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.
|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
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:
- Fishing in the deep sea
- Bank/financial institution in the private sector
- Insurance company in the private sector
- Generation, supply and distribution of power in the private sector
- Exploration, extraction and supply of natural gas/oil
- Exploration, extraction and supply of coal
- Exploration, extraction and supply of other mineral resources
- Large-scale infrastructure projects (e.g. flyover, elevated expressway, monorail, economic zone, inland container depot/container freight station)
- Crude oil refinery (recycling/refining of lube oil used as fuel)
- Medium and large industry using natural gas/condescend and other minerals as raw material
- Telecommunication service (mobile/cellular and land phone)
- Satellite channels
- Cargo/passenger aviation
- Sea-bound ship transport
- Sea-port/deep seaport
- VOIP/IP telephone
- 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.
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: .
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
Bangladesh has not conducted an IPR through the Organization for Economic Cooperation and Development.
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: .
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: . 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.
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 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.
3. Legal Regime
Transparency of the Regulatory System
Since 1989, the government has gradually moved to decrease regulatory obstruction of private business. The Bangladeshi 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 exist 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.
The Bangladesh Investment Development Authority (BIDA)—a merger of the Board of Investment (BOI) and the Privatization Commission (PC)—was formed in accordance with the Bangladesh Investment Development Authority Bill 2016 passed by Parliament on July 25, 2016. The bill established BIDA as the lead private investment promotion and facilitation agency in Bangladesh. The move came amid complaints about redundancies in the BOI’s and the PC’s overlapping mandates and concerns that the PC had not made sufficient progress. BIDA hopes to become a “one-stop shop” for investors and a “true” investment promotion authority rather than simply follow the referral service-orientation of BOI. Currently, BIDA is not yet a one-stop shop and companies must still seek approvals from relevant line ministries
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 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 stakeholders consultation through workshops or media outreach. Although the consultation process exists, it is still weak and subject to further improvement.
Ministries do not generally publish and release draft proposals to the public. However, several government organizations, including the Bangladesh Bank (central bank), 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.
Regulatory agencies generally do not solicit comments on proposed regulations from the general public; however, when a consultation occurs, comments may be received through public media consultation, feedback on websites (e.g., in the past, the Bangladesh Bank received comments on monetary policy), focus group discussions, or workshops with relevant stakeholders. There is no government body tasked with soliciting and receiving comments, but the Bangladesh Government Press of the Ministry of Information is entrusted with the authority of disseminating government information to the public. The law does not require regulatory agencies to report on the results of consultations and, in practice, regulators do not generally report the results. Widespread use of social media in Bangladesh has created an additional platform for public input into developing regulations and government officials appear to be sensitive to this form of messaging.
The government printing office, The Bangladesh Government Press ( ), publishes the weekly “Bangladesh Gazette” every Thursday. 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 of financial institutions. However, the FRC is not fully functional as the regulations that will govern the accountings, earning reports, and disclosure of companies have not yet been formulated. Accounting practices and quality 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 assessment of proposed regulations; hence, regulations are often not reviewed on the basis of data-driven assessments. National budget documents are not 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 between 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. The 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. 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 the notification activities to WTO through the Ministry of Commerce and the Ministry of Industries.
Focal Points and Methods of Contact are:
Email address for WTO-TBT National Enquiry Point: email@example.com
Focal Points for WTO:
- Md. Muazzem Hossain, Director General, BSTI, Dhaka; Email: firstname.lastname@example.org, Tel: +880-2-8870275
- Mr. Shajjatul Bari, Deputy Director, Standards Wing, BSTI, Dhaka; Email: email@example.com, Tel: +880-2-8870278, Cell: +8801672790239
- Mr. Md. Munir Chowdhury, Director General, WTO Cell, Ministry of Commerce; Email: firstname.lastname@example.org, Tel: +880-2-9545383, Cell: +88 0171 1591060
- Focal Points for Sanitary and Phytosanitary Measures (SPS), Technical Barriers to Trade (TBT) and Trade-Related Aspects of Intellectual Property Rights (TRIPS):
- Mr. Md. Hafizur Rahman, Director, WTO Cell, Ministry of Commerce: Email: email@example.com, Tel: +880-2-9552105, Cell: +88 0171 1861056
- Mr. Md. Hamidur Rahman Khan, Director, WTO Cell, Ministry of Commerce-
- Email: firstname.lastname@example.org, Tel: +880-2-9549195, Cell: +88 01711372093
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 laws. However, family laws, such as laws relating to marriage, dissolution of marriage, and inheritance are based on religious scripts and therefore differ between 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 court. As a common law system, statutes are typically short and set out basic rights and responsibilities that are then elaborated on by the courts in their application and interpretation. The Judiciary of Bangladesh acts through (1) The Superior Judiciary having appellate, revision, and original jurisdiction and (2) 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 a 3.33 in the World Bank’s 2017 Judicial Independence Index on a 1-7 band score with 7 being the best ranking. That was up from 2016 when it scored a 2.38.
