Investment opportunities in Bangladesh

Investment opportunities in Bangladesh

Compiled from Speech of one of the

Former Director of FBCCI

The Board of Investment (BoI):

The Government of Bangladesh established the Board of investments (BOI) in 1989 for accelerating private investment in Bangladesh. The Board, headed by the Prime Minister of the Republic and represented by Ministers and Secretaries of the concerned ministries and public representatives and private sector people is vested with necessary powers to take decisions for speedy implementation of new industrial projects and provide operational support services to the existing ones.

 

The major functions of Board of Investment (BOI) include the following :

• Undertaking investment promotion activities at home and abroad providing all types of facilities for promotion of capital investment and rapid industrializaiton
• Registration of industrial projects as well as royalty, technical know- how and technical assistance agreements wherever required
• Approval of payment of royalty, technical know-how and technical assistance fees to foreign nationals/organisations beyond the prescribed limits
• Issuing work permit to expatriate personnel working in private sector industrial enterprises
• Providing import facilities to industrial units in the private sector Approval of the terms and conditions of foreign private loan and suppliers credit
• Allotment of land in the industrial areas / estates for industrial purpose Conciliation of disputes relating to foreign investors and
• Providing assistance to avail infrastructure facilities for industries

One Stop Service Centre:

The infrastructure and institutional support service that are available with the One Stop Service Centre are :

1. Pre investment counselling
2. Electric connection
3. Gas connection
4. Water and sewerage connection
5. Telecommunication facilities
6. Solution of problems in case of any difficulty arises in clearing imported machinery under concessional rate of import duty and obtaining bonded warehouse license
7. Environmental clearance

 

Courtesy services

Board of Investment offers courtesy service to the visiting foreign investors. The service includes reception at airport, hotel booking, transport arrangement and drawing up itinerary in accordance with the need of the foreign investors visiting Bangladesh. To avail of the services the investors are advised to intimate BOI in advance.

 

Welcome service at airport.

‘BOI welcome service’ counter manned by BOI officials has been setup to offer round the clock service to all foreign investors arriving at the Zia International Airport, Dhaka. Foreign investors are requested to avail the services on arrival.

 

Procedure for obtaining facilities and services.

BOI has laid down an elaborate set of procedures for providing various facilities and services under the following heads, which an entrepreneur can, availed for setting up an industry.

 

• Registration of joint venture / 100% foreign investment proposals in the private sector
• Registration of self-financed local investment projects including industries sanctioned / financed by financial institutions or commercial banks.
• Permission for setting up joint venture industrial units with the public sector corporations.
• Procedures for import of raw & packing material and spare parts
• Guidelines for registration / approval of foreign loan, suppliers’ credit, PAYE scheme, etc.
• Remittance of royalty, technical know-how and technical assistance fees
• Procedure for obtaining work permit for foreign nationals.
• Procedure for obtaining industrial plot.
• Procedure for obtaining electricity, gas, water, sewerage & telephone connection.

INCENTIVES AND FACILITIES FOR THE INVESTORS

Tax holiday: Tax holiday facilities will be available for 5 or 7 years depending on location of the industrial enterprise.

 

Dhaka and Chittagong Divisions (excluding 3 hill tract districts of Chittagong Division)	5 Years
Khulna, Sylhet, Barisal and Rajshahi Division and 3 Chittagong hill tract districts	7 Years

 

Tax holiday facilities will be provided in accordance with the existing laws. The period of tax holiday will be calculated from the month of commencement of commercial production. Tax holiday certificate will be issued by NBR for the total period within 90 days of submission of application.

 

Accelerated depreciation : Industrial undertakings not enjoying tax holiday will enjoy accelerated depreciation allowance. Such allowance is available at the rate of 100 per cent of the cost of the machinery or plant if the industrial undertakings is set up in the areas falling within the cities of Dhaka, Narayangonj, Chittagong and Khulna and areas within a radius of 10 miles from the municipal limits of those cities. If the industrial undertaking is setup elsewhere in the country, accelerated depreciation is allowed at the rate of 80 per cent in the first year and 20 per cent in the second year.

