Investment climate & fdi 15 05-2014 - copy

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Investment climate and FDI in Bangladesh

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Investment climate & fdi 15 05-2014 - copy

  1. 1. Paper presented by Dr. Md. Shamsul Arefin Director General ACC, Bangladesh 1 Investment Climate andInvestment Climate and Foreign Direct InvestmentForeign Direct Investment (FDI) in Bangladesh(FDI) in Bangladesh May 16, 2014 Dr. Md. Shamsul Arefin
  2. 2. 2 Contents:Contents: 1. What is Investment Climate 2. What is FDI 3. Current situation of FDI in Bangladesh May 16, 2014 Dr. Md. Shamsul Arefin
  3. 3. What is Investment Climate?What is Investment Climate? Investment climate can be defined as the “policy, institutional and behavioural environment, both present and expected, that influences the returns and risks associated with investment.” This environment is generally seen as having three main features: Macroeconomic conditions Governance and Infrastructure.
  4. 4. 4 Cycle of Investment Climate May 16, 2014 Dr. Md. Shamsul Arefin
  5. 5. Key Features of Investment ClimateKey Features of Investment Climate  Macroeconomic factors include such issues as fiscal, monetary, and exchange rate policies.  Governance relates to government interactions with business, which typically mean regulation and corruption, both of which affect the cost of starting and running a business.  Infrastructure refers to the quality and quantity of physical infrastructure (such as power, transport, and telecommunications). More broadly, it can also refer to financial infrastructure (such as banking) – or access to finance.  Apart from the three features mentioned above, the extent of international integration as understood from the country’s trade openness and the availability of a large workforce with sufficient education and technological know-how are also crucial elements of the investment climate.
  6. 6. Foreign Investment ScenarioForeign Investment Scenario  Because of the scarcity of domestic resources, there is the need for more FDI in the country. Even though Bangladesh offers highly attractive incentives for that purpose, the volume of FDI has remained historically low in this country.  In per capita terms, FDI in Bangladesh in 2012 was only $7, as compared to $31 in India and $32 in Pakistan (UNCTAD, World Investment Report 2012).  Among the reasons behind low FDI inflows are such negative factors as weak governance, administrative hassles, poor conditions of infrastructure (roads, ports etc), corruption in public services, poor law and order conditions, and above all, inadequate and erratic supply of power and gas, which discourage investors to invest in Bangladesh.
  7. 7. 7  Risk factors for FDI are minimum in Bangladesh  Bangladesh never posted negative economic growth during the past 30 years  Bangladesh has never defaulted in its debt repayments, nor asked for their rescheduling  Bangladesh has an open, market based economy led by a vibrant and innovative private sector which provides the main stimulus to its growth  Bangladesh is a homogeneous country with no religious, ethnic or other forms of cultural conflicts  Bangladesh has outstanding records in human rights Positive factors of Investment Climate in Bangladesh May 16, 2014 Dr. Md. Shamsul Arefin
  8. 8. 8 What is FDI Generally Foreign Direct Investment means: “Establishing or expanding operations into a foreign country with transfer of capital” FDI is defined by UNCAD as: An investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy. May 16, 2014 Dr. Md. Shamsul Arefin
  9. 9. 9 Foreign Direct Investment (FDI) 1.FDI stands for Foreign Direct Investment, a component of a country's national financial accounts. 2.Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. 3.It does not include foreign investment into the stock markets. 4.FDI is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially "hot money" which can leave at the first sign ofMay 16, 2014 Dr. Md. Shamsul Arefin
