Draft

Roundtable on “Bottlenecks to FDI in Bangladesh: How Best to Improve the Investment

Climate”

A roundtable discussion on “Bottlenecks to FDI in

Bangladesh: How Best to Improve the Investment
Climate” was held on 27 February 2008. The
discussion was organized by BEI in collaboration with
UNDP, Bangladesh. Mr Kamaluddin Ahmed, Executive
Chairman, Board of Investment, Government of the
People’s Republic of Bangladesh was the Chief Guest
at the occasion.

Dr Hua Du (Country Director, ADB), Mr Andrew

Proctor (Investment Policy and Promotion Consultant,
IFC, BICF), Mr Steve Wilson (Managing Director,
Chevron Bangladesh) and Mr Majedur Rahman
(Director, Foreign Investors’ Chamber of Commerce and Industry) were the members of the
panel. Mr Farooq Sobhan (President, BEI) chaired the discussion and Manoj Basnyat (Country
Director, UNDP Bangladesh) and Shaila Khan (Assistant Country Director, UNDP Bangladesh) were
also present.

The government has expressed its commitment towards attracting FDI and strengthening and
revamping the BOI. One of the initiatives taken in the recent past was the formations of the Better
Business Forum and the Regulatory Reforms Commission (RRC). In his opening remarks, Mr
Farooq Sobhan highlighted in order to improve the investment climate, it is important to
restructure BOI. Foreign investors also need a one-stop service centre for smooth operation of
their activities. Over the past, it can be seen that due to long processes and backlogs, several
projects wait for a long time for approval. The country also needs to have a strong infrastructure
and adequate supplies of power and energy. There is also a need for modern, efficient ports
which can compete with other regional ports. BOI also needs to have in-house expertise and
develop a strong database.

Mr Kamaluddin Ahmed, Executive Chairman, BOI highlighted the FDI scenario, bottlenecks to FDI
and government’s policy initiatives. According to FDI Survey, the actual inflow of FDI in 2006 (Jan-
Dec) was US$ 792 million. During Jan-June 2007, the provisional figures stood at US$ 368 million.
Sectoral distribution of FDI in 2006 was as follows:
ƒ Telecom (43.8%)
ƒ Energy and power (26.3%)
ƒ Trade and commerce (16.4%)
ƒ Manufacturing (13.2%)

FDI came from 26 countries and USA was the top contributor followed by Egypt, UAE, Norway
and the UK. According to the data, around 77% of the investment in the economy is made by the
private sector which contributed to nearly 19% of the GDP. Given this robust role of the private
sector, there have been some initiatives of the government to support them.

1
 Being an LDC, Bangladesh has several
bottlenecks in areas of:
ƒ Infrastructure
ƒ Image
ƒ Actual sector information/data
ƒ Regulations
ƒ Promotion

However, some initiatives have been

undertaken to address some of the problems
of investment arena. The formations of
Regulatory Reforms Commission and Better
Business Forum have been noteworthy. The
Regulatory Reforms Commission has been
formed by the government to classify the laws and rules, identify avoidable rules and regulations
and recommend amending and forming new laws to address the need of time. The Bangladesh
Better Business Forum (BBBF) is a high-powered forum to discuss with private sector on issues
like investment and trade, identify barriers on sound investment situation, find acceptable
solutions and recommend and support relevant agencies.

BOI has regular exchange of views with the private sector representatives and initiation to
transform BOI as an effective IPA of global standard has been undertaken.

Dr Hua Du highlighted the initiatives being taken by various agencies for strengthening the
infrastructure of the nation. It is important that strategies like anti-corruption drive, transparency
and good governance are instilled within the society to ensure their sustainability. The concept of
e-governance and e-procurement needs to be established soon in an efficient manner. It is also
crucial to develop the technical capacity and have highly informed and qualified expertise who
can facilitate decision making at all levels. There are also several sectors like tourism,
pharmaceutical and bio manufacturing which have high potential. If adequate investment and
attention is given to these sectors, they can contribute towards poverty alleviation and economic
development.

Mr Andrew Proctor, BICF Consultant underscored three generic types of bottlenecks:

1. availability of infrastructures and utilities
2. regulatory and procedural difficulties
3. information deficiencies

An investment promotion agency (IPA) can focus on image building, investment generation,
investor servicing and policy advocacy. Through policy advocacy, the role of IPA would be to
recommend the government in the changes that can be made. This needs to be supported by
way of effective institutional arrangement inclusive of composition and authority of Board and
effectiveness of management arrangements. The BOI needs to adopt such strategies in the
context of an objective to increase the inflow of FDI.

Mr Majedur Rahman put to light that the remittance of royalty, technical assistance fees,
operational service fees, marketing commission cannot exceed:

2
 ƒ For new projects 6% of the cost of the imported machineries
ƒ For on-going concerns not exceeding 6% of the previous year’s sales

There are some hidden costs which are

abstract by nature but exist in matters
related to legal, policy, procedural systems
and infrastructure have been playing a vital
role on case of alleviation of cost of
investment.

There are several bottlenecks like corruption,

poor law, non-availability of long term loan
for fixed assets and sudden changes in
government policies. In addition, the rate of
corporate taxes which is 40% for non-listed
companies is one of the highest in Asia.

Mr Steve Wilson, President, Chevron Bangladesh highlighted the following bottlenecks:

ƒ Corruption
ƒ Transparency
ƒ Bureaucracy
ƒ Sanctity of Contract
ƒ Indecisiveness
ƒ Accountability
ƒ Long term planning
ƒ Infrastructure

He added that investors were interested in Bangladesh and if the nation can “get these right and
the rest will fall into place.”

Key Issues

1) It is important to analyze the investment climate and look into how easy or difficult
it is to do business in Bangladesh.
2) To improve the investment climate, BOI may need to be restructured as a public-
private partnership.
3) Strong infrastructure is required to smooth business activities and diminish
bottlenecks.
4) It is important that concepts like anti-corruption, transparency and good
governance are instilled into the society for continued social and economic
development.
5) The rate of corporate taxes which is 40% for non-listed companies is one of the
highest in Asia.
6) According to a survey, salary of mid level managers; legal minimum wages; rate of
increase of nominal wages and other utilities charges are not competitive with
comparable investment destinations.
7) There are some hidden costs which exist in manners related to legal, policy,

3
 procedural and infrastructure which have been playing a vital role in alleviation of
cost of investment.
8) The best marketing tool for Bangladesh to attract more FDI is to showcase success
stories.
9) Being an LDC, Bangladesh has bottlenecks like infrastructure, image, actual sector
information/data, regulations and promotion.
10) An investment promotion agency needs to provide functions such as image
building, investment generation, investor servicing and policy advocacy.

Way Forward:
ƒ Government is keen and committed to an
effective private sector development and
initiatives like establishing Regulatory Reforms
Commission and Better Business Forum have
been undertaken.
ƒ Regular exchange of view with private sector
representatives is important for continued
initiatives to transform BOI as an effective
investment promotion agency of global standard.
ƒ Public Private Partnership (PPP) will play a key
role in encouraging effectiveness of development
processes.
ƒ Different chambers needs to work in an integrated manner to successfully address
sectoral issues.
ƒ Corporate governance will play a key role in enhancing the investment climate of
Bangladesh.
ƒ The issues of promotion/facilitation and mandated regulatory services need to be
established through separate institutional arrangements.
ƒ Bangladeshi remitters can be turned into investors through entrepreneurial initiatives.