Cost of investment in Bangladesh is not getting cheaper as all the cost components have increased to 2.45 per cent in 2008 from 2.44 per cent in 2007, indicating a rise in cost of investment to a nominal extent, said a survey report released by the Japan External Trade Organisation (JETRO) Tuesday.
'According to the 18th survey, it is found that the mean order of all the cost components has switched to 2.45 from 2.44 of the 17th survey, indicating a rise in cost of investment to a nominal extent compared to last year,' said the JETRO in its 18th Survey of Investment-Related Cost Composition in Major Cities and Regions in Asia.
JETRO found that the maximum corporate tax for non-listed companies in Bangladesh was 40 per cent, the highest among all the 30 countries that the survey covered.
Introducing the budget 2008-09, the government reduced the corporate tax to 37.5, which will help Bangladesh to achieve the competitive edge to some extent, JETRO said.
However, it said, Bangladesh is still holding the second highest position in terms of this particular cost component of investment among the Asian countries that are also welcoming foreign investment.
'To be more competitive, immediate attention should be given to the cost components that still remain less competitive, especially in container transportation, land price of industrial estate, initial internet connection fee, monthly basic internet connection fee, telephone installation fee, mobile phone subscription fee, corporate income tax etc.,' the JETRO report disclosed.
JETRO conducted the 18th survey during January this year and it was based on the data on 32 cost-components gathered from 30 countries through questionnaires using JETRO's overseas offices in their respective cities.
The cost-components include Wages, Plot of Industrial Estate, Office Space, Telecommunication-both land phone and mobile phone, Internet connectivity, Utilities covering electricity, water and gas, container transportation, energy covering gasoline and diesel and tax covering personal, corporate, VAT, interest remitted to Japan, dividend remitted to Japan etc.
The cost in Bangladesh has been the cheapest against eight components, which are monthly basic charge for telephone, monthly basic charge for business and general use of water, monthly basic charge for business and general use of gas, monthly basic and per cubic meter (cu.m) charge for business and general use of gas and tax on interest remitted to Japan.
'Of these eight components, investment in Bangladesh proved to be the lowest exclusively, only in two components which are monthly telephone charge and per cu.m gas charge for general use. However, other countries like Bangladesh are equally lowest in case of the remaining six cost components,' JETRO said in the survey report.
A severe competition leading to frequent downward adjustment of call charge and monthly basic charge by various mobile operators of the country prompted former BTTB (which has become Bangladesh Telecom Company Limited and made its debut on July 1 this year) to reduce the monthly basic charge of telephone.
The reduction of basic monthly charge by the BTTB and the recent attempt for decreasing corporate tax are positive developments in Bangladesh since a maximum number of 32 cost-components mentioned in the survey are controlled and managed by government agencies. For coveted FDI, Bangladesh should monitor closely the change of cost-components in other countries and has to carry on its endeavour to realise a greater competitive edge by adjusting the cost, it suggested.
Particularly, the monthly basic payment for Broadband Internet Service in Bangladesh is continuously holding the highest position among all the participating countries in this survey.
Nevertheless, the BTTB reduced the Internet tariff charge up to 40 per cent and later the Internet service providers in Bangladesh reduced the average Internet access charge for home users by 25 per cent, which is significant but not sufficient for Bangladesh to be competitive, and it is highly expected that the authority concerned would take further measures to reduce the cost of Internet service in coming days.
Regarding the container transportation, the survey has covered the routes from 30 Asian cities (Chittagong Port in the case of Bangladesh) to the ports of Yokohama, JAPAN and Los Angeles, USA. The cost of container transportation is a big element affecting the export competitiveness of a commodity. Bangladesh is the most expensive country in case of container transportation from Chittagong Port to Yokohama Port.
According to the budget of 2008-09, the report said, the government has decided to continue the tax holiday scheme for newly set-up industries till June 30, 2011 for 5 and 7 years depending on the location. The extension of tax holiday facility can be termed significant and will encourage more investment in Bangladesh.
'Continuation of such a good investor-friendly-incentive will make Bangladesh more competitive,' the report observed.
In addition to the cost components considered in the survey it is also necessary for Bangladesh to address and eliminate the impediments that are responsible for the high cost of investment.
The report said hidden costs and loopholes in policies are eating up Bangladesh's FDI (foreign direct investment) future.
Like last year, again through the 18th survey it is found that for attracting the coveted FDI, Bangladesh needs to take necessary measures to listen to the existing investors and assess their level of satisfaction.
'Existing Japanese investors feel that hidden costs still remain one of the key elements for escalation of cost of investment, which is making Bangladesh less attractive to both existing and prospective Japanese investors,' it added.
Hidden cost, which is non-figurative but exists in matters related to procedure, policy, law and infrastructure, has high correlation with the cost of doing business and cost of investment in a country.
Of these matters, comprehensive one-stop service (which many of the 30 countries' investment promotion agencies have been successfully operating), poor law and order situation, delay in settlement of letter of credit (L/C) payment, sudden changes in government policies, inadequate infrastructure facilities (power, water and gas), unethical business practices, delay in paper processing and political instabilities need urgent attention and continuous monitoring from the government of Bangladesh to reduce the hidden cost.
The government's policies should be more crystal clear in case of attracting more foreign investment. If the interpretation of the policies contradicts the practice in reality, there is a high probability to lose prospective investors.
Sudden changes in government policies and its frequent practice have been signaling a non-friendly investment situation for both existing and prospective investors. For instance, according to the government's recent move, the Duty-Free Shop Facility for the companies in operation, the facilities of duty-free import of vehicles for new investors and tax exemption facilities for expatriates in all EPZs of the country have been withdrawn from July 1, 2008.
Seemingly, the policy makers may observe the withdrawal of these facilities as very minor one but the existing Japanese investors will be considering it as a bad practice and breach of contract, the report added.
Besides, the sudden withdrawal can be interpreted as a negative message to the prospective investors that may refrain them from investing in Bangladesh, no matter how attractively Bangladesh is presented in Japan among the Japanese investors by the Board of Investment (BOI), Bangladesh Export Processing Zones Authority (BEPZA) or the ministry officials from Bangladesh.
In order to increase its competitive edge compared to other countries, Bangladesh should continue its effort to reduce its cost and also take immediate measures to eliminate the hidden cost on a priority basis.
JETRO, a non-profit organisation under the Ministry of Economy, Trade and Industry of the government of Japan, has been working to promote mutual trade and investment between Japan and the rest of the world.
At present, JETRO has 73 overseas offices including that in Bangladesh.
The 18th survey covered 30 countries, including Bangladesh, China, Vietnam, India, Malaysia, South Korea, Pakistan, the Philippines, Taiwan, Singapore, Thailand, Sri Lanka, Japan, Indonesia and Myanmar.
