Businesses invest overseas to grow, but it’s not easy

Political instabilities in host countries and persisting pandemic limit the gains expected from overseas investment of Bangladeshi entrepreneurs, prompting some to pull out.

Industry people say overseas investment is preferable to diversify export products and get more duty-free advantages across the globe to help Bangladesh overcome the looming challenges of the post-LDC graduation period.

While some investors are already well on their way to become good performers in overseas businesses, others are preparing to go into production, but the pandemic has been a road bump on their way. Nevertheless, they are hoping to turn around in the coming days, they add.

They also say some overseas investors are victims of political unrest in investment destinations  such as Myanmar and Ethiopia.

Investors and analysts also want Bangladesh authorities to ease the overseas investment rules to help enthusiastic entrepreneurs explore duty-free export benefits even after LDC graduation by prudent investment abroad. They also advised that businesses should carry out extensive research to identify potential areas of investment abroad to exploit global trade benefits.

Not doing due diligence before investing in a foreign country, many businesses are now finding it difficult to sustain their investments. While some have been forced to pull out their investments, a few are performing well.

In 2013, MJL Bangladesh Limited, as the first Bangladeshi company, formed a joint venture with a Myanmar-based petroleum company and invested $5.1 lakh in the neighbouring country. The company made good profit Initially.

But a few years later, MJL started facing losses owing to  the increasing political unrest in Myanmar, frequent policy changes and lack of accountability. Eventually, the company came back home by closing down its business in 2020 after suffering a massive loss.

Azam J Chowdhury, managing director of MJL Bangladesh Limited and chairperson of East Coast Group, said rules and regulations in the country ruled by the junta are not business-friendly. Myanmar's exchange rate fluctuated so much that it became difficult for them to do business there, he added.

"After withdrawing our investment from Myanmar, we started a business in Singapore and got good response there," he said, adding that they are now getting over 10% return alongside strengthening the company's global foothold.

In another example of foreign investment, in 2018, the DBL Group set up a garment factory in Ethiopia's Tigray region to cash in on the country's duty-free access to the US market, low prices of land and cheap labour. 

The factory is also financially backed by Ethiopian Development Bank and Swedish fashion brand H&M.

But conflict in the region in 2020 forced them to bring back its workers from Ethiopia after closing the factory. A reopening is still uncertain as the country's civil war rages on.

On the other hand, some of them have to go through a long bureaucratic process in getting permission from the Bangladesh Bank for investment in foreign countries. As a result, some are unwilling to invest, while some others lose the opportunity owing to this lengthy process, they point out. 

Centre for Policy Dialogue (CPD) Research Director Dr Khondaker Golam Moazzem said it is a welcome move by Bangladeshi entrepreneurs to make a multinational brand of their companies, which will also help them gain confidence. 

Investors should conduct an in-depth study on their investment destinations, focusing on ease of doing business, investment situation, market access opportunity, and political stability in the countries. Investment under a joint-venture project will be the best solution for that, he added. 

The economist said Bangladesh should form an "outer investment wing" and formulate a complete policy on overseas investments. In the absence of a policy, such investments are currently given permission on a case-to-case basis by a committee of the central bank. 

He suggests the wing will choose investment destinations, taking into consideration taxation and other policies there, and bilateral business relations with Bangladesh to ensure the repatriation of investment. 

Dhaka Chamber of Commerce and Industry (DCCI) President Rizwan Rahman said, "Bangladesh should follow India's model of overseas investments." 

Indian firms are allowed to invest abroad through mergers and acquisitions. This process helps Indian companies to get direct access to newer and more extensive markets and better technologies, which would enable them to increase their customer base and achieve a global reach.

Meghna Group operations director Md Lutful Bari said, "The government should allow outbound investment from Bangladesh as a preparedness part to overcome LDC graduation challenges." 

Otherwise, some sectors might lose their competitiveness without duty-free market access, he added.

The good performers

Sparrow Group, a Bangladeshi apparel exporter, invested in Jordan in 2007 by forming a joint venture company with one of the leading Indian garment manufacturers. 

Shovon Islam, managing director of Sparrow Group, said, "We established the factory to produce some high-value garments for the US market at the Jordan export processing zone." 

