Tax issues, registration process, investment climate, lack of adequate logistics and required regulatory reforms are some of the key challenges to FDI attraction
US and Japanese companies are interested in investing in Bangladesh, but some issues must be resolved in order to attract more Foreign Direct Investment (FDI).
Speakers at a webinar, titled "Implications of Covid-19 on FDI Inflow to Bangladesh: Challenges and Way Forward," think that tax issues, registration process, investment climate, lack of adequate logistics and required regulatory reforms are some of the challenges to attracting FDI.
Salman Fazlur Rahman, Private Industry and Investment Adviser to the prime minister, joined the webinar as chief guest, while Executive Chairman of Bangladesh Export Zones Authority (BEZA) Paban Chowdhury attended as the special guest.
Ito Naoki, Ambassador of Japan to Bangladesh, joined the webinar as the guest of honour.
The Chairman of Policy Exchange, Dr M Masrur Reaz, presented the keynote paper while Dhaka Chamber of Commerce & Industry (DCCI) President Shams Mahmud moderated the programme, held on Saturday.
Addressing the event, Ito Naoki said, "Japan is interested in investing in Bangladesh. Japanese FDI to Asia was $57 billion in 2019, but Bangladesh's share was just 0.09 percent.
"Under the regional connectivity and the Big B initiative, Japan's collaboration will continue. Simplification of taxation, customs clearance and foreign exchange reforms are the critical issues that need to be resolved to woo more FDI."
He added that once the existing companies feel a convenient business environment, it will lead to further investments in existing ventures, as well as new investments. "The Araihazar Economic Zone in Bangladesh – established by Japan – will be the best in Asia," Ito Naoki said.
Yuji Ando, representative of Japan External Trade Organization (JETRO) and president of Japan-Bangladesh Chamber of Commerce and Industry (JBCCI), said, "JETRO is facilitating investment from Japan. At present, 310 Japanese companies are in Bangladesh and the quantity is increasing.
"Japanese FDI has decreased to 33 percent from January-June this year. Tax issues, registration process, investment climate, lack of adequate logistics and required regulatory reforms are some of the challenges to FDI attraction."
He continued, "Once the business climate is improved, the cost of doing business will come down. Motorcycle manufacturing is a potential sector for Bangladesh.
"At present, the country manufactures five lakh units per year, but I believe that Bangladesh has the capacity to produce 1 million motorcycles per year. However, the registration fee of motorcycles is too high."
JoAnne Wagner, deputy chief of Mission at the US Embassy in Dhaka, said, "In Bangladesh, there are US investments in the gas, power and energy sector. But due to Covid 19, the digital economy has opened up a new opportunity to be explored.
"US companies are still keen to invest in Bangladesh."
Terming the agriculture and bio-technology sector a good opportunity where the US and Bangladesh can work together, she added that ICT and outsourcing, tourism, agribusiness, food processing, cold chain logistics, light engineering, pharmaceuticals, vehicle assembly and healthcare are some of the potential sectors in Bangladesh.
Wagner also suggested utilising the Bangladeshi diaspora in the USA and at the same time emphasised women's empowerment and encouraging women entrepreneurship.
Speaking at the webinar, Salman Fazlur Rahman said, "The reduction of the tax for investors will ease them into coming in, but on the other hand, our tax to GDP ratio is the lowest in this region. We need to widen our tax net to ease the burden on existing taxpayers.
"The government is working on policy reforms and this initiative will attract more FDI. The realisation has come into almost all the top levels of the government that we need to change the mindset in order to reform. Now, this mindset needs to slide down to the field officer level, which will play a role in implementation level."
The Bangladesh Investment Development Authority (BIDA) has achieved tremendous progress in the One-Stop Service, and automation will indeed ensure transparency and curb corruption. The government is working hard to make improvements to the ease of doing business index, and has set a target to come down to double digit by the next year, Salman Fazlur Rahman added.
