Bangladesh2005 INVESTMENT CLIMATE STATEMENT -- BANGLADESH
OPENNESS TO FOREIGN INVESTMENT
The stated policy of the Government of Bangladesh (BDG) is to pursue foreign investment actively, and it has enacted a number of policies to this end. There are no distinctions between foreign and domestic private investors regarding investment incentives or export and import policies. Incentives for investors include: 100% ownership in most sectors; tax holidays; reduced import duties on capital machinery and spares; duty-free imports for 100% exporters; and tax exemptions. The 2004 budget contained a $100 million subsidy for the agriculture sector. There are few performance requirements, and these do not generally present a problem for foreign investors. Customs bonded warehouses assist exporters. Free repatriation of profits is allowed and is almost fully convertible on the current account. Although discrimination against foreign investors is not widespread, some discriminatory policies and regulations exist. For example, advertisements for imported products are assessed a 60% advertising surcharge for television spots on state-owned television.
Major laws affecting foreign investment are the Foreign Private Investment Act of 1980, the Industrial Policy of 1999, the Bangladesh Export Processing Zones Authority Act of 1980, the Companies Act, 1994, and the Telecommunications Act, 2001. Trade has been gradually liberalized over the past five years, although import duties and supplemental taxes remain high and constitute the largest single sources of Government revenue. The FY2004 budget reduced the maximum import duty rate by 5%. The budget also reduced the maximum supplementary duty on imports of products of general nature at 30% from 75%.
No prior approval is required for foreign direct investment except registration with the BDG Board of Investment (BOI). Registration with BOI is necessary to obtain benefits such as importing machinery at concessionary duty rates or importing items on the "restricted list." BOI also administers the approval of foreign loans and technology remittances on behalf of Bangladesh Bank. BDG authority, however, for dealing with foreign investments is fragmented. BOI, frequently touted as a one-stop shop for all investors, is set up only to register investors in industrial projects outside the export processing zones (EPZs) and assist them with tax inquiries, land acquisition, utility hook-ups, and incorporation. The corresponding EPZ authority is the Bangladesh Export Processing Zones Authority. Investors in power, mineral resources, and telecommunications must seek approval from the corresponding BDG ministries. Although BOI is housed organizationally in the Prime Minister’s Office, regulatory and administrative powers remain vested in the line ministries, and thus BOI has not proved to be an effective advocate for foreign investors. The BDG has indicated it hopes to streamline BOI’s procedures and find ways to attract new foreign investment to Bangladesh. The foreign investors in Bangladesh appreciates the leadership of the current BOI Chairman, who has been working hard to make Bangladesh a convenient place for foreign investors and has been successful in many cases.
Privatization is another critical part of the BDG's stated economic reform policy. After assuming power in 2001, the present government prepared a list of 94 state-owned enterprises (SOEs) for privatization by the Privatization Commission (PC). The PC has privatized 18 SOEs during the last three years, including three large industries—the Adamjee Jute Mill, the country’s largest and most costly SOE, the Karnaphuli Chemical Mill, and the Chittagong Chemical Complex. Letters of Intent (LOI) have been issued to selected buyers for eight more SOEs, four of which are expected to go to closing in 2005. The PC has recently invited international tenders for sale of seven additional SOEs.
The BDG still resists privatizing utilities and opening critical sectors to full competition, though that is starting to change. Bangladesh allowed private sector entry in power generation and natural gas exploration, but efforts to grant autonomy in petroleum marketing and gas distribution have hit stumbling blocks. Biman Bangladesh Airlines tried to sell a large stake in its ownership, but could not find a willing partner. The Government used to provide telecom services exclusively, but now two private companies operate in rural telecom, and four firms are involved in cellular phone systems. There is continued talk of privatizing the Bangladesh Telephone and Telegraph Board, inland ports, and container and cargo handling. Government has provided licenses to ten new private operators to provide telephone services outside the capital city.
According to an UNCTAD report, FDI to Bangladesh averaged $7 million annually from 1990-1996, but increased to an annual average of $196.8 million from 1997-2000, primarily due to foreign investment in Bangladesh’s energy sector. In 2001, however, new FDI dropped 72% (to $78 million) from the previous year. In 2002 new FDI again dropped to $52 milli0on. But in 2003 the FDI jumped to $120 million.