  10. 10. 10 Characteristics of FDI 1. It is long-term investment 2.Investment in physical assets 3.Aim is to increase enterprise capacity or productivity or change management control 4. Leads to technology transfer, access to markets and management inputs 5.Entry and exit is relatively difficult 6.FDI is eligible for profits of the company 7.Direct impact on employment of labour and wages May 16, 2014 Dr. Md. Shamsul Arefin
  11. 11. 11 FDI has three components: 1. Equity capital is the foreign direct investor's purchase of shares of an enterprise in a country other than its own. 2. Reinvested earnings comprise the direct investor's share (in proportion to direct equity participation) of earnings not distributed as dividends by affiliates, or earnings not remitted to the direct investor. Such retained profits by affiliates are reinvested. 3. Intra-company loans or debt transactions refer to short- or long-term borrowing and lending of funds between direct investors (parent enterprises) and affiliate enterprises. May 16, 2014 Dr. Md. Shamsul Arefin
  12. 12. 12 •Rate of interest •Speculation •Profitability •Costs of production •Economic conditions •Government policies •Political factors  Good projects  Demand Potential  Revenue Potential  Stable Policy Environment/Political Commitment  Minimum Risk  Allocation Framework What are ForeignWhat are Foreign Investors looking for?Investors looking for? Factors affecting FDI May 16, 2014 Dr. Md. Shamsul Arefin
  13. 13. 13 Business Stage Policy & Regulation 1. General - Bangladesh Industrial Policy (as undertaken time to time) 1. Business start-up - The Companies Act, 1994 - Securities and Exchange Commission Act, 1993 1. Protection - The Foreign Private Investment (Promotion & Protection) Act, 1980 1. Export Zones - Bangladesh Export Processing Zones Authority Act, 1980 - Bangladesh Private Export Processing Zones Authority Act, 1996 1. Facilitation - The Investment Board Act, 1989 1. Corporate / Personal Taxation and incentives - Income Tax Ordinance 1984 and related rules and SROs - National Budget - The Finance Act/Bill 1. International Trade (Export & Import) - Bangladesh Export Policy (as undertaken from time to time) - Bangladesh Import Orders (as undertaken from time to time) 1. Sectoral - Bangladesh Energy Regulatory Commission Act, 2003 (BERC) - Bangladesh Telecommunication Regulatory Commission Act, 2001 (BTRC) - The National Drug Policy, 2005 1. Foreign Exchange - Bangladesh Foreign Exchange Guidelines (issued from time to time) FDI Policy Frame work in Bangladesh May 16, 2014 Dr. Md. Shamsul Arefin
  14. 14. 14 Investment Protection The Foreign Private Investment (Promotion and Protection) Act 1980 provides protection for investment made in Bangladesh against - expropriation & nationalization - equitable treatment - exit and - profit & capital repatriation. In addition, Bilateral Investment Treaties and Tax Conventions (agreed with 28 countries) provide further protection to investments. FDI Policy Frame work in Bangladesh May 16, 2014 Dr. Md. Shamsul Arefin
  15. 15. 15 Investment Incentives Fiscal Incentives • Corporate tax holiday (outside EPZs): 5 to 7 years for selected sectors • Accelerated depreciation on cost of machinery for new industries in lieu of tax holiday • Reduced Corporate Tax for 5 to 7 years in lieu of tax holiday and accelerated depreciation • Avoidance of double taxation under bilateral tax convention • Tariff concessions on import of capital machinery • Tariff concessions on import of raw materials of the export oriented industries • Bonded warehousing facility Financial & Other Incentives • Cash incentives and export subsidies ranging from 5% to 20% • Funds for export promotion, export credit guarantee scheme, permission for domestic sales up to 20% by export-oriented companies outside EPZ. • Remittance of royalty, technical know-how and technical assistance fees • Citizenship by investing a minimum of US$ 5,00,000 • Permanent resident permits on investing US$ 75,000 May 16, 2014 Dr. Md. Shamsul Arefin
  16. 16. 16  Tax exemption on royalties, technical know how and technical assistance fees and facilities for their repatriation  Tax exemption on interests on foreign loans  Tax exemptions on capital gains from transfer of shares by the investing company  Remittances of upto 50% of salaries of the foreigners employed in Bangladesh and facilities for repatriation of their savings and retirement benefits at the time of their return  No restrictions on issuance of work permits to project related foreign nationals and employees Other facilities and incentives for foreign Investors May 16, 2014 Dr. Md. Shamsul Arefin
