vir B. Anwar A.S.M Sharif ul Alam Md.

Parvez Hossain Roll # 02 Roll # 45 Roll # 64

BBA 11th Batch

January 18, 2006 Mr. Neaz Ahmed Associate Professor Institute of Business
Administration University of Dhaka Subject: Letter of Transmittal Dear Sir, We are
glad to submit this report on the study of the environment of industrial sector of
Bangladesh. The report deals with several important aspects on environment. The
issues include the study of the current growth in manufacturing industry, the
trends and policies undertaken by the government. Current procedures are reviewed,
present flaws are identified and thereby recommendations are made. We thank you
for your sincere co-operation throughout the duration of the study. If you need
further clarification on any issues, please summon us any time at your
convenience. We, therefore, would like to request you to accept our report and
oblige thereby. Sincerely, ________________________________ Tanvir Bin Anwar Roll
# 02

________________________________ A.S.M Sharif ul Alam Roll # 45

________________________________ Md Parvez Hossain Roll # 64

ACKNOWLEDGMENT
For the preparation of the report, we are grateful to various individuals. We are
indebted to Mr. Harunur Rashid, Managing Director of Asian Group of industries,
Director of Bangladesh Chamber of Commerce. He has provided us with invaluable
information. The officials of Asian Textiles, Beximco and PHP glass factory
deserve our acknowledgement for supplying us with requisite information in their
limited time frame. Finally, we would like to express our gratitude to Mr. Neaz
Ahmed, Course Instructor, Business Environment, for providing us with such an
opportunity and sufficient help in preparing this report.
Table of Contents
INTRODUCTION .....................................................................
.................. 1 INDUSTRY SECTOR:
OVERVIEW........................................................................ 3
HISTORY...........................................................................
................ 3 CURRENT SITUATION OF
INDUSTRIALIZATION ....................................................... 6 DEMAND
FOR INVESTMENT FROM ABROAD IN INDUSTRIAL
SECTOR ................................... 9 INDUSTRIAL
POLICY ...........................................................................
......11 MAIN
OBJECTIVES .......................................................................
.........11 MAIN TARGETS OF THE INDUSTRIAL
POLICY .......................................................12 FINANCIAL
INCENTIVES TO
INDUSTRIES ............................................................12 IMPACT
OF GOVERNMENT’S INDUSTRIAL
POLICY ......................................................13 ENVIRONMENTAL
ISSUES AND
PROBLEMS..............................................................17 ECONOMIC
ENVIRONMENT ......................................................................
...17 LEGAL
ENVIRONMENT ......................................................................
.......18 POLITICAL
ENVIRONMENT ......................................................................
...18
CORRUPTION .......................................................................
..............19 SOCIAL AND CULTURAL
ENVIRONMENT .............................................................20 LESSER
ISSUES ...........................................................................
.........21
RECOMMENDATIONS ..................................................................
...............22 RECOMMENDATIONS FOR AGRO-BASED
INDUSTRY ..................................................22 RECOMMENDATIONS FOR
TEXTILE INDUSTRY .......................................................22
RECOMMENDATIONS FOR FROZEN
FOODS ..........................................................22 RECOMMENDATIONS
FOR ELECTRONICS SECTOR ...................................................23
RECOMMENDATIONS FOR LEATHER AND LEATHER
GOODS ..........................................23 OTHER
RECOMMENDATIONS ..................................................................
.....23
CONCLUSION .......................................................................
.................25
REFERENCES .......................................................................
.................26
APPENDIX .........................................................................
..................27 SECTOR-WISE INDUSTRY
OVERVIEW ...............................................................27
INTRODUCTION
BACKGROUND OF THE REPORT Industry is the backbone upon which the economy of any
country prevails. The growth of economy, the internal development of a nation
depends upon the development of industrial sector. The external environment of any
industry, mainly the political and legal along with social environments affect the
growth of industries greatly. The importance of Environment Analysis is therefore,
very high. This study is undertaken to discuss different aspects on the present
situation prevailing in our industrial sector, analyzing the impacts on business
and economy and recommend better measures to increase the efficiency by managing
the environments directly or indirectly affecting the growth of industry in
Bangladesh. This report is prepared as a fulfillment of partial requirement of
Business Environment course. It has been authorized by Professor Neaz Ahmed to
make a report on “Industrial Sector of Bangladesh”. OBJECTIVE General Objective
This study is a partial requirement of the course on Business Environment. The
general objective of the study is to develop a clear understanding about the
environmental issues in Bangladesh. Specific Objectives The specific objectives of
the study are:
§ To find out the current industrial scenario of Bangladesh. § To find out the
recent shake-ups and the trends in the growth of industrial

sector.

§ To analyze the traits, players and government influence existing in the § To

scrutinize the industrial policy of Bangladesh government. § To analyze the
external environment and the internal strengths and

industrial sector.

weaknesses of the policy. § To identify problems still prevailing in the

industrial sector.

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SCOPE This report primarily concerns the industrial sector, the government
policies and its implementation. By its very nature this report limits itself from
going into the very details of the various functional areas like marketing or
finance. Here the concern is mainly the industrial sector and the environment
affecting it. With this view in mind, this report focuses on the issues like what
is the nature and current scenario of the industrial sector, impact of external
environment – mainly political, legal and social, advantages and disadvantages of
the current policy. METHODOLOGY Information for this report is collected from both
primary and secondary sources. The primary sources of this report are the
different company personnel’s. In this regard face-to-face interview method was
used. The secondary sources of this report are annual reports of the companies,
foreign journal, books and Internet. LIMITATIONS The main limitation of the study
is the time constraint. The time boundary was not enough to conduct this type of
important study. As a result, direct interviews of different persons from
different industries were not possible. For their views, we had to depend on the
national newspapers, internet and some well designated persons in industries like
PHP Float glass, Asian Textiles, Beximco Pharmaceuticals and one of the Directors
of Bangladesh Chamber of Commerce.

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INDUSTRY SECTOR: OVERVIEW
Industry, in a general sense, refers to the production of goods and services in an
economy. The term industry also refers to a group of enterprises (private
businesses or government-operated corporations) that produce a specific type of
good or service—for example, the beverage industry, the gold industry, or the
music industry. Some industries produce physical goods, such as lumber, steel, or
textiles. Other industries—such as the airline, railroad, and trucking industries—
provide services by transporting people or products from one place to another.
Still other industries, such as the banking and restaurant industries, provide
services such as lending money and serving food, respectively. Industry can be
divided in three major parts. These are 1. Primary Industry: This includes
fishery, pottery, agro based industries etc 2. Secondary industry: This includes
textiles industry, glass factories, electronic and light industry etc. 3. Tertiary
industry: This includes services like banking industries, restaurants etc. Our
study revolves around the manufacturing and tangible product based industry. This
mainly comprises the primary and secondary industrial sector of Bangladesh.
HISTORY Bangladesh had been a center of trade and commerce, arts and crafts from
ancient times. The public sector started in 1972 with 72 jute mills, 44 textile
mills, 15 sugar mills, 2 fertilizer factories, one steel mill, one diesel engine
unit and one shipbuilding yard. Mills and factories in the public sector however,
soon became losing concerns largely because of mismanagement and leakage of
resources. The government had to quickly review its policy of dominating the
public sector. Although it continued to exercise control over industries, it soon
raised the allowable ceilings of private investment. However, this did not bring
much improvement. After a series of adjustments and temporary changes in state
policy, the government finally adopted a new industrial policy in 1982, following
which 1,076 state-owned enterprises were handed over to private owners.
Unfortunately, denationalization created a new problem of industries. They started
getting sick because of failures of the inexperienced owners. Many of them were
more interested in getting ready cash from selling of the cheaply acquired
property than in sustaining and developing the industries. The result was that
industrial sickness affected 50% of industries in food manufacturing, 70% of them
in textile, 100% in jute, 60% in paper and paper board, 90% in leather and rubber
products, 50% in chemicals and pharmaceuticals, 65% in glass and ceramics, and 80%
in engineering industries.

