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OPPORTUNITIES FOR THE FOREIGN INVESTORS

Bangladesh has adopted a very liberal industrial policy to attract foreign investments. Liberalised Industrial Policy indicates export-oriented, private sector-led growth strategy of the government. One of the main features of the industrial policy, announced in 1999, is to attract foreign direct investments (FDIs) in both export-oriented and domestic industries. There is no limitation pertaining to equity participation. This clarifies that up to 100 percent foreign private investment would be allowed. Except five reserved sectors, all industries are open for private investment. Those earmarked for public sector investment are namely:

Arms, ammunition and other defense equipment and machinery
Production of nuclear energy
Forest plantation and mechanised extraction within the bounds of reserved forests
Security printing (currency notes) & minting and
Railways & air* (except certain domestic routes and air cargo).

* National flag carrier Biman Bangladesh Airlines is now looking for strategic partnership with an internationally reputed airline to use its potentials.

On the other hand, potential sectors for investment include textile, jute goods (diversified jute products), leather goods, frozen food, natural resources, power sector (electricity), telecommunication, air transportation, electronics, light engineering industries, tourism, agriculture, agro-based industries, computer software development, data entry and data processing.

Infrastructure Facilities and Utility Services
Protection Of Foreign Investment
Incentives for FDIs

INFRASTRUCTURE FACILITIES AND UTILITY SERVICES

Road transport: Bangladesh has about 18,738 km of paved roads. Ports and important business centres are well connected by roads and highways.

Railways: Bangladesh Railways has a network of about 4,400 km connecting all the administrative and business points of the country. Railways container service form Chittagong Port to Dhaka is available.

Airways: Bangladesh is connected with important major cities of the world air. Many of the world's reputed airlines have their air link with ZIA International Airport, Dhaka.

Marine transportation: Bangladesh has two sea-ports-Chittagong & Mongla. World's reputed shipping lines are operating through these two ports.

Electricity: Generation, transmission and distribution of electricity in Bangladesh are the responsibility of a statutory body namely, the Power Development Board (PDB). In Bangladesh, electric power is generated in hydro, steam, gas turbine and diesel power plants, all the generating stations are interconnected through a national grid. The Dhaka Electric Supply Authority (DESA) started operation to maintain uninterrupted supply of electricity varies from Tk. 2.45 to Tk. industrial consumption rte of electricity varies from Tk. 2.45 to Tk 5.0 (US$ 0.054 to US$0.20) per 1000 litres.

Water: Water is supplied by the Water and Sewerage Authority (WASA) in the metropolitan areas. Water rate is Tk 40.70 (US$0.90) per 1000 gallons or Tk. 8.9 (US$ 0.20) per litres.

Gas: Natural gas supply is available in major industrial areas of Dhaka and Chittagong Divisions. Gas tariff for industrial consumption is Tk. 3.64 (US$ 0.08) per cubic meter including supplementary duty and VAT.

Telecommunication: Comprehensive telecommunication service such as fully automatic telex, fax, e-mail, internet, telephone including international direct dialing are available with important courtiers of the world.

Industrial land: Once and industrial project is registered, the entrepreneur is eligible to apply for allotment of land to the government price of land in most of the industrial estates/ areas are relatively lower than the market rate. These estates are developed with necessary infrastructure facilities such as electricity, gas water, sewerage etc.

Industrial plots are allotted by BEPZA and BSCIC in industrial areas developed by the, Plots in other Industrial estates/ areas owned by the government or owned / controlled by any local authority, are allotted by the recommendation of the BOI.

Protection Of Foreign Investment

Foreign Investment Protection Act

The Foreign Private Investment (Promotion and Protection) Act 1980 provides for lair and equable treatment to foreign private investment. It ensures legal protection to foreign investment in Bangladesh against nationalization and expropriation. It also guarantees repatriation of capital and returns from it and equitable treatment with local investors with regard to indemnification, compensation etc., in the event of loss due lo civil commotion etc. Similarly, adequate protection is available for intellectual property rights, such as patents, designs, trademarks and copyrights.

Guarantees Through Multilateral Agencies

Bangladesh is signatory of MIGA (Multilateral Investment Guarantee Agency), OPIC (Overseas Private Investment Corporation) of America and ICSID International Centre for Settlement of Investment Disputes). MIGA is the Multilateral Investment Guarantee Agency of the World Bank group to encourage the flow of foreign direct investment (FDI) to, and among, developing member countries by providing guarantees to foreign investors against loss caused by noncommercial risks. MIGA's guarantee protects investors against losses arising from the risks of currency transfer, expropriation and war and civil disturbances. MIGA may only ensure new investment, privatization and financial restructuring.