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 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 Industrial Policy Act of 2016 offers incentives for “green” (environmental), high-tech, or “transformative” industries. Foreign investors who invest USD 1 million or transfer USD 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 industries (architecture, arts and antiques, fashion design, film and video, interactive laser software, software, and computer and media programming). Specific importance will be given to agriculture and food processing, ready-made garments (RMG), information and communication technology (ICT), software, pharmaceuticals, leather and leather products, and jute and jute goods.
In 2017, BIDA submitted proposed legislation for a One-Stop Service Act (OSS), which was approved by the Parliament in February 2018, to attract further foreign direct investment to Bangladesh. 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.
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 business, potential sectors, and how to do business in Bangladesh. The website also has an eService Portal for Investors which provides services like 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. However, the effectiveness of these online services is questionable.
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 2012. However, the BCC has experienced operational delays and it has not received sufficient resources to fully operate. Currently, the WTO Cell of the Ministry of Commerce handles most competition-related issues.
In January 2016, the two parent companies of Malaysia-based Robi and India-based Airtel signed a formal deal to merge their operations in Bangladesh, completing the country’s first telecommunications merger. The deal, valued at USD 12.5 million, is to date Bangladesh’s largest corporate merger. The merger raised anti-competition concerns but it was completed in November 2016 after the Bangladesh Telecommunication Regulatory Commission (BTRC) and Prime Minister Sheikh Hasina gave final approvals.
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. During the last 20 years, the government has since taken steps to privatize many of these industries 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 of them and as a part of their consultation and negotiation, 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 they 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
Bangladeshi law allows contracts to refer dispute settlement to third country fora for resolution. The Bangladesh Arbitration Act of 2001 and amendments in 2004 reformed alternative dispute resolution in Bangladesh. The Act consolidated the law relating to both domestic and international commercial arbitration. It thus creates a single and unified legal regime for arbitration in Bangladesh. 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 judge 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 seek government intervention.
The practice of alternative dispute resolution (ADR) in Bangladesh has many challenges, including lack of funds, 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 council committee is headed by the President of International Chamber of Commerce—Bangladesh (ICCB) and includes the presidents of other prominent chambers such as like Dhaka Chamber of Commerce and Industry (DCCI) and Metropolitan Chamber of Commerce and Industry (MCCI). 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 to resolve transaction disputes.
Many laws affecting investment in Bangladesh are old and outdated. Bankruptcy laws, which apply mainly to individual insolvency, are sometimes not used in business cases because of the series of falsified assets and uncollectible cross-indebtedness supporting insolvent banks and companies. A Bankruptcy Act was enacted in 1997 but has been ineffective in addressing these issues. An amendment to the Bank Companies Act of 1991 was enacted in 2013. Some bankruptcy cases fall under the Money Loan Court Act which has more stringent and timely procedures.
4. Industrial Policies
Details regarding fiscal and non-fiscal incentives are available on the BIDA website: . Current regulations permit a tax holiday for designated “thrust” (strategic) sectors and infrastructure projects established between July 01, 2011 and June 30, 2019. Industries set up in Export Processing Zones (EPZs) are also eligible for tax holidays. Thrust sectors subject to 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, energy efficient appliances, insecticides, pesticides, petro-chemicals, fruit and vegetable processing, textile machinery, tissue grafting, and tire manufacturing industries. 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.
In addition to the above tax rebate, manufacturers located in rural areas and commencing commercial operations between July 1, 2014 and June 30, 2019 are eligible for tax exemptions of up to 20 percent for the first 10 years of production.
Independent non-coal fired power plants (IPPs) commencing production (COD) after January 1, 2015 are granted a 100 percent tax exemption for five 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 one 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.
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 in and enjoy equal treatment in the EPZs. Approximately one dozen U.S. firms—mostly textile producers—are currently operating in Bangladesh EPZs. Investors have begun to view intermittent infrastructure services, including electricity and gas connections, and increasing costs as making the EPZs less attractive.
In 2010, Bangladesh enacted the Special Economic Zone Act that allows for the creation of privately owned economic zones (EZs) that can produce for export and domestic markets. The EZs provide special fiscal and non-fiscal incentives to domestic and foreign investors in designated underdeveloped areas throughout Bangladesh. The International Finance Corporation provided assistance to the GOB to establish an EZ authority, the Bangladesh Economic Zones Authority (BEZA), modeled after BEPZA, to implement the new law and oversee the establishment of EZs. The government recently announced plans to create up to 100 new EZs and invited private companies to develop the zones. Several EZs are moving forward under this initiative: . However, assurances regarding access to necessary infrastructure and other resources, including gas and power, have not been made.