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The largest group of industries in Bangladesh falls in the category of small and
cottage industries and their number in 1984 was 932,200 units, of which 20.7% were
in handlooms, 15.4% in bamboo and cane work, 8.1% in carpentry, 6.1% in products
from jute and cotton yarn, 3.4% in pottery, 0.3% in oil crushing, 3.2%
blacksmiths, 0.8% in bronze casting, and the rest in other types of crafts.
Weavers work in almost all parts of Bangladesh but their major concentration is in
areas like Narsingdi, Baburhat, Homna, Bancharampur, Bajitpur, Tangail, Shahjadpur
and Jessore. The silk industry has flourished in Rajshahi and bholahat. Other
places earning reputation in cottage industries during the 1980s in Bangladesh
include Chapai nawabganj and Islampur (bronze casting), Sylhet (mat and cane
furniture), Comilla (pottery and bamboo work), Cox's bazar (cigar), Barisal
(choir) and Rangpur (checkered carpet). In 1984, Bangladesh had 58 textile mills
with 6,000 looms and 1,025,000 spindles. The annual production of the mills was
106.2 million pounds of yarn and 63 million meters of cloth. Textile is a public
sector dominated industry in Bangladesh and like most other sectors; textile also
incurred losses, which amounted to Tk 353.4 million in 1984. Problems in the
sector include poor management as well as difficulties in developing skilled
workers and shortage in supply of raw material and power. Bangladesh had 70 jute
mills with 23,700 spindles in 1984. These employed 168,000 workers and 27,000
other staff and used 545,000 tons of raw jute. But their production was less than
the 561,000-tons figure of 1969, when the country had 55 jute mills with 21,508
spindles. The three major centers of jute industry in Bangladesh are Dhaka,
Chittagong and Khulna. The jute industry in the country has been declining in the
face of competition from India and in an international situation, where jute goods
are being replaced by cheap and durable plastic products. Development of new
industries like sulphuric acid, chemicals, paper, caustic soda, glass, fertilizer,
ceramics, cement, steel and engineering in Bangladesh was slow in the period
before 1985. There were only two plants for production of sulphuric acid in the
country in 1985 and their total production was 5,995 MT, while the production of
this important ingredient for industries like soap, paper, cast iron and steel was
6,466 MT in 1970. Production of caustic soda in 1985 was 67.87 MT. The soda was
used almost entirely in paper mills. Because of availability of sand, salt and
limestone within Bangladesh, the country has a good prospect in developing its
glass industry. Dhaka and Chittagong are the two major centers for this industry.
The automatic glass factory at Kalurghat of Chittagong produced 12.9 million sq ft
of sheet glass in 1985. The fertilizer industry in the country uses natural gas as
the main raw material. The fertilizer factories produced a total of 808,660 MT in
1985. 741,463 MT was urea, 9,634 MT ammonium sulphate, and 57,563 MT triple super
phosphate. The three major factories were at Fenchuganj, Ghorasal and Ashuganj.
The total production of cement in the country in 1985 was 292,000 MT. The major
industries were at Chhatak and Chittagong. Pakshi of Pabna and Chandraghona of
Chittagong were the main locations for the paper industry in Bangladesh. The total
production of paper in 1985 was about 75,000 MT. In 1985, Khulna had a newsprint
mill with a production capacity of 55,000 MT and a hardboard mill that produced
1,621 sq meter of hardboard. -4-
Around this time Bangladesh also had some mills for production of particle boards
and partex. The country also achieved self-sufficiency in producing matches; major
centres of match production were Dhaka, Khulna, Khepupara, Chittagong, Sylhet,
Bogra and Rajshahi. The total production was 1.30 gross boxes in 1985. That year
Bangladesh had 8 sugar mills with a total annual production of 87,000 tons. The
sugar mill at Darshana (Ishwardi) produced sugar as well as alcohol, methylated
spirit and rectified spirit. The iron and steel mills in Bangladesh were mostly
under the Steel and Engineering Corporation and were concentrated in Chittagong
and Dhaka, although there were some steel and ironwork enterprises in Khulna,
Kushtia and Bogra. Industries marked by notable development in Bangladesh in the
mid-1980s include shipbuilding, automobiles (assembly), oil refinery, insulators
and sanitary wares, telephone equipment, electrical goods, televisions (assembly),
cigarette, and vegetable oil. The country achieved significant success in
developing garment industry in this decade. The government followed a strategy of
planned growth blended with 'free play' of market forces. The manufacturing sector
showed some growth in the 1990s. The share of the manufacturing sector in the
country's GDP rose to 11% in 1996. Investment in the sector was Tk 57.8 billion in
1997 as compared to Tk 22.5 billion in 1991. The share of the public sector in the
total investment in the country's industries fell from 37.03% in 1991 to 8.63% in
1997. The government continued to implement a privatization program to hand over
public sector enterprises to private owners. Simultaneously, the government
implemented a program of rehabilitating industries identified as sick because of
various reasons. Industries identified for rehabilitation under the program in
2000 included one cement factory, one paper mill, one newsprint mill, 6 cigarette
factories, 8 oil mills, 2 food processing units, 2 fish processing units, 2 cold
storages, one beverage producing unit, 3 chemical industry units, one glass
factory and 12 pharmaceutical units. The fifth Five-Year Plan for the period 1997-
2002 stipulated a total outlay of Tk 8.95 billion in industry including Tk 1.39
billion in the private sector. In 2000, the total employment in industries was
estimated at 0.6 million, of which the private sector employed 0.5 million.
Industrialization efforts of the government during the 1990s included investment
in balancing, modernization and reconstruction, creation of new industrial estates
and export processing zones, promotion of private investment, and attraction of
foreign direct investment. The policy changes have been in line with trends in the
international market, recommendations of donor countries and agencies for
liberalization of trade and investment, and structural adjustment programs. Almost
at regular intervals of 4 to 6 years after 1982, the government adopted new
industrial policies with increased incentives for private investors from both home
and abroad. These policies have some common aspects such as incentives to promote
industrialization in rural and remote areas and to encourage entrepreneurs to use
local raw materials, and the efforts towards development of a system that would
help in transfer of technology. -5-
CURRENT SITUATION OF INDUSTRIALIZATION With a view to improving industrial
efficiency and productivity, procedures for transferring public sector industries
to private ownership have been further strengthened during the year under report
through the enactment of Privatization Act, 2000 and conversion of the
Privatization Board into a Privatization Commission with authority to sell out
public sector industrial entities valued up to Tk. 25.00 crores with long term
loan inclusive, and to adopt any alternative means for privatizing public
enterprises besides direct tender and share offload. One industrial unit was
handed over to the private sector, letters of intent for six units were issued,
tender process was finalized for another five units and pre-divestment evaluation
reports for 16 units were prepared during the year under report as against two
units transferred, letters of intent issued for four units and pre-divestment
evaluation reports for six units prepared in the preceding year. Government shares
in five multinational companies, two banks and five public limited companies were
sent to Investment Corporation of Bangladesh (ICB) for transfer and sale to the
private sector. Government's policy to switchover from control to promotion of
industries along with necessary incentives and facilities for attracting local and
foreign investment remained in place during the year under report. Already, all
industrial sectors except the following four categories have been made open for
private investment to pave rapid expansion of the private sector.
§ § § §

Arms, ammunition and defense equipment; Nuclear energy; Security printing (paper
currency) and mint; and Public reserve forests.

In addition, measures initiated in the previous year relating to tax holiday, duty
on plant and spares import, royalty, double taxation, technical fees, expatriate
workers, etc., remained in force. Logistic services were provided at increased
level from the 'One Stop' service window of the Board of Investment (BOI) in 1999-
2000. A 'Welcome Centre' was opened at the Zia International Airport, and a scheme
for setting up five Industrial and Hi-tech Industrial Parks is underway. Large
number of work permits to foreign nationals were issued and renewed in that year.
Remittances of Tk.32.30 crores was approved in favor of 38 industrial enterprises
as royalty, technical assistance, technical know-how and consultancy fees etc.,
during the year under report. Operations of the Adamjee Export Processing Zone
(EPZ) will start from February 2007 as two industries will augment their
industrial productions at the new EPZ. It is being built on 295 acres of land and
would accommodate a total of 200 industrial plots by June 2007.