  17. 17. 17 Facilities for repatriation of invested capital, profits and dividends Provision of transfer of shares held by foreign share holders to local investors Reinvestment of remittable dividends would be treated as new investment Level playing field: foreign owned companies duly registered in Bangladesh will be on the same footing as locally owned ones Foreign investment in Bangladesh is secured Other facilities and incentives for foreign Investors May 16, 2014 Dr. Md. Shamsul Arefin
  18. 18. 18 • Infrastructure projects (Power Generation, Gas and Oil Exploration, Industrial Parks, High-tech Parks, etc.) • Composite Textiles and Ready Made Garments with backward linkages • Steel and Engineering • Infocom Services (IT and IT enabled services); • Textile and other Industrial Machinery and Parts thereof • Frozen Shrimp, Frozen Fish for export • Finished Leather and Leather goods • Home Appliances • Telecommunication equipment Semi-Conductor • Fresh Fruits & Vegetables, Cooked/Semi Cooked Food items, Canned Juice, Dairy and Poultry, Livestock and Fisheries • Automobile • Central Effluent Treatment Plants in Industrial Areas • Paper from green jute and Allied Products • Hotel & Motel • Manufacturing of bicycle and two wheeler for export • Jute products • Tourism • Shipbuilding • New forms of social capital with mass transit networks, urban sewerage system, river reclamation, forestry and clean energy projects. Sectoral Opportunities May 16, 2014 Dr. Md. Shamsul Arefin
  19. 19. Inflows of Foreign Direct Investment There was an inflows of $666m foreign direct investment in 2009 which raised significantly in 2010 to $1086m. As of 2011, inflows of foreign direct investment recorded to $1136.38m. Inflows of foreign direct investment during 2007-2011
  20. 20. YearYear Proposed LocalProposed Local InvestmentInvestment Proposed ForeignProposed Foreign InvestmentInvestment Total Proposed InvestmentTotal Proposed Investment Growth %Growth %    ProjectProject BDTBDT ProjectProject BDTBDT ProjectProject BDTBDT 2005-20062005-2006 17541754 1837018370 135135 2498624986 18891889 4335643356 124.62124.62 2006-20072006-2007 19301930 1965819658 191191 1192511925 21212121 3158331583 -27.15-27.15 2007-20082007-2008 16151615 1955319553 143143 54335433 17581758 2498624986 -20.89-20.89 2008-20092008-2009 13361336 1711717117 132132 1474914749 14681468 3186731867 27.5427.54 2009-20102009-2010 14701470 2741427414 160160 62616261 16301630 3367833678 5.675.67 2010-20112010-2011 12981298 3997639976 148148 2693526935 14461446 6691266912 98.7198.71 2011-20122011-2012 16041604 497078497078 209209 338910338910 18131813 835989835989 212212 Private Investment Statistics March, 2012 Source: Bangladesh Economic Review-2011
  21. 21. 21 Private investment in Bangladesh is facilitated by a host of agencies: 1. Board of Investment (BOI) Domestic and FDI (outside EPZs) – the apex Investment Facilitator 2. Bangladesh Export Processing Zones Authority (BEPZA) Domestic and FDI (only in EPZs) 3. Privatization Commission Privatization of State Owned Enterprises (SOE’s) 4. Sectoral regulatory bodies like BTRC, BERC Telecom Regulatory Commission & Energy Regulatory Commission 5. Line Ministries and Agencies For Power, MOPEMR and Power Development Board BSCIC, Handloom Board etc. are generally responsible for development of SMEs and Cottage industries by the domestic firms. May 16, 2014 Dr. Md. Shamsul Arefin
  22. 22. 22 BOI Functions are broadly categorized into three areas: 1. Investment promotions; 2. Investment Facilitation (approval, permission, recommendations etc. including aftercare) and 3. Policy Advocacy BOI also works for investment climate improvement. Board of Investment May 16, 2014 Dr. Md. Shamsul Arefin
