Opportunities of Trade and Investment in Bangladesh
Compiled from the speech of one of the
Former Presidents, FBCCI
Bangladesh is a country of about 132 million people of which 88 percent are Muslims and remaining 12 percent comprises of other ethnic groups like, Hindu, Buddha, and Christians, predominantly mixed group of Proto Austroloids/Drvidians, Mongloids and Aryans. It has an area of 1,47,570 square kilometer with 889 persons living per km, making it the ninth most densely populated country of the world. Bangladesh is well known for its homogeneity of culture and religious tolerance and has emerged in this troubled ridden world as a model state for religious peace and harmony. Situated as Bangladesh is on the deltaic region of three mighty rivers- the Ganges, the Brahamaputro and the Meghna much of the country’s land areas has been build up from alluvial deposits brought down by the major rivers. The country is mostly flat except for a range of hills in the south-east. It is well known for its natural resources and lush green scenic beauty having the largest sea beach of the world in Cox’s Bazar, the southern end of Chittagong, the port city of the country.
Bangladesh has maintained steady growth at the rate at around 5% during the past six years in spite of a devastating flood in 1998 which ravaged two third of the country. Agriculture, which occupies 70% of country’s total land, still remains as the main focus of the economic activities and caters to 24.6% of the GDP. The overall economic scenario is likely to suffer jolt following the terrorist attack on September 11, 2001, in U.S.A, which is one of our prime partners in all development activities.
The Government of Bangladesh and the Private Sector have taken many development measures for overcoming this situation. As a result, in 2001-2002, the GDP at current price was US$ 47.46 billion, other indicators were, annual per capita GDP: US$ 362, GDP growth at constant price 4.80%, Industrial growth at constant price: 5.0%, Inflation rate: 2.8%, Investment rate : 23.18% of GDP, National savings rate: 22.43% of GDP and Exports : US$ 5,987 million. The Foreign exchange reserve on June 30, 2002 amounted to US$ 1,583 million and Bank rate was 6%.
INDUSTRY AND TRADE
The Government is keen to expand industrial base of the economy and encourage both domestic and foreign investment in the industrial sector. In 2001-02, GDP growth in this sector was about 5.0%. The Quantum Index of Production in medium and large industries stood at 235.20 in 2001 from 179.30 in 1997. Government has been pursuing an industrial strategy, which has been defined in the Industrial Policy 1991 and subsequently revised in 1999. Particular attention is given following categories of industries:
- Export oriented;
- Set up in export processing zones;
- High technology export-oriented or import substitution products;
- Industries based on indigenous resources or raw material;
- Quality enhancement, marketing and capacity building of existing industries; and
- Labor intensive, technology-oriented, capital-intensive industries.
The Industrial Policy 1999 has emphasized for accelerating industrial growth and increase the share of industry sector in GDP to build an industrialized economy. Key features of this policy is cited below:
- To expand the production base of the economy by accelerating the level of industrial investment.
- To promote the private sector to lead the growth of industrial production and investment.
- To focus the role of the government as the facilitator in creating an enabling environment for expanding private investment.
- To permit public undertaking only in those industrial activities where public sector involvement is essential to facilitate the growth of the private sector and / or where there are over riding social concerns to be accommodated.
- To attract foreign direct investment in both export and domestic market oriented industries to make up for the deficient domestic investment resources, and to acquire evolving technology and gain access to export markets.
- To ensure rapid growth of industrial employment by encouraging investment in labor intensive manufacturing industries including investment in efficient small and cottage industries.
- To generate female employment in higher skill categories through special emphasis on skill development.
- To raise industrial productivity and to move progressively to higher value added products through skill and technology upgradation .
- To enhance operational efficiency in all remaining public manufacturing enterprises through appropriate management restructuring and pursuit of market oriented policies.
- To diversify and rapidly increase export of manufactures.
- To encourage the competitive strength of import substituting industries for catering to a growing domestic market.
- To ensure a process of industrialization which is environmentally sound and consistent with the resource endowment of the economy.
- To encourage balanced industrial development throughout the country by introducing suitable measures and incentives.
- To effectively utilize the existing production capacity.
- To coordinate with trade and fiscal policies.
