Bangladesh Bank’s conservative attitude is holding back businessmen from leveraging significant foreign investment opportunities. The fate of about $37 million worth of investment hinges upon further liberalisation of the foreign exchange regime.
Although the Foreign Exchange Regulation Act of 1947, which governs Bangladeshi investment abroad, was amended as recently as 2015, it only allows limited foreign investment on a case-by-case basis.
Despite considerable progress over four decades, only eight Bangladeshi businesses have been allowed to invest abroad.
These include Square Pharmaceuticals with $5 million for business expansion in US), BSRM with $4.67 million to build factory in Kenya, DBL Group with $3 million to build an RMG factory in Ethiopia and MJL with $547,000 in a joint venture in Myanmar.
ACI was permitted to invest $447,000 in the USA, while Incepta was permitted to invest £10,000 in the UK and €2,500 in Estonia.
Convertibility of capital accounts which liberalises overseas investment would see three large proposals worth $37 million go through.
According to the central bank, these proposals are wide and varied. The largest plan is from Akij Group for $20 million to buy a Malaysian cardboard company. Clothing giant Ha-Meem Group wants build an RMG factory in Haiti for $10 and Nitol-Niloy Group is looking to invest $7 million in Gambia to set up a bank.
A senior central bank executive said the proposals would be forwarded to the cabinet committee since the central bank or the ministry did not have enough authority to make such a decision. “The volume of money is simply too large for the central bank to approve according to the foreign exchange guidelines.”
President of the International Business Forum of Bangladesh, Hafizur Rahman Khan said local firms have already invested significant volumes in Bangladesh and are now looking to expand beyond the borders into the global market.
Explaining the benefits of an open economy, Hafizur said the foreign currency reserve was large enough to allow investment abroad. “Restrictions on overseas investment contradict with government’s declared free market policy.”
The International Monetary Fund (IMF), which advocates free market policy, also recommended liberalisation of foreign exchange rules.
According to official figures, the national foreign reserve was worth $32.21 billion in March. But the central bank remains cautious about letting local firms invest abroad, which would hardly be a pinch in the vast reserve volume.
Hafizur said such large reserves could lead to inflation because of increasing money supply. “Overseas investment could mitigate such risks and ensure optimum usage of the reserves.”
“But our foreign reserve is not sitting idle. We have invested it in the international market and are planning to invest part of it on development projects domestically, rather than opening up the reserve for overseas investment,” said a senior executive of the central bank.
BB deputy governor, Abu Hena Mohd Razee Hassan, acknowledged that the central bank was being conservative in its approach to liberalise the foreign exchange regulations. He also said that the prevailing ‘case-by-case method’ would be more accommodating when considering the worthiness of a project.
Quarters suggest that this adamance is what leads to illicit capital flight — to the tune of $62 billion between 2005 and 2014, according to the Global Financial Integrity.
Swiss National Bank data show that in 2015 alone Bangladeshi nationals made deposits worth CHF 550,850 million, rising by almost 9% over 506,047 million Swiss francs of 2014.
Towfiqul Islam Khan, research fellow at Centre for Policy Dialogue (CPD), told the Dhaka Tribune that the government should have a provision obligating businesses to repatriate profits to Bangladesh.
Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) President Abdul Matlub Ahmad, who also heads the Nitol Niloy Group, told the Dhaka Tribune that Bangladeshi investors had not become experienced and skilled enough to carry out business abroad and harness maximum benefits. “It will be unfair if the restrictions still remain.”
The FBCCI president urged the government to formulate a policy for overseas investment to replace the existing case-by-case system.
AB Mirza Azizul Islam, a former advisor to the caretaker government, however opposed the generalised rules for overseas investment and said emphasis should be on policy to ensure more efficiency and accuracy of the existing case-by-case permission system. “The policy should be such that it encourages firms to invest in the country first.”
Azizul pointed out that private investment as a portion of GDP has remained stagnant at 21-22% for the last seven or eight years which he said should be higher. “If the private sector invests more locally, it will help us boost our exports even further.”
The government has begun pondering policy guidelines to facilitate Bangladeshi investment abroad to cater to market demands at the moment. The Prime Minister’s Office formed an inter-ministerial committee on March 14 to look into this very possibility.
The committee, headed by Bangladesh Investment Development Authority (BIDA) Executive Member Ajit Kumar Paul, met on May 2 for the first time.
BIDA Executive Chairman Kazi M Aminul Islam told Dhaka Tribune that the committee was indeed looking to formulate a policy regarding foreign investment. “Local firms will also have to be aware of international standards and rules of business when they invest there.”