Originally published in The Business Standard on 20 June 2020
As a developing South Asian country with a fast-growing economy, Bangladesh can view this as a golden opportunity for enticing FDI
Foreign Direct Investment (FDI) has fallen dramatically, affecting Bangladesh, as well as other countries. Due to the Covid-19 outbreak, many first world countries like Japan, South Korea, the US, and members of the European Union are trying to move their factories or manufacturing plants out of China and into other Asian countries to avail business benefits and reduce dependence on a single nation.
China has always been a preferable destination for investment due to cheap labour. The investing countries were thus able to manufacture high-quality products at low cost. However, the coronavirus pandemic has exposed a weakness – the companies put all their eggs in one basket. Now, the foreign companies are unable to ship outside China due to factory shutdowns and are incurring major losses.
As a developing South Asian country with a fast-growing economy, Bangladesh can view this as a golden opportunity for enticing FDI. Since the investment situation will change drastically in the post-pandemic period, Bangladesh will need to make particular efforts to attract international investors to keep the country’s economy stable.
So far, the Bangladesh Economic Zones Authority (BEZA) and the Bangladesh Investment Development Authority (BIDA) have not been very active. Their operations have been confined to just informing the government on the current situation and challenges in getting foreign investment.
What they need to do is move fast and understand the reality and the competition. BIDA needs to understand that unfriendly attitudes towards foreign investors will not help us in any way.
Experts say that mere declaration of incentives from the state will not be sufficient to encourage investors to come to Bangladesh; much broader changes are needed if the country wants to attract investment over Vietnam, Indonesia and others.
At first, the bureaucracy needs to embrace change and create confidence among prospective investors. Currently, BEZA is working on developing 100 economic zones, three of which have been allocated to Japan, India, and China to encourage manufacturing companies to set up production units. Moreover, BEZA has been planning to offer several other incentives like tax exemptions, allowing duty-free importation of machinery, providing bond facilities, etc. to lure in foreign investment.
Talks with Japanese agencies are going on to discover better investment opportunities. Bangladesh has received $20.5 billion in investment offers from a huge number of international firms and more are expected to come from international buyers from South Korea, Japan, India, Australia, Singapore, the US, the UK, and many other countries.
But several other Asian countries, including India, Malaysia, Indonesia, and Vietnam have offered many lucrative packages to lure in these foreign companies into their countries. Bangladesh too should follow in their footsteps and adopt several strategies to attract investment leaving China at this moment.
For instance, building economic zones will help keep plenty of factories in one place, attracting not only the major manufacturers, but also their raw material suppliers. In the economic zones, the government is offering several benefits to the investors as Bangladesh has a favourable foreign investment policy.
These zones will enhance production, encourage industrialisation and improve overall economic growth. This will not only improve the way of doing business, but also grab the attention of the foreign investors currently moving out of China. In this regard, Bangladesh can take examples from countries like Vietnam, Myanmar, and India who are investing a lot in developing economic zones in their respective countries.
Moreover, Bangladesh should especially focus on countries like Japan, the US, and EU countries that have already decided to move manufacturing plants from China. Embassies abroad can reach out to these companies and offer them incentives for manufacturing purposes.
Implementation of One Stop Service (OSS) would be a key strategy to attract foreign investment. The government must also identify a specific sector for investment. Special attention could be given to sectors affected by the pandemic like healthcare, pharmaceuticals, ICT, food and agriculture, etc.
Additionally, tax waiver could be another key strategy to grab the attention of investors. With low taxes, companies will be attracted to set up manufacturing plants in Bangladesh to keep their costs low.
Moreover, speeding up the process of company incorporation can be another strategy. If the government can ensure foreign investors that services will be fast, effective and hassle-free, then the foreign investors will find Bangladesh an appropriate place for investment.
Offering lucrative proposals to interested countries like tax holidays, allowing 100 percent foreign investment in controlled industries, relaxation on local immigration laws, and work permits can also influence better investment opportunities.
Maintaining consistency of rules and regulations, ensuring transparency, precisely indicating required documentation with easy access, land acquisition opportunities, reducing discretionary authority, developing a mindset of “customer is always right” – which essentially means that granting licences to investors is not a favour, rather investors have done us a favour by submitting a proposal – is vital to attract entice FDI.
The idea of customers never being wrong is a cardinal marketing principle still unknown to Bangladeshi bureaucratic institutions that are engaged in promoting investment. Our prime minister signed FDI deals with few countries worth a few billion dollars. But unfortunately, very few of these have materialised – around 2 to 3 percent of the proposals. The problem lies in implementation.
However, it is important to note that till today, return on investment – a ratio between net profit and cost of investment – is higher in Bangladesh compared to its neighbours.
What are other countries doing?
India is currently a favourite destination for foreign companies relocating from China. The Indian government has taken up some initiatives to grab this opportunity. They have already offered to provide incentives for manufacturers who are willing to move out of China.
India has already started working with American companies and taking their feedback on making labour and tax legislation more convenient for investors. They have also amended the FDI policy to restrict the possibility of aggressive foreign investment exploiting the financial distress of Indian companies hit by the virus.
In recent years, Vietnam has been successful in attracting a large volume of investment by successfully implementing favourable FDI policies and opening up its economy in a planned manner.
In Vietnam, reforms and implementation of investment legislation has assisted in creating a consistent legal system and a common platform for foreign firms and enterprises in recent times.
Vietnam is currently a top destination for factories moving away from China. The country has been successful in handling the Covid-19 situation quite well so far, giving them an edge over other regional nations.
Another country, Indonesia, reportedly cleared up 4,000 hectares of land in Central Java to accommodate US companies planning to relocate from China. Indonesia has taken effective initiatives, which include freeing up land for five years and having direct talks with the president of US to offer various incentives.
This has resulted in the US government deciding to relocate 27 of its multinational companies from China. Indonesia has gotten preference over other countries due to high-quality infrastructure, tax benefits, huge manpower productivity, availability of land, customs exceptions and other incentives. In the first quarter of 2020, about $141 billion was invested in Indonesia, more than 46 percent of which was FDI.
To attract foreign investment in Bangladesh, the government should immediately take a holistic approach. Undertaking large infrastructure projects, offering lucrative packages to the investors, developing economic zones and amending FDI policy could be a few key strategies to bring in foreign investment into the country.
However, the government should also be cautious about protecting local companies from being taken over or pushed out of business by foreign investors, especially in certain sectors that may pose a threat to the security of the country.
The author is an advocate of the Bangladesh Supreme Court.
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