 

Concessionary duty on imported capital machinery : Import duty, at the rate of 5% ad valorem, is payable on capital machinery and spares imported for initial installation or BMR/BMRE of the existing industries. The value of spare parts should not, however, exceed 10% of the total C & F value of the machinery. For 100% export oriented industries, no import duty is charged in case of capital machinery and spares. However, import duty @5% is secured in the form of bank guarantee or an indemnity bond will be returned after installation of the machinery. Value added tax (VAT) is not payable for imported capital machinery & spares.

 

Rationalization of import duty : Duties and taxes on import of goods which are produced locally will be higher than those applicable to import of raw materials for producing such goods.

 

Incentives to Non-Resident Bangladeshis (NRBs) : Investment of NRBs will be treated at par with FDI. Special incentives are provided to encourage NRBs for investment in the country. NRBs will enjoy facilities similar to those of foreign investors. Moreover, they can buy newly issued shares/ debentures of Bangladeshi companies. A quota of 10% has been fixed for NRBs in primary public shares. Furthermore, they can maintain foreign currency deposits in the Non-resident Foreign Currency Deposit (NFCD) account.

 

Other incentives:

• Tax exemption on royalties, technical know-how fees received by any foreign collaborator, firm, company and expert.
• Tax exemption on the interest on foreign loans under certain conditions.
• Avoidance of double taxation in case of foreign investors on the basis of bilateral agreements.
• Exemption of income tax up to 3 years for the foreign technicians employed in industries specified in the relevant schedule of income tax ordinance.
• Tax exemption on income of the private sector power generation company for 15 years from the date of commercial production.
• Facilities for full repatriation of invested capital, profit & dividend
• 6 months’ multiple entry visa for the prospective new investors.
• Re-investment of repatriable dividend treated as new investment.
• Citizenship by investing a minimum of US$5,00,000 or by transferring US$10,00,000 to any recognized financial institution (non-repatriable).
• Permanent residentship by investing a minimum of US$ 75,000 (non-repatriable)
• Tax exemption on capital gains from the transfer of shares of public limited companies listed with a stock exchange.
• Special facilities and venture capital support will be provided to export-oriented industries under “Thrust sectors” .

 

There will be no discrimination in case of duties and taxes for the same type of industries set up by foreign and local investors and in the public and private sectors.

 

Incentives to export-oriented and export-linkage industries : 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 manufactured goods or an industry contributing at least 80% of its products as an input to finished exportable, and similarly, a business entity exporting at least 80% of services including information technology related products will be considered as an export-oriented industry. To make investment in 100 per cent export-oriented industries attractive, the following incentives and facilities will be provided.

 

• Duty free import of capital machineries and spare parts upto 10 percent of the value of such capital machinery will continue.

 

• Existing facilities for Bonded Warehouse and back-to-back Letter of Credit will continue.

 

• The system for duty drawback will be further simplified and to this end, duty drawback will be fixed at a flat rate on exportable and potentially exportable goods. Exporter will receive duty drawback at a flat rate directly from the relevant commercial banks.

 

• The arrangement for providing loans up to 90 percent of the value against irrevocable and confirmed Letter of Credit/ Sales Agreement will continue.

 

• To ensure backward linkage, incentives will be extended to the “deemed 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 export-oriented industries, further to the provisions of Bangladesh Bank foreign exchange regulations, will be entitled to receive additional foreign exchange, on case-to-case basis, for publicity campaign, opening overseas offices and participating in international trade fairs.

 

• The entire export earnings from handicrafts and cottage industries will be exempted from income tax. For all other industries, income tax rebate on export earnings will be given at 50 percent.

 

• The facility for importing raw materials, which are included in the banned/ restricted list, but required in the manufacture of exportable commodities, will continue.

 

• The import of specified quantities of duty-free samples for manufacturing exportable products will be allowed consistent with the prevailing relevant government policy.

 

• The local products supplied to local industries or projects against foreign exchange payment or 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.