Investors from the United States and other countries continue to show interest in Bangladesh. Investors report both positive and negative experiences. In 2004, an American health care firm was approved to invest $35 million in a project to refurbish, expand, operate and transfer a hospital in Dhaka. However, in 2003, another U.S. firm was unable, after five years, to gain approval for its $225 million container project, which would greatly increase the efficiency of the country’s primary port.
A number of foreign business delegations have visited Bangladesh to explore trade and investment opportunities, including from India, France, Turkey, Malaysia, Taiwan China, and Korea. The UAE Government invited the Chairman of Board of Investment to discuss investment opportunities in Bangladesh.
Foreigners often find that ministries request unnecessary licenses and permissions. Added to these difficulties are such problems as corruption, labor militancy, an uncertain law and order situation, poor infrastructure, inadequate commercial laws and courts, inconsistent respect for contract sanctity, and policy instability (i.e., policies being altered at the behest of special interests, and decisions taken by previous governments being overturned when a new government comes to power). To a lesser extent, difficulty in attracting foreign investment also results from Bangladesh's image as an impoverished and undeveloped country subject to frequent and devastating natural disasters. This is a partial misconception, as the annual floods, which inundate up to one-third of Bangladesh, are vital for agricultural production each year. Prior to political instability and warfare in the 1950s, Bangladesh had been one of the wealthiest regions in Asia and its land is still considered among the most fertile in the world.
CONVERSION AND TRANSFER POLICIES
The official currency of Bangladesh is the taka. The Bangladesh Bank, the central bank of Bangladesh, does not fix the exchange rate of the taka against foreign currencies. Individual banks set their own buying and selling rates for foreign currency based on supply and demand. The taka is almost fully convertible for current account transactions, such as import trade and travel needs, but not for capital account transactions, such as investing or currency speculation. The Foreign Investment Act guarantees the right of repatriation of invested capital, profits, capital gains, post-tax dividends, and approved royalties and fees. The central bank's exchange control regulations and the U.S.-Bangladesh Bilateral Investment Treaty (entered into force in 1989) provide similar investment transfer guarantees. In practice, foreign firms are able to repatriate funds without much difficulty, provided the appropriate documentation is in order. Foreign firms in joint ventures, which are only able to remit profits in the form of dividends, also report no difficulties. However, in some cases, foreign firms' profit remittances have been delayed for over one year pending tax clearance from the National Board of Revenue. Although there is no specific restriction on repatriation of capital gains in the Foreign Private Investment Act of 1980, one U.S. firm was denied permission to repatriate gains on share sales. The Board of Investment may need to approve repatriation of royalties and other technology transfer fees over 6% of sales.
The BDG's foreign exchange reserves have increased steadily from a low of about $1 billion in November 2001 to over $3 billion in November 2004. This was primarily due to Finance Ministry initiatives to increase the flow of remittances from overseas workers through official banking channels. As a result, remittances now total approximately $3 billion annually. The taka currently trades at about 61 per dollar. Foreign currency also is widely available on the parallel (curb) market at a minimal premium. Inflation has risen recently to a still-manageable 6.21%.
EXPROPRIATION AND COMPENSATION
In the years immediately following independence in 1971, widespread nationalization resulted in Government ownership of over 90% of fixed assets in the modern manufacturing sector, as well as all banking and insurance interests, except those in foreign (but non-Pakistani) hands. Domestically owned cotton textiles, jute, and sugar manufacturing units, none of which was owned by foreigners, were placed under Government control. However, the Foreign Investment Act of 1980 has forbidden nationalization or expropriation without adequate compensation, and there have been no instances of foreign property expropriation since the Foreign Investment Act was passed.
