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Bangladesh

Executive Summary

Bangladesh is the most densely populated non-city state country in the world, with the world’s eighth largest population (over 165 million) in 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.

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 garments (RMG) industry, which exported USD 36.66 billion of products in FY 2017-18, second only to China, and continued remittance inflows, reaching nearly USD 15 billion in FY 2017-18.  Forecasts based on the first nine months of the 2018-19 fiscal year estimate Bangladesh is on track to reach USD 40 billion in garment exports for the fiscal year.

The Government of Bangladesh (GOB) actively seeks foreign investment, particularly in the agribusiness, garment/textiles, leather/leather goods, light manufacturing, energy, information and communications technology (ICT), 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 USD 3.0 billion in foreign direct investment (FDI) in FY 2017-18, up from USD 2.45 billion the previous year.  However, the rate of FDI inflows is only around 1 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, and corruption continue to hinder foreign investment.  New government efforts to improve the business environment show promise but implementation has yet to be seen. 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 in 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 the country.  With support from the international community and the private sector, Bangladesh has made significant progress on fire and workplace 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 for 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.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 149 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2018 176 of 190 http://www.doingbusiness.org/rankings
Global Innovation Index 2018 116 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in Partner Country ($M USD, stock positions) 2017 $460 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $1,470 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

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, energy, information and communications technology (ICT), 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;
  • Security printing.

The Bangladesh Investment Development Authority (BIDA) is the principal authority tasked with promoting 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 performs the following functions:

  • Provides pre-investment counseling services
  • Registers and approves of 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
  • Issues approvals for foreign loans and supplier credits

BIDA’s newly designed website has aggregated information regarding Bangladesh investment policies and ease of doing business indicators: http://bida.gov.bd/  .  

The Bangladesh Export Processing Zone Authority (BEPZA) acts as the investment supervisory authority in export processing zones (EPZs).  BEPZA is the one-stop service provider and regulatory authority for companies operating inside EPZs. In addition, Bangladesh plans to establish over 100 Economic Zones (EZs) throughout the country over the next several years.  The EZs are designed to attract additional foreign investment to locations throughout the country. The Bangladesh Economic Zones Authority (BEZA) is responsible for supervising and promoting investments in the economic zones (EZs).  

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).

Four sectors are reserved for government investment and exclude both foreign and domestic private sector activity:

  • Arms and ammunition and other defense equipment and machinery;
  • Forest plantation and mechanized extraction within the bounds of reserved forests;
  • Production of nuclear energy;
  • Security printing.

In addition, there are 17 controlled sectors that require prior clearance/ permission from the respective line ministries/authorities. These are:

  1. Fishing in the deep sea
  2. Bank/financial institution in the private sector
  3. Insurance company in the private sector
  4. Generation, supply and distribution of power in the private sector
  5. Exploration, extraction and supply of natural gas/oil
  6. Exploration, extraction and supply of coal
  7. Exploration, extraction and supply of other mineral resources
  8. Large-scale infrastructure projects (e.g. flyover, elevated expressway, monorail,     economic zone, inland container depot/container freight station)
  9. Crude oil refinery (recycling/refining of lube oil used as fuel)
  10. Medium and large industry using natural gas/condescend and other minerals as raw material
  11. Telecommunication service (mobile/cellular and land phone)
  12. Satellite channels
  13. Cargo/passenger aviation
  14. Sea-bound ship transport
  15. Sea-port/deep seaport
  16. VOIP/IP telephone
  17. Industries using heavy minerals accumulated from sea beach

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.

Business Registration

The Bangladesh Investment Development Authority (BIDA), formerly the Board of Investment, is responsible for screening, reviewing, and approving FDI in Bangladesh.  BIDA is directly supervised by the Prime Minister’s office and the Chairman of BIDA has Minister-equivalent rank. There have been instances where receiving approval was delayed.  Once the foreign investor’s application is submitted to BIDA, the authorities review the proposal to ensure the investment does not create conflicts with local business. Investors note it is frequently necessary to separately register with other entities such as the National Board of Revenue.  According to the World Bank, business registration in Bangladesh takes 19.5 days on average with nine distinct steps: http://www.doingbusiness.org/data/exploreeconomies/bangladesh/   .  

BIDA’s resources on Ease of Doing Business, Investment Opportunity, Potential Sectors, and Doing Business in Bangladesh are also available at:  

Requirements vary by sector, but all foreign investors are also required to obtain clearance certificates from relevant ministries and institutions with regulatory oversight.  BIDA establishes time-lines for the submission of all the required documents. For example, if a proposed foreign investment is in the healthcare equipment field, investors need to obtain a No Objection Certificate (NOC) from the Directorate General for Health Services under the Ministry of Health.  The NOC states that the specific investment will not hinder local manufacturers and is in alignment with the guidelines of the ministry. Negative outcomes can be appealed, except for applications pertaining to the four restricted sectors previously mentioned.

