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MONDAY, MARCH 25, 2013
FDI rules putting off investors
UN report identifies complex entry procedure, weak governance and unreliable power as major setbacks
STAR BUSINESS REPORT
Bangladesh is failing to attract the desired levels of foreign direct investment (FDI) due to the complicated entry procedures and weaknesses in regulatory framework, a UN report said yesterday.
The investment policy review of Bangladesh, prepared by United Nations Conference on Trade and Development (UNCTAD) with the help of the government, identified the issues that should be addressed if FDI is to play a larger role in the countrys development.
So far, FDI attraction has been dismal even by the standards of least-developed countries (LDCs), said the report.
Inward FDI volumes in relation to population and ratio to GDP, the report found, were consistently 80 percent less than the average for all LDCs and, on these metrics, 50 percent below the inflows to other populous low-income countries such as India and Indonesia.
The total FDI inflows to Bangladesh since 2006 of around $830 million a year are double those of the previous ten years, but have not risen as strongly as the inflows to comparable countries, according to the report.
The regime for entry of FDI is not so open or clear and simple as many in the country believe, Hans Baumgarten, a UNCTAD representative, said yesterday at a workshop on the study, co-organised by the UN body and the industries ministry.
FDI entry is affected by several laws and is further complicated by the implementation of industrial policy and licensing, he said.
The Foreign Private Investment Promotion and Protection Act of 1980 is the core law which enables the government to regulate FDI entry to the country but its scope and coverage are too limited.
The FDI entry policy is too decentralised a single modern law is needed to consolidate it.
Furthermore, Baumgarten thinks the Board of Investment (BoI) should move away from its roles as a gatekeeper (FDI certification) and a gateway (for fiscal incentives).
BoI should instead focus on primary functions of investment promotion across all sectors and advocate of better administrative regulation of business.
Congested roads, unreliable electricity, poor transport access for remote areas, lack of a deep sea port, the report found, were some of the serious bottlenecks to attracting more FDI.
Although the government is committed to boosting infrastructure through public investment and by introducing private investment through public-private partnerships, it has to be seen through.
In the electricity sector, the country has the enormous challenge of catching up on the existing chronic power shortages as well as catering for the rapid economic growth.
Sustainability requires moving to commercial pricing of power and gas and abandoning the long-standing policy of energy self-sufficiency.
An attractive standard business tax regime should be put in place and then complemented by targeted incentives for catalytic industries where justified on socioeconomic and strategic grounds, UNCTAD suggested.
Some specific features also need to be remedied, such as removing the multiple taxations of dividends as they pass between companies and establishing clear transfer pricing rules.
The complex and outdated laws that a new investor has to deal with for access to land has to be done away with.
The review also suggested improving public governance and judicial system to attract more FDI.
The country ranks poorly in the quality, fairness and timeliness of tax and regulatory processes and judicial enforcement of the rule of law.
Client charters should be adopted and performance systematically monitored in all the key business regulatory agencies. These should include benchmarks such as response times.
Wider adoption of e-platforms to administer business establishment and operations, the UN body said, would assist investors and provide tools to monitor performance.
Employment and residence of foreigners is governed by a long list of laws that dates back to 1946, and needs to be modernised.
The report recommended implementing a streamlined foreign worker approach similar to that of the United States H1-B visa scheme.
Although Bangladesh has intellectual property (IP) laws covering patent, copyright and trademarks protection, they are weakly enforced.
Despite its success in exporting garments, Bangladesh is little internationalised and exports are poorly diversified, said the report.
As a nation it has yet to embrace a conviction that selling to the global economy is the surest way to provide better jobs for its population.
Multinationals can help to provide world market access by including Bangladesh affiliates and local firms as part of their global value chains.
In turn, Bangladesh can make best use of its competitive advantages by further reducing import duties, improving border clearance of exports and imports and by expanding its preferred access to markets.
Meanwhile, Industries Minister Dilip Barua said the resilience showed by the country as demonstrated by the consistent growth in GDP, export and remittance over the last few years in the face of global slowdown, depicts a favourable investment climate.
FDI is dramatically increasing in this age of globalisation. To keep pace with this trend, we should concentrate on reviewing the existing rules and regulations of Bangladesh related to investment.
The report, Barua says, will be an effective tool for sustainable development and help bring about the reforms needed in line with the demands of time.
FDI rules putting off investors | The Daily Star
