by a Korean comparably with an estimated investment of $200m,
A permanent Law Reform Commission has been set up to ensure greater transparency and predictability in the way rules and regulations are
An Administrative Reforms Commission has been set up,
The Company law 1913 has been updated and modernized,
The Industrial Relations Act has been amended to enhance labor market efficiency,
Power generation in the private sector has been allowed,
Telecommunication in the private sector has been allowed,
Multiple entry visas to visiting foreign investors is being given by all our missions abroad,
Provision made for allowing import of standby generator free of tax, and sale of excess electricity to nearby industrial units without permission from any agency provided own distribution line is used,
Licenses issued to four cellular telecom phone operators. This is illustrative of government’s commitment to a competitive and market economy.
The Khulna Barge mounted power plant has already started commercial production with a capacity of 110 mw. One barge-mounted power plant will become operational by May 2009. An agreement has been signed with AES for a 400 MW power station at Haripur on a BOO basis, whilst a second agreement with AES for a 350 MW power station is expected to be finalized shortly. The total investment in these two projects will be close to 800 million US dollars.
Out of 23 blocks, 8 blocks have already been contracted out, $100m has already been invested and an additional $260m is expected to be invested by 2009.
The Ministry of Energy and Mineral Resources are now evaluating proposals for another 12 blocks. These contracts will cover a period of 7 years. The approximate investment in these 12 blocks is expected to be $600m.
4.4Security against investment:
Foreign investment in Bangladesh is secured against nationalization and expropriation. It also guarantees repatriation of dividends, capital and return from it and equitable treatment with local investors with regard to indemnification and compensation in the event of loss due to civil compensation in the event of loss due to civil commotion etceteras. Similarly, adequate protection is available for intellectual property rights such as patents, trade marks, design and copy right. Bangladesh is a signatory to the Multilateral Investment Guarantee Agency (MIGA). Overseas Private Investment Corporation (OPIC) of USA, International Centre for Settlement of Industrial Disputes (ICSID) and a member of world intellectual property organization (WIPO).
The government’s emphasis on economic diplomacy has found an effective platform in their efforts to form two new economic blocks. One of them is D-8, an organization of eight Islamic countries that promises to spur economic activity. The second one is BIMS-TEC, which groups together Bangladesh, India, Myanmar, Sri Lanka and Thailand. The present government has joined with Bhutan, India and Nepal to promote cooperation on some specific infrastructure projects based on geographical contiguity. At the initiative of Prime Minister the first Tripartite Summit was held in Dhaka in January 2003. The Prime Ministers of India and Pakistan attended the Summit along with some leading businessmen from both these countries. The Summit provided a major impetus to trade and investment in the subcontinent.
4.6Infrastructure Development Company:
Infrastructure Investment Facilitation Company (IIFC) has been set up with the backing of the World Bank to catalyze investment by the private sector in the development of ports, roads, energy, telecom and water supply. Founded at a cost of $15m. the centre will work closely with the infrastructure Development Company – another brain-child of the World Bank. The aim is to channel some $225m to the private sector companies as equity through the company, which is expected to attract private capital to the tune of $1.5bn in a few years.
Findings & Recommendations
1. Here we find that, in our country foreign investment can be increased due to availability of cheap labour cost of our country. So Bangladesh can be ideal for the large scale investment.
2. To attract foreign investment, Bangladesh has to establish more EPZs.
3. To increase foreign investment first we have to improve our energy supplies. The World Bank has shown that Bangladesh loses around 1 billion per year in economic output due to outages.
4. Though the government of Bangladesh has taken many policies to attract foreign investment but, lack of infrastructure is steel a serious problem in our country.
5. Some major impediments to foreign investments include delay in exploding energy resources, inadequate power supplies slow implementation of economic reforms and frequent strickes (unstable politics).
6. Natural gas is Bangladesh’s only significant source of commercial energy. In addition the size of the country’s gas reserves remain highly uncertain. So it is important to focous on other energy sources.
7. We have cheap labour force but they are unskilled. So it is very important to train them.
8. Bangladesh Government is giving many benefits and incentives to these foreign investors. Even non discreminatory treatment between foreign and local investment.
9. Bangladesh Government has to realize that the foreign investment is not a solution of all economic problems. We should not allow them to enter in to all sectors of our iandustrial activities. Instead of foreign investment, we should give more focus on local investments in many selected sectors.
10. The foreign investment companies are not included in our stock market. So, there is no chance of us to enjoy the part of profit from the investment.
1. Bangladesh should emphasize more on infrastructural improvement. It can be done either by own fund or by foreign investment.
2. Alternative sources of natural resources should be sought. Investment needed to be made on renewable energy sector.
3. Polices should be made to bound the foreign investors to enter in to the capital market of Bangladesh after a period of time.
4. The procedures of getting permission for investment needed to be minimized as far as possible.
5. Permission should not be given to the companies that might be harmful for our environment.
Since independence in 1971, Bangladesh has received more than $30 billion in grant aid and loan commitments from foreign donors, about $15 billion of which has been disbursed. Major donors include the World Bank, the Asian Development Bank, the UN Development Programme, the United States, Japan, Saudi Arabia, and West European countries. Bangladesh has historically run a large trade deficit, financed largely through aid receipts and remittances from workers overseas. Foreign reserves dropped markedly but have now stabilized in the $1.5-$1.8 billion range (or about 2.2-2.5 monthly import cover).
Despite sustained domestic and international efforts to improve economic and demographic prospects, Bangladesh remains one of the world's poorest, most densely populated and least developed nations. Annual GDP growth has averaged over 4% in recent years from a low base. Its economy is largely agricultural, with the cultivation of rice the single most important activity in the economy. Major impediments to growth include frequent cyclones and floods, the inefficiency of state-owned enterprises, a rapidly growing labor force that cannot be absorbed by agriculture, delays in exploiting energy resources (natural gas), inadequate power supplies, and slow implementation of economic reforms. Frequent strikes that crippled the economy subsided after government assumed power, allowing a return to normal economic activity. The current government has made some headway improving the climate for foreign investors and liberalizing the capital markets; for example, it has negotiated with foreign firms for oil and gas exploration, better countrywide distribution of cooking gas, and the construction of natural gas pipelines and power plants. Progress on other economic reforms has been halting because of opposition from the bureaucracy, public sector unions, and other vested interest groups.
1. “Bangladesh Private Sector Infrastructure Guideline” BEPZA, Dhaka : 2004
2. “Bangladesh Investment Handbook 2007”: 3rd Edition BOI, Dhaka : 2007
3. Chakrabarty, Montosh “International Economics” Agami Printing & Publications, Dhaka 2005
4. Hesser, L.F. . "Industrial Research in Bangladesh: An Assessment of the Existing State and Future Needs. " USAI D, Dhaka. 1974
5. Star Business Report. “FDI inflow wanes” The Daiy Star Dhaka 25 Sep 2008