Consistent tax policies, right incentives can draw large FDI

The relationship between Japan and Bangladesh is a trusted and time-tested one. Bangladesh became Japan's biggest recipient of official development assistance in 2020. Since the Covid-19 pandemic started more than a year ago, there has been a lot of talks and anticipation about Japanese businesses moving base to Bangladesh. In a series of high-profile interviews, The Daily Star tries to understand the increasing interest of Japanese investors in Bangladesh, its growth prospects, barriers to growth, ground realities, and on how to attract more Japanese investment. As part of the series, today, we are running the interview of Tareq Rafi Bhuiyan Jun, secretary-general of the Japan-Bangladesh Chamber of Commerce and Industry.

DS: Japan is one of the largest and most developed economies in the world. Has Bangladesh learnt from its economic growth?

Jun: After World War II, war-torn Japan's economic miracle was possible due to the business-friendly policies of the Ikeda administration and contributions of local businessmen such as Konosuke Matsushita of Panasonic, Kiichiro Toyoda of Toyota Motors, and Masaru Ibuka and Akio Morita of Sony. These businessmen set the principles and philosophy of the highest quality, continuous improvement, innovation, high ethical standard, and the essence of dedicated workmanship among their companies, and others followed in their footsteps.

Toyota came up with the Toyota Production System, which was the essence of the Kaizen system. It is still studied and practised across the world. Matsushita, the founder of Panasonic, was a humanist and dedicated industrialist. He instilled his philosophy of 'Peace and Happiness through Prosperity' into his company culture, which helped bring the humane side to the business and made his company wildly successful.

Through the Association of Overseas Technical Scholarship, supported by the Ministry of Economy, Trade and Industry, a large number of Bangladeshi entrepreneurs and management level people had the opportunity to go to Japan and learn the unique Japanese business and technical skills.

Local business groups such as AK Khan, RANGS, Uttara Motors, and ACI have been doing business with Japan successfully for a long time. More local entrepreneurs should learn about the Japanese business philosophies and systems and implement them in their companies to support the sustainable development of Bangladesh.

DS: How many Japanese companies are in operation in Bangladesh? What are the areas Japanese investors are interested in?

Jun: Currently, there are about 320 Japanese companies that have a presence in Bangladesh. Japanese investors are showing keenness in fast-moving consumer goods, food-processing, information technology, readymade garment, the health sector, motorcycle, light engineering, and infrastructure projects.

DS: What is the future outlook of Japanese investment in Bangladesh?

Jun: Bangladesh is a market of 16.5 crore of population, and the middle and affluent class (MAC) population is increasing very fast. Bangladesh is no longer considered a cheap labour destination for the manufacturing-based export market. Rather, it is seen as a large domestic market with a fast-growing MAC population who are hungry for quality goods.

There are many mega infrastructure projects underway with funding from the Japan International Cooperation Agency (Jica). Thus, a lot of Japanese construction-related companies are also showing interest to come to Bangladesh.

An exciting development is the 1,000-acre Japanese Economic Zone, which is getting developed by one of the largest Japanese conglomerates, Sumitomo Group, and the Bangladesh Economic Zones Authority (Beza) in Araihazar, Narayanganj. We are hopeful that more than 100 Japanese companies will invest as much as $1 billion in the zone.

The Jica and the Beza have recently signed up for a preparatory survey for an oceanfront economic zone at the Bangabandhu Sheikh Mujib Shilpa Nagar in Mirsarai, Chattogram.

Japan is also supporting to set up Matarbai power plants and deep-sea port as part of the Moheshkhali-Matarbari Integrated Infrastructure Initiative. Private companies such as Jera, Mitsui, Mitsubishi, and Marubeni are planning to invest in the energy sector.

Flagship investments from Honda for motorcycle manufacturing plant and the largest-ever foreign direct investment of $1.5 billion in the history of Bangladesh from Japan Tobacco indicate that other large investments will also come to Bangladesh soon. Major Japanese corporations want to implement large-scale projects under the public-private partnership scheme.

DS: What are the major barriers that need to be removed to attract more Japanese investment?

Jun: Japan has considerable investments in Asean countries, and in all those countries, telegraphic transfer (TT) is the standard way of transaction for import purpose. In Bangladesh, trade transactions are limited to letters of credit (LC) settlement in general due to foreign exchange policy. The terms and condition to open LCs are quite complicated compared to other competing countries. Lifting the restriction on TT will help increase Japanese investment.

Consistency in tax policies, transparency in tax administration and providing the right incentives to manufacturers can attract large FDI.

DS: How would you assess Japan's role in developing our economy?

Jun: Japan was one of the earliest countries to recognise Bangladesh after Independence officially. And Japan has been the biggest bilateral development partner in the history of Bangladesh. Since 1974, the total amount of Japan's committed official development assistance has reached $22 billion.

Jamuna Railway Bridge, Kanchpur, Meghna and Gumti second bridges, metro rail project, the third terminal of Hazrat Shahjalal International Airport, Matarbari power plant and Matarbari deep-sea port are examples of the mega-projects that have either been implemented or are currently being built with the support of the Japanese government. These are all significant mega projects that will help Bangladesh become a developing nation at a faster pace.

DS: What further steps should be taken to strengthen trade and investment relations between Bangladesh and Japan?

Jun: Finding out the issues the current Japanese investors face and quickly resolving them are the most important steps to improve the investment climate that will give positive signals to future investors.

Japan is one of the important export destinations for Bangladesh, with more than $1.3 billion in shipment in 2020.

Bangladesh's graduation from the group of the least-developed countries will have an impact on this relationship. So, we believe that a free trade agreement or economic partnership agreement with Japan will help Bangladesh in the post-LDC era and strengthen the economic relationship.

DS: What are the steps the JBCCI is taking to bring more Japanese companies and investment?

Jun: The JBCCI, with 238 companies as its members, has been very active in promoting the Japan-Bangladesh business ties and improving the business climate to bring more Japanese investments. The chamber has submitted policy papers to the government of Bangladesh on how to support small and medium enterprises and pull more FDI.

In November last year, the JBCCI, along with the United Nations Industrial Development Organisation and Haison International, organised a virtual "Investor B2B Japan 2020", which was attended by more than 300 Japanese companies. The JBCCI, along with the same organisers, will arrange another virtual B2B [business-to-business] match-making sessions in May this year. In November, we are planning to organise a physical visit to Japan for the B2B match-making event.

As February 10, 2022 marks the 50th anniversary of the diplomatic relationship between Japan and Bangladesh, the chamber plans to arrange programmes in both countries. The association, along with the Chattogram Chamber of Commerce and the Japan External Trade Organisation, are planning to hold the "Bay of Bengal Growth Summit 2022". The purpose is to establish Bangladesh's strategic position as a thriving destination for trade and investment for Asia's future economic growth.