DISPUTE SETTLEMENT
A fundamental impediment to investment in Bangladesh is a weak and slow legal system in which the enforceability of contracts is uncertain. The judicial system does not provide for interest to be charged in tort judgments, and hence there is no penalty for delaying proceedings. While the Supreme Court and High Court (appellate level courts) are independent, the lower courts are part of the executive branch of government. The Supreme Court issued directive requiring the government to separate the lower courts from the executive branch, but no legislation has been passed yet to make the lower courts independent. It is widely acknowledged that in the lower courts, where cases are first brought, corruption is a serious problem. Nevertheless, the highest levels of the judiciary, including the Supreme Court, have retained a reputation for fairness and competence. This has meant that, at least at the appellate level, the outcome of commercial cases is usually determined on merit.Bangladesh is a signatory to the International Convention for the Settlement of Disputes (ICSID) and it acceded (on May 6, 1992) to the United Nations Convention for the Recognition and Enforcement of Foreign Arbitral Awards. A provision of the U.S.-Bangladesh Bilateral Investment Treaty gives procedures for referring irresolvable investment disputes to ICSID for third-party settlement. In any case, the ability of the Bangladeshi judicial system to enforce its own awards is weak, and there is no reason to think enforcement of foreign judgments would be stronger. The Bangladesh Export Promotion Bureau is sometimes helpful in assisting in dispute settlement of export-related transactions. Major Bangladeshi trade and business associations can also be helpful in assisting in transaction disputes.
Many laws affecting investment in Bangladesh are old and outdated. Some of these laws have been amended, but many drafts of proposed new legislation produced by ad hoc Government committees are more than 10 years old and themselves out of date. Resource constraints in the Law Ministry are a major problem. The insolvency laws, which apply mainly to individual insolvency, are not being used because of a web of falsified assets and uncollectible cross-indebtedness supporting insolvent banks and companies. A Bankruptcy Act was enacted in 1997 but has been ineffective in addressing the insolvency and cross-indebtedness problem of borrowers. It should be noted that one way companies have dealt with legal issues is by including a clause in arbitration agreements that allows for one of the parties to bring a dispute before another nation’s court. This practice is allowed under Bangladeshi law. Dispute settlement is also hampered by shortcomings in accounting practices and the registration of real property. With the exception of those conducted by a few internationally affiliated accounting firms, audits of balance sheets and profit and loss statements often follow clients' instructions and fail to conform to international standards. Documents affecting title to real property are often not registered, complicating transfer of ownership and collateral agreements.
PERFORMANCE REQUIREMENTS/INCENTIVES
BDG industrial policies emphasize manufacturing and labor-intensive industries that use local inputs. There are a variety of subsidies and other incentives provided to different industrial sectors, primarily the export sectors and, to a certain extent, import substitution sectors. The BDG also provides loans at concessional rates through its nationalized banks and government-owned development banks for exports, cottage industries, and agriculture. These incentives are available to both domestic and foreign investors.
There is a provision for full duty drawback at the time of export on imported raw materials used in manufacturing products for export. In lieu of the duty drawback, exporters can use the special bonded warehouse facility to import raw material duty free. In order to qualify for the duty drawback and special bonded warehouse schemes, the exported item must have at least 25% domestic content. The BDG also provides direct subsidies to export-oriented ready-made garment manufacturers if their exports use 100% locally manufactured raw materials or have paid duty on imported raw materials. This cash incentive, designed to encourage “backward linkages” in the textile sector, amounts to 10% of the export value. A similar 5% export cash assistance incentive, designed to encourage exports with domestic content, is available for jute and 15% for leather products.
The BDG also provides a variety of tax incentives to selected sectors of the economy, including:
-- A 50% rebate for taxable income generated from export earnings
-- Income tax exemptions for export earnings from handicraft and cottage industries
-- Tax holidays of 5-7 years, depending on location, for new industrial enterprises
-- A 10-year tax holiday for enterprises in the EPZs
-- Accelerated depreciation for enterprises not eligible for a tax holiday
-- Income tax exemption for 15 years for power projects
As of June 2004, the World Trade Organization had not received any notifications alleging Bangladeshi violations of the Agreement on Trade-Related Investment Measures.
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Five sectors, however, are reserved for government investment:
-- Arms, ammunition, and defense equipment and machinery
-- Production of nuclear energy
-- Security printing and mining
-- Forestry in the reserved forest areas
-- Air transportation (except air cargo and international air transportation) and railways
Although inefficient SOEs continue to stifle Bangladesh’s potential for greater economic performance, the closing of several enterprises shows that the Government can take necessary action to push for overdue economic restructuring.