- To develop indigenous technology and to expand production based on domestic raw materials.
- To rehabilitate deserving sick industries.
Draft Industrial Policy 2002 in now on review. Major industries of Bangladesh are Jute, Tea, Textiles, Garments, Paper, Newsprint, Fertilizer, Leather & Leather goods, Sugar, Cements, Fish & Food processing, Pharmaceuticals, Ceramics & Melamine and Chemical Industries.
For implementing the Five-Year Export Policy 1997-2002, a momentum has been shown in exports of the country. In 1997 -98 the export earnings of Bangladesh were US$ 5172 million and export growth rate were 16.8%. But due to devastating flood in 1998 the production and communication systems were badly affected. So, in 1998-1999 the export earnings amounted to US$ 5324 million with 2.94% growth rate. In 1999-2000, the situation was being developed and export earnings was US$ 5762 million and in 2000-2001 it was US$ 6467 million. In 2001-2002 due to terrorist attack in USA and global recession the export earnings were declined and amounted to US$ 5986 million.
The traditional export items of Bangladesh are: raw jute, jute manufactures (hessian sacking, carpet backing, carpets), jute products, tea, leather and leather products. Non-traditional export items are: garments, frozen shrimps, other fish products, newsprint, paper, naphtha, furnace oil, urea, ceramic products.
The economy of Bangladesh depends on imports both for consumer items and industrial raw materials. In 1998-99 and 1999-2000 the import payments of Bangladesh were US$ 8018 million and US$ 8403 million respectably. In 2000-2001 the export payments were increased at 11.4% and stood at US$ 9363 million. In 2001-2002 the import payments were decreased for global recession and amounted to US$ 8540 million.
The major import items of Bangladesh are Wheat, oil, seeds, crude petroleum, raw cotton, edible oil, petroleum products, fertilizer, staple fibers, yarn, iron and steel, capital goods. Major trading partners of Bangladesh for both exports and imports are USA, EU countries, India, China, Japan, South Korea, Australia, Malaysia, Hong Kong, Taiwan, Indonesia, Thailand, Saudi Arabia, UAE.
INVESTMENT IN BANGLADESH:
Duty free access
Bangladesh has one of the most liberal foreign investment regimes in the region. Incentives offered to foreign investors are at least as attractive as those offered in neighboring countries. Foreign investment is legally protected against nationalization and expropriation, repatriation of capital and returns from it are guaranteed and foreign investment is provided treatment similar to local investment with regard to indemnification, compensation, etc. in the event of loss due to civil commotion. There is no restriction on the amount of investment of equity shares, 100 percent foreign investment and joint ventures with local private partners or with the public sector are freely allowed. Foreign investors are eligible to take advantage of a wide range of generous tax incentives and other facilities.
Incentives and Facilities for the Investors
Tax holiday is allowed to industries subject to the relevant rules and procedures set by the National Board of Revenue (NBR). Presently, it is allowed for 5, 7, 9 and 12 years for industries set up in the developed, less developed, least developed and special economic zones respectively. The period of such tax holiday is calculated from the month of commencement of commercial production.
Concessionary Duty Imported Capital Machinery:
Import duty at the rate of 7.5 percent ad valorem is payable on capital machinery and spares imported for initial installation or for BMR/BMRE of existing industries. The value of spare parts should not, however, exceed 10 percent of the value of the machinery. Out of this 7.5 percent rate of duty payable. Export-oriented industries and industries located in the under-developed areas, may enjoy a further concession of the import duty in the following manner:
- For 100 percent export oriented Industries : No import duty or any other tax is payable.
- Export-oriented industries in developed areas : Effective rate of duty 5 percent.
- Other industries in developed areas : Effective rate of duty 7.5 percent.
- Export oriented industries outside developed areas : Effective rate of duty 2.5 percent.
- Other industries outside developed areas: Effective rate of duty 5 percent.
Value Added Tax (VAT) is not payable for imported capital machinery and spares.
Products of local industries are protected through tariff rationalization, keeping in view the interest of entrepreneurs and consumers. Tariff protection is allowed upto 4 years to the new industries. There is Tariff Commission to prescribe protective rate where necessary.