"We will reform the bankruptcy law and Companies Act soon. The tax regime will also be re-designed similar to that in other countries soon," he pointed out.
Meanwhile, BEZA's Executive Chairman Paban Chowdhury said, "Foreign investors, as well as joint ventures in the agro-processing food sector in the economic zones (EZs) will get a 20 percent cash incentive.
"We are discussing bond license with the National Board of Revenue (NBR), and hopefully its tenure may be extended for at least 3 years instead of just 1 year. For better regulatory reforms, BEZA, BEPZA, BIDA and High-tech park authorities should be empowered more."
Reiterating the need for policy reforms and increasing facilities at ports, Paban said, "Land price in EZs in Bangladesh is one-fourth of Vietnam. But signing free trade agreements (FTAs) is important to get greater market access.
"Moreover, we need more ports and we need to invest more in ports, including having a Private Port Policy. Lastly, a change in mindset will change the investment scene."
Dr M Masrur Reaz, chairman of Policy Exchange, in his keynote presentation said, "According to UNCTAD, global FDI will plunge 40 percent in 2020 and another 5 percent to 10 percent will drop in 2021.
"Global FDI will fall short of the $1 trillion benchmark for the first time since 2005. Moreover, Asia's developing countries may face lower investment flows of up to 45 percent. Bangladesh needs to improve in a few competitive areas, such as innovation, infrastructure, goods market efficiency, technological readiness and business sophistication."
He added in his keynote speech that the country has a $350 billion investment gap in infrastructure, and the private investment to GDP ratio should be 26.6 percent.
Dr M Masrur Reaz continued, "However, Bangladesh has been maintaining impressive economic performance and high potentials to get better FDI inflow. Bangladesh has much strength for foreign investors to leverage, such as high growth rate, sound macroeconomic management, demographic dividend, liberal policies, strategic geographic location, affordable and flexible labour market and preferential market access.
He said that for more FDI to be injected into the country, some of the critical areas to be focused on are compliance, skilled labour force, easy cross-border movement of goods, coherence between trade and investment policies, facilitation of investment establishments, domestic and FDI linkage.
To improve the investment climate, he suggested policy actions and reforms, such as access to finance, regulatory reforms, a faster pace of mega infrastructure development, simplification of the tax regime, developing FDI policy and export diversification.
DCCI President Shams Mahmud said, "The 7th five-year plan targeted $9.6 billion FDI inflow annually by FY2020, but we remained behind the target. The FDI to GDP ratio in Bangladesh is 1.2 percent less than in India, Sri Lanka, Vietnam and Cambodia.
"Out of total FDI stock, the country received the highest $3.8 billion FDI in the gas and petroleum sector, where the USA is the largest investor with $3.60 billion, followed by the UK, South Korea, the Netherlands, China and Japan."
He continued, "As per the World Investment Report 2020, the global FDI flow is projected to decrease by 40 percent in 2020 to $1 trillion from USD1.54 trillion in 2019 due to the Covid-19.
"Because of the pandemic, developing economies like Bangladesh are expected to witness a sharp fall in FDI as well."
In the post-pandemic state, to attract FDI inflow, Mahmud suggested strengthening local backward linkage, adopting timely policy reforms and inter-agency coordination.
To harness investment relocation and export opportunities that have opened up due to the pandemic, improvement of investment ecosystem, faster completion of mega infrastructure projects and public-private fraternity are needed.
He also invited US and Japanese investors to invest in conventional manufacturing, service sectors and diverse infrastructure works.
Ruhul Alam Al Mahbub, managing director of Samsung-Fair Distribution Ltd; ASM Mainuddin Monem, Deputy Managing Director of Abdul Monem Ltd; Syed Ershad Ahmed, president of AmCham; Abul Kasem Khan, chairperson of BUILD and Asif Ibrahim, chairman of Chittagong Stock Exchange, spoke at the webinar on the post-pandemic state in relation to attracting FDI inflow.