A foreign investor also must register its company with the Registrar of Joint Stock Companies and Firms (RJSC&F) and open a local bank account under the registered company’s name.  For BIDA screening, an investor must submit the RJSC&F Company Registration certificate, legal bank account details, a NOC from the relevant ministry, department, or institution, and a project profile (if the investment is more than USD 1.25 million) along with BIDA’s formatted application form.

Other Investment Policy Reviews

In 2013 Bangladesh completed an investment policy review (IPR) with the United Nations Conference on Trade and Development (UNCTAD) and can be found at: http://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=444&Sitemap_x0020_Taxonomy=Investment percent20Policy percent20Reviews percent20(IPR);#20;#UNCTAD percent20Home  .

Bangladesh has not conducted an IPR through the Organization for Economic Cooperation and Development.

A Trade Policy Review was last done by the World Trade Organization in October 2012 and can be found at:  https://www.wto.org/english/tratop_e/tpr_e/tp370_e.htm  .

With EU assistance, Bangladesh conducted a trade policy review, the “Comprehensive Trade Policy of Bangladesh” which was published by the Ministry of Commerce in September 2014.  Current Bangladesh government export and import policies are available at: http://www.mincom.gov.bd/site/page/30991fcb-8dfc-4154-a58b-09bb86f60601/Policy  .

Business Facilitation

The Government has had limited success reducing the time required to establish a company.  BIDA and BEZA are both attempting to establish one-stop business registration shops and these agencies have proposed draft legislation for this purpose.  In February 2018, the Bangladesh Parliament passed the “One Stop Service Bill 2018,” which aims to streamline business and investment registration processes.  Expected streamlined services from BIDA include: company registration, name clearance issuance, tax certificate and taxpayer’s identification number (TIN), value added tax (VAT) registration, visa recommendation letter issuance, work permit issuance, foreign borrowing request approval, and environment clearance.  BIDA started its online one-stop service (OSS) on a trial basis in January 2018. Businesses are currently getting 15 types of services online. BIDA aims to automate 150 processes from 34 government agencies once the OSS becomes fully operational.

Companies can register their business at the Office of the Registrar of Joint Stock Companies and Firms:  www.roc.gov.bd  .  However, the online business registration process is not clear and cannot be used by a foreign company to attain the business registration as certain steps are required to be performed in-person.  

In addition, BIDA has branch/liaison office registration information on its website at: http://bida.gov.bd/  .  

Other agencies with which a company must typically register are as follows:

  • City Corporation – Trade License
  • National Board of Revenue – Tax & VAT Registration
  • Chief Inspector of Shops and Establishments – Employment of workers notification.

The company registration process now takes around 15 workdays to complete.  The process to open a branch or liaison office is approximately one month. The process for a trade license, tax registration, and VAT registration requires seven days, two days, and three weeks, respectively.  

Outward Investment

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.

2. Bilateral Investment Agreements and Taxation Treaties

Bangladesh has signed bilateral investment treaties with 28 countries, including Austria, the Belgium-Luxembourg Economic Union, China, Denmark, France, Germany, India, Indonesia, Iran, Italy, Japan, Democratic People’s Republic of Korea, Republic of Korea, Malaysia, Netherlands, Pakistan, Philippines, Poland, Romania, Singapore, Switzerland, Thailand, Turkey, United Arab Emirates, United Kingdom, United States, Uzbekistan, and Vietnam.  

The U.S.-Bangladesh Bilateral Investment Treaty, signed on March 12, 1986, entered into force on July 23, 1989.  The Foreign Investment Act includes a guarantee of national treatment. The United States and Bangladesh also signed a bilateral treaty for the avoidance of double taxation on September 26, 2004.  The United States ratified it on March 31, 2006. The parties exchanged instruments of ratification on August 7, 2006. The treaty became effective for most taxpayers beginning in the 2007 tax year.

Bangladesh has successfully negotiated several regional trade and economic agreements, including the South Asian Free Trade Area (SAFTA), the Asia-Pacific Trade Agreement (APTA), and the Bay of Bengal Initiative for Multi-Sectoral, Technical and Economic Cooperation (BIMSTEC).  Bangladesh has not signed any bilateral free trade agreements (FTA), but started FTA discussions with Sri Lanka in March 2017 with the intention to sign the agreement by the end of 2018. In August 2017, Bangladesh also signed a memorandum of understanding with Turkey to begin discussions towards an FTA.  It has also announced plans to negotiate agreements with Cambodia and Thailand.