 

• 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 Export-Oriented industries which are identified by the government as “Thrust Sector” will be provided special facilities and venture capital support.

 

Apart from the above-mentioned facilities, other facilities announced and provided in the Export Policy will be applicable to export-oriented and export-linkage industries.

 

FOREIGN INVESTMENT

Private investment from overseas sources is welcome in all areas of the economy with the exception of only five industrial sectors (reserved for public sector). Such investments can be made either independently or through joint venture on mutually beneficial terms and conditions. In other words, 100% foreign direct investment as well as joint venture both with local private and with public sponsors is allowed. Foreign investment, however, is specially desired in the following categories:

 

–           Export-oriented industries.

–           Industries in the Export Processing Zones.

–           Undertakings in which more diversified use of indigenous natural resources is possible.

–           Basic industries based mainly on local raw materials.

–           Investment towards improvement of quality and marketing of goods manufactured and/or increase of production capacities of existing industries; and

–           Labour-intensive/technology-intensive/capital-intensive industries.

 

To facilitate foreign investment

–           Foreign firms and companies operating in Bangladesh do not require prior approval of Bangladesh Bank for remittance of profits to their head office.

–           Prior approval of Bangladesh Bank is no longer needed for issuance of shares to non-residents in respect of investments for setting up industries in Bangladesh and for remittance of dividend thereof.

–           Non-residents including foreign enterprises can invest in shares and securities through Stock Exchange without prior approval from Bangladesh Bank.

–           Residents who bring in their earning abroad through normal banking channel and invest in new industries, stocks, shares or government bonds or use such funds for purchasing industries sold in auction by state owned financial institutions are exempted from payment of income tax on such investments.

 

EXPORT PROCESSING ZONES

Export Processing Zones in Chittagong & Dhaka provide necessary fiscal and infrastructure facilities for export-oriented enterprises. Four more Export Processing Zones in Mongla, Ishurdi, Comilla and Syedpur (Nilphamari) are under implementation. Readymade factory buildings and land are available in the zones for rental. The land rent is US$ 2.00 per sp. metre per year and leased out initially for 30 years which is renewable. The rent for standard factory building is US$ 2.50 per sq. meter per month.

 

Foreign investment to the extent of 100% of ownership is allowed in the Export Processing Zones. New Export Processing Zones at other suitable places are being taken up.

 

Bangladesh Export Processing Zones Authority (BEPZA) approves all projects to be located in the EPZs. BEPZA (i) sanctions projects generally within one week, (ii) issues import/ export permits, (iii) work permits for foreign nationals, (iv) provides required infrastructure facilities, v) Provides utilize services and (vi) offers “One Window Same Day Service” to investors in EPZ enterprises. BEPZA is vested with responsibility to administer labour matters for all enterprises in EPZs. Law forbids formation of any labour union in EPZs.

 

Industries in the EPZs enjoy tax holiday for 10 years, exemption of income tax on interest borrowed capital, relief from double taxation subject to bilateral agreement, complete exemption from dividend tax for tax holiday period for foreign nationals, duty free import of machinery, equipment, raw materials, materials for construction of factory buildings and duty-free export of goods produced in the zones. Industries in the EPZs also enjoy freedom from national import policy restrictions. import of raw materials allowed on Documentary Acceptance (DA) basis, advantage of opening back-to-back L/C for certain types of industries for import of raw materials, import of goods from the Domestic Tariff Area (DTA) permissible, enterprises can sell 10% of their product to the DTA on payment of duties and taxes under certain conditions. In EPZs relocation of existing industries from abroad allowed and relocation of industries from one zone to another within the country permissible.

 

In addition (i) sub-contracting within EPZ allowed, inter-zone, intra-zone export permitted, all customs formalities done at the gate site of the respective factory building within the zone, permission for import/export issued within the same day and repairing and maintenance of machinery and capital equipment from domestic tariff area allowed. For enterprises in EPZs (a) offshore banking facilities are available, (b) local and international banking facilities wide-open and (c) medical services for the workers / officers are available.