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Private and Public Investment Statistics as percentage of GDP is given below:
Total Private and Public Investment since 1991-1992

Private and Public Investment as % of GDP since 1991-1992

-7-
Analyzing the industry sector, overall growth in the industrial sector during
FY2005 is estimated at 8.6 percent, near about one percentage point higher than
7.7 per cent in the previous year. The services sector registered steady
improvement due to strong growth in foreign trade and manufacturing. Improvement
in trade, an increase in public administration recruitment, expansion of the cell
telephone network like the invasion of Orascom in the telecommunication sector and
sharp rise in the number of private TV channels as per the introduction of N tv, R
tv, Banglavision, Boishakhi, S tv, and an upsurge in the profitability of private
sector banks, were the main engines of growth, adding overall, the growth of the
services sector during FY2005 is estimated at 6.6 per cent compared with 5.7 per
cent in the preceding year. The industry sector attained 7.7 percent growth in
FY04, compared with 7.3 percent of FY03. The manufacturing sub-sector experienced
steady growth, supported by robust growth in export-oriented manufacturing
activity and expansion in domestic demand. Table Breakdown of Industrial growth
rates of GDP (at FY 96 constant prices: percent) FY 01 FY 02 FY 03 FY 04 Industry
7.5 6.5 7.3 7.7 a) Mining and quarrying 9.7 4.5 7.2 6.8 b) Manufacturing 6.7 5.5
6.8 7.4 i) Large and medium scale 6.6 4.6 6.6 7.3 ii) Small scale 7.0 7.7 7.2 7.7
c) Power, gas and water supply 7.4 7.6 8.0 8.1 d) Construction 8.7 8.6 8.1 8.3 The
construction and, power, gas and water supply sub-sectors made some gains in
growth rates. There was significant growth rate decline in the mining and
quarrying sub-sector. But comparing with the growth rate in the industry sector
with the service sector, it can be concluded that though service has enjoyed a
good growth rate, over the years which is due to the up going rise in the foreign
investment in this sector, manufacturing and tangible based industries have
enjoyed a much heavier growth rate over the years which is due to the RMG sector,
more inclination of local investors towards large and medium scale industries.

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Sectoral growth rates of GDP (at FY 96 constant prices: percent) FY 01 FY 02 FY 03
FY 04 Industry 7.5 6.5 7.3 7.7 Services 5.5 5.4 5.4 5.7 GDP(at FY96 constant
market prices) 5.3 4.4 5.3 5.5 The picture can be depicted from the table above,
which clearly states that during the past dew years, there has been an upward
trend in the growth of both the industry and service sector despite the relative
fall in the growth rate in FY 02 for both. However, the country overcame this and
was able to achieve better growth rates specially in the industry sector. Compared
to the service sector, industrial sector has had an increment in growth rate of
1.2% from FY 02 to FY 04; whereas service sector was able to relish only 0.3%
increment. For detailed sector-wise overview, please consult the appendix. DEMAND
FOR INVESTMENT FROM ABROAD IN INDUSTRIAL SECTOR There is widespread support for
the need of foreign investors in Bangladesh. There is no doubt that if the economy
is to grow faster or even to retain the recent GDP growth rate of 4.5% it has
achieved, then there is need for a much grater inflow of foreign investment than
has been seen in the past. To make a significant improvement in the growth rate
the investment rate must be increased from 16% at present to 24% of GDP); this can
only be achieved by increasing the domestic investment and saving level
substantially, encouraging the growth of remittances and finally drawing on
foreign saving at a rate of 6-7% of GDP. Of this amount 3% is coming from foreign
assistance so that private foreign investment must reach 3-4% of GDP if foreign
assistance continues as a fixed share of output. If there is a decline in the
level of foreign assistance, relative to GDP, then even more foreign investment
from private sources will be needed. To meet the needs of the economy foreign
investment from private companies must grow rapidly to the order of one billion
dollars per year. This is a figure that is readily achieved if the right economic
policy environment has been established. The position is clear : Given the low
saving rate of the Bangladesh economy, the declining relative flows of foreign
assistance, and the limits to the growth of remittances, the only way to increase
the level of investment is to increase private saving, increase government saving
and use much more foreign private investment. Unless this is done there will be no
improvement in the growth rate and no real progress in reduction of poverty. The
FDI distribution of the year 2003-2004 is given below:

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Foreign Investment Registration during FY2003-04: Distribution by Sectors

Local Investment Registration during FY2003-04: Distribution by Sectors

From the above pie charts it is visible that foreign investment is mainly
concentrating in the service sector by enhancing the Banking sectors like Standard
Chartered Bank, HSBC, EBL, One Bank, DBBL etc along with restaurants and
franchisees like Pizza hut and other service organizations. However, local
investors are feeling freer to invest in industrial sectors like textiles, agro
based industries and chemical industries. On the contrary, there has been a
declination of foreign investment in the industrial scenario which encompasses a
lot of reasons. Of these are chiefly corruption, political instability and many
other which are discussed elaborately afterwards. But it is

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inevitable that more investment in industrial sector is obligatory to augment the
growth in this sector in the time to come.

INDUSTRIAL POLICY
The Fifth Five Year Plan of Bangladesh envisages that Bangladesh will have within
a decade a sizable industrial sector where manufacturing will account for at least
25 per cent of the gross domestic product (GDP) in place of present 11.3 percent
and at least 20 per cent of the employed workforce in place of present 7.7
percent. A vibrant and dynamic private sector will be the principal actor in
Bangladesh's industrial arena. The goals of export orientation and external
competitiveness imply the pursuit of industrialization in accordance with the
dynamic comparative advantage of the economy. Given Bangladesh's resource
endowment, the principle of dynamic comparative advantage means production of
labor intensive manufactures with skill up-gradation and productivity growth as
its cutting edge. Decentralized small and medium industries will constitute
important elements in the industrial scene of Bangladesh. Industrial Policy, 1999
aims at addressing these concerns and build on earlier efforts and gains towards
industrialization of Bangladesh economy. MAIN OBJECTIVES 1. To expand the
production base of the economy by significantly raising the level of industrial
investment 2. To promote the private sector to lead the growth of industrial
production and investment 3. To define the role of the government as facilitator
in creating an enabling environment for expanding private investment 4. To focus
public undertaking in those industrial activities where public sector involvement
is essential to facilitate the growth of the private sector. 5. To attract foreign
direct investment in both export and import substitute industries 6. To ensure
rapid growth of industrial employment by encouraging investment in labour
intensive manufacturing industries including investment in efficient medium, small
and cottage industries 7. To generate female employment in higher skill categories
through special emphasis on skill development 8. To raise industrial productivity
and to move progressively to higher value added products through skill and
technology up-gradation 9. To enhance operational efficiency in all remaining
public manufacturing enterprises through appropriate management restructuring and
pursuit of marketoriented policies 10. To diversify and rapidly increase export of
manufactures

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11. To encourage the competitive strength of import substituting industries for
catering to a growing domestic market 12. To ensure the process of
industrialization which is environmentally sound for preventing environmental
pollution and maintaining ecological balance 13. And to encourage balanced
industrial development throughout the country by introducing suitable measures and
incentives.

MAIN TARGETS OF THE INDUSTRIAL POLICY Liberalization of industrial policy in

Bangladesh started with the announcement of Industrial Policy, 1982. This was
followed by successive and progressive liberalization in 1991, 1992 and 1999 to
make it compatible with globalization and a competitive market economy. The
targets of the policy are to:

1. Develop the industrial sector in order to increase its contribution to GDP,

income, employment and poverty alleviation 2. Expand industries by the private
sector and make role of Government ‘promotional’ rather than ‘regulatory’ 3.
Encourage domestic and foreign investment in overall industrial and infrastructure
development 4. Promote private sector –led export- oriented growth 5. Develop
export-oriented, export-linkage and efficient import-substitute industries 6.
Expedite development of labour intensive industries through acquisition and
improvement of appropriate technology 7. Encourage the development of agro-based
and agro-supportive industries and 8. Motivate investment in the intermediate and
basic industries.

