Bangladesh is the most densely populated non-city-state country in the world, with the eighth largest population (over 165 million) within a territory the size of Iowa. Bangladesh is situated in the northeastern corner of the Indian subcontinent, sharing a 4,100 km border with India and a 247 km border with Burma. With sustained economic growth over the past decade, a large, young, and hard-working workforce, strategic location between the large South and Southeast Asian markets, and vibrant private sector, Bangladesh will likely attract increasing investment, despite severe economic headwinds faced by the global outbreak of COVID-19.
Buoyed by a growing middle class, Bangladesh has enjoyed consistent annual GDP growth of more than six percent over the past decade. Much of this growth continues to be driven by the ready-made garment (RMG) industry, which exported $34.13 billion of apparel products in FY 2018-19, second only to China, and continued remittance inflows, reaching nearly $16.42 billion in FY 2018-19.
The Government of Bangladesh (GOB) actively seeks foreign investment, particularly in the agribusiness, garment/textiles, leather/leather goods, light manufacturing, power and energy, electronics, light engineering, information and communications technology (ICT), plastic, healthcare, medical equipment, pharmaceutical, ship building, and infrastructure sectors. It offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.
Bangladesh received $3.6 billion in foreign direct investment (FDI) in 2018, a 67.9 percent increase from the previous year. However, the rate of FDI inflows is only slightly above one percent of GDP, one of the lowest of rates in Asia.
Bangladesh has made gradual progress in reducing some constraints on investment, including taking steps to better ensure reliable electricity, but inadequate infrastructure, limited financing instruments, bureaucratic delays, lax enforcement of labor laws, and corruption continue to hinder foreign investment. New government efforts to improve the business environment show promise but implementation has yet to materialize. Slow adoption of alternative dispute resolution mechanisms and sluggish judicial processes impede the enforcement of contracts and the resolution of business disputes.
A series of terrorist attacks from 2015-17, including the July 1, 2016 Holey Bakery attack in Dhaka’s diplomatic enclave, resulted in increased security restrictions for many expatriates, including U.S. Embassy staff. National elections, which were held on December 30, 2018, are prone to instances of political violence. The influx of more than 700,000 Rohingya refugees since August 2017 has also raised security concerns.
International brands and the international community continue to press the GOB to meaningfully address worker rights and factory safety problems in Bangladesh. With unprecedented support from the international community and the private sector, Bangladesh has made significant progress on fire and structural safety. Critical work remains on safeguarding workers’ rights to freely associate and bargain collectively, including in the Export Processing Zones (EPZs).
The GOB has limited resources devoted to intellectual property rights (IPR) protection and counterfeit goods are readily available in Bangladesh. Government policies in the ICT sector are still under development. Current policies grant the government broad powers to intervene in that sector.
Capital markets in Bangladesh are still developing and the financial sector is still highly dependent on banks.
|TI Corruption Perceptions Index||2019||146 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2019||168 of 190||doingbusiness.org/rankings|
|Global Innovation Index||2019||116 of 129||https://www.globalinnovationindex.org/
|U.S. FDI in Partner Country ($M USD, stock positions)||2018||USD 513||https://apps.bea.gov/
|World Bank GNI per capita||2018||USD 1,750.0||http://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Bangladesh actively seeks foreign investment, particularly in the agribusiness, garment and textiles, leather and leather goods, light manufacturing, electronics, light engineering, energy and power, information and communications technology (ICT), plastic, healthcare, medical equipment, pharmaceutical, ship building, and infrastructure sectors. It offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.
Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Four sectors, however, are reserved for government investment:
- Arms and ammunition and other defense equipment and machinery;
- Forest plantation and mechanized extraction within the bounds of reserved forests;
- Production of nuclear energy; and
- Security printing.
The Bangladesh Investment Development Authority (BIDA) is the principal authority tasked with supervising and promoting private investment. The BIDA Act of 2016 approved the merger of the now-disbanded Board of Investment and the Privatization Committee. BIDA is directly supervised by the Prime Minister’s office and the Executive Chairman of BIDA holds a rank equivalent to Senior Secretary, the highest rank within the civil service. BIDA performs the following functions:
- Provides pre-investment counseling services;
- Registers and approves private industrial projects;
- Issues approval of branch/liaison/representative offices;
- Issues work permits for foreign nationals;
- Issues approval of royalty remittances, technical know-how, and technical assistance fees;
- Facilitates import of capital machinery and raw materials; and
- Issues approvals of foreign loans and supplier credits.
In addition to BIDA, three other Investment Promotion Agencies (IPAs) – the Bangladesh Export Processing Zone Authority (BEPZA), Bangladesh Economic Zones Authority (BEZA), and Bangladesh Hi-Tech Park Authority (BHTPA) — promote domestic and foreign investment. BEPZA promotes investments in Export Processing Zones (EPZs). The first EPZ was established in the 1980s and there are currently eight EPZs in the country. BEZA plans to establish approximately 100 Economic Zones (EZs) throughout the country over the next several years, of which 11 are currently fully or partially operational. Site selections for 77 additional EZs have been completed as of March 2020. While EPZs accommodate exporting companies only, EZs are open for both export- and domestic-oriented companies. Additionally, Bangladesh is setting up several Hi-Tech Parks across the country under the supervision of the Bangladesh Hi-Tech Park Authority.
Limits on Foreign Control and 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. Bangladesh allows private investment in power generation and natural gas exploration, but efforts to allow full foreign participation in petroleum marketing and gas distribution have stalled. Regulations in the area of telecommunication infrastructure currently include provisions for 60 percent foreign ownership (70 percent for tower sharing).In addition to the four sectors reserved for government investment, there are 17 controlled sectors that require prior clearance/ permission from the respective line ministries/authorities. These are:
a) Fishing in the deep sea
b) Bank/financial institutions in the private sector
c) Insurance companies in the private sector
d) Generation, supply, and distribution of power in the private sector
e) Exploration, extraction, and supply of natural gas/oil
f) Exploration, extraction, and supply of coal
g) Exploration, extraction, and supply of other mineral resources
h) Large-scale infrastructure projects (e.g. flyover, elevated expressway, monorail, economic zone, inland container depot/container freight station)
i) Crude oil refinery (recycling/refining of lube oil used as fuel)
j) Medium and large industries using natural gas/condensate and other minerals as raw material
k) Telecommunications service (mobile/cellular and land phone)
l) Satellite channels
m) Cargo/passenger aviation
n) Sea-bound ship transport
o) Seaports/deep seaports
p) VOIP/IP telephone
q) Industries using heavy minerals accumulated from sea beaches
While discrimination against foreign investors is not widespread, the government frequently promotes local industries and some discriminatory policies and regulations exist. For example, the government closely controls approvals for imported medicines that compete with domestically-manufactured pharmaceutical products and it has required majority local ownership of new shipping and insurance companies, albeit with exemptions for existing foreign-owned firms, following a prime ministerial directive. In practical terms, foreign investors frequently find it necessary to have a local partner even though this requirement may not be statutorily defined.
In certain strategic sectors, the GOB has placed unofficial barriers on foreign companies’ ability to divest from the country.
BIDA is responsible for screening, reviewing, and approving investments in Bangladesh, except for investments in EPZs, EZs, and High-Tech Parks, which are supervised by BEPZA, BEZA, and BHTPA respectively. Both foreign and domestic companies are required to obtain clearance certificates from relevant ministries and agencies with regulatory oversight. In certain sectors (e.g., healthcare) foreign companies may be required to obtain a No Objection Certificate (NOC) from the relevant ministry or agency stating the specific investment will not hinder local manufacturers and is in line with the guidelines of the ministry concerned. Since Bangladesh actively seeks foreign investments, instances where one of the Investment Promotion Agencies (IPAs) declines investment proposals are rare.
