FDI rules putting off investors

Bangladesh is failing to attract the desired levels of foreign direct investment (FDI) due to the complicated entry procedures and weaknesses in regulatory framework, a UN report said yesterday.

The investment policy review of Bangladesh, prepared by United Nations Conference on Trade and Development (UNCTAD) with the help of the government, identified the issues that should be addressed if FDI is to play a larger role in the country’s development.

“So far, FDI attraction has been dismal even by the standards of least-developed countries (LDCs),” said the report.

Inward FDI volumes in relation to population and ratio to GDP, the report found, were consistently 80 percent less than the average for all LDCs and, on these metrics, 50 percent below the inflows to other populous low-income countries such as India and Indonesia.

The total FDI inflows to Bangladesh since 2006 of around $830 million a year are double those of the previous ten years, but have not risen as strongly as the inflows to comparable countries, according to the report.

“The regime for entry of FDI is not so open or clear and simple as many in the country believe,” Hans Baumgarten, a UNCTAD representative, said yesterday at a workshop on the study, co-organised by the UN body and the industries ministry.

FDI entry is affected by several laws and is further complicated by the implementation of industrial policy and licensing, he said.

The Foreign Private Investment Promotion and Protection Act of 1980 is the core law which enables the government to regulate FDI entry to the country — but its scope and coverage are too limited.

“The FDI entry policy is too decentralised — a single modern law is needed to consolidate it.”

Furthermore, Baumgarten thinks the Board of Investment (BoI) should move away from its roles as a gatekeeper (FDI certification) and a gateway (for fiscal incentives).

“BoI should instead focus on primary functions of investment promotion across all sectors and advocate of better administrative regulation of business.”

Congested roads, unreliable electricity, poor transport access for remote areas, lack of a deep sea port, the report found, were some of the serious bottlenecks to attracting more FDI.

Although the government is committed to boosting infrastructure through public investment and by introducing private investment through public-private partnerships, it has to be seen through.

In the electricity sector, the country has the enormous challenge of catching up on the existing chronic power shortages as well as catering for the rapid economic growth.

“Sustainability requires moving to commercial pricing of power and gas and abandoning the long-standing policy of energy self-sufficiency.”

An attractive standard business tax regime should be put in place and then complemented by targeted incentives for catalytic industries where justified on socioeconomic and strategic grounds, UNCTAD suggested.

Some specific features also need to be remedied, such as removing the multiple taxations of dividends as they pass between companies and establishing clear transfer pricing rules.

The complex and outdated laws that a new investor has to deal with for access to land has to be done away with.

The review also suggested improving public governance and judicial system to attract more FDI.

The country ranks “poorly” in the quality, fairness and timeliness of tax and regulatory processes and judicial enforcement of the rule of law.

“Client charters should be adopted and performance systematically monitored in all the key business regulatory agencies. These should include benchmarks such as response times.”

Wider adoption of e-platforms to administer business establishment and operations, the UN body said, would assist investors and provide tools to monitor performance.

Employment and residence of foreigners is governed by a long list of laws that dates back to 1946, and needs to be modernised.

The report recommended implementing a streamlined foreign worker approach similar to that of the United States’ H1-B visa scheme.

Although Bangladesh has intellectual property (IP) laws covering patent, copyright and trademarks protection, they are weakly enforced.

Despite its success in exporting garments, Bangladesh is little internationalised and exports are poorly diversified, said the report.

“As a nation it has yet to embrace a conviction that selling to the global economy is the surest way to provide better jobs for its population.”

Multinationals can help to provide world market access by including Bangladesh affiliates and local firms as part of their global value chains.

“In turn, Bangladesh can make best use of its competitive advantages by further reducing import duties, improving border clearance of exports and imports and by expanding its preferred access to markets.”

Meanwhile, Industries Minister Dilip Barua said the resilience showed by the country — as demonstrated by the consistent growth in GDP, export and remittance over the last few years — in the face of global slowdown, depicts a favourable investment climate.

“FDI is dramatically increasing in this age of globalisation. To keep pace with this trend, we should concentrate on reviewing the existing rules and regulations of Bangladesh related to investment.”

The report, Barua says, will be an effective tool for sustainable development and help bring about the reforms needed in line with the demands of time. (Source)

Dhaka bourse selects new CEO

The Dhaka Stock Exchange has selected Swapan Kumar Bala, a Dhaka University teacher, as its new chief executive officer.

The premier bourse selected him at a board meeting yesterday, officials said.

Bala, a professor at the Department of Accounting and Information Systems at the DU, will be appointed after the DSE gets a ‘no objection certificate’ from Bangladesh Securities and Exchange Commission.

The DSE will send a letter today to BSEC, seeking the clearance.

The top executive post of the bourse has remained vacant since January 9 this year, after the previous CEO Musharraf M Hussain resigned on personal grounds. (Source)

Bangladesh can borrow more from external sources: Citi

Bangladesh has significant scope to get non-concessional loans from external sources without undermining its debt sustainability or credit profile, said a leading global bank.

