‘Investment difficult without easing up the legal infrastructure’

Sitting in his Gulshan office Syed Ershad Ahmed, President of the American Chamber of Commerce, showed The Business Standard (TBS) his tax certificate. But then he showed a letter from another NBR zone which said that he does not pay his taxes. 

"You have the e-tin certificate, why would they still send this letter?" we asked. "That's the fun part," Syed Ershad quipped, "you will not understand what troubles they put us through unless you see it in practice." 

Syed Ershad told TBS about his experiences while analysing the challenges foreign investors face in Bangladesh. We interviewed him in the light of a recent comment from US Ambassador Peter Haas that BTRC's latest regulations could discourage digital businesses from investing in Bangladesh. 

Peter Haas has recently said that the proposed regulation on data protection and governing online content could force digital businesses to reconsider investment plans in Bangladesh. "These are the questions that American companies also ask themselves before deciding to do business in Bangladesh," he said.  What does the ambassador's remark mean for Bangladesh? 

It will impact every sector, not only digital investments. The law creates a need for data localisation. It means all firms operating in Bangladesh will have to keep their 'sensitive ' data locally. It will restrict the cross border data flow. For example, we conduct EDI (inter-exchange of data) with our customers. For example, the foreign companies that we exchange data with, if I have to send this data to a third party as well, they wouldn't want this. Nobody wants that. There is an issue with data security. 

Secondly, the draft lacks clarity in issues regarding the definition or distinction between commercial data vs personal data, legal basis for processing data, record retention duration etc. We have notified BTRC and the concerned ministry about our concerns in this regard. 

Illustration: TBS

Let me tell you, as a local guy doing business in Bangladesh, our legal framework is rigid. It is not business-friendly. A company has to run to dozens of places to run a business. 

For example, in the logistics business, who regulates us? Bangladesh Bank, NBR, port authority, transport authority, nine ministries and 20 agencies. If this is the state of a country's legal infrastructure, doing business there becomes very complicated. 

Our office is paperless. We conduct our everyday affairs online, and hence we have to take a licence from BRTA as well. How can you conduct business with so many legal complexities? 

The whole world is going for automation. The new companies that would like to come here would like to operate their business in an automated (digital) way. It will become difficult. So the legal infrastructure has to be eased up. Unless we ease up legal infrastructure, future investment will be difficult. 

If we want to go for automation, such protections (laws) wouldn't help. Rather it has to be opened up. For example, we have been saying for the last few years, (to the authorities) don't suppress the taka like this. The exchange rate cannot be controlled, and secondly, the interest rate cannot be controlled. You have to free up both. 

Why is the current inflation happening? We limited the dollar rate to Tk87, whereas it was increasing in the kerb market. What is happening as a result? We received dollars in two ways from abroad - export earnings and remittance. If the workers send money through external means, they receive Tk95 for this, while the government sources would give them less. 

When they send money through external channels, the money doesn't come to Bangladesh, it gets into the money laundering trap. How? They give the foreign currency from there (abroad), the money remains there, and their local counterparts provide local currency here in Bangladesh. Consequently, the dollar is not coming, and remittance is falling. 

I think the previous governors of the Bangladesh Bank (BB), who were economists, managed the bank well. We need economists not bureaucrats in Bangladesh Bank. Instructing the banks that you cannot fire employees or set their salaries is not the BB's job. The BB's job is to fix monetary policies. Their focus has been elsewhere. It has become administration focused.

If you look at our balance of trade, it is in our favour when it comes to the US. Our exports are worth nine billion dollars, while our imports cost three billion dollars. We get $5-$6 billion breathing space here. Whereas compare that to our major import partners, China and India. We talk a lot about China giving us duty-free access etc, then why can we not export more than $1 billion to China?

Free access is not the main issue, the issue is whether they are taking our products. What is our ministry of commerce doing? If we have to increase our exports and reduce the imbalance of trade, we have to immediately negotiate with China and India. With negotiations, we can increase our exports. But, we don't have that focus. 

Whatever the ambassador said, from a practical field I can say these are the issues that we need to address. 