Other Investment Policy Reviews
In February 2018, the Bangladesh Parliament passed the “One Stop Service Bill 2018,” which aims to streamline business and investment registration processes. The four IPAs — BIDA, BEPZA, BEZA, and BHTPA — are mandated to provide one-stop services (OSS) to local and foreign investors under their respective jurisdictions. Expected streamlined services include: company registration, taxpayer’s identification number (TIN) and value added tax (VAT) registration, work permit issuance, power and utilities connections, capital and profit repatriation, and environment clearance. In 2019 Bangladesh made reforms in three key areas: starting a business, getting electricity, and getting credit. These and other regulatory changes led to an improvement of eight ranks on the World Bank’s Doing Business score. BIDA offers 18 services under its online OSS as of April 2020, and has a plan to expand to 154 services covering 35 agencies. The Bangladesh government is also planning to integrate the services of all four investment promotion agencies under a single online platform. Progress on realizing a comprehensive OSS for businesses has been slowed by bureaucratic delays and a lack of interagency coordination.
Companies can register their businesses at the Office of the Registrar of Joint Stock Companies and Firms (RJSC): . However, the online business registration process can be unclear and inconsistent. Additionally, BIDA facilitates company registration services as part of its OSS, which is available at: . BIDA also facilitates other services including office set-up approval, work permits for foreign employees, and tax registration with National Board of Revenue. Other agencies with which a company must typically register are:
City Corporation – Trade License
National Board of Revenue – Tax & VAT Registration
Chief Inspector of Shops and Establishments – Employment of Workers Notification
It takes approximately 20 days to start a business in the country according to the World Bank. The company registration process at the RJSC now takes one or two days to complete. The process for trade licensing, tax registration, and VAT registration requires seven days, one day, and one week, respectively.
Outward foreign direct investment is generally restricted through the Foreign Exchange Regulation Act of 1947. As a result, the Bangladesh Bank plays a key role in limiting outbound investment. In September 2015, the government amended the 1947 Act by adding a “conditional provision” that permits outbound investment for export-related enterprises. Private sector contacts note that the few international investments approved by the Bangladesh Bank have been limited to large exporting companies with international experience.
3. Legal Regime
Transparency of the Regulatory System
Since 1989, the government has gradually moved to decrease regulatory obstruction of private business. The chambers of commerce have called 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. The result is that policy and regulations in Bangladesh are often not clear, consistent, or publicized. Registration and regulatory processes are alleged to be frequently used as rent-seeking opportunities. The major rule-making and regulatory authority exists at the national level under each Ministry with many final decisions being made at the top-most levels, including the Prime Minister’s Office (PMO). The PMO is actively engaged in controlling policies, as well as foreign investment in government-controlled projects.
Bangladesh has achieved incremental progress in using information technology to improve the transparency and efficiency of some government services and to develop independent agencies to regulate the energy and telecommunication sectors. Some investors cited government laws, regulations, and lack of implementation as impediments to investment. The government has historically limited opportunities for the private sector to comment on proposed regulations. In 2009, Bangladesh adopted the Right to Information Act that provides for multilevel stakeholder consultations through workshops or media outreach. Although the consultation process exists, it is still weak and in need of further improvement.
Ministries and regulatory agencies do not generally publish or solicit comments on draft proposed legislation or regulations. However, several government organizations, including the Bangladesh Bank (central bank), Bangladesh Securities and Exchange Commission, BIDA, the Ministry of Commerce, and the Bangladesh Telecommunications Regulatory Commission have occasionally posted draft legislation and regulations online and solicited feedback from the business community. In some instances, parliamentary committees have also reached out to relevant stakeholders for input on draft legislation. The media continues to be the main information source for the public on many draft proposals. There is also no legal obligation to publish proposed regulations, consider alternatives to proposed regulation, or solicit comments from the general public.
The government printing office, The Bangladesh Government Press ( ), publishes the weekly “Bangladesh Gazette” every Thursday and Extraordinary Gazettes from time to time. The gazette provides official notice of government actions, including the issuance of government rules and regulations and the transfer and promotion of government employees. Laws can also be accessed at .
Bangladesh passed the Financial Reporting Act of 2015 which created the Financial Reporting Council (FRC) in 2016 in an aim to establish transparency and accountability in the accounting and auditing system. The country follows Bangladesh Accounting Standards (BAS) and Bangladesh Financial Reporting Standards (BFRS), which are largely derived from International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). However, the quality of reporting varies widely in Bangladesh. Internationally known and recognized firms have begun establishing local offices in Bangladesh and the presence of these firms is positively influencing the accounting norms in the country. Some firms are capable of providing financial reports audited to international standards while others maintain unreliable (or multiple) sets of accounting reports. Regulatory agencies also do not conduct impact assessments of proposed regulations; hence, regulations are often not reviewed on the basis of data-driven assessments. Not all national budget documents are prepared according to internationally accepted standards.
International Regulatory Considerations
The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) aims to integrate regional regulatory systems among Bangladesh, India, Burma, Sri Lanka, Thailand, Nepal, and Bhutan. However, efforts to advance regional cooperation measures have stalled in recent years and regulatory systems remain uncoordinated.
Local law is based on the English common law system but most fall short of international standards. The country’s regulatory system remains weak and many of the laws and regulations are not enforced and standards are not maintained.
Bangladesh has been a member of the World Trade Organization (WTO) since January 1995. WTO requires all signatories to the Agreement on Technical Barriers to Trade (TBT) to establish a National Inquiry Point and Notification Authority to gather and efficiently distribute trade-related regulatory, standards, and conformity assessment information to the WTO Member community. The Bangladesh Standards and Testing Institute (BSTI) has been working as the National Enquiry Point for the WTO-TBT Agreement since 2002. There is an internal committee on WTO affairs in BSTI and it participates in notification to WTO activities through the Ministry of Commerce and the Ministry of Industries.
General Contact for WTO-TBT National Enquiry Point:
Email: firstname.lastname@example.org; email@example.com
Focal Points for TBT:
Mr. Md. Golam Baki,
Deputy Director (Certification Marks), BSTI;
Mr. Mohammad Arafat Hossain Sarker,
Assistant Director (Certification Marks), BSTI;
Focal Point for other WTO related matters:
Mr. Md. Hafizur Rahman,
Director-1, WTO Cell, Ministry of Commerce
Cell: +88 0171 1861056
Mr. Mohammad Mahbubur Rahman Patwary,
Director-3, WTO Cell, Ministry of Commerce
Cell: +88 0171 2148758
Legal System and Judicial Independence
Bangladesh is a common law-based jurisdiction. Many of the basic laws of Bangladesh, such as the penal code, civil and criminal procedural codes, contract law, and company law are influenced by English common law. However, family laws, such as laws relating to marriage, dissolution of marriage, and inheritance are based on religious scripts and therefore differ among religious communities. The Bangladeshi legal system is based on a written constitution and the laws often take statutory forms that are enacted by the legislature and interpreted by the higher courts. Ordinarily, executive authorities and statutory corporations cannot make any law, but can make by-laws to the extent authorized by the legislature. Such subordinate legislation is known as rules or regulations and is also enforceable by the courts. However, being a common law system, the statutes are short and set out basic rights and responsibilities but are elaborated by the courts in their application and interpretation of those laws. The Judiciary of Bangladesh acts through (1) The Superior Judiciary, having appellate, revision, and original jurisdiction and (2) The Sub-Ordinate Judiciary, having original jurisdiction.