“We think Bangladesh has significant leeway to raise external commercial borrowings,” US-based Citibank said in its latest country analysis.

Bangladesh has promising growth prospects with significant scope to boost investment and export capacity, but the country needs to address significant infrastructure bottlenecks, the banking giant said recently.

It said the sovereign credit risk profile of Bangladesh is more analogous to that of Vietnam and less risky than Sri Lanka’s given much lower government and external debt ratios.

Although Bangladesh’s public finances face pressure due to lower tax and revenue base and large spending on subsidies, the Citi sees few fiscal sustainability risks at this juncture.

“The structure of Bangladesh’s government debt is favourable.”

Almost all of Bangladesh’s external debt, which is about 20 percent of GDP (gross domestic product), is owed by the government to development partners and is largely on concessionary terms with long maturities.

Thus, the government’s annual interest expense has been kept low at around 2.2 percent of GDP versus 5.3 percent for Sri Lanka, 4.5 percent for India, 4.3 percent for Pakistan, and 2.9 percent for the Philippines, Citi said.

“If the government can mobilise more revenues, cap subsidies and raise much-needed capital spending to boost growth, we think Bangladesh can run annual deficits at 3-4 percent of GDP for some time without undermining debt sustainability.”

The Citi-pinpointed drawbacks for the economy include vulnerabilities from a concentrated economic structure, very low revenue base and state sector institutional weaknesses.

Bangladesh has the lowest per capita income among countries the Citi covers and has a very narrow manufacturing or export base which is highly concentrated in garments, with exports to the EU also being very high.

Bangladesh’s manufacturing sector is relatively small at only 17.7 percent of GDP. Moreover, it is heavily skewed towards the garment industry, accounting for almost 79 percent of total exports in 2012.

The country also has very low revenue- and tax-to-GDP ratios that, along with still sizeable subsidy spending pressures, limit the fiscal space for much-needed social and infrastructure spending.

“Significant institutional weaknesses surrounding governance and business climate issues are also sources of risk, with these deficiencies undermining private investment and the management of state-owned enterprises and state-owned commercial banks.”

After three years of stable ratings of Ba3 and BB- from Moody’s and S&P, respectively, the government plans to issue inaugural sovereign bonds this year.

“However, it will probably need to seek further waivers on external commercial borrowing limits with the IMF, alongside other preparatory work, so we don’t think the issuance is imminent — delay risk is high,” it said.

The bank praised Bangladesh’s decent track record of prudent macro policy management, reversing the external imbalances the country temporarily faced in the fiscal year of 2010-11 and the first half of 2011-2012.

The analysis said Bangladesh has also made some recent inroads on structural reforms, most notably the new VAT law passed in 2012.

The Citi said boosting investment rates and export capacity are critical to raising growth.

Much-needed investment and associated productivity improvements that could boost exports are the critical growth drivers that could accelerate Bangladesh’s convergence towards (lower) “middle income status”, the Citi said.

Bangladesh’s investment rates remain at relatively low levels at about 25 percent of GDP despite its gross infrastructure deficiencies, with net foreign direct investment being particularly low (averaging about 0.9 percent of GDP in the last five years), likely due to weak business climate and infrastructure.

The Citi said Bangladesh’s main competitive advantage of low labour costs will likely persist for a while.

It also said to reach low middle income status faster, than the government’s target of 2021, Bangladesh will need to make further efforts to diversify its export base and increase its domestic value-addition.

“Thus, it will need to address its physical and human capital deficiencies,” it said.

The Citi said the recent cut in repo rate by 50 basis points and relaxing some of its monetary and credit growth targets is justified, given the country’s macroeconomic backdrop.

The central bank could ease even further if disinflation, as projected by the International Monetary Fund, persists, it said.

Tapping commercial funding to get around these conditionalities could undermine the quality of future spending.

Bangladesh significantly lags all countries in Asia in terms of infrastructure quality, as shown by the index published by the World Economic Forum.

Another significant gap is transport linkages — the country scores poorly internationally in terms of port infrastructure, roads, rail links and air transport. Bangladesh also needs to address appropriate infrastructure to meet climate change risks, including better water management systems, Citi said. (Source)

Survey soon to assess impact of remittances

The country’s centralised bureau for data collection will soon conduct a survey on remittance inflows to determine the impact of remittances on the economy.

The survey, the first of its kind, will identify the households receiving remittances and determine their socio-economic status, Bangladesh Bureau of Statistics (BBS) said yesterday.

Under the survey, the BBS will collect information on the socio-demographic traits of the family members receiving remittances, together with their income, consumption and saving patterns.

The bureau will also collect data on the number of migrant workers who returned home in the last one year, the reason for their return and the types of work they did abroad.

Apart from the survey, the BBS will start the economic census from March 31, to update the data on various sectors and sub-sectors of the economy and prepare directories of industrial and service sector establishments in rural and urban areas.