Performance and Data Localization Requirements
The Bangladesh Investment Development Authority (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 offers or extension of employment;
- The percentage of foreign employees should not exceed 5 percent in industrial sectors and 20 percent 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;
- 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.
Data Storage Requirements
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 the 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 to 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. If approved, the Digital Security Act would create a Digital Security Agency (DSA) 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 would be 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 historically been 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. 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 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 GOB 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 IPR. Investors note that 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 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. However the draft act still 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, regulates both. As of March 2019, the DSE market capitalization stood at USD 48.6 billion.
Although the GOB 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 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 directly in 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.
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 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.
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 Shenzhen and Shanghai stock exchanges became DSE’s strategic partner after buying a 25 percent share of DSE for taka 9.47 billion (USD 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-1972. 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 59 “scheduled” banks in Bangladesh operate under the full control and supervision of the center as per the Bangladesh Bank Order 1972. The scheduled banks including six SOCBs, three specialized government banks established for specific objectives like agricultural or industrial development, 41 PCBs, and nine FCBs as of March 2019. The scheduled banks are licensed to operate under Bank Company Act 1991 (Amended 2013). There are also five non-scheduled banks in Bangladesh, established for special and definite objectives and operating under Acts that are enacted for meeting up 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. Out of the total, 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 of 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 difference between banks and FIs are as follows:
FIs cannot issue checks, pay-orders, or demand drafts,
FIs cannot receive demand deposits,
FIs cannot be involved in foreign exchange financing,
FIs can employ diversified financing modes like syndicated financing, bridge financing, lease financing, securitization instruments, private placement of equity etc.
Microfinance institutions (MFIs) remain the dominant players in rural financial markets. According to the Bangladesh Microcredit Regulatory Authority, as of June 2017, there were 783 licensed micro-finance institutions operating a network of 17,120 branches with 29.2 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 62.5 percent of gross domestic product at end of September 2018. The gross non-performing loan (NPL) ratio was 11.45 percent at end of September 2018.
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. According to the BB, the circular did not constitute a ban. Bangladesh foreign exchange regulations, which limit outward payments, largely prevent the use of cryptocurrencies in Bangladesh. The BB issued similar warnings against cryptocurrencies in 2014.
Foreign Exchange and Remittances
Foreign Exchange Policies
Free repatriation of profits is legally allowed for registered companies and profits are generally fully convertible. 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.
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 84.25 taka per dollar as of March 2019, despite ongoing interventions from the Bangladesh Bank. 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.
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 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 of sales 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 (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 that Bangladesh 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 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 initially approved a USD 10 billion “Bangladesh Sovereign Wealth Fund,” (BSWF) that will be created with funds from 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 promote transparency, good governance, accountability, and prudent investment practices while encouraging a more open dialogue and deeper understanding of sovereign wealth fund activities.
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: .
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.
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: .
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 in 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 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:
- 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
Anti-Corruption Commission, Bangladesh
1, Segun Bagicha, Dhaka 1000
Contact at “watchdog” organization:
Advocate Sultana Kamal
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: email@example.com, firstname.lastname@example.org, email@example.com
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 that was 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 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. 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) are a notable exception to the national labor law in that they do not allow trade union participation, but the government is considering amendments to change that (see below). Historically, unions have been heavily politicized and labor-management relations contentious.
Bangladesh’s garment sector has undergone several reforms since the April 2013 Rana Plaza building collapse and the November 2012 Tazreen Fashions factory fire that together killed over 1,230 workers. 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).
In June 2013, President Obama suspended Bangladesh’s Generalized System of Preferences (GSP) trade benefits. Accompanying this decision was a 16-point Action Plan that set forth specific steps to address workers’ rights and safety in Bangladesh. In July 2013, the EU, the International Labor Organization (ILO), the GOB, and the United States jointly developed a Sustainability Compact.
Bangladesh has made significant progress in factory fire and structural safety remediation, thanks in part to two industry-led initiatives, the Alliance for Bangladesh Worker Safety (Alliance), which represents U.S. brands, and Accord on Fire and Building Safety in Bangladesh (Accord), which represents European brands. Inspection and remediation of RMG factories outside the purview of the Alliance and the Accord are handled by the GOB, with assistance from the ILO, under the National Initiative. Only 20 percent of factories under the National Initiative, however, have completed remediation. The GOB has established a Remediation Coordination Center (RCC) to take over responsibility from the Alliance and Accord.