PROTECTION OF PROPERTY RIGHTS
Although land, whether for purchase or lease, is often critical for investment and as security for loans, antiquated real property laws guarantee chaos. Land registration records are unreliable. Parties avoid registering mortgages, liens, and encumbrances because certain stamp duties and charges have been set at high levels. Instruments take effect from the date of execution, not the date of registration, so a bona fide purchaser can never be certain of title.
The BDG is progressing slowly in bringing its intellectual property rights laws into compliance with the World Trade Organization’s Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement. Parliament is expected to amend the country’s trademark, patent, and copyright legislation, following a lengthy inter-agency approval and clearance process. The government, however, allocates few resources to IPR enforcement, and is experiencing a worsening IPR situation. The prevention and punishment of IPR violations is very low in proportion to the number of infringements. The government also sets a poor example by failing to account fully for software in its tenders. A number of American firms, including film studios, manufacturers of consumer goods, and software firms, have reported violations of their intellectual property rights. Bangladesh is a member of the World Intellectual Property Organization (WIPO), and acceded to the Paris Convention on Intellectual Property in 1991.
TRANSPARENCY OF THE REGULATORY SYSTEM: LAWS AND PROCEDURES
Starting from a position of extreme over-regulation, the trend since 1989 has been a gradual decrease of governmental obstruction of private business. Many regulatory changes, however, have not yet been politically possible to implement. Although some civil servants and ministers have displayed genuine commitment, reforms face broad-based resistance from many groups in the economy, including influential members of the business community. The official chambers of commerce include manufacturers in protected industries and well-connected commission agents pursuing government contracts. Chamber members call for a greater voice for the private sector in government decisions and for privatization, but at the same time many support protectionism and subsidies for their own industries.Policy and regulations in Bangladesh are often not clear, consistent, or publicized. Generally, the civil service, businesses, professionals, trade unions and political parties have vested interests in a system in which confidentiality is used as an excuse for lack of transparency, and in which patron-client relationships are the norm. Businesses must always turn to civil servants to get action, yet may not receive any, even with the support of higher political levels. Traditionally, the country’s poorly paid civil servants have regarded business people as exploitative, and regard themselves as having a near monopoly on economic acumen and patriotism. Civil servants do recognize that there is greater scrutiny of their acts (and risk to their careers from illegal activity) under a democratically elected civilian government. Even so, accounts from foreign investors of solicitation of bribes by public officials and politicians are common. Bangladesh's donors regard public administration reforms as central to overall economic reform.
In practice, BDG laws and regulations and their implementation do not reduce distortions or impediments to investment, but create them. Unhelpful treatment of businesses by some BDG officials, coupled with other negatives in the investment climate, raise start-up and operational costs, add to risk, and tend to counteract the BDG's praiseworthy investment incentives. There is generally little opportunity for the private sector to comment on proposed regulations.
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENTForeign investors have access to local credit markets, but many seek offshore financing. If they finance locally, it is usually with a foreign bank branch. Four state-owned banks, known as nationalized commercial banks (NCBs), comprise nearly 50% of the banking sector’s total assets. The largest NCB has assets totaling approximately $4 billion. An estimated 30% of the country’s total asset base is non-performing, primarily because of long-outstanding debts to the NCBs. The World Bank has approved $250 million as International Development Association (IDA) soft loan to Bangladesh for the enterprise growth and bank modernization project. As a part of the process, a private management team from Price-Waterhouse Coopers, an international consulting firm, took charge of the Agrani Bank.
The private sector can receive financing from leasing companies and by issuing shares or debentures on the Dhaka Stock Exchange (DSE) or the Chittagong Stock Exchange (CSE). All CSE-listed shares are also listed on the larger and older DSE. Among the world's smallest share markets, the privately-owned Dhaka Stock Exchange (established in 1954) lists 195 companies; the Chittagong Stock Exchange (established in 1995) lists 129. There was a large surge in the stock market in the summer and fall of 1996, but the market crashed late in the year and has yet to fully recover. Foreign portfolio investment, never more than $200 million, has virtually disappeared. Both the CSE (July 1998) and the DSE (August 1998) have automatic trading services.
