Make land acquiring, tax easy to attract investment: ADB country director

Bangladesh needs to simplify land acquisition, streamline and enhance the competitiveness of the tax regime and modernise investment deals to attract more domestic and foreign investment, said Edimon Ginting, country director of the Asian Development Bank.

"FDI inflows to Bangladesh have been modest," said the ADB country directory during a keynote presentation titled "Enhancing Investment Policy Framework to Catalyst Private Investment in Bangladesh" at the monthly luncheon meeting of the Foreign Investors' Chamber of Commerce and Industry (Ficci) at the Westin Dhaka.

He pointed out that despite achieving impressive economic development over the past two decades, Bangladesh still faces several challenges that hinder domestic and foreign investment.

He said Bangladesh's development strategy targets foreign direct investment as a means for economic diversification. It has several attractive attributes that could potentially make it a naturally coveted destination for FDI.

"Yet, it has never really taken off as a leading destination for FDI," he said at the session moderated by Mahbub Ur Rahman, director at Ficci, and CEO of the Hong Kong and Shanghai Banking Corporation Ltd.

He also suggested protecting intellectual property rights of businesses.

Lokman Hossain Miah, executive chairman of the Bangladesh Investment Development Authority (Bida), Myung-Ho Lee, president of the Japan Bangladesh Chamber of Commerce and Industry, and Masrur Reaz, chairman and founder of Policy Exchange Research Bangladesh, also spoke on the occasion.

Edimon Ginting highlighted that industrialisation, particularly the emergence of a global readymade garments sector, has brought significant benefits in terms of job creation, income opportunities, and extreme poverty reduction. However, the high concentration of exports and economic activity in the RMG sector raises the country's vulnerability to single-sector price and demand shocks arising from changes in market conditions.

He later described some challenges related to the impending Least Developed Country (LDC) graduation, such as the loss of preferential market access in export destinations.

Currently, Bangladesh benefits from duty-free and quota-free schemes and LDC-specific preferential rules of origin in 38 countries, with 75% of exports going to countries offering duty-free access. The loss of such preferences is expected to reduce export earnings by over 14%, according to a WTO study.

Challenges to domestic and foreign investments

As evident from the Bangladesh Business Climate Index, the ADB country director highlighted that starting a business in Bangladesh requires investors to navigate through 23 government agencies to secure up to 150 regulatory services and approvals.

Although significant improvements have been observed in power and transport infrastructure due to megaprojects like the Padma Bridge and metro rail, challenges persist. These challenges include over-reliance on road transport, low utilisation of inland water transport, inefficiencies at the Chattogram port, a lack of mechanisation and container use, as well as a large pool of unskilled workers with scarce training infrastructure to meet demand, as mentioned in the presentation.

He mentioned that Bangladesh prohibits both domestic and foreign investment in four reserved sectors: arms and military equipment, nuclear power, security printing, and mechanised harvesting on the border of afforestation and reserve forest land.

Furthermore, certain key backbone services and primary industries remain partially off-limits to foreign investors, thus impeding potential economy-wide productivity.

Foreign shareholding in logistic companies and transport services (maritime and air) is limited to 49%, while it is capped at 70% in the telecom sector. Foreign shareholding in nationwide Internet Service Providers (ISPs) is allowed, but licences for divisional or district-specific ISPs are reserved for wholly owned Bangladeshi investors.

Additionally, reciprocity requirements exist for granting bank licences, and branches for foreign insurance companies are permitted, but foreign shareholding in local insurance companies is limited to 60%.

Although somewhat limited, these barriers hinder Bangladesh's goal of strengthening economic diversification and integration into global value chains, Edimon Ginting explained.

Citing Bida's steps, its Chairman Lokman Hossain Miah said, "In accelerating the country's development, the government formulates policies to facilitate investors. However, as a developing country, we still have some challenges to address. Every day we are learning and striving to resolve them."

He also said steps have been taken to fulfil the country's power demand, including the supply from quick rental power plants, and the government is continuously formulating policies to support investors.

"To attract foreign investors to the country, we have arranged investment summits in some countries. Bida provides one-stop services to investors at all times," he added.

Economist Masrur Reaz reiterated the need for shifting towards a competitiveness-based value proposition while engaging in strategic levers for investment promotion and improving the investment policy framework.

He noted, "Bangladesh has achieved impressive development success, but we have not sufficiently highlighted Bangladesh's value propositions, competitiveness, and low-cost labour to foreign investors to attract FDIs. Additionally, Bangladesh has yet to develop a comprehensive investment policy, even after 52 years."

Reaz emphasised, "Bangladesh urgently needs FDIs to propel itself to the next level."

Myung-Ho Lee emphasised the need for investment protection and double tax avoidance treaties, as well as an Economic Partnership Agreement, to accelerate Japanese companies' investment in Bangladesh.

He also suggested signing government-to-government agreements to attract FDIs. Lee pointed out that Vietnam and Japan have signed three agreements, while Malaysia, Indonesia, and India have also signed EPAs. However, Bangladesh is lacking in signing such economic partnership agreements.

Ficci President Zaved Akhter said the country's development has been significantly driven by trade and an increase in private investment.

"To achieve the goals set for 2041, private investment and revenue collection will need to be boosted to ensure vital resource allocation in crucial sectors," he added.