Nurture ties with foreign investors

Bangladesh should nurture a long-term relationship with foreign investors in order to retain them which would ultimately benefit the economy, said a World Bank expert.

Cecile Fruman, director for trade and competitiveness global practice at the World Bank, said when an investor comes to a country, its government should nurture the relationship with him because he is going to invest.

The benefits from an FDI in a host country comes at a later stage in the relationship, through inflow of capital, such as employment of local staff, transfer of technology and knowledge, and sourcing items from local suppliers -- all of which cause some spill over effect on the economy, and help the country move up the value chain, she told a seminar at the Bangladesh Investment and Policy Summit at Radisson Blu Hotel in the city.

Reinvested earnings account for a major chunk of all the foreign direct investments coming in a particular country, added Fruman.   

She also stressed the need for retaining current investors as investments bring further investments.

The Board of Investment (BoI), the Prime Minister's Office and the Business Initiative Leading Development (BUILD) jointly organised the two-day programme to showcase the private sector investment opportunities in Bangladesh. The summit ended yesterday.

The WB official said there is a need in Bangladesh to diversify into other sectors such as electronics, manufacturing and services, away from garments.

Bangladesh now attracts between $1.5-1.9 billion a year in FDI, which is much lower than that of Vietnam's $90 billion, she pointed out.

Investors, she said, prefer four major things in a country: the ability to consistently meet product standards, low production cost, low labour cost and market size.

“Bangladesh obviously does well in terms of market size and competitive labour cost. But it does not do in areas such as compliance with international production standards, confidence in regulatory environment, access to skilled labour, easy cross-border movement of goods, labour, capital, and easy access to critical inputs such as industrial land, energy and power.” 

Quoting a study of Multilateral Investment Guarantee Agency of the WB Group, Fruman said civil disturbance, terrorism and war are the topmost factors that put foreign investors at bay.

But one out of four corporate investors either withdrew from an existing investment or cancelled planned investments over the past 12 months not because of the three reasons, but for reasons that are within the control of the government, she added.

They include adverse regulatory changes, expropriation, non-honouring of government's guarantees, breach of contracts and transfer and convertibility restrictions, she went on saying. 

In Bangladesh, it takes 1,442 days to enforce a contract, and the financial cost of enforcement is 67 percent of the claim, whereas the duration is 400 days in Vietnam, and 453 days in China, and the financial costs are 29 and 16 percent of the claims, Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh, told another seminar at the summit.

He said the country cannot afford this. 

Energy, connectivity and logistics, regional and global integration, an efficient and strong financial system and access to serviced land for setting up industries are key drivers for attracting investment, the economist noted.

“These are not new things. So, we would like to see improvement in these areas in future,” added Mansur.

Hossain Khaled, president of Dhaka Chamber of Commerce and Industry, called for a new investment policy as the current one, formulated in 1989, is not forward-looking and only meets today's needs, but not tomorrow's. 

Roberto Echandi, a WB economist on trade and competitiveness global practice, said countries have to be investment-centric to bring in more investors.

He said retention of investors is crucial. “Believe it or not, almost 30 percent of all the investments that goes to developing countries stop expanding or leave because of regulatory constraints.”

Sarah Cooke, head of DFID Bangladesh, said getting more and better paid jobs is only possible through private sector-led economic growth.

As private investment in Bangladesh has been stagnant and foreign investment remains at a very low level, it is important to put policy reform in place to drive investment growth, she observed.

Supun Weerasinghe, chief executive officer of Robi Axiata Ltd, said investors look for certainty for a long-term investment because the investors in the telecom sector cannot wind down their business and move out in a single day.

If Bangladesh wants to drive investment and infrastructure development, it should link taxation to the outputs, not to inputs, he noted.

Lawyer Sameer Sattar said Bangladesh needs to set up a special tribunal or High Court bench to deal with commercial disputes promptly.

SA Samad, executive chairman of BoI, said Bangladesh provides the investors with almost similar incentives like those in Vietnam, and the country also offers more facilities to overseas investors than the local investors.

“We ensure investment protection. Profitability of investments is high. Still, the FDI inflow remains low,” he said. 

More than 70 investors from a dozen countries joined the summit.

Apart from officials of India's Adani and Reliance groups, senior executives of major companies from China and Japan also took part, said BUILD Chairman Asif Ibrahim.