Bangladesh has taken steps to strengthen bilateral economic relations with India by reducing trade barriers and improving connectivity.  Bangladesh gained duty-free access to India via regional trade agreements including the South Asian Association for Regional Cooperation (SAARC) Preferential Trading Arrangement (SAPTA) signed in 1993 and the South Asian Free Trade Area (SAFTA) agreement signed in 2004.  Tariff reduction under SAFTA started from July 2006. Under SAFTA, Bangladesh can export goods duty-free to India, with the exception of alcohol and tobacco. India also provides duty-free and preferential tariff treatment to Bangladesh under the Duty Free Tariff Preference (DFTP) Scheme for Least Developed Countries (LDCs) effective from August 13, 2008.  As a founding member of the World Trade Organization (WTO) and as a Less Developed Country (LDC), Bangladesh has been an active advocate for LDC interests in WTO negotiations. In reality, however, many non-tariff barriers between Bangladesh and India continue to inhibit increased regional trade. These include anti-dumping and countervailing duties, conformity in testing/assessment, compliance with sanitary and phytosanitary standards, rules of origin, visa restrictions, and trade facilitation like poor logistic facilities at land ports.  India is the destination for less than 2 percent of Bangladesh’s exports.

Bangladesh met all three criteria required to graduate from LDC status at the triennial review of the UN’s Economic and Social Council Committee for Development Policy held in March 2018.  Bangladesh expects to fully graduate from LDC status in 2024 and then receive a three-year transition period during which it can still enjoy LDC-specific benefits. After 2027, Bangladesh is expected to lose access to several trade preferences program, including the European Union’s Generalized System of Preferences (GSP) Everything but Arms (EBA) program and other preferential financing arrangements.  To gain access to the EU’s GSP+ program, Bangladesh will need to ratify 27 international conventions on human and labor rights, environment, and governance.

7. State-Owned Enterprises

The government privatized 74 state-owned enterprises (SOEs) during the past 20 years, but many SOEs retain an important role in the economy, particularly in the financial and energy sectors.  Out of the 74 SOEs, 54 were privatized through outright sale and 20 through offloading of shares. The Privatization Commission (PC) has slowed its rate of privatization activities and in 2016, the PC merged with the Board of Investment (BOI) to form a new Bangladesh Investment Development Authority (BIDA).  The 54 non-financial public enterprises in the country have been categorized into 7 sectors following the Bangladesh Standard Industrial Classification (BSIC) and their economic and financial performances are analyzed in the government budget.

Bangladesh’s 45 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 2017-18: http://www.mof.gov.bd/site/page/5eed2680-c68c-4782-9070-13e129548aac/SOE-Budget  .

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 ten aircraft from Boeing, eight of which were delivered as of March 2019.  Three nationalized commercial banks (NCBs)—Sonali, Janata, and Agrani—have been converted to public limited companies. The GOB also liberalized the telecommunications sector in the last decade, which led to the development of a competitive cellular phone market.

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 still 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 government 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.

Privatization Program

Since 2010, the government’s privatization drive has slowed.  Previous privatization drives were plagued with allegations of corruption, undervaluation, political favoritism, and unfair competition.  Nonetheless, the government has publicly stated its goal of continuing the privatization drive. SOEs can be privatized through a variety of methods including: sales through international tender; 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; sale 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 Bangladesh Investment Development Authority’s) 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. Later, in 2014, the government declared that SOEs would not be privatized via direct selling but instead by the offloading of shares in the SOE.  The government believed this to be a viable way for ensuring greater accountability for the management of the SOEs while minimizing the government’s exposure. However, unless the offloading of shares involves more than 50 percent of the SOE’s shares, the government would not divest control over the SOE. Additional information is available on the BIDA website at: http://bida.gov.bd/?page_id=4771 .

9. Corruption

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:

  • Bangladesh Police (Criminal Investigation Department) – Most predicate offenses.
  • NBR – VAT, taxation, and customs offenses.
  • 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 it has still not joined the OECD Convention on Combating Bribery of Public Officials.

Corruption is common in public procurement, tax and customs collection, and 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
Chairman
Anti-Corruption Commission, Bangladesh
1, Segun Bagicha, Dhaka 1000
+88-02-8333350
Email: chairman@acc.org.bd

Contact at “watchdog” organization:

Advocate Sultana Kamal
Chairperson
Transparency International Bangladesh (TIB)
MIDAS Centre (Level 4 & 5), House-5, Road-16 (New) 27 (Old), Dhanmondi, Dhaka – 1209
+880 2 912 4788 / 4789 / 4792
Email: 
edtib@ti-bangladesh.org, info@ti-bangladesh.org, advocacy@ti-bangladesh.org

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