Incentives to Non-Resident Bangladeshis:
Special incentives are provided to encourage non-resident Bangladeshis for investment in industries. Non-resident Bangladeshi investors will enjoy facilities similar to those of foreign investors. Moreover, they can buy newly issued shares/debentures of Bangladeshi companies. Furthermore, they can maintain Non-resident Foreign Currency Deposit (NFCD) account for up to 5 years.
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.
- Exemption of tax on interest of foreign loans
- Exemption of tax on royalty, technical know-how and technical assistance fees, etc.,
- Liberal investment allowance for tax assessment
- Import of machinery under supplier’s credit or pay-as-you-earn (PAD) scheme on approved terms;
- Availability of long term credit facilities on liberal debt-equity ratio from industrial financing institutions (development finance institutions, nationalized commercial banks and private commercial banks);
- Income tax exemption of foreign technicians employed in approved industries for a period of 3 years
- Remittance of 50 percent of the salary of foreign nationals employed in approved industries;
- Remittance of savings from earnings, retirement benefits and personal assets of individuals on retirement/termination of services and
- Remittance of approved royalties, technical know-how and technical assistance fees.
Additional Incentives for Export Oriented/Linkage Industries:
- Encouraging export-oriented industries is one of the major objectives of the Industrial Policy, 1999 and as such government ensures all support and co-operation on priority basis as per export policy.
INFRASTRUCTURE FACILITIES AND UTILITY SERVICES
Road transport: Bangladesh has about 18,738 km of paved roads. Ports and important business centres are well connected by roads and highways.
Railways: Bangladesh Railway has a network of about 4,400 km connecting all the administrative and business points of the country. Railway container service from Chittagong Port to Dhaka is available.
Airways: Bangladesh is connected with important major cities of the world by air. Many of the world’s reputed airlines have their air link with Zia International Airport, Dhaka and Chittagong International Airport, Chittagong.
Marine transportation: Bangladesh has two seaports- Chittagong & Mongla. World’s reputed shipping lines are operating through these two ports.
Electricity: Generation, transmission and distribution of electricity in Bangladesh are the responsibility of a statutory body namely, the Power Development Board (PDB). In Bangladesh, electric power is generated in hydro, steam, gas turbine and diesel power plant. All the generating stations are interconnected through a national grid. The Dhaka Electric Supply Authority (DESA) started operation to maintain uninterrupted supply of electricity in the capital city. The industrial consumption rate of electricity varies from Tk. 3.30 to Tk. 5.75 (US $ 0.067 to US$ 0.117) per kw depending on the size of the industries, load capacity and peak & off-peak hour consumption.
Water and Sewerage: Water and sewerage facilities are provided by the Water Supply and Sewerage Authority (WASA) in metropolitan areas of Dhaka and Chittagong. For other municipal areas the local municipalities are responsible for the task.
Gas: Natural gas supply is available in all major industrial areas of Dhaka and Chittagong Divisions. Gas tariff for industrial consumption is about Tk. 4.12 (US$ 0.08) per cubic meter including supplementary duty and VAT.
Telecommunication: Comprehensive telecommunication services such as fully automatic telex, fax, e-mail, internet, telephone including international direct dialing are available with important countries of the world. The government has also given permission to the private sector telephone operators to provide various telephone services.
Industrial land: Once an industrial project is registered, the entrepreneur is eligible to apply for allotment of land to the government. Price of land in most of the industrial estates/areas are relatively lower than the market rate. These estates are developed with necessary infrastructure facilities such as electricity, gas, water, sewerage etc. industrial plots are allotted by BEPZA and BSCIC in industrial areas developed by them. Plots in other Industrial estates/areas, owned by the government or owned/controlled by any local authority are allotted on the recommendation of the BOI.
EXPORT PROCESSING ZONES (EPZs):
Export Processing Zones in Chittagong and Dhaka provide necessary fiscal, non-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 sq. 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. metre per month.
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) provides work permits for foreign nationals, (iv) provides required international facilities, (v) provides utility services (vi) offers one window same day service to the investors in EPZs. BEPZA is vested with the responsibility to administer labour matters for all enterprises in EPZs. Law forbids formation of any labour union in EPZs and strike by workers in EPZs in illegal.