OPIC is the most important US government agency which is in a position to promote greater investment interest in countries including Bangladesh by providing loan financing and investment insurance to America investors. OPIC also support efforts by Bangladesh to attract increased foreign private investment. In order to secure its investment in Bangladesh any organization may seek OPIC insurance coverage.

The ICSID is an international organization established for the settlement of investment disputes between states and nationals of the different states. ICSID seeks to encourage greater flows of international investment by providing facilities for the conciliation and arbitration of disputes between governments and foreign investors.

Abolition of Restrictions on Equity

Private investment from foreign sources is welcome in all areas expect five reserved for public sector investments. There is, however no restriction on the amount of investment or equity shares. 100 percent foreign investment and joint ventures with local private partners or with the public sector are freely allowed.

Securities and Exchange Commission

To supervise the smooth functioning of securities and capital, the Securities and Exchange Commission (SEC) was established in 1993 through an Act of Parliament. It has the important responsibility to ensure proper issuance of securities. Protection of due interest of the investors in the capital market is also a major objectives of SEC. The Commission's main functions include the following: -

Regulating the business of stock exchange and the securities market;

Registering and regulating the business of stockbrokers, sub-brokers, share transfer agents, bankers and managers of an issue trustees of trust deeds, registrars to an issue, underwriters, portfolio managers, investment advisers and other intermediaries in the securities market.

Registering, regulating and monitoring of collective investment schemes including all forms of mutual funds;

Prohibiting fraudulent and unfair trading practices related to securities or any securities market;

Promoting investment education and training of all intermediaries of securities market;

Prohibiting insider trading in securities;

Regulating substantial acquisition of shares or stocks and take-overs of companies,

Compiling, analysing and publishing indices on the financial performance of any issuer of securities;

Conducting research for the above purposes.

Comparative Advantages For Investment In Bangladesh

Bangladesh has the following comparative advantages for foreign investment over other Asian countries;

Low cost and easily trainable labour is abundantly available in Bangladesh. Out of the total population of 127 million, the labour force comprises more than 50 million.

Bangladesh is one of the three Asian countries (the other wo being Sri Lanka and China) who offers unconditional 100 percent foreign equity or ownership in industrial investments.

Inflation rate is the lowest (1.3 percent) among the Asian countries.

There is no restriction on issuing work permit to a foreign national.

Bangladesh is most liberal in granting permanent resident ship and citizenship lo foreigners. None reportable investment of only U.S.$ 75.000 in an industrial project is the only condition of granting permanent resident ship and a minimum investment of U.S.$ 500,000 or transferring U.S.$ 1,000,000to any recognised financing institution which should be nonrepatriable is the condition for panting Bangladesh citizenship.

Tax holiday allowed for new investment in Bangladesh is the minimum, 5 to 9 years in most of the areas on some conditions, and 12 years in special economic zones (in the Chittagong Hill Tracts).

Bangladesh enjoys Most Favoured Nation (MFN) status from a number of countries including the U.S.A., with whom bilateral treaty of trade and investment has been signed. The countries with which Bangladesh so far signed bilateral investment treaties are U.S.A., U.K.. Germany. Romania, Belgium, Republic of Korea. Thailand, Turkey, France and Italy.

As one of the least developed countries, Bangladesh enjoys Generalised System of Preference (G.S.P.) facilities for favourable export to the U.S.A.

Avoidance of double taxation agreements have been signed with Japan, U.K., Italy, Canada. Sweden. Malaysia, Singapore and the Republic of Korea.

Legal protection to all foreign investments in Bangladesh is provided by an Act of Parliament passed in 1980 against nationalisation and expropriation. Noncommercial risks of investment in Bangladesh are also insured by the Multilateral Investment Guarantee Agency (MIGA).

Foreign Exchange regulations have been relaxed lo the maximum limit by the recent introduction of free convertibility of Taka, the Bangladesh currency. This has accelerated the free flow of international business transactions.

Repatriation of foreign capital investment along with profits/dividends has been made easy and simplified. Now no prior permission of any authority is required for their repatriation.

Cost of land and energy prices are one of the lowest in, the region. There is a huge proven and recoverable deposit (about 11 trillion cubic feet) of natural gas in Bangladesh. A potential reserve of 50-70 trillion cubic feet is known.

Bangladesh has two seaports with modern facilities, Internal transport and communication system has vastly improved over the years.

Most important, Bangladesh) people are hospitable, friendly and resilient and greatly value the role of foreign investment in their country.

Foreign Investment: Bangladesh

Private investment from overseas sources is welcome in all areas of the economy with the exception of only five industrial sectors (reserved for public sector) as mentioned earlier. Such investments can be made either independently or through joint venture on mutually beneficial terms and conditions. In other words, 100% foreign direct investment as well as joint venture both with local private sponsor or with public sector is allowed.

