Bangladesh 'cheapest place' for investment in Asia

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Bangladesh 'cheapest place' for investment in Asia

FE Report
The cost of investment in Bangladesh is falling, although some hidden expenses threaten to erode the country's competitiveness, a new survey reveals.
The 17th survey of investment-related cost comparison said Bangladesh has emerged as "the cheapest place" in Asia in terms of nine cost components, including legal minimum wages, social security burden ratio and charges of utility services.
"The relative position of Bangladesh against the components like salary of mid-level manager, legal minimum wage, rate of increase in nominal wage, telephone installation fees and call charges, mobile phone subscription fee, monthly basic mobile phone charge, cost of general use of per cubic meter gas, and cost of diesel has improved," noted the survey, conducted by the Japan External Trade Organisation (JETRO).
Jetro conducted surveys in 30 Asian cities according to the 32 cost-components.
But some hidden costs, which are abstract by nature but exist in matters related to legal, policy, procedural system and infrastructure, have been playing a vital role in case of elevation of cost of investment, the report noted.
It said the poor law and order situation, delay in the settlement of letter of credit (L/C) payment, sudden changes in government policies, inadequate infrastructure facilities, and problem related to Chittagong port need attention of the government to reduce the hidden cost of investment.
According to the survey, it is found that the mean order of all the components has switched to 2.44 from 2.49, indicating a very small elevation, which means Dhaka has become a little more cost-competitive from the viewpoint of investment costs.
"Therefore, the government should remain vigilant in case of any change of cost-components in other countries and has to continue its effort to achieve greater competitive edge by adjusting the cost," the report pointed out.
"The cost related to the usage of mobile phone has gone down because of internal stiff competition among the mobile operators which belong to private sector," the survey noted.
"Due to the emergence of several new private cell phone operators, the new connection fee for mobile phones has become cheaper and it is anticipated that the call charge and monthly basic charge for mobile phone will further go down as new operator Warid Telecom of Dhabi Group commenced their operation in Bangladesh recently", the survey noted.
The wage for workers, salary of the mid-level managers, legal minimum wages, social security ratio, cost of land area of an industrial estate, telephone installation fee and call charges, electricity and water costs, and corporate taxes are among the other cost-components.
Bangladesh is, however, less competitive in the areas like cost of industrial estate land, monthly basic payment for broadband internet service, new connection fee for fixed telephone line, container transportation cost, and rate of corporate taxes.
Particularly, the monthly basic payment for broadband internet service in the country remains one of the highest in Asia.
Regarding telephone service, the charge per call in Bangladesh stands around the middle range among the Asian countries, but the new installation fee is quite high.
Regarding the container transport, the survey has been made for the routes from 30 Asian cities to the ports of Yokohama and Los Angeles and the result shows that even after offsetting the proportional cost due to geographical longer distance, the cost of transportation from Chittagong Port is higher than that from Mumbai Port.
"This is due to the fact that large container ships cannot come to Chittagong Port due to its shallow draft and, therefore, transshipment of containers becomes necessary either at Singapore or at Colombo," according to the survey report.
The survey mentioned corporate tax in Bangladesh, being 40 per cent for non-listed companies, is one of the highest in Asia.
The rate is also highest among all 30 cities considered in the 17th cost survey. During the budget of 2005-06, the tax holiday period for certain industry has been extended until June 30, 2008 for four and six years depending on the location.
"That means, the enterprises which have been enjoying tax holiday so far will have to pay the corporate tax after June 2008, causing disadvantage to the investors," the report noted.
The Jetro recommended further expansion of tax holiday system for attracting foreign investment.
"Bangladesh may lose its competitiveness if tax holiday facility is not extended further, while the facility exists in other countries," it mentioned.
In addition, the survey report said that the government would have to take care of the existing foreign investors to attract more investment.
If the existing investors are not satisfied, then the probability of getting new FDI will gradually decrease in course of time and the prospective investors will go to other countries, the report warned.
The Jetro suggested that the government should conduct occasional surveys among the foreign companies on the degree of their satisfaction and try to resolve any existing problem for further improvement.