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.
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.
Article 42 of the Bangladesh Constitution guarantees right to property for all citizens, but property rights are often not protected due to a weak judiciary 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
Counterfeit goods are readily available in Bangladesh. The government has limited resources for intellectual property rights (IPR) protection. 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 intellectual property rights. Investors note police are willing to investigate counterfeit goods producers when informed but are unlikely to initiate independent investigations.
BSA, the Software Alliance, established a Bangladesh office in early 2014 as a platform to improve IPR protection in Bangladesh. Public awareness of intellectual property rights 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 Geographical Indication of Goods (Registration and Protection) Act in 2013. The Department of Patent, 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 this effort 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, regulate both. As of March 2016, the DSE market capitalization stood at $41 billion.
Although the Bangladesh 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 has remained 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, and Bangladeshi firms increasingly rely on capital markets to finance investment projects. In March 2017, the government relaxed investment rules making it possible for foreign investors to use local currency to invest in directly local companies through the purchase of corporate shares.
BSEC has formed separate committees to establish a central clearing and settlement company, allow venture capital and private equity firms, launch derivatives products, and activate the bond market. In December 2013, BSEC became a full signatory of International Organization of Securities Commissions (IOSCO) Memorandum of Understanding and was elevated to the ‘A’ category of regulators.
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 increased significantly. A new mandatory Corporate Governance Code for listed companies was introduced in August 2012. 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. All these reforms target a disciplined market with better infrastructure so that entrepreneurs can raise capital and attract foreign investors.
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
According to the Asian Development Bank Institute, four types of banks operate in formal financial markets — public sector commercial banks (PSCBs), development financial institutions (DFIs), private commercial banks (PCBs), and foreign commercial banks (FCBs). Some 56 banks including four PSCBs, four DFIs, 39 PCBs, and nine FCBs operate in Bangladesh within a network of 8,794 total branch offices as of the end June 2014. Microfinance institutions (MFIs) remain the dominant players in rural financial markets and, as of 2016, there were 692 licensed micro-finance institutions operating a network of 17,241 branches with 33.17 million members. A 2014 Institute of Microfinance survey study showed that around 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, but the sector has maintained overall healthy growth. Total assets in the banking sector stood at 65.2 percent of gross domestic product through September 2016. The gross non-performing loan (NPL) ratio was 10.3 percent through September 2016, with NPLs concentrated in six banks, each holding double-digit NPL rates in 2016.
The Bangladesh Bank acts as the Central Bank of Bangladesh (BB), which was established on December 16, 1971 through the enactment of the Bangladesh Bank Order-1972. General supervision and strategic direction of BB has been entrusted to a 9-member Board of Directors, which is headed by the BB Governor. BB has 45 departments and 10 branch offices.
Foreign Exchange and Remittances
Free repatriation of profits is legally allowed for registered companies and profits are generally fully convertible on the current account. However, companies report that the procedures for repatriation of 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. The Bangladesh Investment Development Authority may need to approve repatriation of royalties and other fees.
According to the IMF, Bangladesh maintains a de jure floating exchange rate regime. Effective February 2013, the de facto regime was reclassified from “other managed” to a “stabilized arrangement”. The Bangladesh currency, the taka, is approaching full convertibility for current account transactions, such as imports and travel, but not for capital account transactions, such as investing, currency speculation, or e-commerce. The Bangladesh taka has been relatively stable vis-à-vis the U.S. dollar from 2013-2016, largely trading between 76 and 78.5 taka for each U.S. dollar.
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 done 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 in 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 received complaints of American citizens not being able to transfer the proceeds from the sale of their properties. There is no mechanism in place for foreign investors to repatriate through government bonds issued in lieu of foreign currency payments. Bangladesh is not involved in currency manipulation tactics.
The Financial Action Task Force (FATF) notes that Bangladesh has established the legal and regulatory framework to meet its Anti-Money Laundering/Counterterrorism Finance 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 2016 and found that Bangladesh had made significant progress since the last Mutual Evaluation Report (MER) in 2009, but that Bangladesh still faces significant money laundering and terrorism financing risks. The APG report is available online:
Sovereign Wealth Funds
The Bangladeshi Finance Ministry announced in 2015 that it is exploring the possibility of establishing a sovereign wealth fund for the purposes of investing a portion of Bangladesh’s foreign currency reserves. In February 2017, the Cabinet gave initial approval for the “Bangladesh Sovereign Wealth Fund,” (BSWF) which will be created with funds from the excess foreign exchange reserves. The government claims the BSWF will be used to invest in “public interest” projects. Bangladesh does not currently follow the Santiago Principles, a voluntary set of 24 principles and practices designed to maintain an open and stable investment climate.
11. Labor Policies and Practices
Bangladesh has a population of approximately 156 million people and a working age population (15 years or older) of 106.3 million, of whom 58 million are employed and 2.6 million meet the definition of unemployed. Of the employed population, 37 percent (21.5 million) were between the ages of 15-29 years old. The 2013 Bangladesh Bureau of Statistics Survey indicates 45 percent of the employed labor force works in agriculture, 34.1 in services and 20.8 percent in the industrial sector. It estimates 86.9 percent of the employed workers are in the informal sector.
Bangladesh’s comparative advantage in cheap labor for manufacturing is partially offset by lower productivity due to lack of skills development, poor management, pervasive corruption, and inefficient infrastructure. 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.
