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
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:
- 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: 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 .
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 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.
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: http://www.fatf-gafi.org/countries/#Bangladesh .
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.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|Economic Data||Year||Amount||Year||Amount||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2017||$249,700||2016||$221,400||https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=BD|
|Foreign Direct Investment||2017||$2,200||2016||$2,300||UNCTAD World Investment Report 2018|
|U.S. FDI in Partner Country ($M USD, stock positions)||2017||$460||2016||$458||https://www.bea.gov/international/factsheet/factsheet.cfm?Area=631|
|Host Country’s FDI in the United States ($M USD, stock positions)||2017||$2||2016||N/A||https://www.bea.gov/international/factsheet/factsheet.cfm?Area=631|
|Total Inbound Stock of FDI as % host GDP||2017||0.86%||2016||1.05%||https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2130|
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%|