FINANCIAL INCENTIVES TO INDUSTRIES 1. There shall be a tax holiday for five and
seven years for industries set up in the developed and less developed areas
respectively which will remain effective until the year 1995 2. The National Board
of Revenue in consultation with the Ministry of Industries will publish in the
official gazette area wise classification for the application of concessional
duties and tax holidays 3. There will be no discrimination in case of duties and
taxes for the same type of industries set up in the public and private sectors 4.
Local industrial products will be protected through tariff rationalization keeping
in view the interests of the entrepreneurs and the consumers

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5. To create internal market for jute products, industries producing jute
substitute synthetic fibers especially polypropylene bag will be discouraged, high
tariff rates will be imposed on related imports in these areas. In addition,
effective steps will be taken for compulsory use of jute bags for packing of food
grains, sugar, cement & fertilizer etc 6. Duties and taxes on import of goods
which are produced locally will be higher than those applicable to import of raw
materials to be used to produce such goods 7. In case where credits/loans obtained
from foreign institutions or Government through private initiative for private
industrial investments, the following conditions shall be applicable
§ The Government will re-lend the abovementioned credits/loans through

commercial banks/DFIs. The concerned Banks/DFIs will disburses the credits/loans

to the entrepreneurs with applicable service charge § The entrepreneurs shall
undertake full responsibility for repayment of the loans/credits. For this, the
concerned Banks/DFIs will provide guarantee to the Government for repayment of the
loans/credits. Concerned Banks/DFIs will, however, be entitled to claim collateral
from the entrepreneurs. 8. An Exchange rate Fluctuation Absorption Scheme (EFAS)
will be created to reduce the impact on industrial sponsor for fluctuation of
Bangladeshi currency with foreign currencies. 9. Special incentives will be
provided to encourage non-resident Bangladeshi for investment in industries. In
case of their investment in Bangladesh, they will enjoy facilities similar to
those given to the foreign investors. Besides, they will be able to buy newly
issued shares/debentures of Bangladeshi companies. Moreover, they will be able to
maintain foreign currency deposit in the NFCD account for up to five years.
10.Provision will be made up to 80-100 percent accelerated depreciation allowance.
11.Special financial incentive for industries located in the least-developed areas
and for small and cottage industries. As long as natural gas can not be supplied
to the non-gas lined least developed areas and the price of natural gas remains
lower than that of fuel oil, a subsidy will be provided on fuel oil use in
industries in this areas. The concerned ministries will make provision for
necessary funds for this purpose.

IMPACT OF GOVERNMENT S INDUSTRIAL POLICY

The impact of government policies on various industrial sectors of Bangladesh has
been considerable. In cases of main industrial segments like RMG, agro-based, oil
and gas etc, the government reforms and strategies have brought about many
advantages. Government has liberalized the industrial and investment policies in
recent years by reducing bureaucratic control over private investment and opening
up many areas. Tax reduction has been a major strategy implemented by the
government of

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Bangladesh. Following are some financial incentives provided to various industries
in Bangladesh. Major incentives are as follows: § Tax Exemptions: Generally 5 to 7
years. However, for power generation exemption is allowed for 15 years. 1. Dhaka
and Chittagong Divisions (excluding 3 hill tract districts of Chittagong Division)
(5 years) 2. Khulna, Sylhet, Barisal and Rajshahi Divisions And 3 Chittagong hill
tract districts (7 years) § Duty: No import duty for export oriented industry. For
other industry it is @ 5% ad valorem. § Tax Law: 1. Double taxation can be avoided
in case of foreign investors on the basis of bilateral agreements. 2. Exemption of
income tax up to 3 years for the expatriate employees in industries specified in
the relevant schedule of Income Tax ordinance. § Remittance: Facilities for full
repatriation of invested capital, profit and dividend. Export-oriented
industrialization is one of the major objectives of the Industrial Policy 1999.
Export-oriented industries will be given priority and public policy support will
be ensured in this respect. An industry exporting at least 80% of its manufactured
goods or an industry contributing at least 80% of its products as an input to
finished exportables, and similarly, a business entity exporting at least 80% of
services including information technology related products will be considered as
an exportoriented industry. To make investment in 100 percent export-oriented
industries attractive, the following incentives and facilities will be provided:
§ Duty free import of capital machinery and spare parts up to 10 percent of the §
Existing facilities for Bonded Warehouse and back-to-back Letter of Credit will §
The arrangement for providing loans up to 90 percent of the value against § To
ensure backward linkage, incentives will be extended to the "deemed

value of such capital machinery will continue.

continue which is a very positive policy for the industry in Bangladesh.

irrevocable and confirmed Letter of Credit/Sales Agreement will continue.

exporters" supplying indigenous raw materials to export-oriented industries.

Export-oriented industries including export-oriented RMG industries, using
indigenous raw materials will be given facilities and benefits at prescribed
rates. § The local products supplied to local industries or projects against
foreign exchange L/C will be treated as indirect exports and be entitled to all
export facilities. § The Export Credit Guarantee Scheme will be further expanded
and strengthened.

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§ 10 percent products of the enterprises, located in both public and private EPZs

will be allowed to be exported to domestic tariff area against foreign currency

L/C on payment of applicable duties and taxes. § 100% percent export-oriented
industry outside EPZ will be allowed to sell 20% percent of their products in the
domestic market on payment of applicable duties and taxes. § The Government offers
an incentive of 5% to the export oriented textiles, leather, jute and other agro
fisheries industries.

These incentives are mainly to encourage the export oriented companies so that
those companies can price their products lower than their competitors like Chinese
companies. The government has also decided to give more importance to
privatization of various sectors for better management and effective utilization
of the resources. With the new, market-oriented, direction of economic policy, the
private sector is now the major source of investment in the country. The
Government has decided to make no new investment in the manufacturing sector,
barring the reserved areas (defense, forestry, nuclear power and security
printing). Public investment is now mainly going into the modernization and
renovation of existing state-owned ventures with a view to making them viable for
privatization. The share of aggregate investment in Bangladesh has risen from 18.5
per cent of GDP to 23.63% of GDP, of which the public sector accounts for less
than 38 per cent. These incentives have expanded the production base of the
economy by accelerating the level of industrial investment and promoted the
private sector to lead the growth of industrial production and investment.
Currently, 33 SOEs have been privatized and 98 more are in the list. These
policies have also focused the role of the government as the facilitator in
creating an enabling environment for expanding private investment rather than a
regulator. These strategies have also attracted foreign direct investment in both
export and domestic market oriented industries that have made up for the deficient
domestic investment resources, and acquired evolving technology and gained access
to export markets. There has also been generation of female employment in higher
skill categories through special emphasis on skill development. Currently, the
female workforce comprises of 21 million accounting for about 37.5% of the total
work force. The major consequence has been the rise in industrial productivity and
progressive movement to higher value added products through skill and technology
upgradation. This approach of the government has diversified and rapidly increased
the export of manufactures and encouraged the competitive strength of import
substituting industries that cater to a growing domestic market. The government’s
encouragement has lead to balanced industrial development throughout the country
effective utilization of the existing production capacity and also development of
indigenous technology and expansion of production based on domestic raw materials.
Currently, due to the withdrawal of MFA, Bangladeshi RMG has suffered various
setbacks and faces stiff competition from China who provides goods of almost same
- 15 -
quality at a much cheaper rate. In order to counter the Chinese invasion of
markets RMG sector desire a 25% incentive as backward integration is not possible
in Bangladesh due to lack of environmental conditions. There are various problems
faced by the industrial sector in terms of political instability, lack of proper
implementation of law and order, inflation and so on. Hence, for better
development and efficient management of the industrial sector legal environment
must be strengthened and imports must be regulated. On the other hand, a major
objective of trade liberalization is to promote industrial growth through
encouraging the production and export of manufactured goods. Trade policy reform
has focused on elimination of QRs, rationalization of the tariff structure,
simplification of import procedures, exchange rate liberalization and various
measures to stimulate export growth. This has brought about an industrial growth
of 3% at constant price in 2001. Trade liberalization has increased economic
openness and reduced the anti-export bias. The economic openness index (i.e., the
ratio of the sum of exports and imports to GDP) has risen from 19% in FY91 to
about 35% in FY99. While the share of the large scale sector shows a slightly
rising trend, the opposite is the case with small and cottage industry. Offsetting
movements in the shares of large and small industry have resulted in a virtual
stagnation of the share of the overall manufacturing sector in GDP at a little
over 11% during the nineties. Trade liberalization is expected to stimulate
export-oriented industrial growth by reducing the anti-export bias through
lowering the effective rate of protection (ERP) provided to an activity. A major
objective of economic development is to improve the economic and social well-being
of the population. A stated economic objective of the Government of Bangladesh has
therefore been to achieve growth with equity, implying a reduction in poverty and
attainment of a more equitable distribution of income. From 1991 to 2000, the
incidence of poverty declined from 59 percent to 50 percent. Poverty alleviation
and greater equity in the distribution of the benefits of growth call for, among
other things, a rapid increase in employment. Currently the Bangladesh has a
civilian work force of 56 million. There are also 47 laws protecting the interests
of the workers. The results of participatory research show that small and cottage
industries have been worst affected by import liberalization in terms of output
and employment loss. The Quantum Index of Production in medium and large
industries stood at 235.20 in 2001 from 179.30 in 1997. Many small enterprises
including small engineering workshops, rural industries, and bakery and biscuit
factories have been forced to close down due to easy inflow of foreign goods.
Self-employment has also been adversely affected due to the pressure of import
competition on small and cottage industries. The participants in FGDs

