INVESTMENT FOR DEVELOPMENT PROJECT
SECOND NATIONAL REFERENCE GROUP (NRG) MEETING OF THE
BANGLADESH CHAPTER

January 5, 2003: Dhaka, Bangladesh

Draft Summary Report of the Proceedings

THE CONTEXT

The current report provides a brief summary of the 3rd National Reference Group (NRG) Meeting of Bangladesh under the project Investment for Development (IFD). The meeting was held on January 5, 2003 at the conference room of Bangladesh Enterprise Institute (BEI), Dhaka.

The main objective of the 3nd NRG Meeting was to discuss on the preliminary draft of Report C, the policy advocacy report on FDI prepared by the Bangladesh Enterprise Institute (BEI). The purpose of the NRG meeting was to steer the policy advocacy document and to have further inputs for the report, particularly in respect of fine tuning the policy recommendations on FDI.

An invitation letter along with a draft of the report was sent to the participants about two weeks ahead of the meeting. Most of the participants had been selected previously with a view to having representatives from all sections of civil society. The panel included representatives and experts from the country’s leading business federations, parliament, various government agencies, former policy makers and practitioners, academia, think-tanks, and representatives from other components of civil society. The representative from CUTS, India, Ms. Sanchita Chatterjee also attended the meeting.

The meeting started at 3:00 P.M, and ended at 7:00 P.M. without any break. Ambassador Farooq Sobhan, President, BEI and former Foreign Secretary of Bangladesh presided over the meeting. He also steered the entire meeting as the moderator . After the introductory remarks by Ambassador Farooq Sobhan, Dr. Atiqur Rahman presented the draft of report C. Presentation of the keynote paper was followed by discussions from the distinguished participants in the meeting.

THEMATIC PRESENTATION OF THE DISCUSSION

Abstract of the presentation of draft report C:

The draft report C first introduces the context of why appropriate policies are needed to attract FDI in Bangladesh. The report then fully devotes on policy recommendations to attract more FDI.

First, there is a need for some general policy changes to attract FDI. These includes, improving the investment climate through appropriate administrative, legislative, and judicial reforms, improving the one stop service of BOI through setting up of industrial parks, making BOI more dynamic through other measures, identification of new markets and new products for export and encouragement of FDI in these sectors, assigning importance to the growth of the local market, development of infrastructure and human resources, improving the image of the country through appropriate measures, strengthening economic and commercial diplomacy with the countries who are potential investors etc. For the RMG and Textile sectors, policies must be taken to reduce the lead time, have intra RMG product diversification, encourage FDI in high value added products, and develop an efficient backward linkage industry. In the cement sector, appropriate policies must be taken to enforce quality, safety, and environmental regulations and to attract FDI in clinker production and integrated cement plants. Sourcing of raw materials in the spirit of sub-regional co-operation is very important in this regard. To attract FDI in the telecom sector, further deregulation of the telecom sector is of vital importance. Telecom service should be extended beyond basic phone service.

The general discussion by the participants as a response to the presentation was not confined only in policy issues, rather it covered many issues including the problem of measuring FDI, some development in the recent years that has negative impact on FDI, and some further policy issues. Some of the issues were also softly debated by the participants. In general, the participants agreed with most of the policy recommendations made in the draft report C. However, participants also pointed out some further fine tuning of the policies. The discussion is summarized below.

Inadequacy of FDI measures in Bangladesh: It is very difficult to have a correct measure of FDI in a country like Bangladesh. FDI constitutes equity investment, reinvestment of the retained earnings of the existing foreign companies, and intra company borrowing of foreign companies. FDI estimate of Bangladesh so far mainly focused on the first component only. It seems that actual foreign investment will be higher in Bangladesh if all the components of FDI can be properly measured. Board of investment is working now to have a more complete estimate of FDI.

‘5I’ are important for investment: Executive Chairman of board of investment viewed that five ‘I’s are very important for investment in country, including FDI. These are: image, infrastructure, inefficiency, information, and implementation. The inherently bureaucratic system delay is one type of implementation problem. Secondly, both public and private sector are very inefficient, which weakens the competitiveness of the economy. Bangladesh also ranks very poorly in terms of infrastructure, image, and information on the scope of investment. As a result, despite Bangladesh being a unique country where Govt. allow 100% foreign ownership, FDI is not encouraging.

Inefficiency in the public sector must be removed: Public sector in Bangladesh is not only inefficient but also corrupt. Price of public utilities are higher because of inefficiency. What is more important that corruption and bribary gives undue favor to the corrupt businessman whereas the uncorrupt businessman has to incur a high cost because of inefficiency of the public sector. Thus inefficiency and corruption in the public sector destroys the level playing field. Inefficiency in the public sector must be removed to create a congenial environment for investment, particularly for FDI.