Industries in the EPZs enjoy (I) tax holiday for 10 years, (ii) exemption of income tax on interest on borrowed capital, (iii) relief from double taxation subject to bilateral agreement, (iv) complete exemption from dividend tax for tax holiday period for foreign nationals (v) duty free import of machinery, equipment, raw materials, materials for construction of factory building and (vii) duty free export of goods produced in the zones.
Industries in the EPZs also enjoy (I) freedom from national import policy restrictions, (ii) import of raw materials allowed on Documentary Acceptance (DA) basis, (iii) advantage of opening back to back L/C for certain types of industries for import of raw materials (iv) import of goods from the Domestic Tariff Area (DTA) permissible, (v) 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, (ii) inter-zone, intra-zone export permitted, (iii) all customs formalities done at the gate site of the respective factory building within the zone, (iv) permission for import/export issued within the same day and (v) 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:
The Government enacted “The Bangladesh Private Export Processing Zones Act 1996” allowing setting up of Export Processing Zones in the private sector with a view to attracting more investment especially foreign investment in the country. Accordingly, quite a good number of private EPZs have been registered. The first private EPZ by a Korean company in Chittagong is now under implementation.
POTENTIAL SECTORS FOR INVESTMENT:
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. Potential sectors for investment in Bangladesh are mentioned below:
- Jute Goods (diversified jute products)
- Leather goods
- Frozen food
- Natural resources
- Power sector (electricity)
- Air transportation
- Light engineering industries
- Agro-based industries
- Computer software development, data entry & data processing
INDICATIVE LIST OF PRIVATE SECTOR INVESTMENT OPPORTUNITIES:
Private investment is welcome in all areas of the economy except four reserve sectors. An indicative list of private sector investment opportunities is given below:
Food and allied products:
- Dairy farming and dairy products
- Poultry farming & poultry products
- Shrimp, crab and other fish culture, processing and preservation of fish and other sea food
- Fish meal production
- Fruits and vegetables processing & canning
- Seed production & processing
- Other agro-based industries
- Composite textile mills
- Specialized textile mills
- Sericulture, reeling and filature.
Leather and rubber products:
- Leather finishing
- Footwear including shoe upper, sole etc.
- Tyres and tubes
- Leather goods, such as gloves, bags, jackets etc.
Chemical and allied industries :
- Soda ash;
- Paper and pulp (based on jute wastes and cuttings)
- Paper converting including artificial flowers and toys
- Jute goods
- Dyes, pigments and colour (basic manufacture)
- Pharmaceutical chemicals (basic manufacture)
- Plastic products including acrylic pipes and toys
- Special chemicals, such as extraction of amino, organic and other acids from agricultural wastes
- Chemicals for tanneries
- Manufacture of basic pesticides
Glass and ceramic:
- Cement including Portland and white cement.
- Sheet and plate glass
- Fluorescent tubes and electronic ballasts
- Parts and components of power hydrants, water supply and sewerage equipment.
Engineering industries :
- Ship building, machinery and equipment
- Sponge iron
- Railway engine and ancillary equipment
- Agricultural machinery and equipment
- Gas distribution machinery, meters and fittings
- Air conditioners, air coolers and refrigerators including compressors
- Electrical appliances and accessories
- Electric motors including fan motor, DC motors and their parts
- Mechanically propelled vehicles and components
- Electronic goods
- Television, radio and audio & video gadgets and their components
- Scientific and precision instruments including laboratory equipment
- Optical lenses, prisms, microscopes etc.
- Disposable needles and syringes
- Office equipment such as typewriter, photocopier, calculator, fax and telex machine
- Component of fishing reel and equipment
- Telecommunication equipment and their parts
- Electronic watch and clock
- Construction machinery and equipment
- Computer software and software application
- Gems cutting and polishing.
- Sports goods
- Tourism, hotel & resort facilities
- Photographic and video camera, lens
- Oil, gas, mineral explorations
- Power and electric generator
- Export-oriented flower and orchid farming as well as artificial flower
- Mechanical toys
- Imitation jewellery
- Exportable gift items
- Computer data entry, data processing
- Other high tech and export-oriented industries