Foreign private investment: Prospects and problems

Abu Sayed Md Shaykhul Islam Bangladesh wants to eradicate poverty as soon possible and looks forward to become a mid-income country by 2021. For this purpose, the country gives emphasis on both local and foreign private investments. In reality, private investment is the engine of economic growth and foreign private investment is considered as a boon to every economy because it brings foreign currency and injects additional energy to the economy. It also brings new ideas, advanced technology, better management skill and developed marketing know-how which in turn creates employment opportunities. Bangladesh desperately needs private investments and as such, it has taken various welcome steps to create investment-friendly climate for both local and foreign private investments. There are also adequate laws to ensure legal protection to private investors including guarantee of fair and equitable treatment to foreign private investment. Besides, Bangladesh offers attractive incentives to foreign private investors to strengthen its domestic money market and stimulate economic activities. Foreign private capital flows into Bangladesh under three forms: foreign direct investment (FDI), portfolio investment and foreign currency loans (supplies credit or loan). In Bangladesh, there is a growing middle class and the society is largely homogenous which is very important for an emerging market. Though the official language is Bangla, English is widely used in education and business. The country was under British colony for about two hundred years and for this reason, the country has a good footing on English language. Bangladesh's geographical location is ideal for global trades and the country is considered the bridge between ASEAN and SAARC nations. Bangladesh gives top priority in manpower development and the largest sectoral budget allocation is for education. Highly educated professionals are available to run any business organisation. Skilled and semi-skilled male and female workers are doing jobs both at home and overseas and their acceptance and adaptability is highly acclaimed worldwide. All business sectors (free sectors) in Bangladesh other than a few reserved sectors are open for investment by foreign investors. Foreign investors are free to do any business in Bangladesh in the free sectors directly or in collaboration with local investors. However, all foreign investments need to be registered in a prescribed manner with the concerned body, the Board of investment (BoI) before starting any business. BoI also provides necessary services with regard to issuing of work permits for expatriate employees and approval for payment of royalty, technical, know-how and technical assistance fees. Foreign investment in the 'thrust sectors', particularly in small industrial units, are given priority in the allocation of industrial plots in Bangladesh Small & cottage Industries Corporation (BSCIC) industrial Estates. Foreign companies and firms operating in Bangladesh do not require prior approval of the Bangladesh Bank for remittance of profit to their parent organisations and obtaining of interest-free short-term foreign currency loans from their parent bodies or any other sources. Bangladeshi currency (taka) is fully convertible for payment of trade-related transactions. Foreign companies do not require permission for importing raw and packing materials and spare parts unless these are included in the control list. Fully foreign-owned or joint ventures are not obliged to sell their shares through public issues, irrespective of their paid-up capital. Full repatriation of capital invested from foreign source is also allowed. Similarly, profits and dividends accruing to foreign investments are allowed to transfer in full. The capital market of Bangladesh is also open for foreign investors for portfolio investments. There is no limitation to equity participation i.e., 100 per cent foreign equity is allowed in Bangladesh. Legal protection to foreign investment in Bangladesh against nationalisation and expropriation has been guaranteed by the Foreign Private Investment (Promotion and Protection) Act, 1980. The Act also ensures repatriation of proceeds from sale of shares and profit and allows transfer of capital in the event of liquidation of the business. Adequate protection is also provided for intellectual property rights, such as patents, designs, trademarks and copyright. Investment guarantee and dispute settlements are guided by international arrangements and provisions. Investments in Bangladesh by non-resident Bangladeshis are also treated at par with foreign direct investment. Residents who bring in their earnings from abroad through normal banking channel and invest in new industries, stocks, shares or government bonds or use such funds for purchasing industries sold in auction by the state owned financial institutions are exempted from payment of income tax on such investments. The dividends and/or retained earning re-invested by repatriation are treated as new investments. Non-resident Bangladeshis can maintain foreign currency deposit in the Non-resident Foreign Currency Deposit (NFCD) account. No prior approval of the Central Bank (Bangladesh Bank) is required to remit dividend income and capital gains of foregin investors on shares and securities purchased though stock exchanges after withholding the income taxes, if any. Salaries, savings, retirement benefits of personal assets of the foreign experts employed in approved industries can be remitted without Bangladesh Bank's approval. For this purpose, the salary benefits must be clearly stated in employment contract approved by the BoI. Fifty per cent of the salary and the entire amount of leave salary as well as savings and admissible pension benefits may be remitted through authorised dealer (AD). Royalty, technical know-how and technical assistance fees may be remitted though AD without approval of Bangladesh Bank, if they conform to BoI guidelines. However, in spite of tremendous business potential and lucrative incentives Bangladesh is not getting the desired amount of foreign private investments. This is mainly due to poor governance and lack of trust and confidence in our business environment. Business-friendly fiscal policies have been made in line with the need of the day; but corruption and lengthy regulatory procedures have made things difficult. So, it is clear that only liberal economic policy and fiscal incentives cannot work without good governance. Bangladesh is now passing through a critical stage in a bid to augment the entrepreneurship development to expand the base of private investment. The business growth, despite the odds, is inspiring and exciting and prospects for further growth are immense. We can use our human resources, cheap labour and enterprising spirit. But this spirit of entrepreneurship has to combat bottlenecks, a good deal of which emerges from unfriendly and lacklustre bureaucracy. In Bangladesh, the general tendency of the bureaucrats are to treat the private entrepreneurs as loan and tax defaulters. But, in reality, the government corporations and other semi-government bodies are worst defaulters in their loan repayment as well as payment of telephone, electricity and other utility bills. Our long lingering economic ailments will not be cured, if the bureaucrats do not change their attitude. Political environment and law and order situation is closely linked with the security of life and properly of the people and the entrepreneurs. A favourable environment for doing business in the country cannot be created if the foreign investors do not feel that their lives and properties are well protected. Though the country is running by parliamentary form of government, in many occasions, both the treasury and the opposition bench do not play due role to uphold the image of the country and their activities often make parliament a non-functioning one. This attitude gives a message to the foreign investors that the country's leadership lacks political will and commitment to speed up the reforms programme. It is commonly said that labour in Bangladesh is cheap. But the labour cost is related to productivity where we are far behind. We should give more emphasis on human resources development to increase productivity. We shall have to make Bangladesh a real low-cost and attractive business destination. Bangladesh has liberalised its business and industrial policies to stimulate the national economy by opening up many areas of businesses and giving adequate legal protection to foreign investments. A number of fiscal incentives have been declared. World Bank's Report, 2010 has also listed Bangladesh as one of the most convenient destinations for foreign direct investment (FDI). But things are not working properly. The government, the business community and the major political parties of the country should sincerely work together to ensure good governance. The writer is former vice-president of the Institute of Cost and Management Accountants of Bangladesh. [email protected]