The BDG’s Securities and Exchange Commission (SEC) was formed in 1993 to regulate the DSE and CSE and protect investors. In 1997, the SEC imposed new restrictions on the involvement of foreign investors in the Bangladesh capital market. The guidelines stipulate that 10% of primary issues are reserved for non-resident Bangladeshis. Major foreign investors have protested these measures. Foreign investors point out that this measure exacerbates the Bangladesh market’s greatest drawback: the difficulty of buying or selling in volume over a reasonably short period. The SEC and the Institute of Chartered Accountants of Bangladesh have the task of enforcing reporting and audit requirements and bringing those requirements up to international standards. POLITICAL VIOLENCE
Incidents of politically directed damage to foreign projects or installations have occurred, although violence targeted against business concerns generally has been isolated and criminal, rather than political, in nature. Following U.S. military action in Iraq, a number of sizeable anti-American demonstrations occurred (between 10,000 and 80,000 participants.) A few of these demonstrations resulted in minor property damage to U.S.-affiliated businesses. Calls for boycotts of American goods and services had limited impact and ended following the war’s conclusion.
Extortion of money from businesses by thugs claiming political backing is common. Clashes between supporters of rival political parties and their student and youth wings, and even factions within the same party, are frequent occurrences. General strikes and blockades called by political parties mostly affect businesses by keeping workers away with the threat of violence and blocking transport, resulting in productivity losses. Vehicles and other property are at risk from vandalism or arson during such programs, and looting of shops has occurred. The perception of a general deterioration of law and order, believed to be largely due to corruption and politically sponsored criminal activity, is a matter of widespread concern among Bangladeshis and has dampened domestic investment. From late 2002 to early 2003, the Bangladesh military was deployed to assist civil law enforcement tackle crime.
Responding to public concern over law and order, the government in March 2004 authorized a special elite force, known as the Rapid Action Battalion (RAB), as part of its anti-crime initiative. The RAB is comprised of members of the armed forces, the police, and the Bangladesh Rifles and Ansars, both paramilitary groups. The RAB became operational in June 2004. While the RAB has been credited by many Bangladeshis with improving domestic law and order, more than 100 alleged notorious criminals have been "killed in crossfire" during shootouts with the RAB or have been "killed while trying to escape."
CORRUPTION
Corruption at all levels in the bureaucracy is rampant, and should be taken into account by foreign investors considering business in Bangladesh. The World Bank estimates that corruption exacts a toll of 2-3% on annual GDP growth each year. Transparency International's Corruption Perception Index has ranked Bangladesh as the most corrupt nation for four consecutive years. Local and foreign business persons often report their experiences with petty corruption, such as paying extra “fees” for obtaining government services (post office boxes, telephone lines, licenses, customs clearance). Complaints of higher-level corruption in the fair awarding of public and private tenders are frequent, as are allegations of insider trading in the stock market. In this regard, business people consider Bangladesh Customs to be among the worst, a thoroughly corrupt organization in which officials routinely exert their power to influence the tariff value of imports and to expedite or delay import and export processing at the ports. A mandatory pre-shipment inspection system of import valuation was introduced in 2001 to help reduce discretionary power of customs officials, and lower costs, and improve efficiency at Bangladesh’s trade entry points. However, Bangladeshi Customs officials are often the first to point out that the valuation system remains weak.
The now defunct Bangladesh Bureau of Anti-Corruption Bureau (BAC) was notoriously subservient to the ruling party and corrupt. In February 2004, Parliament passed legislation to create an independent Anti-Corruption Commission (ACC), which was formally established in November 2004. Provisionally staffed with employees of its predecessor organization, the ACC was embroiled in personnel and other controversies within weeks of its formation.