Their pandemic-affected factory in Jordan is now recovering to normal as US stores have reopened, he added.

Some 1600 Bangladeshi and 500 local people are now working in the factory, he also said adding, "Our annual turnover was $70 million. 

SEBPO, formerly known as ServicEngineBPO, is a leading global outsourcing partner to many of the world's largest advertising, media, and technology companies.  The company is also doing well after recovering from a bad turn during the pandemic as their business mainly depends on the US economy. 

SEBPO is a sister concern of Abdul Monem Group.

ASM Mohiuddin Monem, deputy managing director of Abdul Monem Group, said SEBPO is investing to expand its client base in European countries and the Middle East.  

SEBPO specialises in ad operations, creative services, data solutions, media planning, and quality assurance. The company offers industry expertise and process governance so organisations can scale, innovate, and control costs.

Akij Group, one of the leading private sector conglomerates in the country, took over a Malaysian company named Robin Resources for $20 million. The company fetched a good return from the investment. 

Sk Bashiruddin, managing director of Akij Group, said they did not face new challenges in running the business as they acquired an old company. The return on the equity investment is satisfactory. At present, more than 500 people are working in it.

Investors hoping to do well

To go global, Square Pharmaceuticals Ltd, the domestic pharma giant, completed construction of its manufacturing plant in the Kenyan capital Nairobi at a cost of $17 million in 2017. All necessary infrastructure is also ready. But the manufacturing is yet to start because of the pandemic.

Company officials say they had a target to start production in the Kenyan factory in 2020, but that did not happen as infrastructural work remained suspended for some time because of the pandemic. Now, all work has finished. Manufacturing will start soon.

Square looks to get hold of the $30 million drug market in Kenya and five other East African countries – Tanzania, Rwanda, Burundi, Uganda and South Sudan – and fulfil the unmet demands of medicines in those countries.

Similarly, ACI Group invested $100 million in 2015 to grab a huge drug market in the United States. The group completed the construction of the automated factory two years ago as per the specifications of the United States Food and Drug Administration (USFDA). But the company has not yet gone into production.

An official at ACI Group said the last factory visit of the USFDA delegation was scheduled for June 2020 after all the equipment was installed, but the pandemic stalled that process. As a result, production is being delayed.

In 2016, the Bangladesh Bank gave approval to BSRM for investing in the steel sector in Kenya. Subject to fulfilling some conditions, the company was permitted to invest $4.6 million from its balance in the export retention quota to build a factory in the country.

BSRM was supposed to go into production by buying shares of Kenya East Africa Steel Limited, a joint-venture formed with the investment money. It also initially set a target of producing five lakh tonnes of MS rods a year to capture the African market. But the company could not start setting up the factory even five years after getting approval.

Shekhar Ranjan Kar, chief financial officer of the group and company secretary of BSRM, told The Business Standard that they are facing trouble in purchasing land in Kenya. It is very difficult to complete all works complying with rules and regulations of that country.

The process is being disrupted because of Covid-19. The way things are going, it will take at least another three years to set up the factory and go into production, Shekhar added.

Companies yet to go for investment even after approval

Getting approval from Bangladesh to invest abroad is a very tough task. Many companies could not go for investment in foreign countries because of a long delay in securing approval caused by bureaucratic tangles or policies of those countries were no longer conducive to them.

Beximco Pharmaceuticals Limited, one of the leading drugmakers in the country, applied to Bangladesh Bank, seeking permission to invest in Sri Lanka. When the company got the permission after a long delay, the opportunity to invest in Sri Lanka was lost, said Salman F Rahman, Prime Minister's adviser on private industry and investment, in a recent virtual discussion. 

Earlier, in 2014, Incepta Pharmaceuticals was allowed to invest outside the country. The company was supposed to form a joint-venture company in Estonia initially. But the approval is the only thing they got out of the effort because of tough conditions imposed by the government.

Abdul Muktadir, chairman and managing director of Incepta Pharmaceuticals Ltd, said the Bangladesh Bank set 20-22 conditions for investment abroad. It is not possible to invest under those.