Since 1971, Bangladesh’s legal system has been updated in the areas of company, banking, bankruptcy, and money loan court laws and other commercial laws. An important 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, which means delays in proceedings carry no penalties. Bangladesh does not have a separate court or division of a court dedicated solely to hearing commercial cases. The Joint District Judge court (a civil court) is responsible for enforcing contracts.
Some notable commercial laws include:
- The Contract Act, 1872 (Act No. IX of 1930)
- The Sale of Goods Act, 1930 (Act No. III of 1930)
- The Partnership Act, 1932 (Act No. IX of 1932)
- The Negotiable Instruments Act, 1881 (Act No. XXVI of 1881)
- The Bankruptcy Act, 1997 (Act No. X of 1997)
- The Arbitration Act, 2001 (Act No. I of 2001)
The judicial system of Bangladesh has never been completely independent from the interference of the executive branch of the government. In a significant milestone, the government in 2007 separated the country’s judiciary from the executive but the executive retains strong influence over the judiciary through control of judicial appointments. Other pillars of the justice system, including the police, courts, and legal profession, are also closely aligned with the executive branch. In lower courts, corruption is widely perceived as a serious problem. Regulations or enforcement actions are appealable under the Appellate Division of the Supreme Court.
Bangladesh scored 3.33 in the World Bank’s 2017 Judicial Independence Index out of a 1-7 band score with 7 being the best. That was up from 2016 when it scored 2.38. In the Rule of Law Index 2020 published by the independent, non-profit World Justice Project (WJP), Bangladesh ranked 115 among 128 countries and jurisdictions, dropping two positions from 2019.
Laws and Regulations on Foreign Direct Investment
Major laws affecting foreign investment include: the Foreign Private Investment (Promotion and Protection) Act of 1980, the Bangladesh Export Processing Zones Authority Act of 1980, the Companies Act of 1994, the Telecommunications Act of 2001, the Industrial Policy Act of 2005, the Industrial Policy Act of 2010, and the Bangladesh Economic Zones Act of 2010. The Industrial Policy Act of 2016 was approved by the Cabinet Committee on Industrial Purchase on February 24, 2016 and replaces the Industrial Policy of 2010.
The National Industrial Policy of 2016 offers incentives for “green” (environmental) high-tech or “transformative” industries. Foreigners who invest $1 million or transfer $2 million to a recognized financial institution can apply for Bangladeshi citizenship. The Government of Bangladesh will provide financial and policy support for high-priority industries (those that create large-scale employment and earn substantial export revenue) and creative (architecture, arts and antiques, fashion design, film and video, interactive laser software, software, and computer and media programming) industries. Specific importance will be given to agriculture and food processing, ready-made garments (RMG), information and communication technology (ICT) and software, pharmaceuticals, leather and leather products, and jute and jute goods.
In addition, Petrobangla, the state-owned oil and gas company, has modified its production sharing agreement contract for offshore gas exploration to include an option to export gas. In November 2019, Parliament approved the Bangladesh Flag Vessels (Protection) Act 2019 with a provision to ensure Bangladeshi flag vessels to carry at least 50 percent of foreign cargo, up from 40 percent.
The One Stop Service Act of 2018 mandated the four IPAs to provide OSS to local and foreign investors in their respective jurisdictions. The move aims to facilitate business services on behalf of multiple government agencies to improve ease of doing business. Although the IPAs have started to offer a few services under the OSS, corruption and excessive bureaucracy have hindered the complete roll out of the OSS. BIDA has a “one-stop” website that provides relevant laws, rules, procedure, and reporting requirements for investors at: .
Aside from information on relevant business laws and licenses, the website includes information on Bangladesh’s investment climate, opportunities for businesses, potential sectors, and how to do business in Bangladesh. The website also has an eService Portal for Investors which provides services such as visa recommendations for foreign investors, approval/extension of work permits for expatriates, approval of foreign borrowing, and approval/renewal of branch/liaison and representative offices.
Competition and Anti-Trust Laws
The GOB formed an independent agency in 2011 called the “Bangladesh Competition Commission (BCC)” under the Ministry of Commerce. The Bangladesh Parliament then passed the Competition Act in June of 2012. However, the BCC has experienced operational delays and it has not received sufficient resources to operate effectively.
In November 2018, the Bangladesh Telecommunication Regulatory Commission (BTRC) finalized Significant Market Power (SMP) regulations to promote competition in the industry. In February 2019 BTRC declared the country’s largest telecom operator Grameenphone (GP) the first SMP based on its revenue share of more than 50 percent and customer shares of about 47 percent . Since the declaration, the BTRC has attempted to impose restrictions on GP’s operations, which GP has challenged in the judicial system.
Expropriation and Compensation
Since the Foreign Investment Act of 1980 banned nationalization or expropriation without adequate compensation, the GOB has not nationalized or expropriated property from foreign investors. In the years immediately following independence in 1971, widespread nationalization resulted in government ownership of more than 90 percent of fixed assets in the modern manufacturing sector, including the textile, jute and sugar industries and all banking and insurance interests, except those in foreign (but non-Pakistani) hands. However, the government has taken steps to privatize many of these industries since the late 1970s and the private sector has developed into a main driver of the country’s sustained economic growth.
ICSID Convention and New York Convention
Bangladesh is a signatory to the International Convention for the Settlement of Disputes (ICSID) and it acceded in May 1992 to the United Nations Convention for the Recognition and Enforcement of Foreign Arbitral Awards. Alternative dispute resolutions are possible under the Bangladesh Arbitration Act of 2001. The current legislation allows for enforcement of arbitral awards.
Investor-State Dispute Settlement
Bangladeshi law allows contracts to refer investor-state dispute settlement to third country fora for resolution. The U.S.-Bangladesh Bilateral Investment Treaty also stipulates that parties may, upon the initiative of either and as a part of their consultations and negotiations, agree to rely upon non-binding, third-party procedures, such as the fact-finding facility available under the Rules of the “Additional Facility (“Facility”) of the International Centre for the Settlement of Investment Disputes (“Centre”).” If the dispute cannot be resolved through consultation and negotiation, then the dispute shall be submitted for settlement in accordance with the applicable dispute-settlement procedures upon which the parties have previously agreed. Bangladesh is also a party to the South Asia Association for Regional Cooperation (SAARC) Agreement for the Establishment of an Arbitration Council, signed November 2005, which aims to establish a permanent center for alternative dispute resolution in one of the SAARC member countries.
International Commercial Arbitration and Foreign Courts
The Bangladesh Arbitration Act of 2001 and amendments in 2004 reformed alternative dispute resolution procedures. The Act consolidated the law relating to both domestic and international commercial arbitration. It thus creates a single and unified legal regime for arbitration. Although the new Act is principally based on the UNCITRAL Model Law, it is a patchwork as some unique provisions are derived from the Indian Arbitration and Conciliation Act 1996 and some from the English Arbitration Act 1996.
In practice, enforcement of arbitration results is applied unevenly and the GOB has challenged ICSID rulings, especially those that involve rulings against the GOB. The timeframe for dispute resolution is unpredictable and has no set limit. It can be done as quickly as a few months, but often takes years depending on the type of dispute. Anecdotal information indicates average resolution time can be as high as 16 years. Local courts may be biased against foreign investors in resolving disputes.
Bangladesh is a signatory of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and recognizes the enforcement of international arbitration awards. Domestic arbitration is under the authority of the district court bench and foreign arbitration is under the authority of the relevant high court bench.
The ability of the Bangladeshi judicial system to enforce its own awards is weak. Senior members of the government have been effective in using their offices to resolve investment disputes on several occasions, but the GOB’s ability to resolve investment disputes at a lower level is mixed. The GOB does not publish the numbers of investment disputes involving U.S. or foreign investors. Anecdotal evidence indicates investment disputes occur with limited frequency and the involved parties often resolve the disputes privately rather than seeking government intervention.
