Is this the way to attract foreign investment?

The lack of a proper legal framework to address disputes had always made foreign investors in Bangladesh nervous, but recent arbitrary regulatory crackdowns have many even more on edge at present.

The latest of these crackdowns came on August 2, when the Directorate General of Health Services (DGHS) suspended the services of Praava Health — a private healthcare organization backed by a number of foreign investors.

“Our existing investors have maintained their confidence in Praava and are fully with us for our future plans, but some of them have expressed concerns about investing in the Bangladesh market in the future,” said Sylvana Quader Sinha, founder and CEO of Praava Health.

“One noted that he had been getting comfortable with the Bangladesh market based on his experience as an investor in Praava, and was considering exploring other investments, but after this experience, he is not so sure,” she added.

Prominent angel investors who have put money into Praava include retired US Army General David H Petraeus, chairman of the KKR Global Institute; SBK Tech Ventures; Wellville Executive Founder Esther Dyson; Dr Rushika Fernandopoulle, co-founder and CEO of Iora Health; Dr Jeremy Lim, advisor of digital health to Singapore’s Agency for Science, Technology and Research; and Geoff Price, co-founder and COO of Oak Street Health.

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Sinha told Dhaka Tribune in a recent interview that she was shocked by the suspension as no show-cause letters were issued prior to this move.

According to her, an inspection team came in and suggested some changes but Praava had not been informed at the time of the inspection of any anomalies being found that required such drastic action as suspension. 

The Medical Practice and Private Clinics and Laboratories (Regulation) Ordinance, 1982 allows the government to suspend services at a private clinic for rule violations, if the clinic has been served with a show-cause notice first.

Furthermore, whether the DGHS could have even taken such an action against Praava Health is unclear.

“If it [Praava] is a laboratory, it will still be subject to inspection by the DGHS, who may recommend that the government shut it down, and the government might do so by giving it an opportunity to show cause for the infraction,” said lawyer Mustafizur Rahman Khan.

“In the present instance, was this process followed? The DGHS does not seem to have the power to shut down a laboratory though it has the power to do so in respect to a clinic,” he said.

Additional Director General (Admin) of DGHS Prof Nasima Sultana said inspection teams had visited Praava on numerous occasions identifying multiple problems and advising them to implement necessary changes.

"They [Praava] had addressed some of those identified issues, whereas some responses were found to be unsatisfactory, leading to the suspension," she added.

Asked if Praava was issued a show-cause notice prior to the suspension, the DGHS official told Dhaka Tribune that the institution had been issued an oral notice regarding the matter. 

"They were suspended as the inspection team deemed Praava's response following the identified issues to be unsatisfactory. However, their services were allowed to resume after they had addressed those issues," Sultana said.

The DGHS lifted the suspension after three weeks.

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Regulatory uncertainty keeps FDI away

Syed Akhtar Mahmood, former lead private sector specialist at the World Bank Group, says reducing regulatory uncertainty is one area that Bangladesh can improve on in the short and medium term.

Mahmood cited foreign investors as often saying that they are delighted when a government says “yes” and they can move forward with investment plans. They are disappointed when it says “no” but the investors understand and can move on to other things.

But they are really irritated when they keep on saying “maybe.” This confuses them and throws them into uncertainty, according to the economist.

“Regulatory uncertainty is a major reason why many businesses do not make investment plans or do not fully implement plans that they have made. It also brought out the many manifestations of regulatory uncertainty, from the way laws and regulations are written to the way these are implemented in practice,” Mahmood told Dhaka Tribune.

“If local investors are discouraged by regulatory uncertainty, foreign investors will be even more so. After all, they have other places to go to. We should note that a significant portion of the FDI in a country typically comes from reinvestment by existing investors,” he further said.

Moreover, prospective investors talk to those who are already in a country, he said, adding: “If such investors have a negative experience to share, that will discourage others from considering investments.”

Abul Kashem Khan, chairperson of Business Initiative Leading Development (BUILD) Bangladesh, said: “Legal framework is the first thing investors look into, and it is crucial to ensure investor comfort in any legal proceedings they get entangled with.

All foreign investors face challenges, which can be dynamic as the local laws are from the British period, the tax code is complex, among many others, but the way of expediting it is what matters, he added.

“This speaks scores about foreign investor confidence and inability to ensure that will hinder our years of efforts in developing the ease of doing business,” the BUILD chairperson further said.

He added that investment arbitration and dispute resolution, as well as legal capacity enhancement, could safeguard investor confidence by resolving problems through a framework.

Asked about the potential impact on confidence of foreign investors, Bangladesh Investment Development Authority (BIDA) Executive Chairman Md Sirazul Islam said both foreign and local businesses have to abide by the law of the land.

“But if any foreign investment faces legal issues which do not proceed as per the legal framework, they will obviously be discouraged,” he added.

However, Islam refrained from commenting specifically on the case of Praava as he did not know if the actions taken against the organization were under the existing legal framework or unfair.

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The FDI scenario in Bangladesh

Foreign Direct Investment (FDI) inflows to Bangladesh fell by 11% last year, according to the United Nations Conference on Trade and Development (UNCTAD).

This took FDI in the country to $2.56 billion in 2020 from $2.87 billion in 2019.

Mustafizur Rahman Khan, CEO of Startup Dhaka, said that despite improvements in ease of doing business and in attracting FDI, Bangladesh lags behind countries such as Indonesia and India in attracting start-up investments.

In a recent interview with Dhaka Tribune, Pathao President Fahim Ahmed said the investment landscape is still developing in Bangladesh.

“Over the last decade, we have seen about $350 million in capital flow into the tech and startup ecosystem in the country.  However, we still have a long way to go, compared to our regional peers such as India and Indonesia,” he added.

According to the World Bank Ease of Doing Business Index, Bangladesh ranked 168th out of 190 countries last year.

Among South Asian countries, Bangladesh was ahead of only Afghanistan.