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 the formation of labor unions. Export Processing Zones (EPZs), which currently do not allow trade union participation, are a notable exception to the national labor law (see below). Historically, unions have been heavily politicized and labor-management relations contentious. After the highly publicized collapse of the Rana Plaza garment factory building in 2013, which killed more than 1,100 people, international pressure forced the government to amend the country’s labor laws, although there remain some deviations from international standards.
The Ministry of Labor and Employment (MOLE) reports that there are 7,659 trade unions in Bangladesh, covering nearly 3 million workers, with 507 unions in the garment sector, including 375 new unions registered since 2013. MOLE reported that there were 16 unions in the shrimp sector and 13 unions in the leather and tannery sector.
The Joint Directorate of Labor is the body responsible for approving union applications and has broad authority in this regard. Since July 2013, following the establishment of the U.S. GSP Action Plan for Bangladesh to work toward regaining suspended GSP benefits, more than 300 unions have been registered, although reports of problems with the registration process are on the rise. Despite international efforts to support the registration of unions and to investigate unfair labor practices, threats and harassment of union leaders continue to be reported. In a sector with more than 3,500 factories, approximately only a dozen have collective bargaining agreements.
The Bangladesh Labor Act (BLA) was amended in 2013, and its implementing rules and regulations published in October 2015. The Rules provided much awaited clarification on key issues, such as the process to form occupational safety and health committees. The Rules also include regulations for outsourcing companies, requiring them to register with the Ministry of Labor and Employment.
Under the BLA, legally registered unions are entitled to submit charters of demands and bargain collectively with employers, but this has rarely occurred in practice. The law provides criminal penalties for unfair labor practices such as retaliation against union members for exercising their legal rights. Labor organizations reported that in some companies, workers did not exercise their collective bargaining rights due to fear of reprisal, but also because their unions’ found success addressing grievances with management informally.
The government 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 practical terms, few strikes followed the cumbersome and time consuming legal requirements for settlements, and strikes or walkouts often occurred spontaneously.
In July 2004, parliament enacted a law for export processing zones (EPZs). The 2004 EPZ law does not currently guarantee freedom of association for workers within the EPZs. Parliament has continued to defer action on a draft EPZ law, and according to the ILO, neither the draft EPZ law nor the BLA meet international labor standards. The Parliamentary Standing Committee on Law, Justice, and Parliamentary Affairs held several hearings on the draft law, including one on September 29 at which the committee solicited feedback from the international community. Following the September 29 meeting, the committee chair assigned a subcommittee the task of reviewing comparable practices in neighboring countries. The subcommittee had not submitted its report to the committee chair as of the end of 2016.
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. Starting in December 2016, 59 factories in Ashulia, an industrial suburb of Dhaka, experienced work stoppages when thousands of workers went on strike to demand wage increases. Although the country’s major labor federations did not organize the strike, at least 25 labor leaders and workers were detained and charged by local authorities for a range of allegations, including charges under the Special Powers Act of 1974. Following reported harassment from the industrial police, several labor federations operating in Ashulia and other areas closed their offices.
In the aftermath of the 2013 Rana Plaza building collapse that killed 1,138 workers and injured more than 2,500, private companies, foreign governments, and international organizations worked with the government to inspect more than 3,660 garment factories, leading to 39 full and 42 partial closures of factories for imminent danger to human life as of August 2016. Many factories began to take action to improve safety conditions, although remediation efforts have proceeded slowly due to a range of factors, including inadequate financing for factories.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Table 3: Sources and Destination of FDI
|Direct Investment from/in Counterpart Economy Data (2015)|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$12,352||100%||Total Outward||$188||100%|
|United States||$3,019||24.4%||United Kingdom||$47||25.0%|
|United Kingdom||$1,294||10.5%||China, P.R.: Hong Kong||$36||19.1%|
|South Korea||$715||5.8%||United Arab Emirates||$27||14.4%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets (December, 2015)|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||$2,452||100%||All Countries||$20||100%||All Countries||$2,432||100%|
|United States||$329||13.4%||Saudi Arabia||$8||40.0%||United States||$329||13.5%|
|United Kingdom||$221||9.0%||Pakistan||$5||25.0%||United Kingdom||$221||9.1%|
Data from the Bangladesh Bank, the country’s central bank, showed the United States was the highest net contributor of foreign direct investment (FDI) to Bangladesh during fiscal year 2016, which ended June 30. Net FDI from the United States doubled from $225 million in FY2015 to $450 million in FY2016. However, gross FDI inflows from the United States were down slightly to $456.1 million in FY2016 from $479 million in FY2015. U.S. FDI in Bangladesh was concentrated in the energy sector.
Bangladesh’s net FDI reached $2 billion in FY2016, a 9 percent year-on-year increase. Following the United States, the United Kingdom, South Korea, Singapore, and Hong Kong rounded out the top five contributors of FDI in Bangladesh. Over the past five years, the country has also seen a notable increase in FDI from Southeast Asia with Singapore, Malaysia, and Thailand accounting for nearly 15 percent of net FDI inflows in FY 2016 compared to only 5 percent in FY2012.
The Bangladesh Bank report also showed the United States has the largest cumulative investments (FDI stock) in Bangladesh, $3.2 billion, over twice as much as the next country, the United Kingdom with $1.53 billion. Of the United States’ total $3.2 billion in FDI stock, 83 percent was in the gas and petroleum sector followed by the banking and “other” sectors. Overall, Bangladesh’s FDI stock reached record levels growing 7.56 percent to $13.4 billion in FY2016. Gas and petroleum, textiles and garments, and banking constituted the top three sectors overall.