The practice of alternative dispute resolution (ADR) in Bangladesh has many challenges, including lack of funding for courts to provide ADR services, lack of lawyer cooperation, and lack of good faith. Slow adoption of ADR mechanisms and sluggish judicial processes impede the enforcement of contracts and the resolution of business disputes in Bangladesh.
As in many countries, Bangladesh has adopted a “conflicts of law” approach to determining whether a judgment from a foreign legal jurisdiction is enforceable in Bangladesh. This single criterion allows Bangladesh courts broad discretion in choosing whether to enforce foreign judgments with significant effects on matrimonial, adoption, corporate, and property disputes. Most enterprises in Bangladesh, and especially state-owned enterprises (SOEs), whose leadership is nominated by the ruling government party, maintain strong ties with the government. Thus, domestic courts strongly tend to favor SOEs and local companies in investment disputes.
Investors are also increasingly turning to the Bangladesh International Arbitration Center (BIAC) for dispute resolution. BIAC is an independent arbitration center established by prominent local business leaders in April 2011 to improve commercial dispute resolution in Bangladesh to stimulate economic growth. The BIAC Board is headed by the President of the International Chamber of Commerce – Bangladesh (ICCB) and includes the presidents of other prominent chambers such as the Dhaka Chamber of Commerce and Industry (DCCI) and the Metropolitan Chamber of Commerce and Industry (MCCI), among others. The center operates under the Bangladesh Arbitration Act of 2001. According to BIAC, fast track cases are resolved in approximately six months while typical cases are resolved in one year. Major Bangladeshi trade and business associations such as the American Chamber of Commerce in Bangladesh (AmCham) can sometimes help resolve transaction disputes.
Many laws affecting investment in Bangladesh are old and outdated. Bankruptcy laws, which apply mainly to individual insolvency, are sometimes disregarded in business cases because of the numerous falsified assets and uncollectible cross-indebtedness supporting insolvent banks and companies. A Bankruptcy Act was passed by Parliament in 1997 but has been ineffective in addressing these issues. Some bankruptcy cases fall under the Money Loan Court Act which has more stringent and timely procedures.
4. Industrial Policies
Current regulations permit a tax holiday for designated “thrust” (strategic) sectors and infrastructure projects established between July 1, 2019 and June 30, 2024. The thrust sectors enjoy graduated tax exemption from 90 percent to 20 percent over a period of five to ten years depending on the zone where the business is established. Industries set up in Export Processing Zones (EPZs) and Special Economic Zones (SEZs) are also eligible for tax holidays. Details of fiscal and non-fiscal incentives are available on the following websites:
Thrust sectors subject to tax exemption include: certain pharmaceuticals, automobile manufacturing, contraceptives, rubber latex, chemicals or dyes, certain electronics, bicycles, fertilizer, biotechnology, commercial boilers, certain brickmaking technologies, compressors, computer hardware, home appliances, insecticides, pesticides, petro-chemicals, fruit and vegetable processing, textile machinery, tissue grafting, tire manufacturing industries, agricultural machineries, furniture, leather and leather goods, cell phones, plastic recycling, and toy manufacturing. Eligible physical infrastructure projects are allowed graduated tax exemption from 90 percent to 20 percent over a period of 10 years.
Physical infrastructure projects eligible for exemptions include: deep sea ports, elevated expressways, road overpasses, toll road and bridges, EPZs, gas pipelines, information technology parks, industrial waste and water treatment facilities, liquefied natural gas (LNG) terminals, electricity transmission, rapid transit projects, renewable energy projects, and ports.
Independent non-coal fired power plants (IPPs) commencing production (COD) after January 1, 2015 are granted a 100 percent tax exemption for 5 years, a 50 percent exemption for years 6-8, and a 25 percent exemption for years 9-10. For coal-fired IPPs contracting with the GOB before June 30, 2020 and COD before June 30, 2023, the tax exemption rate is 100 percent for the first 15 years of operations. For power projects, import duties are waived for imports of capital machinery and spare parts.
The valued-added tax (VAT) rate on exports is zero. For companies that only export, import duties are waived for imports of capital machinery and spare parts. For companies that primarily export (80 percent of production and above), an import duty rate of 1 percent is charged for imports of capital machinery and spare parts identified and listed in notifications to relevant regulators. Import duties are also waived for EPZ industries and other export-oriented industries for imports of raw materials consumed in production.
Special incentives are provided to encourage non-resident Bangladeshis to invest in the country. Incentives include the ability to buy newly-issued shares and debentures in Bangladeshi companies. A quota of 10 percent of primary shares has been fixed for non-resident Bangladeshis. Furthermore, non-resident Bangladeshis can maintain foreign currency deposits in Non-resident Foreign Currency Deposit (NFCD) accounts.
In the past several years, U.S. companies have experienced difficulties securing the investment incentives initially offered by the GOB. Several companies have reported instances of infrastructure guarantees (ranging from electricity to gas connections) not being fully delivered or tax exemptions being delayed, either temporarily or indefinitely. These challenges are not specific to U.S. or foreign companies and reflect broader challenges in the business environment,
Foreign Trade Zones/Free Ports/Trade Facilitation
Under the Bangladesh Export Processing Zones Authority Act of 1980, the government established an EPZ in Chattogram in 1983. Additional EPZs now operate in Dhaka (Savar), Mongla, Ishwardi, Cumilla, Uttara, Karnaphuli (Chattogram), and Adamjee (Dhaka). Korean investors are also operating a separate and private EPZ in Chattogram.
Investments that are wholly foreign-owned, joint ventures, and wholly Bangladeshi-owned companies are all permitted to operate and enjoy equal treatment in the EPZs. Approximately one dozen U.S. firms – mostly textile producers – are currently operating in Bangladesh EPZs.
In 2010, Bangladesh enacted the Special Economic Zone Act that allows for the creation of privately owned SEZs that can produce for export and domestic markets. The SEZs provide special fiscal and non-fiscal incentives to domestic and foreign investors in designated underdeveloped areas throughout Bangladesh.
Performance and Data Localization Requirements
BIDA has set restrictions for the employment of foreign nationals and the issuance of work permits as follows:
Nationals of countries recognized by Bangladesh are eligible for employment consideration;
Expatriate personnel will only be considered for employment in enterprises duly registered with the appropriate regulatory authority;
Employment of foreign nationals is generally limited to positions for which qualified local workers are unavailable;
Persons below 18 years of age are not eligible for employment;
The board of directors of the employing company must issue a resolution for each offer or extension of employment;
The percentage of foreign employees should not exceed 5% in industrial sectors and 20% in commercial sectors, including among senior management positions;
Initial employment of any foreign national is for a term of two years, which may be extended based on merit; and
The Ministry of Home Affairs will issue necessary security clearance certificates.
In response to the high number of expatriate workers in the ready-made garment industry, BIDA has issued informal guidance encouraging industrial units to refrain from hiring additional semi-skilled foreign experts and workers. Overall, the government looks favorably on investments that employ significant numbers of local workers and/or provide training and transfers of technical skills.
The GOB does not formally mandate that investors use domestic content in goods or technology. However, companies bidding on government procurement tenders are often informally encouraged to have a local partner and to produce or assemble a percentage of their products in country.
According to a legal overview by the Telenor Group, for reasons of national security or in times of emergency, several regulations and amendments, including the Bangladesh Telecommunication Regulatory Act, 2001 (the “BTRA”), Information and Communication Technology Act 2006 (the “ICT Act”), and the Telegraph Act 1885 (the “1885 Act”), grant law enforcement and intelligence agencies legal authority to lawfully seek disclosure of communications data and request censorship of communications. A draft Digital Security Act of 2016 (the “Digital Security Act”) was adopted by Parliament in October 2018.