Foreign investment, however, is specially desired in the following categories:

Export oriented industries;

Industries in the Export Processing Zones;

High technology products that will be either import substitute or export oriented;

Undertaking in which more diversified use of indigenous natural resources is possible;

Basis inudstries based mainly on local raw materials;

Investment towards improvement of quality and marketing of goods manufactured and/ or increase of production capacities of existing industries

Labour intensive/technology intensive/capital intensive industries.

An indicative list of private sector investment opportunities in Bangladesh Private investment is welcome in all areas of the economy except five reserve sectors.

An indicative list of private sector investment opportunities is given below:

Food and Allied Products:

Dairy farming and dairy products;

Poultry farming & poultry products;

Shrimp, crab and other fish culture, processing and preservation of other species of fish;

Fishmeal production;

Fruits and vegetables processing & canning and other agro based industries.

Textile Industry:

Composite textile mills;

Specialized textile mills;

Sericulture, reeling and filature.

Leather and Rubber Products;

Leather finishing;

Footwear including shoe upper, sole etc;

Tyres and tubes;

Leather goods, such as gloves, bags, jackets etc.
Chemicals and Allied Industries;

Soda ash; paper and pulp (based on jute wastes and cuttings);

Paper covering including artificial flowers and toys;

Jute goods; dyes, pigments and colour (basic manufacture);

Pharmaceutical chemicals (basic manufacture);

Plastics products including acrylic pipes and toys;

Special chemicals such as extraction of amino, organic and other acids from agricultural wastes; chemicals for tanneries; manufacture of basic pesticides.

Glass and Ceramic

Cement including Portland and white cement Sheet and plate glass Fluorescent tubes and electronic ballasts parts and components of power hydrants, water supply and sewerage equipment.

Engineering Industries ship building and machinery and equipment; sponge iron; railway engine and ancillary equipment; agricultural machinery and equipment; gas distribution machinery, meters and fittings; air conditioners, air coolers and refrigerators including compressors; electrical appliances and accessories; electric motors including fan motor,

DC fan motors and their parts; mechanically propelled vehicles and components; electronic goods; television, radio and their components; scientific and precision instruments including laboratory equipment optical lenses, prisms, microscopes etc.; disposable needles and syringes.

Office equipment such as typewriter, photocopier, calculator, fax and telex machine; component of fishing reel, fishing foods and equipment; telecommunication equipment and their parts; electronic watch and clock;

Construction machinery and equipment; Others: computer software and software applications; gems cuttings and polishing; sports goods; tourism, hotel & resort facilities; photographic and video camera, lens;oil gas, mineral explorations; power and electric generator; export oriented flower and orchid farming as well as artificial flower; mechanical toys; imitation jewelery; exportable gift items; computer data entry, data processing; other high tech and export oriented industries.

INCENTIVES AND FACILITIES FOR THE INVESTORS

Tax holiday: Tax holiday is allowed to industries for the following periods according to the location of the establishment:

Dhaka, Sylhet and Chittagong Division: 5 Years (excluding 3 hill districts) Other Divisions: 7 Years (including 3 hill districts of Chittagong Division)

The period of tax holiday is calculated from the month of commencement of commercial production or operation of the industrial undertaking. The eligibility of tax holiday is to be determined by the NBR. Tax holiday facility can be availed by industries set up in Bangladesh within June 30, 2000 A.D.

Accelerated depreciation: Accelerated depreciation in lieu of tax holiday is allowed at the rate of 80% of actual cost of machinery or plant for the year in which the unit starts commercial production and 20% for the following years. The rate of depreciation is 100% for areas specified by the NBR.

Concessionary duty on imported capital machinery: Import duty at the rate of 7.5 percent ad valorem is payable on capital machinery and spares imported for initial installation or BMR/BMRE of the existing industries. The value of spare parts should not, however, exceed 10 percent of the total C & F value of the machinery. Out of this 7.5 percent rate of duty payable, export - oriented industries and industries located in the under developed areas, may enjoy a further concession of the import duty in following manner:

100 per cent export oriented industries:	No import duty is charged in case of capital machinery and spares listed in NBR’s relevant notification. However, import duty @ 7.5% is secured in the form of AB bank guarantee or an indemnity bond to be returned after installation of the machinery.
Minimum 70 per cent export oriented industries outside development areas:	Import duty @ 5% is charged in case of capital machinery and spares listed in NBR’s relevant notification. Additional import duty @2.5% is secured in the form of a bank guarantee of cash deposit to be returned after installation of the machinery.
Minimum 70 per cent export oriented industries in development areas:	Import duty @ 5% is charged in case of capital machinery and spares listed in NBR’s relevant notification. Additional import duty @2.5% is secured in the form of a bank guarantee of cash deposit to be returned after installation of the machinery.
Other industries in development areas:	Import duty @ 7.5% is charged in case of capital machinery and spares listed in NBR’s relevant notification.