- 16 -
emphasized that many small industries (e.g., khadi of Comilla) are being wiped out
from the market by cheaper and better-quality imports. Trade liberalization is
expected to promote export growth by reducing policy-induced anti export bias. An
overvalued exchange rate (ER) would discourage exports and thereby could frustrate
the achievement of the goal of trade liberalization. Any rational assessment of
the SOE sectors’ predicaments would suggest that the pertinent question is not
whether to privatize; it is rather how fast and how best to do it. A set of three
inter-related reasons are put forward as rationale for privatization in
Bangladesh. These are: § Improvement of the governments’ fiscal situation; §
Improvement in enterprise efficiency following privatization; and § Mobilization
of greater domestic as well as foreign investments for higher growth in the
medium-term. Privatization in Bangladesh has also formed part of the Government’s
overall market oriented adjustment strategy under which privatization and market-
based economic reform measures have tended to reinforce one another. The most
important aspect of the privatization program which has been subject to very
intense and recurrent public debates is the post-privatization performance of the
privatized SOEs. Unfortunately, sometimes the debates are devoid of objectivity
and thus lose much of its significance as the range of opinions swings like
pendulum under the influence of push and pull by privatization’s most ardent
opponents and its proponents. Not surprisingly, therefore, each of these studies
has its own policy biases.

ENVIRONMENTAL ISSUES AND PROBLEMS

ECONOMIC ENVIRONMENT The investor is first of all looking for a stable support
environment. This means three things: reasonable quality of service; reliable
supply, and clear understanding of what is going on. The last thing that a foreign
investor wants is a series of crises and surprises from day to day which
interrupts his work. This is precisely the environment the Bangladesh has not been
able to present. The support services are unreliable and not of reasonable
quality. This applies to the electricity supply, to the port operations, and to
the telecommunications systems. It applies to the dealings with the customs
service and with other parts of the regulatory

- 17 -
wings of the government. While foreign investors can solve some of these problems
it has turned out that there is instability in the solutions; problems believed to
be resolved pop up again. A stable support environment cannot be created by a
single organization or a single government; it requires an attitude of mind on the
part of infrastructure suppliers that they are servants of the rest of the society
and that their duty is to provide good service to assist others. This cannot be
done within the context of government owned enterprise unless there is belief in
their role of “servant of the public”. In South Asia a much different tradition
has emerged of “ruler of the public” which has made the public enterprises unable,
with their “corporate cultures”, to provide an acceptable level of service. There
can be no argument from analogy here that it has worked in other places; it has
not worked to use public ownership in South Asian countries. One only needs to
examine the performance of the electricity generating authorities and
telecommunication authorities in India, Pakistan and Bangladesh to see the result
of these corporate cultures in provision of service to the general population.
Occasionally one will find that there develops an organization that is owned by
government and is able to go about its work in a satisfactory way. However, this
is rather unusual and generally government operated organizations to supply
infrastructure services are not successful in South Asia. There is a lot of
wishful thinking about these calls for doing better what has failed before and
similar wrongheaded ideas have delayed acceptance of the central conclusion which
is that to have quality service, required by the foreign investor, there must be
private companies providing this. Of course this does not mean there is no
regulation, nor is this an argument for the foreign investor abalone, all business
would benefit. LEGAL ENVIRONMENT The investors find some aspects of Bangladesh law
difficult. First, most foreign investors want to follow the laws and regulations
of the country. The difficulties begin when the implementing. Ministry has a great
deal of discretion in interpreting the law. Laws referring to recovery of credit,
of obtaining payments for accounts receivable, and the protection afforded to
labor are areas in need or review. Outside the management of overdue bills and
labor the legal environment is generally satisfactory for foreign firms. It is
worth to mention that people have to go to same place a hundred times to get their
work done or get work permit. This creates not only delay in work but eventually
creates frustration among the investors who cherish to inaugurate any industry for
the country. POLITICAL ENVIRONMENT There is a great deal of discussion of the
impact of political stability on the impact of political stability on the
attitudes of foreign investors. This is probably not as important as many would
argue. What is important is a government that is prompt to

- 18 -
make decisions, makes these decisions clearly, and sticks to what it says. Years
of dealing with foreign assistance has developed an administrative culture in the
Bangladesh government that is completely wrong for dealing with the foreign
investor. The donor comes apparently to help and this saint like posture develops
the natural counter reaction of resentment from which emerge the desire to capture
the resources for ones own purposes and to resist being told what to do. This is
the normal human reaction to the donor culture. After years of dealing with whose
issues and trying to manipulate the donor resources the civil service must
understand the foreign investor is a different animal. First and most important he
is looking out for himself, he is not a donor giving away money at the behest of a
distant government whose purposes are lost in a host of cross objectives. The
foreign investor is out of make as much money as he can and is present in
Bangladesh because he thinks he can do will here. He wants to be left alone and he
wants the rules of the economy to be clear and mo9re or less stable then he can
decide if he wants to come or not. He does not want continuing negotiations, aide
memories, MOUs, and all the other apparatus of the foreign aid world. He wants
clear rules to follow which will be maintained by government and then to be left
alone. The problem with Bangladesh in the eyes of the foreign investor is not the
political instability. Many of the country of the region are far worse. Rather it
is the failure of the government to shift from the culture of the aid donor to the
culture of the private investor. It is a different world and unless this shift in
view is made the foreign investment will not come. It is a mistake to think that
the manipulation of rules on taxes etc. is the main issue. On taxes for example a
Unites States company faces a situation of more or less paying a creation amount
of tax and the question is how does this gets distributed among the different
countries where the company operates. It is my own view that Bangladesh should
take a strong firm line with the foreign investor laying down the rules taking
account of course of what is going on in the world and then sticking to those
rules. The national interest must always come first. There is one recent example
here in which a significant investment by a foreign group was almost certainly
inappropriate for the economy and yet it was allowed to go ahead because the
government did not stand firm on the key issue involved. Foreign investors are not
saints and government has to stick to its principles. When however the explicit
rule is every thing is a special case there will be endless trouble and endless
misunderstanding. CORRUPTION For the American investor the central problem in
dealing, with Bangladesh is the Foreign Corrupt Practices Act. This basically
makes it very difficult for American companies to make significant progress in
investing in this country without violation United States law. The assessments of
Transparency International rate Bangladesh as one of the most corrupt countries in
the world. The American investor reading this assessment may believe that this
country is not worth the effort. While it is possible for foreign investor to
function her in a non-corrupt way kit is difficult and takes a lot