On the grounds of national security and maintaining public order, the GOB can authorize relevant government authorities (intelligence agencies, national security agencies, investigation agencies, or any officer of any law enforcement agency) to suspend or prohibit the transmission of any data or any voice call and record or collect user information relating to any subscriber to a telecommunications service.
Under section 30 of the ICT Act, the GOB, through the ICT Controller, may access any computer system, any apparatus, data, or any other material connected with a computer system, for the purpose of searching for and obtaining any such information or data. The ICT Controller may, by order, direct any person in charge of, or otherwise concerned with the operation of a computer system, data apparatus, or material, to provide reasonable technical and other assistance as may be considered necessary. Under section 46 of the ICT Act, the ICT Controller can also direct any government agency to intercept any information transmitted through any computer resource, and may order any subscriber or any person in charge of computer resources to provide all necessary assistance to decrypt relevant information.
There is no direct reference in the BTRA to the storage of metadata. Under the broad powers granted to the BTRA, however, the GOB, on the grounds of national security and public order, may require telecommunications operators to keep records relating to the communications of a specific user. Telecommunications operators are also required to provide any metadata as evidence if ordered to do so by any civil court.
The ICT Controller enforces the ICT Act and the Bangladesh Telecommunication Regulatory Commission (BTRC) enforces the BTRA. The Ministry of Home Affairs grants approval for use of powers given under the BTRA. The ICT Act also established a Cyber Tribunal to adjudicate cases. The Digital Security Act of 2018 created a Digital Security Agency empowered to monitor and supervise digital content. Also under the Digital Security Act, for reasons of national security or maintenance of public order, the Director General (DG) of the DSA is authorized to block communications and to require that service providers facilitate the interception, monitoring, and decryption of a computer or other data source.
The Bangladesh Road Transport Authority’s (BRTA) Ride-sharing Service Guideline 2017 came into force on March 8, 2018. The new regulations included requirements that ride sharing companies keep data servers within Bangladesh.
5. Protection of Property Rights
Although land, whether for purchase or lease, is often critical for investment and as security against loans, antiquated real property laws and poor record-keeping systems can complicate land and property transactions. Instruments take effect from the date of execution, not the date of registration, so a bona fide purchaser can never be certain of title. Land registration records have been historically prone to competing claims. Land disputes are common, and both U.S. companies and citizens have filed complaints about fraudulent land sales. For example, sellers fraudulently claiming ownership have transferred land to good faith purchasers while the actual owners were living outside of Bangladesh. In other instances, U.S.-Bangladeshi dual citizens have purchased land from legitimate owners only to have third parties make fraudulent claims of title to extort settlement compensation. A study by a leading Bangladeshi think tank Policy Research Institute (PRI) revealed in 2015 one in seven households in the country faced land disputes. Bangladesh ranks 184 among 190 countries for ease of registering property in the World Bank’s Doing Business 2020 Report.
Property owners can obtain mortgages but parties generally avoid registering mortgages, liens, and encumbrances due to the high cost of stamp duties (i.e., transaction taxes based on property value) and other charges. There are also concerns that non-registered mortgages are often unenforceable.
Article 42 of the Bangladesh Constitution guarantees a right to property for all citizens but property rights are often not protected due to a weak judicial system. The and the are the two main laws that regulate transfer of property in Bangladesh but these laws do not have any specific provisions covering foreign and/or non-resident investors. Currently, foreigners and non-residents can incorporate a company with the Registrar of Joint Stock Companies and Firms. The company would be considered a local entity and would be able to buy land in its name.
Intellectual Property Rights The GOB has limited resources to devote to intellectual property rights (IPR) protection. Counterfeit goods are readily available in Bangladesh and industry estimates that 90 percent of business software is pirated. A number of U.S. firms, including film studios, manufacturers of consumer goods, and software firms, have reported violations of their IPR. Investors note police are willing to investigate counterfeit goods producers when informed, but are unlikely to initiate independent investigations.
The GOB has limited resources to devote to intellectual property rights (IPR) protection. Counterfeit goods are readily available in Bangladesh and industry estimates that 90 percent of business software is pirated. A number of U.S. firms, including film studios, manufacturers of consumer goods, and software firms, have reported violations of their IPR. Investors note police are willing to investigate counterfeit goods producers when informed, but are unlikely to initiate independent investigations.
The Software Alliance, also known as BSA, is a trade group established by Microsoft Corporation in 1988. It opened a Bangladesh office in early 2014 as a platform to improve IPR protection in Bangladesh. Public awareness of IPR is growing, thanks in part to the efforts of the Intellectual Property Rights Association of Bangladesh: . Bangladesh is not currently listed in the U.S. Trade Representative’s Special 301 or Notorious Markets reports. Bangladesh is a member of the World Intellectual Property Organization (WIPO) and acceded to the Paris Convention on Intellectual Property in 1991.
Bangladesh has slowly made progress toward bringing its legislative framework into compliance with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The government enacted a Copyright Law in July 2000 (amended in 2005), a Trademarks Act in 2009, and a Geographical Indication of Goods (Registration and Protection) Act in 2013. The Department of Patents, Designs and Trademarks (DPDT) drafted a new Patent Act in 2014 prepared in compliance with the requirements of the TRIPS Agreement. The draft act remains under Ministry of Industries review, and has not made measurable progress during the past year.
A number of government agencies are empowered to take action against counterfeiting, including the NBR/Customs, Mobile Courts, the Rapid Action Battalion (RAB), and local Police. The Department of National Consumer Rights Protection (DNCRP) is charged with tracking and reporting on counterfeit goods and the NBR/Customs tracks counterfeit goods seizures at ports of entry. Reports are not publicly available.
6. Financial Sector
Capital Markets and Portfolio Investment
Capital markets in Bangladesh are still developing and the financial sector remains highly dependent on bank lending. Current government policy inhibits the creation of reliable benchmarks for long-term bonds and prevents the development of a tradable bond market.
Bangladesh is home to the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE). The Bangladesh Securities and Exchange Commission (BSEC), a statutory body formed in 1993 and attached to the Ministry of Finance, regulates both. As of March 25, 2020, the DSE market capitalization stood at $36.7 billion, a 24.6 percent drop year-on-year caused by an acute shortage of liquidity and reduced investor confidence.
Although the Bangladeshi government has a positive attitude towards foreign portfolio investors, participation remains low due to limited liquidity and the lack of publicly available and reliable company information. The DSE has attracted some foreign portfolio investors to the country’s capital market; however, the volume of foreign investment in Bangladesh remains a small fraction of total market capitalization. As a result, foreign portfolio investment has had limited influence on market trends and Bangladesh’s capital markets have been largely insulated from the volatility of international financial markets. Bangladeshi markets continue to rely primarily on domestic investors.
In 2019, BSEC undertook a number of initiatives to launch derivatives products, allow short selling, and activate the bond market. To this end, BSEC introduced three rules in May 2019: Exchange Traded Derivatives Rules 2019, Short-Sale Rules 2019, and Investment Sukuk Rules 2019. Other recent, notable BSEC initiatives include forming a central clearing and settlement company named Central Counterparty Bangladesh Limited (CCBL) and promoting private equity and venture capital firms under the 2015 Alternative Investment Rules. In December 2013, BSEC became a full signatory of the International Organization of Securities Commissions (IOSCO) Memorandum of Understanding.