The Alliance successfully concluded its factory inspection and remediation operations at the end of 2018, as scheduled, but has quietly established a local NGO (Nirapon) to monitor remediated factories to ensure there is no backsliding. Meanwhile, the Accord continues to seek to remain in Bangladesh to complete the remediation of the 1,600 factories under its remit. A Bangladeshi court initially ruled that Accord could not continue operations in Bangladesh past November 2018, but has subsequently instructed the Bangladesh government to try to work out a mutually acceptable, time-bound transition plan with the Accord. The next court hearing to review where those negotiations stand is scheduled for May 2019.
Significant work remains to address freedom of association restrictions. In December 2016, a widespread crackdown on union members drew international condemnation. In response, the international community pressed the GOB to implement several labor reforms.
The U.S. government suspended Bangladesh’s access to the U.S. General 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 that resulted in more than 1,100 deaths, was accompanied by a 16-point GSP Action Plan to help guide Bangladesh’s path to reinstatement of the trade benefits. While some progress has been made in the intervening years, several key issues remain unaddressed. Preliminary analysis of recent revisions to the Bangladesh Labor Act (BLA) and Export Processing Zone (EPZ) law indicate they fail to allow free association and the formation of unions particularly in the ready-made garment (RMG) sector, and fall short of international labor standards. The U.S. government funds efforts to improve occupational safety and health alongside labor rights in the readymade garments (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. Labor unrest in December 2018 and January-February 2019 followed a disproportionate wage hike announced by the GOB, which increased the pay of entry-level workers by 50 percent, but left the wages of more skilled employees unchanged. In a subsequent crackdown, some 11,000 workers who participated in the mostly peaceful protests were reportedly terminated or forced to resign, and many of them were blacklisted and unable to find new employment.
The Bangladesh parliament in 2018 passed a series of amendments to the Bangladesh Labor Act and the Export Processing Zone (EPZ) law to address some concerns voiced by the International Labor Organization (ILO). The European Union (EU) noted that 50 sections of the BLA had been amended. The amendments reduced the membership requirement for the formation of trade unions from 30 to 20 percent and repealed conditional provisions for the employment of child labor in hazardous industries, while shortening time limits for the registration of unions from 60 to 55 days. The amendments also established a festival allowance for the labor force and provided legal protections for women deprived of maternity leave.
The EU’s preliminary assessment of the EPZ law amendments indicated the BLA changes were made applicable to EPZ. For example, the 20 percent threshold was now applicable to “Worker Welfare Associations” (WWA), which are allowed in EPZs in lieu of trade unions. The Government of Bangladesh (GOB)’s Department of Inspection for Factories and Establishments (DIFE) had also been given the authority to inspect factory conditions within EPZs.
The ILO’s Committee of Experts (COE) is analyzing the BLA amendments. The term “Committee of Experts” refers to a group of jurists who examine reports from governments on any of the eight fundamental and four governance ILO Conventions they (the governments) may have ratified. Bangladesh ratified the Labor Inspection Convention, 1947 (No. 81) in 1972. Meanwhile, the COE continues to wait for an official English translation of the EPZ law amendments before it can begin its analysis of the contents of the amendments. There is no timeframe for the COE’s completion of the review.
The EU felt the reduction of the membership requirement to 20 percent was an “eyewash” because the GOB had erected other barriers to prevent trade union registration. The Bangladesh office of the Solidarity Center (SC) shared EU’s concerns and feels the BLA amendments were most “obstructive” in the area of registering new unions, including the 20 percent vote required to recognize a union, which could easily be manipulated by factory management to favor “yellow” or corrupt, undemocratic unions over independent unions. SC feels the main challenge with the BLA was not its lack of protections, but its lack of implementation.
12. OPIC and Other Investment Insurance Programs
The U.S. Overseas Private Investment Corporation (OPIC) and the Government of Bangladesh signed an updated bilateral agreement in May 1998: . However, OPIC is not currently authorized for operation in the courty. Investors should check OPIC’s website for updates: . More information on OPIC services can be found at: .
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|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$14,091||100%||Total Outward||$328||100%|
|United States||$3,316||23.5%||United Kingdom||$84||25.6%|
|United Kingdom||$1,559||11.1%||China, P.R.: Hong Kong||$76||23.2%|
|South Korea||$811||5.8%||United Arab Emirates||$31||9.5%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets (June, 2018)|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||$3,584||100%||All Countries||$10||100%||All Countries||$3,574||100%|
|-United States||$587||16.4%||Pakistan||$10||100%||United States||$587||16.4%|
|United Kingdom||$383||10.7%||N/A||N/A||N/A||United Kingdom||$383||10.7%|
14. Contact for More Information
Embassy of the United States of America
Madani Avenue, Baridhara, Dhaka — 1212
Tel: +880 2 5566-2000