BILATERAL INVESTMENT AGREEMENTS
The Foreign Investment Act includes a guarantee of national treatment. National treatment is also provided in bilateral treaties for the promotion and protection of foreign investment. Treaties have been signed with: the United States, Austria, Belgium, Canada, China, Democratic Peoples Republic of Korea, France, Germany, Indonesia, Iran, Italy, Japan, Malaysia, Pakistan, Philippines, Poland, Republic of Korea, Romania, Switzerland, Thailand, The Netherlands, Turkey, and the United Kingdom, Uzbekistan. The U.S.-Bangladesh Bilateral Investment Treaty, signed on March 12, 1986, entered into force on July 23, 1989. A bilateral treaty between the United States and Bangladesh for the avoidance of double taxation was signed on September 26, 2004.
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
The U.S. Overseas Private Investment Corporation provides insurance coverage for some U.S. firms currently doing business in Bangladesh. In recent years, BDG authorities have been cooperative in approving requests for OPIC insurance, and in one case, for a loan. OPIC and the BDG signed an updated bilateral agreement in May 1998. Bangladesh is a member of the Multilateral Investment Guarantee Agency.
The Export-Import Bank of the U.S. (ExIm Bank) is an independent U.S. Government agency that helps finance the overseas sales of U.S. goods and services. It provides export credit insurance policies to cover political and commercial risk, and loan guarantees to banks for medium and long-term loans. In Bangladesh, only the Bangladesh Government is eligible for ExIm Bank cover with a sovereign guarantee. The bank does not lend or provide cover to private enterprises in Bangladesh purchasing U.S. exports except in the following case: ExIm Bank can provide a guarantee to the lender to enable a private firm to buy U.S. products to construct a processing facility whose output will be sold offshore for hard currency and such funds can be captured offshore.
LABOR
Bangladesh has a population of about 140 million people. The formal employment sector in Bangladesh has an estimated 4.8 million workers, and an estimated 1.4 million (30%) of these workers are employed in public enterprises. An estimated 40 million workers are employed in agricultural jobs (increasing at 1% a year) and 20 million in non-agricultural jobs. Low official unemployment statistics obscure a huge and growing under-employment problem in Bangladesh. Bangladesh's comparative advantage in cheap labor for manufacturing is partially offset by low productivity, due to low skills, poor management, and inefficient infrastructure and machinery. Foreign managers report that Bangladeshi workers generally respond well to training.
Skilled Bangladeshis often seek and find employment in the Middle East and East Asia at substantially higher wages than they would receive in Bangladesh. Over the past 20 years, Bangladesh has become a reliable source of labor, and during FY2003, over $3 billion in foreign exchange was remitted to Bangladesh through official banking channels. Remittances have become an important source of foreign exchange in recent years, and now exceed aid provided in the form of concessional loans and grants.
All employers are expected to comply with the government's labor laws, which specify employment conditions, working hours, wage levels, leave policies, health and sanitary conditions, and compensation for injured workers. Freedom of association and the right to join unions is guaranteed in the Bangladesh constitution. There are over 6,300 registered trade unions in Bangladesh, with over 1.9 million union members.
Bangladesh’s labor unions, most of them associated with political parties, are often militant. Violence and the threat of violence by some trade unions have produced wage increases in excess of productivity increases, raising unit labor costs. Worker layoffs, or the mere threat of reductions-in-force, can be expected to cause some of the most serious and confrontational labor disputes. Labor disputes do not necessarily need to be heard before a legal court. Many companies have found it effective to resolve issues before a Labor Tribunal. Labor in private sector enterprises is mostly not unionized and comparatively more productive. Productivity in Bangladesh has been affected by hartals (general strikes) called by political parties and movements. These hartals, enforced by political activists, seek to close down business throughout the country and raise the cost of doing business due to the downtime they impose on commercial activity. In recent years, enforcement of hartals has become less stringent, and more businesses operate discreetly, behind closed doors, than before.Bangladeshi laws do not uniformly prohibit the employment of children or set a minimum age for employment. Numerous laws prohibit child labor in certain sectors, ranging from transport workers to tea plantation labor, but these have not addressed the informal sectors, such as agriculture and domestic work, where the majority of children are employed. As a result, child labor in Bangladesh has historically been a fact of life. On July 4, 1995, Bangladesh’s garment exporters association signed a memorandum of understanding (MOU) with the United Nations Children’s Fund (UNICEF) and the International Labor Organization (ILO) under which child laborers in the EPZ textile factories were removed and enrolled in education programs. ILO-assisted monitoring teams, which found child laborers in 43% of EPZ factories in 1996, found fewer than 5% in 2001. The MOU program is being phased out, and the U.S. Embassy considers the project a success, with most child labor now eradicated from the EPZs. However, child labor outside of the EPZs remains rampant, and non-EPZ industries are known to have the most hazardous conditions. A $6 million U.S. Department of Labor project that started in October 2000 seeks to remove children working in hazardous conditions in non-EPZ factories by offering them and their younger siblings alternative work.