BSEC has taken steps to improve regulatory oversight, including installing a modern surveillance system, the “Instant Market Watch,” that provides real time connectivity with exchanges and depository institutions. As a result, the market abuse detection capabilities of BSEC have improved significantly. A mandatory Corporate Governance Code for listed companies was introduced in August 2012 but the overall quality of corporate governance remains substandard. Demutualization of both the DSE and CSE was completed in November 2013 to separate ownership of the exchanges from trading rights. A majority of the members of the Demutualization Board, including the Chairman, are independent directors. Apart from this, a separate tribunal has been established to resolve capital market-related criminal cases expeditiously. However, both domestic and foreign investor confidence remains low.
The Demutualization Act 2013 also directed DSE to pursue a strategic investor who would acquire a 25 percent stake in the bourse. DSE opened bids for a strategic partner in February 2018 and, in September 2018, the Chinese consortium of the Shenzhen and Shanghai stock exchanges became DSE’s strategic partner after buying a 25 percent share of DSE for taka 9.47 billion ($112.7 million).
According to the International Monetary Fund (IMF), Bangladesh is an Article VIII member and maintains restrictions on the unapproved exchange, conversion, and/or transfer of proceeds of international transactions into non-resident taka-denominated accounts. Since 2015, authorities have relaxed restrictions by allowing some debits of balances in such accounts for outward remittances, but there is currently no established timetable for the complete removal of the restrictions.
Money and Banking System
The Bangladesh Bank (BB) acts as the central bank of Bangladesh. It was established on December 16, 1971 through the enactment of the Bangladesh Bank Order of1972. General supervision and strategic direction of BB has been entrusted to a nine–member Board of Directors, which is headed by the BB Governor. BB has 45 departments and 10 branch offices.
According to the BB, four types of banks operate in the formal financial system: State Owned Commercial Banks (SOCBs), Specialized Banks, Private Commercial Banks (PCBs), and Foreign Commercial Banks (FCBs). Some 60 “scheduled” banks in Bangladesh operate under the full control and supervision of the central bank as per the Bangladesh Bank Order of 1972. The scheduled banks including six SOCBs, three specialized government banks established for specific objectives such as agricultural or industrial development or expatriates’ welfare, 42 PCBs, and nine FCBs as of March 2019. The scheduled banks are licensed to operate under the Bank Company Act of 1991 (Amended 2013). There are also five non-scheduled banks in Bangladesh, including Nobel Prize recipient Grameen Bank, established for special and definite objectives and operating under legislation that is enacted to meet those objectives.
Currently, 34 non-bank financial institutions (FIs) are operating in Bangladesh. They are regulated under the Financial Institution Act, 1993 and controlled by the BB. Of these, two are fully government-owned, one is a subsidiary of an SOCB, 15 are private domestic initiatives, and 15 are joint venture initiatives. Major sources of funds for these financial institutions are term deposits (at least three months’ tenure), credit facilities from banks and other financial institutions, call money, as well as bonds and securitization.
The major differences between banks and FIs are:
FIs cannot issue checks, pay-orders, or demand drafts;
FIs cannot receive demand deposits; and
FIs cannot be involved in foreign exchange financing.
Microfinance institutions (MFIs) remain the dominant players in rural financial markets. According to the Bangladesh Microcredit Regulatory Authority, as of June 2018, there were 705 licensed micro-finance institutions operating a network of 18,196 branches with 31.2 million members. Additionally, Grameen Bank had 830,000 million microfinance members as of June 2018. A 2014 Institute of Microfinance survey study showed that approximately 40 percent of the adult population and 75 percent of households had access to financial services in Bangladesh.
The banking sector has had a mixed record of performance over the past several years. Industry experts have reported shrinking liquidity and a rise in risky assets. Total domestic credit stood at 45.22 percent of gross domestic product at end of June 2019. With total assets of $15.4 billion, the state-owned Sonali Bank is the largest bank in the country while Islami Bank Bangladesh ($11.7 billion) and Standard Chartered Bangladesh ($4.5 billion) are the largest local private and foreign banks respectively as of December 2018, the latest data available. The gross non-performing loan (NPL) ratio was 9.3 percent at the end of December 2019 but was as high as 12.0 percent in the previous quarter. At 23.9 percent SCBs had the highest NPL ratio, followed by 15.1 percent of Specialized Banks, 5.8 percent of PCBs, and 5.7 percent of FCBs as of December 2019. Following the outbreak of COVID-19, the central bank directed all banks in March 2020 not to classify any new clients as non-performing until June 30. However, industry contacts predict NPLs will increase sharply after the exemption expires.
On December 26, 2017, the BB issued a circular, warning citizens and financial institutions about the risks associated with cryptocurrencies. The circular noted that using cryptocurrencies may violate existing money laundering and terrorist financing regulations and that users may incur financial losses. The BB issued similar warnings against cryptocurrencies in 2014.
Foreign investors may open temporary bank accounts called Non-Resident Taka Accounts (NRTA) in the proposed company name without prior approval from the BB in order to receive incoming capital remittances and encashment certificates. Once the proposed company is registered, it can open a new account to transfer capital from the NRTA account. Branch, representative, or liaison offices of foreign companies can open bank accounts to receive initial suspense payments from headquarters without opening an NRTA account. In May 2019, the BB relaxed regulations on the types of bank branches foreigners could use to open NRTAs, removing a previous requirement limiting use of NRTA’s solely to Authorized Dealers (ADs).
Foreign Exchange and Remittances
Free repatriation of profits is legally allowed for registered companies and profits are generally fully convertible. However, companies report the procedures for repatriating foreign currency are lengthy and cumbersome. The Foreign Investment Act guarantees the right of repatriation of invested capital, profits, capital gains, post-tax dividends, and approved royalties and fees for businesses. The central bank’s exchange control regulations and the U.S.-Bangladesh Bilateral Investment Treaty (in force since 1989) provide similar investment transfer guarantees. BIDA may need to approve repatriation of royalties and other fees.
Bangladesh maintains a de facto managed floating foreign exchange regime. Since 2013, Bangladesh has tried to manage its exchange rate vis-à-vis the U.S. dollar within a fairly narrow range. Until 2017, the Bangladesh taka traded between 76 and 78.8 taka to the dollar. The taka has depreciated relative to the dollar since October 2017 reaching 84.95 taka per dollar as of March 2020, despite interventions from the Bangladesh Bank from time to time. The Bangladesh currency, the taka, is approaching full convertibility for current account transactions, such as imports and travel, but not for financial and capital account transactions, such as investing, currency speculation, or e-commerce.
There are no set time limitations or waiting periods for remitting all types of investment returns. Remitting dividends, returns on investments, interest, and payments on private foreign debts do not require approval from the central bank and transfers are typically made within one to two weeks. For repatriating lease payments, royalties and management fees, some central bank approval is required, and this process can take between two and three weeks. If a company fails to submit all the proper documents for remitting, it may take up to 60 days. Foreign investors have reported difficulties transferring funds to overseas affiliates and making payments for certain technical fees without the government’s prior approval to do so. Additionally, some regulatory agencies have reportedly blocked the repatriation of profits due to sector-specific regulations. The U.S. Embassy also has received complaints from American citizens who were not able to transfer the proceeds of sales of their properties.
In September 2019, BB simplified the profit repatriation process for foreign firms. Foreign companies and their branches, liaison, or representative offices no longer require prior approval from the central bank to remit funds to their parent offices outside Bangladesh. However, banks need to submit applications for ex post facto approval within 30 days of profit remittance.
