Hindrances to foreign direct investment

Our Ministry of Foreign Affairs, on more than one occasion have emphasised on the need for Bangladesh finding partners within the ASEAN and also in the Far East. We have also reiterated the importance of sub-regional cooperation, be it within BIMSTEC or the Kunming initiative. This aspect was particularly highlighted in the recently concluded BIMSTEC meeting in Dhaka.

So far so good. Unfortunately, the problems arise after that. Various factors emerge that tend to impact on our potential to attract FDI. These elements tend to reduce our attractiveness as a destination.

Tap here to add The Daily Star as a trusted source

We have come a long way. We have taken steps forward. Nevertheless, many more need to be taken.

JETRO (Japan External Trade Organisation), a trade and investment promotion organisation under the Japanese Ministry of Trade, Economy and Industry has just concluded their 'Investment Related Cost Comparison' survey of 21 major cities in Asia. Mr Sotaro Nishikawa of JETRO has explained that the 'purpose of this survey is to provide relevant information to the potential Japanese investors who are considering overseas investment and need to know in which country the investment cost is high or low.' What he has not said is that such a survey is also carefully read by other prospective investors from Australia, the ASEAN and Europe.

The survey reveals comparison based on 34 cost-components e.g. wage for workers, salary for engineers, salary of the middle-management personnel, cost per square meter of land area, rental fee for office space, telephone charge for a fixed telephone, charge for a mobile phone, hourly fee for using the internet, availability and sustained measure of access to utilities and cost of electricity, water and gas, the ease of movement of container freights, cost of automobiles and petrol, percentage of corporate tax, percentage of personal income tax, percentage of VAT, etc. Readers will agree that these factors are technical but most vital for decision-making within the investor community.

The survey indicates that the investment cost in Bangladesh has become a little cheaper than before. Apparently, it is not because we have become more efficient. It is due to the devaluation of our Taka against the US dollar (while the costs for most services have remained more or less the same) and also the US dollar's devaluation against the euro, the yen and the pound sterling. We have in this regard also acquired a slight edge, because the currencies of most of the other Asian countries have strengthened against the US dollar. One could say that we have gained through negative advantages.

It has also been revealed in this survey that we have other favourable points -- the wage of workers, office rent, rental of industrial estates, water and electricity charges, monthly basic cost for fixed telephones, rate of personal income tax etc.

There are very important points and need to be widely publicised among the potential foreign investors in order to attract them to Bangladesh. One would hope that the Board of Investment has taken note of these aspects and sent out a circular communication in this regard to our various embassies abroad.

Our Foreign Minister, himself from the private sector, would also do well to convene regional meetings of our envoys. This should be done not only in the USA and Canada but also in Europe. Similarly, steps should be taken to have an envoy's meeting in Tokyo during the Prime Minister's forthcoming visit to Japan. It will also be useful to have investor potential meetings along with such envoy's conferences. These investor conferences could also be participated by representatives from foreign companies who have already invested in Bangladesh.

Such meetings should also stress on the fact that JETRO feels that procedural aspects like work permits for foreigners have also been simplified. This is important because shortening of the approval period reduces investment cost. Apparently, the re-introduction of the 'visa on arrival' policy has also been welcomed. These are business friendly initiatives that need to be underlined.

The survey has also identified many disadvantages that need to be redressed if our competitiveness as a destination has to improve.

Some of these factors are technical in nature. Others include areas of governance.

It appears that compared to other Asian countries, Bangladesh is less competitive in areas like monthly basic payment for broadband (512 kbps), internet service, new connection fee for fixed telephone line, new connection fee for ISD mobile phone, container transportation cost, cost of passenger cars, rate of corporate tax etc.

We, as well as the rest of the world, have seen the turn-around that has taken place in India after that country gave special emphasis to Information Communication Technology (ICT) as a thrust sector. We have also given importance to this area but it has been insufficient. We have to drastically improve the situation by providing low cost high speed internet service to the people in general. We also need to reduce the cost of connection fee and the time required to get a telephone connection. We have to understand that giving a phone is creating a customer. The more the better. In this context, we also have to improve the efficiency of the telephone sector, particularly its maintenance and management. It is riddled with corruption and that tends to affect efficiency. The billing and collection of revenue systems also need to be improved.

After this comes ports and shipping including container transport. We have an inherent disadvantage. Large container ships cannot come to Chittagong Port due to shallow draft. This necessitates trans-shipment of containers in Singapore or at Colombo. This in turn raises cost for the investor. In addition, corruption at the Port and unnecessary delay in transporting containers inland also act as detracting factors. The government has to seriously look into the possibility of expanding and deepening the channels to the Port. This will require huge resources, but I am confident that this will be possible if the entire task is given to a company created for this purpose in the private sector. Mobilisation of funds will be available from those investing in the various EPZs, both in Chittagong and elsewhere in Bangladesh. They will participate because this will facilitate the export of their products.

Bangladesh also needs to improve its infrastructural facilities. This will facilitate the providing of stable supply of utilities, particularly, electricity. One has to remember that any investor will attack great priority to this sector. It is important for him because otherwise it means additional cost on repairs or unused production time. It would possibly be advisable in this context to permit Bangladeshi or foreign investors to establish special power grids near the various EPZs. Priority should be given in this regard. Any excess electrical energy can then be passed on to the national domestic grid.

I will now come to some other factors that need attention. The foremost among them is corruption. Investors are always wary of excess cost arising out of this element. They study the report of international rating agencies and also those published by civil society representatives like the Transparency International. Bangladesh continues to suffer in this regard. The latest survey by the Transparency International has indicated that government employees and officials of important sectors -- education, health, land administration, police, judiciary, power, taxation and local government are all involved in serious corruption. The have also identified earlier officials of the customs and taxation departments as being equally responsible.

Such reports create negative perceptions. Added to this has been the problem of lack of law and order. That contributes towards a feeling that governance is weak in Bangladesh and that administration is politicised. We have had several comments from envoys of friendly countries expressing their constructive concern in this regard.

After this comes the question of continuity of government policies. JETRO has very correctly pointed out that any foreign investment is usually made on long-term consideration, and therefore, 'it is never desirable that an on-going project is cancelled suddenly or the policy is changed unreasonably,' This is also an area where we have suffered because of polarisation in our politics. We have to overcome this attitude and learn from the experience of India. In this regard, I am constrained to point out that the government is not doing itself a favour by delaying the implementation of the special Korean EPZ in Chittagong. This is something which we need. We should facilitate the setting up of this Korean EPZ. It will attract others from East Asia.

In many cases, in countries like Vietnam, Thailand, Malaysia and Singapore, there have been jointly funded infra-structure projects between their public sectors and foreign private sectors. These are working there. It can also succeed here. However, in our case, we need to show to the foreign investors that we have a sound financial management and public financial accountability. Our government has to demonstrate that the government remains open in matters of its expenditures, enforces sound internal controls and follows improved accounting, auditing, financial reporting and procurement standards. This is essential for aggregate fiscal balance.

Lastly, investors must feel that they are secure. This is not happening all the time. We have read reports about mastaans threatening foreigners and demanding tolls. This must not be permitted to happen.

The government has a long way to go. They must recognise that attracting foreign investment is a bi-partisan affair. Our interest would probably be best served if the Board of Investment created a small Committee consisting not only of representatives from the government but also from the Opposition, the media, the foreign trading community, foreign banks, foreign investors and the apex Chamber bodies. This will be the only way to obtain a comprehensive and holistic picture of what needs to be done on a continued basis.

Muhammad Zamir is a former Secretary and Ambassador -- any response to mzamir@dhaka.net