- 19 -
of effort. For most American companies the time and effort are in the end not
worth the returns. Although the rates of return are high for the investor, the
size of most of the investments is small. Thus it is easy to walk away from the
opportunity if it is taking too long or is getting too confusing. In my view the
foreign assistance process creates major opportunities for corrupt practices; over
the years the governments of many countries have learned to mange this for the
private interests of many persons. Bangladesh is not alone in this; we hear a
constant barrage of information from the IMF and the World Bank on this problem as
a worldwide phenomenon. Private investors are much different; while the aid donor,
in a sense, does not care as his money is not involved although there is a strong
moral obligation, the private investor has to earn a profit and if the corruption
costs are too high then the profitability is not there. There is a self limiting
size to the corruption. Furthermore, one of the important aspects of the
corruption in the aid flows is the deterioration of quality in response to higher
costs incurred from the corruption. In the public sector this can be done- the
machinery is not as good, the cement is not as thick, the quality so the materials
is inferior, etc. donors have learned to shut their eyes if they ever learn. This
does not really work in the private sector where the investor is expecting to
produce to his own quality standards, often to export into markets where quality
is a central consideration. The prospects for corruption in the private sector are
less than in the government’s own projects. This makes all actions with respect to
the private foreign investment much more difficult. The American legal position
makes it even tougher. While it is popular to blame the political conflicts for
the slow flow of foreign investment, I believe that one must look elsewhere.
Political conflict is inevitable and is part of the democratic process. What is
needed here, that we do not have, is a limiting of this conflict to forms that do
not adversely influence the production activities of the country. Strikes but not
hartals; public demonstrations, public arguments and debates with and outside of
parliament, pamphlets, newspapers, television all of these fields for political
battles are acceptable. However, the day to day going to work by ordinary people
and making things or providing services should be allowed to go on. In other parts
of Asia political conflict is even more aggressive but the business community has
managed to limit the level of disagreement. Foreign investors find the concept of
the hartal surprising.

SOCIAL AND CULTURAL ENVIRONMENT These do not represent serious problems for the
foreign investor. The law and order situation is satisfactory. While there are
occasional problems by and large the Dhaka environment is personally secure,
School and living accommodations are good. Foreign investors staff assigned to
this country normally find that they have a satisfactory life. However, if there
is significant increase in the size of the foreign business community then there
will be some difficulties in terms of space, convenience, etc. These are not
serious difficulties however. On the negative side most staff of foreign investors

- 20 -
are uncomfortable with the attitudes prevalent that always treat an outsider with
suspicion. The most talked about problem arises from the ritual of holy Jumma
which takes place at Friday noon. Only for this reason, the national holidays in
our country are Friday and Saturday, whereas Saturday and Sunday in Europe and
America. This creates a total break in business for three consecutive days
creating a huge loss for the industries and businesses. On the other hand, our
cultural and religious inclination to Islam has eradicated the scope of producing
“haram” things like alcohol in our country, which is a big source of income for
other foreign countries. LESSER ISSUES There are other problems facing the
investor which are less systemic: First, foreign investors will always operate
merit based systems. That is they hire persons who are qualified: They are
resistant to excessive seniority oriented personal systems; they believe in
training their staff for the jobs that they wish to do. This implies that these
firms will seek good staff well qualified and of good character. Services to
provide accurate information on prospective staff with objective recommendations
on who is a quality person are essential. At present it is difficult to locate
good staff. It also implies that these firms have serious needs for good training
programs. Most training carried out by the private sector now is for government
and donor directed programs. Generally the government does not take training
seriously; there is no link between the staff assignments and the training
material taught may have little to do there is needs of the organization. Foreign
investors have something quite different in mind so there is need for training
institutions that can provide good training relevant to the needs of the clients.
However the local investors in the industrial sector practically shun the training
programs after hiring labor. The only training the unskilled labors get here is by
watching the experienced workers working in the factory. This results less
efficiency and low production. This eventually depresses the investment in
industrial sector. Another area of continuing difficulty is labor. The labor
unions seem to have the idea that the foreign investor is an endless source of
wealth and approach the negotiations with the viewpoint that this wealth is to be
transferred to the workers. With the prospect of growing foreign investment in the
country the issue of the labor relations is going to grow in importance. This is a
delicate area. The foreign investors like the EPZs as the labor laws do not apply
there. However, one cannot develop the country using only EPZs. One must expect to
encourage a complex set of industrial investments which buy and sell to each other
smoothly. This requires that the labor laws be reviewed and adjusted to limit
strikes, to punish severely any abuse of the labor laws, and that fair and
reasonable arbitration procedures be developed. The labor problems have already
disrupted one of the hotels with serious negative impact on foreign investors and
there are other cases waiting to happen.

- 21 -
RECOMMENDATIONS
RECOMMENDATIONS FOR AGRO-BASED INDUSTRY
1. Emphasis should be given to post-harvest handling of export-oriented agro-
production. 2. Multi-purpose cold storage should be promoted on regional level to
store different winter vegetables and fruits. 3. Credit, interest, tax and other
financial facilities/incentives should be given to promote export-oriented agro-
processing. 4. Supporting preservation of horticulture products the import of
reaper vans and refrigerated containers should be exempted from duty and VAT. 5.
To support food processing industry import of preserving chemical and technology
should be exempted from tax, VAT and duty; and also foreign investment in this
sub-sector should be encouraged. 6. To reduce and/or subsidise export freight
charge. 7. Establishment and /or capacitating of research institute for agro-
industry. 8. Development of infrastructure for productivity, diversification and
development of facilities and systems for compliance requirements.

RECOMMENDATIONS FOR TEXTILE INDUSTRY

1. Assistance (training, information and exposure meetings) in strengthening our
compliance to international standards in this area. We need information on
identification of forward linkage to export markets and supply chain requirements.
2. Improvement in availability of updated, relevant information on export markets,
Chambers/ Trade Association should be supported to promote collection and
dissemination of information on trade opportunities available. 3. Improvement in
trade facilities especially in the Ports, Customs and management. 4. Introducing
measures to ensure uninterrupted power supply to all export-oriented RMG
enterprises, so that they can operate normally and at its full potential and
capacity. 5. Creating educational facilities for the labor force from export-
oriented Textile Industries. 6. As establishing a completely new textile mill is
costly, risky and time consuming, existing state owned textile mills could be used
as starting point. In such a case, management should be transferred to a private
limited company. 7. We must learn to use bureaucracy for the promotion of trade
and business and otherwise we cannot compete with others.

RECOMMENDATIONS FOR FROZEN FOODS

Development of infrastructure in and around present Shrimp field. Identification
and allotment of New Land for Shrimp Culture Train up the shrimp farmers at field
level. Attract the Foreign Investment in Hatchery, culture, feed mill, latest
technology in processing, international standard quality assurance system and
human resource development. 5. To ensure quality control and seal of quality. 1.
2. 3. 4.

- 22 -
6. Rehabilitate non-performing factories by interest / penal interest waiving and
by refinancing at soft term.

RECOMMENDATIONS FOR ELECTRONICS SECTOR

1. Completely Built in Unit (CBU) should be at higher slab of custom duty. 2.
Completely knocked Down (CKD) should be discouraged and may be abolished to enable
us to substitute and create local components producing units to support main
products. 3. Manufacturing of components/parts of Radio, TV, Freeze, and Air
conditioner should be encouraged. 4. Plastic housing of Radio, TV, Air
conditioners, Freeze, Table fan should be in lower slab. 5. SMEs interested to
produces these components should be provided incentives in the form of long term
policy, lower single digit bank interest etc. 6. Parts & Components, casing of
electronics item should be encouraged.

RECOMMENDATIONS FOR LEATHER AND LEATHER GOODS

1. Setting up Tannery Modernisation Fund to revamp technology and raise
productivity. 2. Introducing financial incentives and other necessary supporting
policies to raise productivity, improve quality and make this sector globally
competitive. 3. Supporting the establishment of linkage industries such as lasts,
cutting dies etc to reduce high import dependence and promote price
competitiveness. 4. Enabling duty free imports of rawhides and skins as well as
wet blue and finished leather for leather footwear exporters. 5. Introducing
measures to enable adaptation of new and modern technology such as modern soling
through joint ventures and international collaborations. 6. Introducing financing
and other incentives to increase local investment in this sector. 7. Introducing
attractive incentives and non-bureaucratic and user friendly operating policies to
promote foreign investment in this sector. 8. Ensuring consumer safety and
international standard of packaging to improve marketing of leather and leather
goods 9. Introducing effective measures to protect environmental and improve
international image and reputation

OTHER RECOMMENDATIONS
q National Political Measures 1. Introducing measures to create a national
political consensus so that under all political circumstance the export-oriented
sector remains unaffected. 2. Introducing sound law and order situation so that
all operation of the exported oriented activities can take place without
interruption and hindrance. 3. Trade Unions leader should be included in all
relevant seminar and discussion so that consensus could be achieved. 4. Social and
economic condition of the workers should be improved so that politically motivated
forces do not get upper hand in labour organisation and disrupt the
LabourManagement relation.