The Financial Action Task Force (FATF) notes that Bangladesh has established the legal and regulatory framework to meet its Anti-Money Laundering/Counterterrorism Finance (AML/CTF) commitments. The Asia/Pacific Group on Money Laundering (APG), an independent and collaborative international organization based in Bangkok, conducted its mutual evaluation of Bangladesh’s AML/CTF regime in September 2018 and found that Bangladesh had made significant progress since the last Mutual Evaluation Report (MER) in 2009, but still faces significant money laundering and terrorism financing risks. The APG reports are available online:
Sovereign Wealth Funds
The Bangladesh Finance Ministry first announced in 2015 that it was exploring the possibility of establishing a sovereign wealth fund to invest a portion of Bangladesh’s foreign currency reserves. In February 2017, the Cabinet initially approved a $10 billion “Bangladesh Sovereign Wealth Fund,” (BSWF) to be created with funds from excess foreign exchange reserves but the plan was subsequently scrapped.
7. State-Owned Enterprises
Bangladesh’s 49 non-financial SOEs are spread among seven sectors – industrial; power, gas and water; transport and communication; trade; agriculture; construction; and services. The list of non-financial SOEs and relevant budget details are published in Bangla in the Ministry of Finance’s SOE Budget Summary 201-20:
The current government has taken steps to restructure several SOEs to improve their competitiveness. The GOB converted Biman Bangladesh Airline, the national airline, into a public limited company that initiated a rebranding and fleet renewal program, including the purchase of twelve aircraft from Boeing, all of which have been delivered. Five of six state-owned commercial banks (SCBs) – Sonali, Janata, Agrani, Rupali, and BASIC – were converted to public limited companies, of which only Rupali is publicly listed.
The contribution of SOEs to gross domestic product, value-added production, employment generation, and revenue earning is substantial. SOEs usually report to the ministries, though the government has allowed some enhanced autonomy for certain SOEs, such as Biman Bangladesh Airline. SOEs maintain control of rail transportation whereas private companies compete freely in air and road transportation. The corporate governance structure of SOEs in Bangladesh has been restructured as per the guidelines published by the Organization for Economic Cooperation and Development (OECD), but the country’s practices are not up to OECD standards. There are no guidelines regarding ownership of SOEs, and while SOEs are required to prepare annual reports and make financial disclosures, disclosure documents are often unavailable to the public. Each SOE has an independent board of directors composed of both government and private sector nominees. The boards report to the relevant regulatory ministry. Most SOEs have strong ties with the government, and the ruling party nominates most SOE leaders. As the government controls most of the SOEs, domestic courts tend to favor the SOEs in investment disputes.
The Bangladesh Petroleum Act of 1974 grants authority for the government to award natural resources contracts and the Bangladesh Oil, Gas and Mineral Corporation Ordinance of 1984 gives Petrobangla, the state-owned oil and gas company, authority to assess and award natural resource contracts and licenses, to both SOEs and private companies. Currently, oil and gas firms can pursue exploration and production ventures only through production sharing agreements with Petrobangla.
The Bangladeshi government has privatized 74 state-owned enterprises (SOEs) over the past 20 years, but SOEs still retain an important role in the economy, particularly in the financial and energy sectors. Of the 74 SOEs, 54 were privatized through outright sale and 20 through offloading of shares.
Since 2010, the government’s privatization drive has slowed. Previous privatization drives were plagued by allegations of corruption, undervaluation, political favoritism, and unfair competition. Nonetheless, the government has publicly stated its goal is to continue the privatization drive. SOEs can be privatized through a variety of methods including: sales through international tenders; sales of government shares in the capital market; transfers of some portion of the shares to the employees of the enterprises when shares are sold through the stock exchange; sales of government shares to a private equity company (restructuring); mixed sales methods; management contracts; leasing; and direct asset sales (liquidation). In 2010, 22 SOEs were included in the Privatization Commission’s (now the BIDA) program for privatization. However, a study on privatized industries in Bangladesh conducted by the Privatization Commission in 2010 found that only 59 percent of the entities were in operation after being privatized and 20 percent of them were permanently closed down – implying a lack of planning or business motivation of their private owners. In 2014, the government declared SOEs would not be handed over to private owners by direct selling. Offloading shares of SOEs in the stock market can be a viable way to ensure greater accountability of the management of the SOEs and minimize the government’s exposure to commercial activities. The offloading of shares in an SOE, unless it involves more than 50 percent of its shares, does not divest the government of the control over the enterprise. Both domestic and foreign companies can participate in privatization programs. Additional information is available on the BIDA website at: http://bida.gov.bd/?page_id=4771
8. Responsible Business Conduct
The business community is increasingly aware of and engaged in responsible business conduct (RBC) activities with multinational firms leading the way. While many firms in Bangladesh fall short on RBC activities and instead often focus on philanthropic giving, some of the leading local conglomerates have begun to incorporate increasingly rigorous environmental and safety standards in their workplaces. U.S. companies present in Bangladesh maintain diverse RBC activities. Consumers in Bangladesh are generally less aware of RBC, and consumers and shareholders exert little pressure on companies to engage in RBC activities.
While many international firms are aware of OECD guidelines and international best practices concerning RBC, many local firms have limited familiarity with international standards. There are currently two RBC NGOs active in Bangladesh:
Along with the Bangladesh Enterprise Institute (BEI), the CSR Centre is the joint focal point for the United Nations Global Compact (UNGC) and its principles in Bangladesh. The UN Global Compact is the world’s largest corporate citizenship and sustainability initiative. The Centre is a member of a regional RBC platform called the South Asian Network on Sustainability and Responsibility (SANSAR). Currently, SANSAR has five member countries including Afghanistan, Bangladesh, India, Nepal, and Pakistan.
While several NGOs have proposed National Corporate Social Responsibility Guidelines, the GOB has yet to adopt any national standards for RBC. As a result, the GOB encourages enterprises to follow generally accepted RBC principles but does not mandate any specific guidelines.
Bangladesh has natural resources, but it has not joined the Extractive Industries Transparency Initiative (EITI). The country does not adhere to the Voluntary Principles on Security and Human Rights.
Corruption remains a serious impediment to investment and economic growth in Bangladesh. While the government has established legislation to combat bribery, embezzlement, and other forms of corruption, enforcement is inconsistent. The Anti-Corruption Commission (ACC) is the main institutional anti-corruption watchdog. With amendments to the Money Prevention Act, the ACC is no longer the sole authority to probe money-laundering offenses. Although it still has primary authority for bribery and corruption, other agencies will now investigate related offenses, including:
- The Bangladesh Police (Criminal Investigation Department) – Most predicate offenses.
- NBR – VAT, taxation, and customs offenses.
- The Department of Narcotics Control – Drug related offenses.
The current Awami League-led government has publicly underscored its commitment to anticorruption efforts and reaffirmed the need for a strong ACC, but opposition parties claim that the ACC is used by the government to harass political opponents. Efforts to ease public procurement rules and a recent constitutional amendment that reduced the independence of the ACC may undermine institutional safeguards against corruption. Bangladesh is a party to the UN Anticorruption Convention, but has not joined the OECD Convention on Combating Bribery of Public Officials. Corruption is common in public procurement, tax and customs collection, and among regulatory authorities. Corruption, including bribery, raises the costs and risks of doing business. By some estimates, off-the-record payments by firms may result in an annual reduction of two to three percent of GDP. Corruption has a corrosive impact on the broader business climate market and opportunities for U.S. companies in Bangladesh. It also deters investment, stifles economic growth and development, distorts prices, and undermines the rule of law.
