The Big Picture
According to the United Nations Conference on Trade and Development (UNCTAD)’s World Investment Report 2020, FDI inflows to Bangladesh fell by 56% to USD 1.6 billion in 2019. The figure mirrors an adjustment from a record level in 2018. Concurrently, the recently-launched US government report on “2020 Investment Climate Statements: Bangladesh” noted that the inflow of FDI in Bangladesh was one of the lowest in Asia. The report also noted that Bangladesh had received FDI amounting to US$ 3.6 billion in 2018 that was slightly more than one per cent of the country’s GDP.
The inflow of Foreign Direct Investment (FDI) has been woefully insufficient. Inadequate infrastructure, coupled with bureaucratic complexities and a wide range of corruption, has been keeping investors away from Bangladesh. The achievement of FDI-induced development requires an appropriate balance between the two competing interests in any FDI regulatory regime in host states. It is essential to evaluate the current regulation to ensure Bangladesh remains competitive as an investment destination. In light of the global developments, the registration processes, tax policy, customs and bankruptcy act must be re-evaluated to improve our ranking in the World Bank’s ease of doing business indicator.
A Step in the Right Direction
In a drive to make FDI more lucrative in the country, the Bangladesh government has decided to ease capital repatriation for foreign investors. The new set of incentives also reduces the lock-in period for foreign investors in the capital market and the introduction of e-signature to facilitate the process of share transfers. In the case of money repatriation by foreigners, now the central bank will also allow the firms to determine the share prices.
Simplified Repatriation Process
According to the existing Foreign Exchange Regulation, approval of the Bangladesh Bank is required for repatriation or transfers of more than $100 million. In some cases, the valuation of shares by merchant banks is not acceptable to the Bangladesh Bank. As a result, it takes a long time and creates complications in sending money from share sales, causing concern among foreign investors. To solve this problem, the central bank will form a pool of firms, instead of merchant banks or authorised dealer banks, to determine the prices of shares of foreign investors.
Reduction of Lock-in Period
Currently, listed companies have to maintain a lock-in period of three years from the date of their business commencement. Most foreign investors believe the period is a very long one. As a result, many among them are losing interest in investing in the country. The Bangladesh government has decided to reduce the period from three years to one year.
The existing regulations of the Registrar of Joint Stock Companies and Firms make it mandatory for shareholders in non-listed companies to have to appear in person before the registrar if they want to transfer shares. In case if the transferee is a foreigner or resides abroad, he/she has to sign the transfer letter in the presence of a notary of that country and get the letter attested by the Bangladesh embassy or consulate in that country. The regulation makes the transfer of shares impossible for anyone living in a country where there is no Bangladeshi embassy or consulate. Addressing the issue, amendments have been made to the existing rules to introduce the process of transferring shares through e-signature by next December.