 [ Editorial ] 2011-10-02 |
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Prerequisites for attracting foreign investment |
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Shahiduzzaman Khan:
Development of infrastructures and smooth supply of gas and electricity are prerequisites for attracting both foreign and local investments. Also there is a need for political stability and sound law and order to ensure sustainable investment. Yet, Bangladesh is suffering from chronic deficiency in infrastructure and power and gas supply shortage problems.
The country is strategically located as a potential hub of regional trade. The government has undertaken some projects to develop roads, bridges, and ports for facilitating transit routes for regional trade through Bangladesh. Regional energy grid is being developed for enhancing energy security. But there is no substantial improvement in the energy supply situation.
Potential sectors for foreign investment in Bangladesh include conventional power generation and renewable energy, infrastructure including roads, highways and bridges, ICT and business services, light engineering, pharmaceuticals, ceramics, garment and textile, leather and leather goods, service exports, tourism, hotels, and tertiary care hospitals. Bangladesh offers excellent opportunities and facilities for foreign investment. No prior permission is required for investment in industrial sector (except for four reserve sectors including defense equipment, reserve forestry, atomic energy, currency printing and minting). Investment proposals need only to be registered with the Board of Investment (BOI). There is no ceiling on percentage of foreign ownership; both wholly foreign owned and joint ventures are permissible.
Public-private partnership (PPP) in infrastructure investments offers a new window of opportunity for foreign investors. Fully serviced existing export processing zones and special economic zones are being expanded and developed for export-manufacturing with duty free import of inputs. The Finance Minister AMA Muhith recently said the PPP initiatives are needed to attract more investment. Unless investment is raised in Bangladesh from the current 25 per cent of the Gross Domestic Product (GDP), it would be difficult to reach a level of 8.0 to 10 per cent growth (GDP). To achieve the targeted growth rate, there is a need to create assets where the PPP models can play an important role such as in developing land, river and seaports, as transport still remains a bottleneck in Bangladesh.
The government should immediately go for expansion of the existing EPZs, as setting up new special economic zones would be time-consuming, which might divert the present attention of the foreign investors from the country. Both local and overseas entrepreneurs of the EPZs together have contributed almost 70 per cent to the national export in the last fiscal year. All domestic and foreign investment proposals, except those inside the EPZs and Bangladesh Small and Cottage Industries Corporation, are subject to being registered with the state-owned Board of Investment (BoI). In fact, registration of both local and foreign investment proposals rose are on the rise due to the country's low production costs, easy market access to different export destinations and other facilities in overseas trades. But, implementation of the proposed investment projects is being delayed because of a lack of power and gas connections.
The ever-swelling textiles and garments sector is becoming a lucrative investment segment for not only the domestic investors, but also foreign investors. The sector witnessed excellent growth in export and investment as factory owners are either expanding their capacities or setting up new units to meet rising demand from local and international buyers. Except for some foreign direct investment (FDI) or joint venture initiatives, the local investors are mainly running the textile sector now. Many foreign investors of late have expressed willingness to invest in Bangladesh because of the zero-duty facility the country enjoys from European Union (EU) under the generalised system of preferences for relaxed rules of origin. Other competing countries like China have already shifted their focus to high-end products. As a result, Bangladesh's opportunity in basic apparel has widened internationally. So, experts feel there is no need for any investment from outside in the basic segment and, if it is needed, the government can allow it in the specialised segment.
In a recent meeting, Commerce Minister Faruk Khan said the government will not allow any foreign investment in the garments sector because the domestic manufacturers are producing high-quality items. But, the government may consider the foreign investment proposals for specialised garments, as the country has not yet made a mark in producing high-end products. There are many small and medium scale garment factories in Bangladesh that have little capacity, and they are just staying afloat in competition. If foreign investors make an entry with heavy investment and machinery, these factories will face problems. Bangladesh needs investment from outside in the backward linkage textiles industry to supply fabric to the woven and knitwear divisions.
Also, Bangladesh needs large investments, especially in agriculture, industry and infrastructure sectors, for raising the per capita income and creating more jobs as the country is stepping ahead towards graduating into a mid-level economy shedding its LDC (least developed country) tag. While scenario for FDI flows during the past few years is not that much encouraging, many so-called investors are coming to Bangladesh with 'ill motive'. With little investment of their own, they are taking syndicated loans from banks and other financial institutions and doing flourishing business, but creating very few jobs for the local people while sending huge amounts of foreign currency to their native countries. Such business could not be termed as FDI.
Many foreign investors are closely monitoring country's law and order situation. Bangladesh's adoption of the national coal policy is also crucial to attracting FDI. More explorations of hydrocarbon, both in offshore and onshore blocks, are considered vital for meeting large energy demands of the country. Energy is a number one factor for FDI. Other problems that have restricted FDI potentials include excessive bureaucratic interference, alleged irregularities in processing papers, lack of commitment on the part of local investors, inordinate delays in selecting projects for feasibility studies, and frequent changes in policies on import duties for raw materials, machinery and equipment. Overlapping administrative procedures and absence of a transparent system of formalities often confuse not only investors proposing projects, but also staff and personnel assigned for discharging procedural responsibilities.
The country has an advantage in labour costs that can be converted into an exportable product, but the advantage has many difficulties. The factories in the country have to deal with constraints beyond their control, such as, power failures, poor communications or increased transaction costs and cumbersome procedures in customs in many government offices. Bangladesh certainly deserves greater global acknowledgement of her hard earned gains with relatively lower investment than other growing economies. With multifaceted growth strategies initiated by the government, it should not be too long before everybody sees Bangladesh poised and acknowledged as a deserving claimant for a slot in the elite club of Asian growth powerhouses.
szkhan@dhaka.com |
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