The political stability in Bangladesh has led to an interesting boom in the economy of the country. In recent years, Bangladesh has seen an unprecedented increase in foreign investment with development of infrastructure, communication and connectivity. The Government has given incentives to the foreign investors by creating EPZs and SEZs, by providing tax benefits and by taking the initiative of simplifying the process of doing business in Bangladesh. As a result, Bangladesh has become a low-middle income country as per the World Bank, pushing hard to become a higher Middle Income Country by 2021 and according to the IMF, the Bangladeshi economy is projected to grow from $180 billion to $322 billion by 2021. In FY 2016-17, Bangladesh Investment Development Authority has received registration of $23.25 billion for investment from domestic, foreign and joint venture sources, 66% more than previous year. The national foreign reserve has increased more than five times in last 10 years from 6.14 billion in 2007-08 to 32.21 billion in March 2017 and 33 billion in August 2017.
However, despite these rapid growths, until very recently, Bangladesh followed a conservative approach towards a free market policy by maintaining absolute restrictions on overseas investment by Bangladeshi ventures. The restrictive approach was governed by the Foreign Exchange Regulation Act 1947, which, even after its 2015 amendments, was contrary with the notion of a Free Market Policy as it stipulated for a case to case basis discretion based permission method, which unfortunately the Regulatory Authority, the Bangladesh Bank, was unwilling to exercise in favour of the investors looking for opportunities abroad.
Due to lack of policy decision and legislative framework, the significant increase of the FOREX Reserve produced no benefit as there was no real usage of the reserves and in fact it increased the risk of creating inflation. Also, the restrictive approach resulted in increased money laundering as deposits from Bangladeshi nationals in Swiss banks increased by 19% in 2016 from 2015.
This unhappy condition warranted immediate reform in Foreign Exchange Regulation, with particular focus on provisions for liberalizing overseas investment. The local business entities demanded a national policy to regulate overseas investment with improved flexibility. They argued that such investment, if properly regulated, will benefit the economy further. However, the Central Bank and Policy makers were apprehensive of such general and open policy, arguing that the increased FOREX reserve and the growing economic strength should be channeled for development projects domestically, rather than opening it up for overseas investment. They advocated for maintaining the ‘case by case method’ to keep tight control over overseas investment and to develop new policy that encourages local entities to invest in the country first. Their concern was that the percentage of private investment sector in the GDP has been stagnant at 21-22% for nearly seven years and removing restrictions on overseas investments that will result in further decreases or at least a prolonged stagnant state of the low contribution in the GDP by private investment sector.
To resolve the dispute, eventually in March 14 2017 the Prime Minister’s Office took the initiative of forming an inter-ministerial committee to explore the possibility of forming a balanced national policy that encourages domestic investment without putting too many restrictions on overseas investments while controlling illicit capital flight.
The early signs of positive movement came in mid-May 2017 when the Finance Minister in the Cabinet Committee of Economic Affairs agreed in principal that local entities would be allowed to bring their capital abroad for investment and the Commerce Minister confirmed that a national policy would soon be formulated for local investors to invest overseas. In fact, during this Cabinet Committee Meeting, although proposals from three business entities for $37 million overseas investment were deferred, the proposals like previous years were not rejected and it was agreed that the proposals will be reconsidered once further specific details of these proposals are resubmitted.
Between May 2017 and July 2017, pursuant to the Government’s willingness to open the overseas investment option with a new regulatory framework, Bangladesh Bank has approved the proposals of seven local firms to bring their capital aboard for investment, subject to set of conditions, including bringing back the interest money.
In the pharmaceutical Industry, Square Pharmaceuticals was permitted to invest $8 million in Kenya, ACI Pharmaceuticals was permitted to pay $3 million for medicine patents and Incepta Pharmaceuticals was permitted to invest £10,000 in the UK.
Permission was granted to DBL Group for investing $8 million to build an RMG factory in Ethiopia, Spectrum Engineering for investing $7,500 in Singapore, Service Engineering for investing $7,500, MJL for investing $547,000 in a joint venture in Myanmar, and BSRM for investing $4.6 million to build a factory in Kenya.
Furthermore, proposals for Akij Group’s $1.61 billion bid to buy two Malaysian companies, Nitol-Niloy Group’s $560 million to set up a bank in Gambia and Ha-Meem Group’s $840 million to build an RMG factory in Haiti as referred above will be reconsidered once the concern ministry receives further specifications.
However, exercising its discretion, the central bank rejected Nitol-Niloy Group’s proposal to buy cultivable land in Uganda, Deshbondhu Group’s proposal to build a sugar factory abroad, Summit Group’s proposal to build a shipyard factory in Singapore, Pran Group’s proposal to launch a company in India and Meghna Group’s proposal to set up industry in Cambodia.
It seems like the new policy direction Bangladesh is taking will not immediately be a complete open trade policy, but it will formulate regulation to improve the pre-existing case by case basis method with clearer guidelines so that interested investors can explore the option of investing abroad. Although not perfect, this is still a significant improvement from the absolute restriction regime and a positive step forward towards an open market policy. Investors are eagerly waiting for the new national policy that will take the economy of Bangladesh to a new height.