Dr. Atiur Rahman :
Governor, Bangladesh Bank
The relationship between Japan and Bangladesh is very old and time tested. Both the countries have been maintaining close association through economic and technical cooperation, cultural exchanges and mutual visits since the independence of Bangladesh in 1972. We Bangladeshis are sincerely grateful for Japan’s generosity of prompt support response in all natural and humanitarian disasters we faced, including their great solidarity and support during our difficult days of 1971, as also for her equally generous official grant and concessional financing support for our economic and social development. But even now growth of trade and investment relationships between businesses in Japan and Bangladesh have remained sluggish and far below the potential. Japanese FDI inflows into Bangladesh remain small, under USD 100 million in 2013 even after more than trebling from the preceding year’s figure and until September 2014 Japan shares only 6.87% of total FDI inflows in Bangladesh. Japan ranks 10th amounting outstanding FDI of only $292 million as on end of September, 2014. However, the trend is positive and hope this will accelerate further. It may also be noted here that Japanese ODA support for Bangladesh’s infrastructure and manufacturing sector development has been impressive. In particular, Japan’s support for SME sector including special support for retrofitting of small and medium textile factories immediately after Rana Plaza tragedy speaks a volume about the depth of Japan-Bangladesh friendship.
The world Investment Report released recently by UNCTAD shows Bangladesh is placed as a second fovoured investment destination in South Asia after India. Inflows of FDI into Bangladesh rose 24 percent to US$ 1.6 billion. Net foreign portfolio investment shot up 111 percent in last fiscal. Government has approved the country’s biggest ever investment project of $4.5 billion to set up a coal-fired power plant. The 1,200 megawatt power project is by far the largest of its kind in the world. Japan International Cooperation Agency (JICA) will provide $3.8 billion as soft loan for the project. Though it will take till 2023 for full installation of the power plant, the plant would be able to start generating 600 MW electricity by 2018.
According to a recent survey (2014) by JETRO, New Delhi, it appears that business in Bangladesh has better cost and profit advantages than many other countries, as cost of production in Bangladesh is the lowest in the world. Bangladesh is ahead of Myanmar, Cambodia, Vietnam, Philippines and India in ease of procurement of local materials and parts. Operating profit of Japanese firms in Bangladesh is supposed to increase by 67 percent in the next year. I am happy to learn that currently, 200 Japanese companies are operating in Bangladesh: 50% in RMG sector and 70-80 % of them are SMEs. Recently, Japan has been increasing her investment in Bangladesh by establishing various production and assembly plant in Bangladesh e.g. motor cycle (Honda) assembling factory, Ajinomoto tasting salt factory, Omoron healthcare equipment supplier company. The Honda motorcycle assembly plant launched in Gazipur in December 2013 is expected to substantially reduce motorcycle imports and make them more affordable; Honda shared 70% of total Tk. 610m ($7.9m) investment.
There are growing market interest for the Japanese investors in Bangladesh. NEC has a branch here with local people to expand their business in power sector and infrastructure where as Mitsubishi and Toshiba are more interested in supplying heavy equipments. Potential Japanese investors also want to put their footprints in diverse ICT sectors of Bangladesh. We deeply appreciate Japan’s eagerness in helping Bangladesh get into the RCEP. Bangladesh’s inclusion in this regional value chain will be to our mutual advantage; with Japanese businesses using Bangladesh as a cost efficient manufacturing base for such items as automobile parts, electrical and electronic goods, apparels and various other consumer goods.
Countrywide chains of job oriented vocational training in Bangladesh are continually adding into her large pool of semiskilled manpower whose skills are further upgradable easily with some hands on training in actual job environment. Tech savvy young science and technology graduates are also coming out of our universities in large numbers every year.
Japanese investors in Bangladesh can hire from these manpower pools at much lower cost than elsewhere. Besides scope for cost efficient labor intensive manufacturing, there are ample opportunities for big ticket Japanese investments in Bangladesh in areas like energy, development of deep sea port, LNG storage terminals and other physical infrastructure, tourism, tertiary healthcare and so forth.
Bangladesh has a vibrant SME light engineering sector that Japanese automakers and machine builders can take advantage of with orders for parts and spares. Manufacture of solar PV panels, energy efficient LED lamps, TVs, computer monitors and other electrical and electronic appliances are also likely to be cost efficient.
Japanese businesses would also find Bangladesh attractive as an outsourcing destination for software development and other IT enabled back office services. Relocation of export manufacturing units in Bangladesh will give Japanese businesses the advantage of favored access to many advanced economy markets, besides cost efficiency. Our government has already promised a sizable new Special Economic Zones (SEZ) in Chittagong specifically for Japanese investors, and is further considering a generous set of incentives for investors in SEZs including time bound full and partial waivers on tax/vat/stamp duty etc. The depth of economic relationship between the two countries has leaped forward since the visits of two of our Prime Ministers. I also visited Japan a few days earlier of the visit of our Prime Minister and was deeply impressed by the warmth of goodwill amongst Japanese investors, policy makers, regulator and ordinary people for Bangladesh’s development efforts.