 

EPZ IN THE PRIVATE SECTOR

Government has recently enacted a law allowing setting up of Export Processing Zones in the private sector with a view to attracting more investment especially foreign investment in the country.

 

PRIVATIZATION PROGRAMME

Government has already undertaken a large-scale privatization Programme and the Pravatization Board has been reorganized appointing a reputed private businessman as its head. Disinvestment programmes of public enterprises are at hand. Foreign investors and expatriate Bangladeshis are encouraged to purchase such industrial units.

 

POTENTIAL SECTORS FOR INVESTMENT

The major potential sectors which offer probable choices for investment are:

 

Textiles: Being lobour-intensive it is the most comparative advantage sector in Bangladesh. The captive demand of over 2 billion meters of fabrics of the burgeoning ready-made garments industries which are currently being met from imports and domestic unmet demand of about 280 million meters offer enormous potential for setting up backward linkage industries. Composite textiles mill with modern dyeing and finishing facilities have excellent prospects.

 

Energy: Power Generation and Transmission. In view of the gradual widening of supply gap and pursuant to the policy of privatization the Government has recently opened the power sector to private investment. The installed generating capacity is 2900 MW. The domestic demand is expected to rise to 3150 MW in the year 2000 and 4600 MW in 2005. To meet this demand generation capacity has to be increased. Additional generating capacity by about 2800 MW will be required offering scope for huge investment.

 

Natural Gas: Bangladesh is endowed with large deposits of Natural Gas. The estimated total known reserve of gas is about 21.35 TCF (Trillion Cft.) and the recoverable reserve is 12.4 TCF. Gas being the major source of energy for power generation, fertilizer factories, commerce, industries and domestic use, its exploration and development is a high priority for the country.

 

Telecommunication: The all-pervasive influence of the recent revolution in information technology on the telecommunication sector has opened up a new vista for private investment. This is a highly potential area not only because the possibilities and potentialities are immense, but also because there is a ready market of eager clients in the country. This sector has been opened to private investment.

 

Fisheries: There is large domestic demand for fish and foreign markets are sizable and ever growing because of its proven superiority over meat proteins. Given extensive coastlines, large water bodies and excellent climatic conditions, the potential for fisheries development including hatcheries in Bangladesh is enormous.

 

Agro-based Industries: Bangladesh enjoys the basic attributes for successful agro-based industries namely, rich alluvial soil, a year-round frost-free environment, adequate water supply and an abundance of cheap labour. Increased cultivation of vegetables, tropical fruits, spices now grown in Bangladesh could feed agro-processing industries for both domestic and export markets. Floriculture can also be developed to meet export demand.

 

Electronics: Already a number of overseas electronics companies have established technical collaboration with Bangladeshi counterparts to produce electronic gadgets at competitive prices. But these are mostly assembling plants. The creation of feeder industries to supply parts such as transformers, fuses, printed circuit boards and coils to existing electronic operations has begun in a limited sale. The development and expansion of these and other areas offer large investment opportunities for the manufacture and export of electronic components and products.

 

Computer Software Development and Data Entry: The revolution in the information technology facilitating computerized global networking has opened tremendous opportunities for the highly lobour-intensive computer software development and data entry in Bangladesh. There is a large pool of educated girls and young man who can be easily trained to man these ventures.

 

Leather and Leather Goods: Bangladesh leather is of compact fiber structure and fine grains. Available quality hides can support a variety of increased value-added products such as jackets, garments, gloves, shoes, wallets, handbags, watch bands etc.

 

Light Industries: Light industries of Bangladesh produce variety of lobour-intensive goods including toys, consumer durables, small tools, and paper products for a large domestic market. Further development of these industries offers large investment opportunities. Some export oriented light industries have already been established by entrepreneurs from Hong King. Japan and Korea taking advantage of cheap and easily trainable local labour and available infrastructure facilities in EPZs. There is enormous potential for expansion of capacity in this sub-sector.

Investment opportunities in Bangladesh: Investment opportunities in Bangladesh: Investment opportunities in Bangladesh

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