Financial sector, legislation prepared to foster foreign investments

The banking sector, capital market and the legal framework in Bangladesh are well-prepared to foster foreign investments, with the government working fast on the remaining tasks, speakers said during different sessions on the second day of the International Investment Summit 2021 on Monday.

At a session titled "Financial Services: Ensuring Sustained Growth", central bank officials and banking professionals said the banking sector of the country posed no risk to investors, even during the pandemic; it, instead, offered full support. 

The much discussed non-performing loans in the banking sector were manageable and would not be a problem for the business ecosystem as the central bank was trying to control it, said Bangladesh Bank Governor Fazle Kabir.

"And we have an e-payment based financial ecosystem for foreign investors, alongside online transaction facilities, liberal foreign exchange regime, easy exit policy, liberal financial flows, and comprehensive green financing plan," he added.

"So, the investors can come here without fear."   

During the session, IFC South Asia's Regional Advisory Services Manager Selma Rasavac said, "As an emerging economy, Bangladesh needs more international financing. We are moving to increase investments in different sectors in the upcoming years."  

Planning Minister MA Mannan, Finance Division Secretary Abdur Rouf Talukder, and Association of Bankers Bangladesh Chairman Ali Reza Iftekhar also spoke on the occasion.

Capital market: The rising tiger

The country's capital market offers a great opportunity to international investors, while the market is diversifying faster to the areas of fixed income, asset-backed securities, alternative investments and collective investment schemes to offer more options to investors, especially to international funds and nonresident individuals, Bangladesh Securities and Exchange Commission (BSEC) Commissioner Dr Shaikh Shamsuddin Ahmed said in a keynote speech. 

At the session "Capital Market: The Rising Tiger", he said, the government offers various tax incentives to capital market investors, while the technology-dependent market infrastructure offers ease to invest in the market from any part of the world. 

Alongside introducing debt instruments to finance large infrastructures and to offer investors some fixed-income alternatives, the BSEC is also working to open commodity trading in the port-city bourse Chittagong Stock Exchange.

Dhaka Stock Exchange's Managing Director Tarique Amin Bhuiyan said the premier bourse of the country has opened its international desk to serve foreign investors and is increasing partnerships with market intermediaries across the world to attract investors.

Green Delta Capital Chief Executive Officer Rafiqul Islam said that foreign booths of brokerage firms would facilitate inbound portfolio investments and Islamic instruments had the most potential. 

Nearly one-fourth of the debt instruments in the country were Shariah-compliant and the country should make it larger as Islamic instruments can attract the widest range of investors, while traditional bonds are not investable for Shariah-compliant investors.

Proper distribution internationally can help Bangladesh reach or even surpass Malaysia as an Islamic Financing hub in five years, he hoped.

Adeeb H Khan, senior partner, Rahman Rahman Huq, KPMG in Bangladesh, said Bangladesh embraced the International Financial Reporting Standard (IFRS) better than any other country in the region.

The banks' reporting standard might slightly deviate from the IFRS due to the central bank directives here, he added.

Citing the progress in financial reporting and auditing after the formation of the Financial Reporting Council, he said, "International investors should now have confidence in Bangladeshi financial statements."

Maurits Pot, founder and chief investment officer of Dawn Global Management, UK, that runs frontier market exchange traded funds (EFT), which also includes Bangladeshi equities, said ETF is the fastest growing industry globally and Bangladesh is the only frontier market in the region under his firm's coverage which is yet to have an ETF.

Foreign investors have been net sellers for the last five years in the Bangladesh capital market and he believes the funds would come back here, but in different ways -- may be in ETFs, fixed income securities, or mutual funds, instead of active investments in specific company shares.

He urged for more quality companies to be listed in the bourses, especially from the digital technology sector, while the securities market liquidity also needed to be increased to attract foreign investors.

Arif Khan, vice chairman, Shanta Asset Management Limited, said the process of foreign portfolio investors' entry should be made easier.

He recommended opening a hassle-free online Nonresident Investors Taka Account (NITA), an e-KYC, and urged for a more supportive role of the custodian banks to the foreign portfolio investors.

Khan also expressed optimism that the capital market would grow a lot from its existing base of the GDP-market capitalisation ratio of 15%.

He urged strengthening the institutional investors' base, especially the mutual fund industry, to avert the frequent market volatility amid the retail investors' dominance.

Christina Ongoma, principal investment officer, Upstream Financial Institutions Group Asia, International Finance Corporation, spoke in the session moderated by Chittagong Stock Exchange Chairman Asif Ibrahim.  

In the speech of the session chair, Prime Minister's Economic Affairs Advisor Dr Mashiur Rahman elaborated on the economic progress of the country and said Bangladesh is at the juncture of a significant transformation of its economy, and this needs ample investments.

He also stressed for improvement in investment to GDP ratio as the savings to GDP ratio was good here.

The transforming legal infrastructure

In a separate discussion session on the legal infrastructure, Metropolitan Chamber of Commerce and Industry President Barrister Nihad Kabir analysed the country's legal framework for investment, trade and commerce.

Foreign investors care a lot about taxation, dispute resolution, registration of business, exit policy, and the country's laws regarding land and labour.

Bangladesh offers moderate and some generous legislations in most of the areas, while it still lags behind in terms of speed and process simplification, she said.

She also praised the recent developments of corporate tax cut, fast-tracking of the corporation's land registration, efforts to solve business disputes in alternative ways, and the prevailing incentives and protection of foreign investments in the country, alongside Bangladesh's bilateral treaties with 36 countries to avoid double taxation.

Former law secretary Mohammad Shahidul Haque said the bold and fast-tracked legislation a decade ago resulted in quadrupling the power generation and bringing vibrancy to export processing zones, hi-tech parks and the economic zones.

The legislation spirit is intact and the government is going to reframe the old laws regarding foreign exchange, contract and arbitration, keeping in mind the fourth industrial revolution, said Law Secretary Md Moinul Kabir.

Legal expert Barrister KM Tanjib-Ul-Alam said foreign companies got free rein and flourished their business in Bangladesh in a wide range of sectors and they were enjoying a handsome return.

Barrister Sameer Sattar praised the government for allowing mediation in dispute resolution and said it should sign the Singapore convention for international investors' confidence

Dr Rumana Islam, professor, Department of Law, University of Dhaka, emphasised the need for increased collaboration between academia and the state while formulating legal frameworks for commerce and investment.

Bilateral investment treaties are more investment-oriented and the country's interest needs to be better addressed, she opined.

Law Minister Anisul Huq said to meet the government's target in economic indicators such as investment to GDP, Private Investment to GDP, and FDI to GDP ratios, his office is working for all the necessary legal reforms.

Saying foreign investment in Bangladesh is risk-free, he said, "On behalf of the government, I assure you that every step is being taken to attract, protect and foster foreign investments in Bangladesh."

Dr M Masrur Reaz, chairman, Policy Exchange Bangladesh, moderated the session.