Bangladesh needs foreign investment and the United States' envoy, just a month ago, said that Bangladesh has an attractive economic sector for investment. Could the BTRC regulations dampen the enthusiasm? How do you evaluate the nature of US investment in Bangladesh so far? 

US-based investors are interested in coming to Bangladesh. There are many things from the United States that can come to Bangladesh in the format of B2G (Business to Government). Like in railway or water drainages, good US businesses may come here. 

But the Chinese companies are competing with them. The Chinese companies hold onto businesses by offering a lower rate, but ultimately what happens? The cost keeps increasing. The government has to understand that they are not benefiting from this. 

This wouldn't happen if the US companies were given a chance. Their quotes might be high at the initial stage, but unlike the Chinese, the projects would have been implemented on time. And it would have been done at a much lower cost, ultimately.

Our project costs are increasing a lot. The metro rail project cost, for example, has escalated by almost 70%. How much profit are we making here? The US companies are showing interest but eventually, they are being competed out. 

We need support from the US in exploration. Chevron is sitting here with equipment but we are hiring Indian or Chinese companies for new exploration projects. We need gas and energy. No one can support us like the US in this sector. 

In terms of American investment, we cannot just consider the monetary aspect of it. Even now, the US has the biggest investment in Bangladesh, as per facts and figures. For example, the hotels in Bangladesh, who manages them? Mostly the Americans. The exchange of both knowledge and technology is happening here. 

What do you think are the missing puzzles in Bangladesh's legal framework and its governance that require reconsideration to woo US investment and more FDI in general?

Our demographic dividend, LDC graduation being in progress, and government actions like building economic zones, BIDA, mega infrastructure projects like Padma Bridge, Bay terminal, and 3rd terminal at Dhaka airport etc. are the opportunities for the FDI.

We have policies, but when the foreign investors come they see that these policies are not being implemented. For example, we have an act named The Foreign Private Investment (Promotion and Protection) Act. This act says that if an investor launches a company here, he will have the facilities that local investors get. But in practice, they are not getting the privileges. 

There is discrimination. For example, in logistics, when a local company gets a licence, they don't have any bindings on how much capital they have to invest, but we (foreign companies) do. We have to give a $5,00,000 guarantee that the local companies don't have to. There is a lot of discrimination here.  

One more example is the complexities of sending dividends. In theory, it should be an easy process but in practice, a lot of bureaucratic complexities are in place. And why would foreign companies come here despite these bureaucratic troubles? When we Bangladeshis are the head of the foreign companies here, we keep managing all these pressures because we love our country, but when a foreigner is in charge… These send the investors wrong signals. 

There was a lot of discussion about foreign companies leaving China last year.  Has that really happened? And do you foresee Bangladesh catching a chunk of the companies leaving, or becoming a future destination for global companies considering the cheap labour we have? 

See, our competitors, when it comes to export, are Sri Lanka, Pakistan and Vietnam. Among these three, Vietnam is doing the best. But they are leaving low tech behind. They are more focused on high tech. Sri Lanka and Pakistan are struggling now. We could have taken the chance. But you want to set up an industry, we don't have adequate infrastructure, deed time is very high. 

We have been asking the government to fix these for a long time, but these things are not being fixed. Look at the airport. There is no professional scanner there. The scanners we have stop functioning every two months. If we could automate this process, when investors would enter Bangladesh they would get a positive impression. But what do they see instead at the arrival? We don't even have a decent toilet! Let me tell you I had to take one of my guests to the hotel to use the toilet! The toilet at the airport is not up to the mark. 

How do you evaluate Bangladesh's race to scale up its infrastructure? With the big projects and the increasing loans, is the country on the right track to a sustainable future?

Instead of larger projects, make the railway and waterway efficient. The railway is environmentally friendly. And Bangladesh has the opportunity to make waterways efficient. We have cracked down on the syndicates that were suppressing the growth of waterways. Our public debt – both domestic and international – is increasing due to the megaprojects. 

On the question of repayment now we see we have a dollar shortage. We need mega projects like Padma Bridge for example. We didn't need the metro rail. We needed to upgrade our railway and the waterways. We are building a tunnel. If we instead dredge our rivers to develop the waterways, that would benefit our small farmers. They could sell products on small boats. As they become (financially) strong, we will become stronger.