“We are taking massive preparation to conduct the economic census. It is very important to collect adequate quality data to facilitate future planning for the development of the country,” said Md Nojibur Rahman, secretary to statistics and informatics division.

He made the comment at a press briefing at the BBS headquarters, organised to unveil the upcoming data collection activities of the agency.

The economic census, done once a decade by the BBS, will be the third of its kind, with the last one being conducted in 2001.

“Many of the data have become old amid a steady growth of the economy and rising investments, particularly in the manufacturing and service sectors.”

The BBS will collect information from industrial and services sector establishments about their products or services, ownership structure and sales and accounting practices, by May 31.

The statistical agency will also collect information on the production methods of firms, their workforce and health and safety standards and so on, according to a BBS statement.

The BBS has also started a pilot survey to prepare a database of the people living in extreme poverty, to better target them during disbursement of benefits under social safety net schemes.

The agency also intends to collect data on rural credit, literacy, health, slums and floating people and on mothers’ and children’s nutrition, and conduct an assessment survey to measure the productivity of different crops. (Source)

Army to act in time, Khaleda warns govt

The Bangladesh Nationalist Party chairperson, Khaleda Zia, on Sunday said the army would not sit back and watch but would ‘play its role in time’ when people were being killed ‘indiscriminately’ by the government.

She asked the people to

get prepared for a ‘march towards Dhaka’ if necessary to oust the ‘oppressive, killer, autocratic and corrupt’ government.

Khaleda addressing public meetings in Bogra and Joypurhat said that the next programmes of the ‘oust-government’ movement would be announced today.

The public meetings were organised in protest against those killed in police firing in the recent violence over the death  sentence handed down to Jamaat-e-Islami leader Delwar Hossain Sayedee by an international crimes tribunal for the war crimes he had committed in 1971.

Addressing a wayside meeting at Matidali Biman crossing at Bogra, Khaleda thanked the ‘men and women of Bogra’ for taking to the streets against the government ‘atrocities’ in the first week of March.

She said army was deployed but they did not act against the people and thanked the army for it.

‘Army has a responsibility to the country. They would not sit back and watch the killing of people. The army will play their role in time,’ Khaleda told a rally at Matidali.

She said Bangladesh army personnel were deployed as peacekeepers by the United Nations in different countries.

The BNP chairperson said people at home and abroad would become critical when they would see the army taking part in UN peacekeeping mission had no peace in their own country.

She said it was a matter to think about. Khaleda said BNP and its allies had waged a movement for an election-time non-party neutral government but now they had started an ‘oust-government’ campaign after the ‘killing of people like birds’ by the government.

‘This government has no right to stay in power,’ she said adding that a ‘strong’ movement would be built up to ‘dislodge’ the government.

She urged the people to join the next course of action she would announce today.

Khaleda urged the people not to shed any more tears and instead build up a ‘strong’ resistance against the government. ‘If necessary the whole country would be immobilised,’ she warned.

Addressing another public meeting at Shalaipur High School ground at Panchbibi in Joypurhat, Khaleda said the days of the government was numbered. ‘A little more push will bring down this government and it is now a matter of time.’

Khaleda threatened to create a situation that would force the government to quit power.

She urged the people to march to Dhaka again, if necessary like her party’s ‘Dhaka Chalo’ programme in March last year.

‘This time you will return to your respective districts after pulling down the government,’ she told the gathering at Panchbibi.

She urged the people to get prepared for the next programme to ‘free’ the country from the ‘clutches of autocratic and killer government’.

Khaleda warned the government of dire consequences if it tried to foil the opposition’s programmes.

She also asked the police not to kill any more on people saying that the government was losing the ground beneath its feet.

Referring to the recent killings in police firing, the opposition leader said it seemed the people of another country were killing the people of Bangladesh.

She said the way killings were taking place reminded one of the killings committed by the Pakistani occupation forces. ‘There is no difference between the Awami League and the Pakistani forces.’

Khaleda said more than 170 people had been killed in 15 days. She claimed that internationally the killings were described as ‘genocide’.

Referring to the interviews of the son of the former BDR chief Major General Shakil Ahmed, who was slain in the February 2009 Pilkhana mutiny, she claimed that the incumbent prime minister and her nephew Sheikh Fazle Noor Taposh had advance information of the massacre at the BDR headquarters.

Khaleda said the prime minister would have to answer for the killing of 57 army officers at Pilkhana.

The BNP chairperson distributed money among the families of those killed recently in ‘police firing’ at Matidali, Panchbibi and Shajahanpur.

BNP leaders, including Moudud Ahmed, Jamiruddin Sircar, Abdul Moyeen Khan, Moazzem Hossain Alal and Jamaat-e-Islami leaders, among others, addressed the meetings.

Bogra BNP president Saiful Islam presided over the Matidali rally while Joypurhat district BNP president Majhar Ali Prodhan presided over the Pachbibi meeting.

The BNP chairperson also visited a temple damaged by miscreants at Sonarai union in Gabtoli upazila and also met the families of those killed at Rameshpur union in Gabtoli. (Source)