- 23 -
q Marketing Support Measures 1. Supporting diversification of export products. 2.
Supporting the exporters by visiting important international trade fairs. 3.
Supporting marketing campaign especially in Canada, USA, EU and Japan to promote
the image "MADE IN BANGLADESH". 4. Supporting sellers-buyers meetings. 5.
Introducing effective measures to protect environmental and improve international
image and reputation. 6. Rationalised tariffs and access to the local market for
exporters should be allowed so that this sector does not suffer from stock lots
and cancellations 7. Eliminate discrepancy in the import policy to support value
addition and reduce import; it means, increase of import duty on finished shoes
for a limited period, reduce duty on import of shoe accessories and components. 8.
Supporting quality management and improvement, export documentation, and
assistance in the cases of difficulties ensuring payment from abroad. 9.
Supporting efforts for market diversification, i.e. expanding market in the

countries other than USA, EU, Japan and Canada.

q Financial Measures 1. Ensuring direct fiscal incentives in the form of export

cash subsidies, import license benefits against export performance, tax-free
export earnings, reduced airfreight costs, duty drawback, etc to promote export.
2. Introducing export credit guarantee schemes to retain export earnings as
foreign exchange. 3. In place of L/C, open account facilities or easier import
terms should be introduced to promote export 4. Carefully adjusting national
currency to the currencies especially of the international competitors or
introducing dual exchange rate to support export. 5. Providing long-term tax
holiday to encourage local and foreign investment. q Infrastructural Supporting
Measures § Measures to remove Transport Congestion 1. Removing all port congestion
so that export-import operation can take place without any delay. 2. Ensuring a
well-developed national transport system so that communication among export-
oriented industries and transport of goods to the ports could take place without
any delay. 3. Regulating shipment charges so that it does not affect the
competitiveness of this sector.

- 24 -
§ Measures to ensure Uninterrupted Power Supply 1. Introducing measures to ensure
uninterrupted power supply. § Measure to ensure Prompt Custom Services 1.
Equipping custom offices with modern information and other technology to ensure
prompt custom service. 2. Removing all anomalies and corruption opportunities from
custom services. § Development Management and Institutional Measures 1.
Establishing world class training and research facilities such as Leather Research
Institute, Footwear Development and Design Institute and manning these with highly
experienced and trained instructors and consultants to ensure development of this
sector. 2. Establishing design, product development and product testing
capability. 3. Measures to ensure Proper Development of Human Resource 4. Creating
education facilities for potential employees and workers. 5. Creating Training
facilities for potential employees.

CONCLUSION
In conclusion the development of Industrial sector of Bangladesh requires both
opportunity, over which one has little control, and performance over which the
government has a lot of control. When government makes difficulties for the
investors, when the state enterprises impede and prevent the investor from doing
his work then the adverse reputation of the country gets around. The investors
will be interested in Bangladesh when they find that it is possible to work –
efficiently and quickly to establish company and then to produce. And the
government has lot more to do in attracting more investment and production in our
industrial sector.

- 25 -
REFERENCES
1. Aswathappa K. Essentials of Business Environment 7th edition 2. Board of
Investment Bangladesh (BOI) Website www.boibd.org 3. Dhaka Chamber of Commerce &
Industry (DCCI) Website www.dhakachamber.com 4. Federation of Bangladesh Chamber
of Commerce and Industry (FBCCI) Website www.fbcci-bd.org

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APPENDIX
SECTOR-WISE INDUSTRY OVERVIEW
Bangladesh, traditionally known for jute and tea exports, has recently attracted
world- wide attention for readymade garments and leather exports. Bangladesh
foresees an expansion of her agricultural sector, as well as increased diversity
in non traditional industries and business. Below is a short account of a few
potential investment sectors. In addition an indicative list of private sector
investment opportunities is presented at Appendix-A.

Textile
Sector Highlights: • • • • The fastest growing industry in Bangladesh with RMG
accounting for more than 75% of total exports. Bangladesh is best placed in the
region for textiles and garments because of cheap labor and trade status with the
EU. Government incentives for the spinning and weaving industries include a 15%
cash subsidy of the fabric cost to exporters sourcing fabrics locally. There is a
huge fabric demand supply gap in the RMG industry which is being me by imports.
Thus the potential for backward linkage industry is enormous.

RMG and Backward Linkage: The phenomenal growth in RMG was experienced in the last
decade. With about 2,600 factories and a workforce of 1.4 million, RMG jointly
with knitwear accounted for more than 70% of total investments in the
manufacturing sector during the first half of the 1990's.

Leather goods
a. Finished Leather b. Leather Goods Sector Highlights:

1. The labor-intensive leather industry is well suited to Bangladesh having cheap

and abundant
labor. 2. Bangladesh has a domestic supply of good quality raw material, as hides
and skins are a byproduct of large livestock industry. 3. Adequate government
support in the form of tax holidays, duty free imports of raw materials and
machinery for export-oriented leather market 4. The industry lacks domestic
technology and expertise and local support industries such as chemicals are still
under-developed.

- 27 -
Investment Incentives:

1. Present Government is in the process of setting up of separate Leather Zone

relocating the
existing industry sites to an well-organized place.

2. New FDI inflow is highly encouraged and foreign investors are welcome to have
the opportunity.
Industry Outlook: There is already a substantial domestic leather industry, mostly
export-oriented. The leather includes some ready-made garments, although that
aspect is continued mainly to a small export-trade in "Italianmake" garments for
the US market. Footwear is more important in terms of value addition. This is the
fast growing sector for leather products. Presently Bangladesh produces between 2
and 3 percent of the world's leather market. Most of the livestock base for this
production is domestic which is estimated as comprising 1.8 percent of the world's
cattle stock and 3.7 percent of the goat stock. The hides and skins (average
annual output is 150 million sq.ft.) have a good international reputation. Foreign
direct investment in this sector along with the production of tanning chemicals
appears to be highly rewarding. Having the basic raw materials for leather goods
as well as for the production of leather shoe, a large pool of low cost but
trainable labor force together with tariff concession facility to major importing
countries under GSP coverage, Bangladesh can be a potential off shore location for
leather and leather products manufacturing with low cost but high quality.

Frozen food
Sector Highlights:

1. 2. 3. 4.

Government is promoting semi-intensive shrimp farming. Fish and prawn exports grew
at an average 20% in the past decade. Shrimp processing and export industry is
largely dominated by the smaller unorganized sector. 15% cash incentive is given
to shrimp export amount.

Industry Outlook The frozen foods export is the second largest export sector of
the country. The average annual growth rate is about 28%. This export-oriented
industry includes the following sub-sectors which need proper attention for
augmentation of production and export earnings. • • • • Hatcheries Sustainable
aqua-culture technology Feed meals plants Processing unit for value-added
products.

Investment in frozen food sector with new technology and equipment has a vast
potential for growth.

Information Technology a. Data Processing b. Software Development

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Sector Highlights

1. Investment is mostly confined to information processing. 2. Bangladesh has a

cheaper and rapidly growing IT workforce. 3. Government is keen in establishing IT
related infrastructure for the development of the industry.
Industry Outlook Availability of substantial number of qualified and experienced
young people in various branches of engineering, science and technologies have
opened up the scope of profitable investment in these sectors. Comparatively short
training period and low investment have made such ventures highly profitable. A
number of Bangladeshi IT firms are interested in finding international investors
or collaborators in various sub-sectors.

Agro-based Industry

1. Canned Juice / Fruit 2. Dairy and Poultry

Sector Highlights

1. Bangladesh has a huge supply of raw materials for the agro-based industry. 2.
Fruits and vegetable production has increased significantly in recent years. 3.
Government and NGOs have been conducting regular training programs in developing a
skilled
manpower for this industry. 4. There is a substantial demand supply gap in the
agro-based industry. Industry Outlook Bangladesh has the basic attributes for
successful agro-based industries, namely, rich alluvial soil, a year-round frost-
free environment, an adequate water supply and an abundance of cheap labor.
Increased cultivation of vegetables, spices and tropical fruits now grown in
Bangladesh could supply raw materials to local agro-processing industries for both
domestic and export markets. Progressive agricultural practices, improved
marketing technique and modern processing facilities would enable the agro-
processing industry to improve its quality and expand production levels
significantly. Investment interests in agro-based industries are highly
encouraged.