Resources to Report Corruption
Mr. Iqbal Mahmood
Anti-Corruption Commission, Bangladesh
1, Segun Bagicha, Dhaka 1000
Contact at “watchdog” organization:
Transparency International Bangladesh (TIB)
MIDAS Centre (Level 4 & 5), House-5, Road-16 (New) 27 (Old),
10. Political and Security Environment
Prime Minister Hasina’s ruling Awami League party won 289 parliamentary seats out of 300 in a December 30, 2018 election marred by wide-spread vote-rigging, ballot-box stuffing and intimidation. Harassment, intimidation and violence during the pre-election period made it difficult for many opposition candidates and their supporters to meet, hold rallies, and/or campaign freely. The clashes between rival political parties and general strikes that previously characterized the political environment in Bangladesh have become far less frequent in the wake of the Awami League’s increasing dominance of the country and crackdown on dissent. Many civil society groups have expressed concern about the apparent trend toward a one-party state and the marginalization of all political opposition groups.
Americans are advised to exercise increased caution due to crime and terrorism when traveling to Bangladesh. Some areas have increased risk. For further information, see the State Department’s travel website for the Worldwide Caution, Travel Advisories, and Bangladesh Country Specific Information.
11. Labor Policies and Practices
Bangladesh’s comparative advantage in cheap labor for manufacturing is partially offset by lower productivity due to poor skills development, inefficient management, pervasive corruption, and inadequate infrastructure. According to the 2010 Labor Force Survey, 87 percent of the Bangladeshi labor force is employed in the informal economy. Bangladeshi workers have a strong reputation for hard work, entrepreneurial spirit, and a positive and optimistic attitude. With an average age in Bangladesh of 26 years, the country boasts one of the largest and youngest labor forces in the world. However, training is not well aligned with labor demand. Bangladesh has labor laws that specify employment conditions, working hours, minimum wage levels, leave policies, health and sanitary conditions, and compensation for injured workers. Freedom of association and the right to join unions are guaranteed in the constitution. In practice, compliance and enforcement of labor laws are inconsistent, and companies frequently discourage or prevent the formation of worker-led labor unions, preferring pro-government unions. Export Processing Zones (EPZs) are a notable exception to the national labor law in that they do not allow trade unions, but do allow worker welfare associations, to which 74 percent of workers belong, according to GOB.
Since two back-to-back tragedies killed over 1,250 workers—the Tazreen Fashions fire in 2012 and the Rana Plaza collapse in 2013—Bangladesh made significant progress in factory fire and structural safety remediation, thanks mostly to two brand-led initiatives, the Alliance for Bangladesh Worker Safety (Alliance), comprised of U.S. and Canadian brands, and the Accord on Fire and Building Safety in Bangladesh (Accord), which was formed by European brands. Monitoring and remediation of RMG factories outside the purview of the Alliance and the Accord were handled by the GOB, with assistance from the ILO, under the National Initiative. The Alliance and Accord were scheduled to close in 2018 and hand over all monitoring to Bangladesh. The Alliance successfully concluded its factory monitoring and remediation operations at the end of 2018, as scheduled, but U.S. brands established a local organization, Nirapon, to continue monitoring remediated factories to ensure there is no backsliding.
As of March 2020, only 32 percent of factories under the National Initiative have completed remediation. After several court cases attempted to force the Accord out of Bangladesh in 2018 before its factories completed remediation, it signed an MOU with the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) in May 2019 to hand over its operations to a new entity, the RMG Sustainability Council (RSC) on June 1, 2020. In addition to BGMEA, the RSC would have representation from Accord brands and trade union federations. BGMEA and the GOB envision all RMG factories will eventually come under one monitoring platform, but have not yet agreed on how to coordinate inspections through an Industrial Safety Unit.
The U.S. government suspended Bangladesh’s access to the U.S. Generalized System of Preferences (GSP) over labor rights violations following a six-year formal review conducted by USTR. The decision, announced in 2013 in the months following the Rana Plaza collapse, was accompanied by a 16-point GSP Action Plan to help start Bangladesh’s path to reinstatement of the trade benefits. While some progress has been made in the intervening years, several key issues have not been adequately addressed. Despite revisions in 2018 intended to make Bangladesh more compliant with international labor standards, the 2019 Bangladesh Labor Act (BLA) and 2019 Export Processing Zone (EPZ) Labor Act (ELA, which replaces the EPZ Workers Welfare Association and Industrial Relation Act) still restrict the freedom of association and formation of unions, and maintain two administrative systems for workers inside and outside of zones. The GOB reported it will issue implementation rules for both laws in 2020, and further amend them starting in July 2021.
The U.S. government funds efforts to improve occupational safety and health alongside labor rights in the readymade garment (RMG) sector in partnership with other international partners, civil society, businesses, and the GOB. The United States is also working with the EU, Canada, and the International Labor Organization (ILO) to continuously improve working conditions in the RMG sector via the Sustainability Compact, a coordination platform launched in 2013 to promote continuous improvements under three pillars: 1) respect for labor rights; 2) structural integrity of buildings and occupational safety and health; and 3) responsible business conduct.
Under the current BLA, legally registered unions are entitled to submit charters of demands and bargain collectively with employers, but this has rarely occurred in practice. Labor leaders estimate there are no more than 80 or 90 trade unions in the country, and only 30 to 40 are able to negotiate with owners. The law provides criminal penalties for unfair labor practices such as retaliation against union members for exercising their legal rights, but charges are rarely brought against employers and the labor courts have a large backlog of cases. Labor organizations reported most workers did not exercise their rights to form unions, attend meetings, or bargain collectively due to fear of reprisal. A crackdown on mostly peaceful wage protests between December 2018 and February 2019 reportedly led to the termination or forced resignation of some 11,000 workers—many of whom were blacklisted and remained unable to find new employment a year later.
Labor laws differentiate between layoffs and terminations; no severance is paid if a worker is fired for misconduct. In the case of downsizing or “retrenchment,” workers must be notified and paid 30 days’ wages for each year of service. The law requires factories and establishments to notify Bangladesh’s Department of Inspection for Factories and Establishments (DIFE) a week prior to temporarily laying off workers due to a shortage of work or material. Laid off workers are entitled to their full housing allowance. For the first 45 days, they are entitled to half their basic wages, then 25 percent after that. Workers who were employed for less than one year are not eligible for any compensation in a lay off. In reality, trade unions and protesting workers report employers not only fail to pay workers their severance or benefits, but also their regular wages. No unemployment insurance or other social safety net programs exist.
The GOB does not consistently and effectively enforce applicable labor law. For example, the law establishes mechanisms for conciliation, arbitration, and dispute resolution by a labor court and workers in a collective-bargaining union have the right to strike in the event of a failure to reach a settlement. In practice, few strikes followed the cumbersome and time-consuming legal requirements for settlements, and strikes or walkouts often occur spontaneously. The GOB was partnering with the ILO to introduce a dispute settlement system with its Department of Labor.
The BLA guarantees workers the right to conduct lawful strikes, but with many limitations. For example, the government may prohibit a strike deemed to pose a “serious hardship to the community” and may terminate any strike lasting more than 30 days. The BLA also prohibits strikes at factories in the first three years of commercial production, and at factories owned by foreign investors or built with foreign investment funds. 12. U.S International Development Finance Corporation (DFC) and Other Investment Insurance Programs
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Direct Investment from/in Counterpart Economy Data (December 2018)|
|From Top Five Sources/To Top Five Destinations (U.S. Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$16,032||100%||Total Outward||$3,075||100%|
|United States||$3,391||21.15%||Mainland China||$667||21.69%|
|Mainland China||$1,438||8.97%||The Netherlands||$649||21.11%|
|United Kingdom||$1,423||8.88%||South Korea||$564||18.34%|
|The Netherlands||$1,326||8.27%||United States||$513||16.68%|
|“0” reflects amounts rounded to +/- USD 500,000.|
|Portfolio Investment Assets (June, 2019)|
|Top Five Partners (Millions, current US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||$4,579||100%||All Countries||$3,080||100%||All Countries||$1,499||100%|