Many Bangladeshi companies are exporting abroad but are not able to develop their supply chain. They sell their products to outside agents and those agents deliver them to foreign buyers. As a result, companies cannot promote their products by brand. As a result of these guidelines, Bangladeshi companies will now be able to set up retailing, ware houses or marketing and management offices abroad which will make it easier for them to promote their brand and country’s exports will increase, reports Press Xpress
The door to cross border investment has opened up for the country at long last. The government has now come forward with opportunities for Bangladeshi businesses to invest abroad within legal framework. Following this recent development, the Financial Institutions Department of the Finance Ministry has published a guideline for the first time. As of now, Bangladesh Bank as the country’s financial sector regulator has been limiting the approval to some export sector companies for investing abroad on a case-by-case basis. However, now that the Finance Ministry has issued guideline for capital account transactions abroad, all export-oriented companies have the direct opportunity to invest abroad.
Bangladeshi products of different brands are spreading all over the world. Domestic companies have begun to gain the ability to compete with foreign companies on foreign soil. Entrepreneurs of the country are already building several companies abroad. Companies in Bangladesh that export products abroad can now invest their money abroad if they want. The Finance Ministry says, the permission will be given to domestic companies based on seven conditions. However, only exporters will get this opportunity to invest abroad.
According to the central bank, the government first allowed an institution to invest abroad in 2013. Since then, several companies have been allowed to invest. Many more companies have applied to invest abroad. At present, 16 business entities of the country are allowed to invest abroad.
Bangladesh Bank has already given approval to four private sector companies to invest abroad. This paved the way for the sale of domestically produced products in the global market.
One of the approved companies is Square Group’s affiliate Square Pharmaceuticals Limited. The company will invest $10 million in the Philippines. The size of the Philippine import-dependent pharmaceuticals market is about $6 billion, making it the third largest pharmaceuticals market in the ASEAN region. The opportunity to enter this huge market opened up in front of the company.
Renata Pharmaceuticals, another well-known pharmaceutical company in the country, is investing $2 million in their Ireland-based subsidiary. With this investment opportunity, the company will no longer have to market drugs with the help of third parties, they will now be able to sell their drugs directly.
Another approved company is Bangladesh Steel Re-Rolling Mills Limited (BSRM). BSRM will invest $500,000 in their existing affiliate in Hong Kong.
Columbia Garments Limited, a subsidiary of M&J Group, has also been approved to invest $1.5 million in purchasing and business expansion.
On 26 January, A circular in the regard of foreign investment policy, that was issued by the Foreign Exchange Policy Department of Bangladesh Bank. According to the circular, on January 9, the Financial Institutions Department of the Ministry of Finance issued the Capital Account Transaction (Equity Investment Abroad) Guideline 2022, under Section 26 of the Foreign Exchange Regulation Act, 1947.
Under the new guideline, any company interested in investing can now invest a maximum of 20 percent of their average export earnings for the previous five years or up to 25 percent of the net assets shown in its latest audited annual financial report. In case of investment, permission has to be obtained from the government first. For this, a 15-member committee chaired by the Governor of Bangladesh Bank will examine and select the application. The committee will then consult with the government and allow the company to invest. The member secretary of this committee will be the general manager of the foreign exchange investment department of Bangladesh Bank.
However, if the proposed investment is not finalized for any reason after getting permission, the policy has asked to bring back the paid money to the country.
Which countries can be invested in?
- Countries that Bangladesh has double tax avoidance agreement with.
- In countries where Bangladeshi investment and profit from it is allowed to bring back capital, profit, dividend, interest, money from sale of shares, money remaining due to termination of investment and technical knowledge fee, royalty, consultancy fee, commission or other receivables.
- Countries with which the Government of Bangladesh has bilateral investment, development, expansion and protection agreements.
However, if an investor fails to bring the investment income and dividends to the country, it will be considered as money laundering.
Which countries investment cannot be made?
- Investments cannot be made in countries where the United Nations, European Union, Office of Foreign Assets and other international organizations have sanctions.
- Countries under the Financial Action Task Force (FATF) against which the Task Force has directed retaliation.
- Countries with which Bangladesh does not have diplomatic relations.
What is the limit of investment, what are the conditions?
- Subject to adequate quota status, the amount of investment proposed outside Bangladesh may not exceed 20 per cent of the average annual export earnings of the applicant organization for the last five years.
- No more than 25 per cent of the net assets shown in the latest audited annual financial report can be invested abroad.
- Money invested abroad should be sent directly to the bank of the associate company. In case of purchase of shares of existing company, the investment money should be sent directly to the share transferee.
- The bank from which the money for capital investment will go abroad will have to keep the relevant documents and documents for inspection of Bangladesh Bank and other concerned government agencies.
- The approved initial capital of the investment proposal has to be sent abroad within the stipulated time and if the investment fails for any reason, the money has to be returned immediately.