Ceramic
• • •

Tableware Sanitary ware Insulator

- 29 -
•

Sector Highlights

1. Bangladesh has a skilled manpower in ceramic industry. 2. Historically,

tableware industry is labor-intensive. 3. The clean gas reserve required for
firing is a great competitive advantage for Bangladesh.
Industry Outlook Global ceramic tableware industry is currently going through a
phase of acquisition and consolidation as smaller industries in the developed
countries are becoming incompetitive and bankrupt. As a result, the big names like
Noritake, Wedgewood, Lenox, Villeroy & Boch and Royal Doulton are all individually
becoming billion-dollar operations. Historically, tableware industry is labor-
intensive and even after spending billions of dollars on automation, developed
countries could not reduce the number of workforce according to their
expectations. As a result, the cost of production will always remain extremely
high in developed countries and the premium brands are only surviving because they
are charging huge price to the consumers for their brand equity. Bangladesh, being
a gas-rich and low-labor-cost economy, offers to be a strategic partner in
production and supply of ceramic products. Investment interests in this sector are
strongly welcomed.

Light Engineering

1. Machinery Parts 2. Consumer Items

Sector Highlights

1. A growing and increasingly affluent middle class indicates demand for consumer
durables. 2. There is a significant sector of cottage industries engaged in simple
electronic goods. 3. Export-oriented production in light industries has gained
momentum in the past few years.
Industry Outlook Light industries in Bangladesh produce a multitude of labour
intensive goods including toys, consumer items, small tools and paper products for
the domestic market. Further development for these industries offers various
investment opportunities. Export-oriented production in light industries has
gained momentum in the past few years. Entrepreneurs from Hong Kong, Japan and
Korea have taken advantage of Bangladesh's cheap and easily trainable labour and
its infrastructure facilities to manufacture products for the export market.

Natural Gas-based Industries 1. Electricity 2. Fertilizer 3. Petro-chemicals

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Sector Highlights

1. Bangladesh has a substantial gas reserve of about 20 trillion cubic feet (tcf)
2. There is a huge demand for fertilizer in Bangladesh as the agriculture is the
principal sector of the
economy. Industry Outlook The private sector power generation policy announced in
1996, under which private power companies are exempted from income tax for 15
years. Several barge-mounted power plants are in operation. But an extensive
demand gap for electricity is crucial. Opportunities exist in developing new
plants (barge-mounted and other, large, small and mini), constructing transmission
and distribution system, rehabilitating or upgrading existing plants and supplying
a variety of support services. Investment opportunities are available on a build-
operate-transfer (BOT) basis.

Electronics a. Semi-Conductor b. Cell Phone Assembly c. Other Electronics

Sector Highlights

1. Manufacturing of semi-conductors could be established as a potential cottage

industry. 2. Bangladesh is going to be the largest cell-phone market in South
Asia.
Industry Outlook Bangladesh's experience in basic electronics spans over two
decades. In recent years, European and Asian electronic firms have established
technical collaboration with their Bangladeshi counterparts to produce some
electronic goods at competitive prices. This has tremendous potentiality for
expansion. The Government of Bangladesh has adopted National Telecommunication
Policy, 1998. Investment is encouraged through BLT-BOT/BOO/BTO and other joint
venture schemes which by greatly increasing the capacity, quality and type of
services, will create improved efficiencies in other sectors such as
transportation energy and the textile industry. To meet the telecommunication
requirements of the country the government has been developing and expanding the
systems and services of BTTB. Private sector operations in the rural
telecommunication, paging, cellular telephones and riverine radio trunking have
already been allowed. At present 7 private operators are providing their services
to about 100,000 customers. Government has allowed expanding 300,000 digital
telephones in Dhaka by private sector participation through open tendering. In
accordance with overall national policy, liberalization of the telecommunications
sector will continue. However, the government retains the sale authority to
determine the number of competitions that are economically viable for certain
services. The strategy is to provide equal and rational opportunities to all
competitors.

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Jute goods
Bangladesh is one of the leading producers of jute in the world. At present the
annual production is 890,000 MT. In 1996-97 Bangladesh exported raw jute worth US$
116.32 million and jute goods worth US$ 317.86 million in the form of sacking
hessian carpet & carpet backing cloth, jute yarn/twine etc. This is one of the
very prospective areas for investment with higher technology.

Coal
Besides Oil and gas a contract has been signed to extract coal from Barapukuria
coal mine in Dinajpur district with a Chineses consortium designed to extract 1.0
million MT coal a year. Another contract has been signed with a North Korean
company for the extraction of 1.6 million MT of hard rock per year at Madhyapara
in the same district.

Power
Bangladesh is still at a low level of electrification with only 16% of it
population having access to electricity and per capita generation is only 96 KW
per annum. Hence, there is a great need and urgency to expand the electrification
programs. The government of Bangladesh has attached priority for the development
of the power sector. The present installed generation capacity is 2908 MW. But the
available generation capacity is about 2200 MW due to old age of few power plants.
The route length of transmission line is 3500 Km, the total length of distribution
network is 1, 28,000 KM and the number of consumers is 35, 00,000 at present. The
present demand of electricity is about 22,00 MW. It is estimated that the peak
demand in FY 2000 will be about 3150 MW and this will increase to about 4600 MW in
FY 2005. A total of 2700 MW generation capacity is planned to be added to the
system during the Fifth Five Year Plan period FY 1998FY 2002. Bangladesh has
amended its Industrial Policy and the power sector is open to private investment.
The government has approved the Private Sector Power Generation. The new policy of
Bangladesh is to attract private investment in power generation. Under the policy,
the private power companies shall be exempted from corporate income tax for a
period of 15 years and the companies will be allowed to import plant and equipment
without payment of custom duties and VAT. Because of the favorable conditions for
private investment a large number of Independent power producers (IPPs) have shown
interests for setting up power plants in Bangladesh. A Rural Power Plant is being
implemented by RPC at Mymensingh. A Rural Power Company (RPC) has been created A
60 MW Gas Turbine Power Plant is being implemented by RPC at Mymensingh. Contracts
with four IPPs selected through competitive bidding have already been negotiated
and are expected to be signed shortly. Bids received for setting up a 360 MW
combined cycle power plant at Haripur and 450 MW combined cycle power plant at
Meghna Ghat in the private sector are being evaluated. There is need for more
private investment in power generation to meet the increasing demand in future.
The government of Bangladesh has undertaken some reform measures with a view to
achieving operational and management efficiency and commercial characteristics in
the power sector. Power Grid Company of Bangladesh (PGCB) has been created.
Initially PGCB will own the transmission lines associated with Meghna Ghat Power
Project. Ultimately it will take over the entire transmission system of the
country. Dhaka Electric Supply Company (DESCO) has been created to manage the
distribution area of Mirpur. DESCO will eventually take over the entire
distribution responsibilities of Dhaka metropolitan city area.

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Air Transportation
In air transport, the government has given provisional domestic air transport
operating licenses to six private companies for STOL Services. Seven airports have
been refurnished to cater to their needs. International air & cargo transport in
the private sector is now allowed for operation in Bangladesh.

Tourism
With growing international interest in traveling through Asia tourism is taking
roots in Bangladesh. Bangladesh offers a variety of historically significant and
culturally unique sites for tourists. Sylhet's tea gardens, Cox's Bazar sea-beach,
the Royal Bengal Tiger, Deer and the Sundarbans, the largest mangrove forest in
the world with unique bio-diversity offer tourist attractions. Ancient mosques,
Buddhist monasteries, Hindu temples, monuments and other landmarks dot the
countryside. Additional hotel and resort facilities could be created for
attracting tourists from home and abroad. Dhaka and Chittagong also have an unmet
demand for additional hotel rooms, restaurants, entertainment and recreational
facilities.

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