FOREIGN TRADE ZONES
Under the Bangladesh Export Processing Zones Authority Act of 1980, the BDG established an EPZ in Chittagong in 1983. Another EPZ was set up near Dhaka in Savar in 1994 and a third in Comilla in 2000. 100% foreign-owned investments, joint ventures and 100% Bangladeshi-owned companies are all permitted to operate and enjoy equal treatment in the EPZs. In terms of investment, employment and exports, the country’s EPZs have been extremely successful. Due to increased demand by investors, the BDG has doubled the capacity of the Dhaka EPZ. Investors seem generally satisfied, although there has been occasional labor unrest.
Approximately a dozen U.S. firms — mostly textile producers — are currently operating in Bangladesh EPZs. South Korea is the largest foreign investor in the Dhaka and Chittagong EPZs; Japan, Hong Kong, Singapore, the United Kingdom, Sweden, Thailand, India, Malaysia, Germany, Taiwan, China, U.A.E., France, Italy, Denmark, Panama and Pakistan are the other foreign investors in the EPZs. The remaining EPZ industries are Bangladeshi. The U.S. is the top destination of exports from EPZs. Industries range from garments and textiles to electronics, sporting goods, steel chains, and services (including equipment leasing and container repairs and handling).
The BDG provides several tax, foreign exchange, customs and labor incentives to investors in the EPZs. One such incentive provided in recent years was an exemption from certain labor laws, which had the practical effect of prohibiting trade unions from the zones. In July 2004, the Bangladesh parliament enacted a law giving legal coverage to trade unionism in the export processing zones. Workers of the industrial units will be allowed to form a welfare council to develop and grow into organizations, defending their welfare through collective bargains, according to the law.
FOREIGN DIRECT INVESTMENT STATISTICS
According to the UNCTAD World Investment Report 2004, total foreign direct investment to Bangladesh from 1999 to 2003 was $712 million. During the same 5-year period, FDI to India totaled over $16 billion, while Pakistan and Sri Lanka attracted FDI totaling $3.5 billion and $884 million respectively. The Embassy estimates the current stock of foreign investment in Bangladesh totaling $3 billion represents approximately 5.8% of the country’s 2003 GDP.
UNCTAD reports the following annual FDI inflows for Bangladesh since 1990 (in millions):
1990: $3.2 1997: $139.4
1991: $1.4 1998: 190.1
1992: $3.7 1999: 178.0
1993: $14.1 2000: 279.8
1994: $11.2 2001: 78.1
1995: $1.9 2002: 52.3
1996: $13.5 2003: $120.7
At present, the U.S. is the largest foreign investor in Bangladesh, with total fixed direct investment of nearly $1.4 billion, followed by Norway, Malaysia, Japan, and the United Kingdom. The second tier of investors is Singapore, India, Thailand, Hong Kong, Germany, and South Korea. Prior to 1995, the stock of U.S. investment in Bangladesh was estimated to be approximately $25 million in book value, including five manufacturers in the Chittagong EPZ, one life insurance company, banking operations of two U.S. commercial banks, and about 10 other U.S. service and marketing firms. Since 1995, 16 U.S. companies have invested in Bangladesh in the following sectors (in production & under implementation):
Sector Investment
(in $ millions)
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Agro based 24.524
Textiles 18.870
Printing and Packaging 0.485
Chemical 24.544
Engineering 8.988
Service 1,304.367
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Total U.S. Investment: 1,381.778
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