The recent decision for letting exporters to invest 25% of their total assets abroad — is being met with both applause and caution by exporters and economists of the country.
While many businesses have applauded the decision, others are not as optimistic.
Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), termed the opportunity “a really commendable one,” but said that since Bangladesh still needs a lot of investment for itself, “it is important to keep an eye on a number of issues.”
For example, he said, a Bangladeshi company recently went to Ethiopia to invest in the textile sector, effectively adding to the competition for the Bangladeshi RMG industry with the help of Ethiopia’s subsidized access to the international market.
According to the Bangladesh Bank, Dulal Brothers (DBL Group) has invested $8 million in the garment sector in Ethiopia.
“If investment is made in sectors like agriculture, on cotton perhaps, then our garment sector would benefit from it. The price of cotton is high in the international market now, but it is not possible to increase its production in the country even if we want to. So, if a company invests overseas that produces more cotton, it will help us to increase our exports,” Hassan added.
“It can also happen in the case of imports. By investing in the things that we have to import abroad, the products can be imported back to the country at low prices. I think we have to think about these things. Especially in the guidelines being made by BIDA,” he added.
The Bangladesh Investment Development Authority (BIDA) has been working for a long time to formulate a foreign investment policy, titled the Bangladeshis Investment Policy Abroad 2021.
Mohsina Yasmin, executive member of the International Investment Promotion Wing of BIDA, said work is underway to draft up a complete set of guidelines considering the need to facilitate investment abroad, but at the same time preventing money laundering through the process.
“We have already prepared a draft of it, which has been sent to the Prime Minister's Office. We have received some instructions from there and are working on those now. The various stakeholders are also advising for the guidelines,” she further said.
As per the Capital Account Transaction (Overseas Equity Investment) Rules 2022 states that proposal of investment outside Bangladesh “shall not exceed 20% of average annual export earnings of the applicant during the previous five years or 25% of the net worth as per its last audited balance sheet, whichever is lower.”
Sheikh Mohammad Salim Ullah, secretary of the Financial Institutions Division (FID) explained that the investment percentage has been fixed based on the asset sizes of the companies.
“However, as the issue is related to the country's foreign currency reserves as well, other things have been emphasized as well, including the issue of permission from Bangladesh Bank for foreign investment,” he added.
According to the rules, any misuse of the funds would be treated as an offence under the Money Laundering and Prevention Act.
In such cases, owners, directors and beneficiary owners of the company shall be liable to punitive action under the law.
The money for equity investments has to be sent directly into the bank account of the subsidiary company abroad.
If any investment proposal fails to materialize, the money has to be brought back immediately.
Another condition says that an entrepreneur who wants to make overseas investments has to be an exporter with adequate balance in the Exporters' Retention Quota (ERQ) account.
The entrepreneur needs to be financially sound according to audited accounts of his or her company in the past five years, in line with the directives in the Financial Reporting Act 2015.
"No loan defaulters should be allowed to make investments abroad."
The credit-rating grade of the entrepreneur has to be at least 2.0 according to the mapping set in the Guidelines on Risk-Based Capital Adequacy, prepared by the central bank.
A 15-member high-powered committee, comprising representatives from various ministries, divisions, and departments, led by the central bank governor, will scrutinize overseas equity-investment proposals and make decisions by consulting the government, says the gazette.
Entrepreneurs also would not be allowed to make equity investment in countries with which Bangladesh has no diplomatic relations.