Lack of cooperation to FDI and negative image of the country: Overall image of Bangladesh to the foreign investors is not that good. In addition to poor environment for investment, there are many other factors that are responsible for poor image. These include policy inconsistency, lack of proper treatment to foreign investors, instability of policy etc. For example, City Groups investment in a private TV channel has not been properly treated and ultimately it was closed. Korean EPZ was not implemented because of the lack of support after the change in the government. Even though booth political parties agreed to allow to set up a container terminal at Chittagong through FDI, society rejected it. All these are giving signal about the lack of seriousness of the country towards FDI. As a result, foreign investors feel discouraged to invest here in Bangladesh.

More authority of BOI: As we know board investment (BOI) was established in 1989 to promote and facilitate private investment, particularly FDI in Bangladesh through a One-Stop-Shop system of support to investors. In practice BOI could not play that active role because it could not transcend the boundary imposed by bureaucracy. Board of investment must be empowered more in respect of attracting and implementing FDI. Link of BOI with foreign missions must me enhanced.

Further simplification of investment regime: Bangladesh has liberalized its investment regime, including that for FDI. While Bangladesh has adopted one of the most liberal and open FDI regime, there is no commensurate change in the outlook of the government functionaries. Bureaucratic attitude towards FDI must be changed. Further simplification of rules and procedures regarding private investment, including FDI is desirable.

Contract of bureaucrat with businessman: Bureaucracy of a country is entrusted with the important task of execution of public policy. Interaction of bureaucrat with businessmen may be quite important to a have policies and administration of the country congenial to business and investment.

Exchange Rate Issue: Because of the narrow domestic market in Bangladesh, FDI will target the export oriented industries. However, competitiveness in the export market depend on real exchange rate, among others. An overvalued exchange rate may discourage export oriented FDI. However, the issue of whether exchange rate is overvalued or not, or whether further devaluation of currency is needed or not remains a debatable issue.

FDI from India to Explore Market in Bangladesh and Northeastern States in India: India is the major import source country of Bangladesh. Hence India has an established market in Bangladesh. Indian investors may invest in Bangladesh to exploit the existing market in Bangladesh. Also distance from Bangladesh to northeastern states of India is much lower compared to central and western states of India. Hence, Indian FDI in Bangladesh may also target the market in those states. FDI from India will also work lowering trade deficit of Bangladesh with India.

Political Consensus: There should be political consensus among some basic issues. For example major political parties should come to a consensus about the importance of upholding law and order situation. They should not call for a destructive program like strikes and ‘hartal’. Bangladesh also needs to take a decision on the issue of gas export through a national consensus.

FDI and Other Regulations: A lack of compliance with environmental and other regulations relating to product quality and safety has a negative impact on the society and on sustainable development of the country, although it may add private profitability of the violating firm. Unequal compliance to regulations destroy the level playing field among the participants in the economy and creates unfair competition. It has been sometimes alleged that many local firms are relaxed about compliance with different regulations. Environmental and other regulations must be equally enforced among all the relevant firms so as to attract FDI by ensuring a level playing field and to extract the desired benefit from it.

FDI in Education Sector: A large number of students from Bangladesh is going abroad, particularly to India to have their tertiary education because of the lack of competent educational institutions in Bangladesh. Hence, FDI in the education sector may be encouraged so as to have quality education within the country.

As all policies can not be implemented immediately, there should be proper prioritization in terms of policy implementation.

LIST OF PATICIPANTS

at

Third National Reference Group (NRG) meeting on "Investment for Development" in Bangladesh

Date & Time: 5th January, 2003; 3:00 pm-6:00 pm

Venue: BEI Conference Room

  1. Amb. Abul Ahsan Advisor, IUB
  1. Dr. Sayed Yousuf Farooq
  1. Mr. Waliur Rahman BhuiyanPresident, Foreign Investors Chamber of Commerce & Industry, M D, BOC
  1. S. A. F. ChowdharyFormer Secretary of Ministry of Commerce
  1. Mustafa Faruque MohammedAdvisor, BEI
  1. Mr. Nur HussainFormer Ambassador
  1. M. A. MuhithFormer Finance Minister
  1. Mr. Forrest E. CooksonFormer President, American

Chamber of Commerce in Bangladesh

  1. Alamgir Rahman Vice President, BGMEA
  1. M. ShafiullahSenior Research Fellow, BEI
  1. Zahid HossainSenior Research Fellow, BEI
  1. Mr. C. M. Shafi SamiFormer Foreign Secretary
  1. Abdul KarimMD, MIDAS
  1. Dr. Atiq RahmanDirector, Bangladesh Centre for Advance Studies
  1. Mr. Azimuddin AhmedFormer Secretary to the Government and

Former Chairman, Ansar VDP Bank

  1. Dr. Mirza Azizul IslamFormer Director, ESCAP
  1. M. H. KhalequeResearch Director, BEI
  1. Mr. A. S. H. K. SadiqueFormer Education Minister
  1. Mr. Mahmudur RahmanExecutive Chairman, Board of Investment
  1. Shanchita ChattarjeCUTS
  1. Farooq SobhanPresident, BEI
  1. Mr. M M Rezaul KarimAdviser on Foreign Policy to the Prime Minister
  1. Golam ArshadAdvisor, Supreme Court
  1. Dr. A. K. M. Atiqur RahmanAssociate Professor, North South University

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