Value Added Tax (VAT) is not payable for imported capital machinery and spares. Please see at

Rationalisation of import duty: Duties and taxes on import of goods which are produced locally will be higher those applicable to import of raw materials for producing such goods.

Incentives to non-resident Bangladesh: Special incentives are provided to encourage non-resident Bangladeshis for investment in the country. Non-resident investors for investment in the country. Non-resident Bangladesh investors will enjoy facilities similar to those of foreign investors. Moreover, They cab buy newly issued shares/debentures of Bangladesh companies. A quota of 10% has been fixed for non-resident Bangladesh in primary public shares. Furthermore, they can maintain foreign currency deposits in the Non-resident Foreign Currency Deposit (NFCD) Account.

Other Incentives:

Tax exemption on royalties, technical know-how fees received by any foreign collaborator, firm, company and expert.

Tax exemption on the interest on foreign loans under certain conditions.

Avoidance of double taxation in case of foreign investors on the basis of bilateral agreements.

Exemption of income tax up to 3 years for the foreign technicians employed in industries specified in the relevant schedule of income tax ordinance.

Tax exemption on income of the private sector power generation company for 15 years form the date of commercial production subject to fulfillment of conditions laid down in private sector power generation policy of Bangladesh.

Tax exemption on income of the expatriate personnel working in private sector power Generation Company for 3 years form the date of their arrival subject to fulfillment of conditions laid down in private sector power generation policy of Bangladesh.

Tax exemption on dividend income of non-resident shareholders during tax exemption period of an industry set up in export processing zone and also after the expiry of tax exemption period if the dividend is re-investment in the project.

Exemption of tax on income from industrial undertaking set up in export processing zone for 10 years from the date of commercial production.

Tax exemption on capital gains form the transfer of shares of public limited companies listed with a stock exchange.

Additional Incentives To Export Oriented And Export Linkage Industries: Encouraging export-oriented industries is one of the major objectives of the Industrial Policy, 1991 and as such the government ensures all support and co-operation to the exporters as per Export Policy. Some of the facilities and incentives offered are as follows:

Concessionary duty as per SRO is allowed on the import of capital machinery and spare parts for setting up export-oriented machinery and spare parts for setting up export-oriented industries of BMRE of existing industries. For 100% export-oriented industries no import duty is payable.

Facilities such as special bonded warehouse against back-to-back letters of credit for notional import duty and non-payment of Value Added Tax (VAT) facilities are available as per SRO of the government.

System for duty drawback is being simplified and concised. There exporter will be able to get back the duty draw-back directly form the concerned commercial bank.

Bank loan up to 90 percent of the value against irrevocable and confirmed letters of credit/ sales agreement is available.

For granting export performance benefit, the list of export products and the rate of Export Performance Benefit (XPB) is reviewed form time to time.

With a view to ensuring backward linkage, export-oriented industries including export-oriented ready-made garment industries using indigenous raw materials instead of imported one are given additional facilities and benefits at prescribed rates. Similar incentives are extended to the suppliers of raw materials to export-oriented industries.

Export- oriented industries are allocated foreign exchange for publicity campaign and for opening offices abroad.

Export-oriented industries are allocated foreign exchange for publicity campaign and for opening offices abroad.

Entire export earning from handicrafts and cottage industries is exempted from income tax. In case of all other industries, proportional income tax rebate on export earnings is given between 30 and 100 percent. Industries which export 100 percent of their products are given tax exemption up to 100 percent.

Facility for importing raw materials is given for manufacturing exportable commodities under banned/-restricted list.

Import specified quantities of duty-free samples for manufacturing exportable products is allowed. The quantity and value of samples is determined jointly by the concerned sponsoring agency and the National Board of Revenue (NBR).

Local products supplied to local projects against foreign exchange under international tender are treated as indirect exports and the producer is entitled to avail all export facilities.

Export oriented industries like toys, luggage & fashion articles, electronic goods, diamond cutting & polishing, jewelry, stationary goods, silk cloth, gift items, cut & artificial flowers orchid, vegetable processing and engineering consultancy services identified by the government as thrust sectors are provided special facilities in the form of cash incentives, venture capital and other facilities.

Export oriented industries are exempted form paying local taxes (such as municipal taxes).

Leather industries exporting least 80% manufactured products will be treated as 100% export oriented industries.

Manufactures of indigenous fabrics (such as woven, knit, hosiery, grey, printed, dyed, grameen check, handloom, silk and other specialized fabrics) supplying their products to 100% export oriented grameen industries are entitled to avail a cash subsidy equivalent to 25% of the value of the fabrics provided the manufacturers of the fabrics do not enjoy duty draw back of duty free bonded ware house facility.

Apart form the above-mentioned facilities, other facilities as announced and provided in the Export Policy are also applicable for export-oriented and export-linkage industries.