- Reinvestment cannot be made without the recommendation of the selection committee, such as investment proceeds, dividends or proceeds from the sale of shares and money due for liquidation of an associate company.
- Subsidiary companies must adhere to a zero-tolerance policy against money laundering, terrorist financing, management officials and employees’ abusive behavior, negative comments towards local culture or religion, and racist behavior and activities.
- Profit or dividend interest due from associate companies located outside Bangladesh, proceeds from sale of shares will be returned to the country within 30 days with a receipt of salary, royalty, technical knowledge fee, consultation fee and commission.
- In case of equity investment, it is necessary to hold a number of shares which are fully owned or managed by the concerned foreign institution.
- Within 30 days of the establishment of the company abroad, the proofs of required government approval of the concerned country should be sent to Bangladesh Bank through the affiliated bank along with the attestation of the Bangladesh High Commission of that country.
- If the foreign investor company transfers or sells shares to a foreign partner company, they have to inform Bangladesh Bank within 30 days.
- Before selling or transferring shares of a Bangladeshi company abroad, approval of Bangladesh Bank is required. As well as ensuring the actual value of the shares through an internationally recognized chartered accountant.
- In order to list any associate company in any capital market, prior approval of Bangladesh Bank is required.
- Any dispute over investment must be settled in accordance with the bilateral agreement reached between the two countries.
Which companies can invest abroad?
- Exporters who have adequate status as a reserved quota for exporters will be able to invest.
- The applicant organization must be well-off as per the audited financial statements for five years.
- Applicants must have a credit rating of at least two.
- The business to be invested in should be similar or helpful or complementary to the applicant’s business activities in Bangladesh.
- The investment proposal should be technically based on feasibility study.
- There should be a potential source of income for Bangladesh in foreign exchange and other opportunities including increase in exports from Bangladesh. In particular, Bangladeshis need to have specific employment proposals.
- The applicant organization must have skilled and experienced manpower in international business management, financing and investment.
Debt-defaulters will not have the chance to invest
The application will require a certificate of payment of duty, VAT and income tax from the company offering the investment abroad and the consent of all the directors of the company regarding the investment. Debt-defaulters or uncoordinated large borrowers will not be able to apply.
Offices can be opened abroad
- Under the policy, Bangladeshi companies will be able to set up and operate their branch offices abroad.
- Companies operating offices abroad must submit their financial statements to Bangladesh Bank, the Financial Institutions Department and the National Board of Revenue within 30 days of the end of the financial year.
If these guidelines are properly followed with proper monitoring from the government, it will highly benefit the economy of Bangladesh. This will create an opportunity for entrepreneurs who do not have adequate infrastructure and human resources within Bangladesh and cannot adequately invest abroad due to market size. Now they will be able to invest their unused money and a part of the return on investment will actually go to government revenue of Bangladesh.
Numerous domestic companies are exporting abroad but are not able to properly develop their supply chain yet. They sell their products to external agents and who deliver them to foreign buyers which keeps their company from promoting the products by brands. Now as a result of these guidelines, they will be able to set up retailing, warehouses or marketing and management offices abroad. This will make it easier for companies to promote their brand through which exports will increase. If investment is made under these guidelines, numerous job opportunities will be created for Bangladeshi professionals abroad. They will also be able to work with experienced people from Bangladesh. At the same time traders will be able to relocate a part of their business abroad as per their plan. The government’s decision could play a positive & pivotal role in curbing money laundering.
The country’s economists and entrepreneurs are strongly looking at this initiative in a positive light. They are speculating that, this opportunity will create new employment opportunities for the people of Bangladesh at the same time increase the income of Bangladeshi companies. Money laundering from the country will decrease. And the income that will flow within the country if the investments are successful will help the economy grow rapidly.
They also mentioned regarding the risks involved. According to their opinion, if the investments fail to produce positive result, it will be worse; as the investment money will be spent from the foreign exchange reserves of Bangladesh. As a result, there is a risk of putting pressure on foreign exchange reserves.
Many experts are suggesting that the government needs to ensure investment in the country. All while making sure that the remittances for investment do not flow in to different sectors to bring in the profits earned abroad, whether to return the money or not. Otherwise, foreign exchange reserves may come under pressure. In this case, the government should be extra careful.
According to experts, the overall issue is positive. This is in line with the current developments in the corporate sector in Bangladesh. For corporations to grow, they need to be in the world market. All big corporate entities in the world do that. Bangladesh must follow in similar footsteps. Given the opportunity to invest abroad, the success potential is greater than the risk. Many countries in the world, including India, have benefited from such opportunities. Although it would have been better if corporations received these opportunities earlier. However, despite the delay, this initiative deserves praise.
Finance Minister AHM Mustafa Kamal supported the initiative, saying that it’d create employment opportunities for the countrymen and also bring income to Bangladesh.