  23. 23. 23 1. Investment Counseling 2. Visa on Arrival (pre-registration) 3. Foreign/JV/Local Investment a. Registration of New Industries b. Visa Recommendation c. Approval of Work Permits d. Recommendation for IP, Machinery Clearance Certificate e. Recommendation for IRC, Bonded Warehouse f. Recommendation for Land Acquisition g. Approval of Royalty and Technical Assistance Fees h. Processing of Foreign Borrowing 4. Facilitation of Setting up Foreign Commercial Offices* a. Office Approval / Extension b. Visa Recommendation c. Approval of Work Permit 5. Facilitation of Utility Services (Gas, Power, Telecom, Water & Sewarage, Environment, Taxation) a. Counseling b. Recommendation for connectivity / Facilitation Assistance of Board of Investment May 16, 2014 Dr. Md. Shamsul Arefin
  24. 24. 24  BEPZA Act, 1980 & Foreign Private Investment Act, 1980  1st EPZ : Chittagong became Operational in 1983  2nd EPZ : Dhaka starts in 1993  Other EPZs : Mongla, Comilla, Ishwardi, Uttara (Nilphamari), Adamjee & Karnaphuli  2 new EPZs : Feni & Meghna under Implementation Bangladesh Export Promotion Zones Authority (BEPZA) May 16, 2014 Dr. Md. Shamsul Arefin
  25. 25. 25 4.87% 4.42% 5.26% 6.00% 5.88% 6.19%6.43%6.63% 5.96% 6.27% 5.27% 5.94% 5.23%5.39% 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009- 10p During recession, Bangladesh did better than Malaysia and Vietnam. Bangladesh has the capability (competitiveness) to do even better in the post- recession period. Real GDP Growth (%) in Bangladesh May 16, 2014 Dr. Md. Shamsul Arefin
  26. 26. 26 4,418 5,161 5,313 5,752 6,467 5,986 6,548 7,603 8,655 10,526 12,178 14,111 15,565 16236 7,152 7,520 8,006 8,374 9,335 9,658 10,903 13,147 14,746 17,157 21,269 22,570 21388 8,540 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009- 10p Export Import International Trade (Export & Import) in Bangladesh US$ Million Source: Bangladesh Economic Review, Bangladesh Bank May 16, 2014 Dr. Md. Shamsul Arefin
  27. 27. 27 367 603 394 388 564 394 379 284 804 745 793 769 941 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Foreign Direct Investment in Bangladesh in US $ Million World Investment report of UNCTAD, Bangladesh Bank May 16, 2014 Dr. Md. Shamsul Arefin
  28. 28. 28 1,719 1,739 1,523 1,602 1,307 1,583 2,470 2,705 2,930 3,484 5,077 6,149 7,471 10,750 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009- 10R Foreign Exchange Reserve in Bangladesh in US $ million Source: Bangladesh Economic Review, Bangladesh Bank May 16, 2014 Dr. Md. Shamsul Arefin
  29. 29. 29  Impact of FDI in Bangladesh  There is no specific study conducted to measure the impact of FDI on the economic development in Bangladesh.  General observations indicate that FDI plays significant role in Bangladesh in terms of: - Creation of physical infrastructure - Technology transfer; - Employment generation - Access to capital; and - Product and process innovation  FDI played a significant role in development of Telecom, energy, power and cement sectors in Bangladesh. May 16, 2014 Dr. Md. Shamsul Arefin
  30. 30. 30 Concluding Remarks The relative strengths of the costs and the benefits of FDI depend on whether the economy has a sound investment climate. An investment environment is said to be a sound one if the country has the following : 1. A sound macroeconomic environment, which depends on monetary and fiscal policies and conditions such as stability of interest rates and status of fiscal accounts; 2. Appropriate institutions, which depend on the existence of effective legal and regulatory structures, a competition authority and investment promotion and facilitation institutions; and 3. Adequate basic infrastructure, which implies adequate supplies of power, water, land, transport and communications. There is no single winning formula for maximizing benefits from FDI: A sound investment environment is needed to establish linkage with the rest of the economy. If a country lacks basic infrastructure, linkages of FDI with the rest of the economy might not be established and the country, most likely, would not benefit from FDI. May 16, 2014 Dr. Md. Shamsul Arefin
  31. 31. 31 "Our TREASURE is in our highly laborious PEOPLE!" "...Discover the Potential" May 16, 2014 Dr. Md. Shamsul Arefin
  32. 32. May 16, 2014 Dr. Md. Shamsul Arefin 32

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