Let me now focus on the liberalization of regulations that we have rolled out keeping in mind higher flow of foreign direct investments including Japanese ones. Manufacturing for Bangladesh’s own large domestic market with a large and growing middle to higher income population segments would also be attractive for Japanese entrepreneurs. Both wholly foreign ownership and joint venture options with the private and public sector are open for Japanese and other foreign investors.
Up to 100 percent foreign ownership is freely permissible for FDIs in the industrial sector; FPI inflows are freely permitted in the local equity and bond markets. Post-tax profit or dividends earned by non-residents on that FDIs and FPIs are freely repatriable abroad including royalty/technical fee; disinvestment proceeds (at market value for listed companies and sale proceeds of foreign equity in unlisted companies at fair value based assets, income and earnings trend instead solely at net asset value) along with capital gains are like-wise also freely repatriable. Capital gains are free of income tax. Import tariff waivers/concessions on capital goods and serviced industrial zones are available for foreign and local investors.
Recent new facilitation include enhancement of family remittance ceiling for expatriates to 75% of their salaries. Taka term loan from the domestic market and working capital financing in foreign currency from parent company are also now permissible for foreign owned/controlled companies engaged in manufacturing or services output activities in Bangladesh.
As Japanese businesses are looking towards new investment destinations and as Bangladesh authorities are eager and willing to facilitate Japanese investments as part of the look East re-orientation of trade and investment promotion,
I would earnestly welcome and urge the Japanese and Bangladeshi business leaders present here today to work together in taking full advantage of all the existing and new facilities and bring about a major new upturn in our bilateral trade and investment relationships. Bangladesh is one of the stablest economies in Asia and Pacific region and this MOU will further bolster our economic development process.
Governor, Bangladesh Bank
The relationship between Japan and Bangladesh is very old and time tested. Both the countries have been maintaining close association through economic and technical cooperation, cultural exchanges and mutual visits since the independence of Bangladesh in 1972. We Bangladeshis are sincerely grateful for Japan’s generosity of prompt support response in all natural and humanitarian disasters we faced, including their great solidarity and support during our difficult days of 1971, as also for her equally generous official grant and concessional financing support for our economic and social development. But even now growth of trade and investment relationships between businesses in Japan and Bangladesh have remained sluggish and far below the potential. Japanese FDI inflows into Bangladesh remain small, under USD 100 million in 2013 even after more than trebling from the preceding year’s figure and until September 2014 Japan shares only 6.87% of total FDI inflows in Bangladesh. Japan ranks 10th amounting outstanding FDI of only $292 million as on end of September, 2014. However, the trend is positive and hope this will accelerate further. It may also be noted here that Japanese ODA support for Bangladesh’s infrastructure and manufacturing sector development has been impressive. In particular, Japan’s support for SME sector including special support for retrofitting of small and medium textile factories immediately after Rana Plaza tragedy speaks a volume about the depth of Japan-Bangladesh friendship.
The world Investment Report released recently by UNCTAD shows Bangladesh is placed as a second fovoured investment destination in South Asia after India. Inflows of FDI into Bangladesh rose 24 percent to US$ 1.6 billion. Net foreign portfolio investment shot up 111 percent in last fiscal. Government has approved the country’s biggest ever investment project of $4.5 billion to set up a coal-fired power plant. The 1,200 megawatt power project is by far the largest of its kind in the world. Japan International Cooperation Agency (JICA) will provide $3.8 billion as soft loan for the project. Though it will take till 2023 for full installation of the power plant, the plant would be able to start generating 600 MW electricity by 2018.
According to a recent survey (2014) by JETRO, New Delhi, it appears that business in Bangladesh has better cost and profit advantages than many other countries, as cost of production in Bangladesh is the lowest in the world. Bangladesh is ahead of Myanmar, Cambodia, Vietnam, Philippines and India in ease of procurement of local materials and parts. Operating profit of Japanese firms in Bangladesh is supposed to increase by 67 percent in the next year. I am happy to learn that currently, 200 Japanese companies are operating in Bangladesh: 50% in RMG sector and 70-80 % of them are SMEs. Recently, Japan has been increasing her investment in Bangladesh by establishing various production and assembly plant in Bangladesh e.g. motor cycle (Honda) assembling factory, Ajinomoto tasting salt factory, Omoron healthcare equipment supplier company. The Honda motorcycle assembly plant launched in Gazipur in December 2013 is expected to substantially reduce motorcycle imports and make them more affordable; Honda shared 70% of total Tk. 610m ($7.9m) investment.
There are growing market interest for the Japanese investors in Bangladesh. NEC has a branch here with local people to expand their business in power sector and infrastructure where as Mitsubishi and Toshiba are more interested in supplying heavy equipments. Potential Japanese investors also want to put their footprints in diverse ICT sectors of Bangladesh. We deeply appreciate Japan’s eagerness in helping Bangladesh get into the RCEP. Bangladesh’s inclusion in this regional value chain will be to our mutual advantage; with Japanese businesses using Bangladesh as a cost efficient manufacturing base for such items as automobile parts, electrical and electronic goods, apparels and various other consumer goods.
Countrywide chains of job oriented vocational training in Bangladesh are continually adding into her large pool of semiskilled manpower whose skills are further upgradable easily with some hands on training in actual job environment. Tech savvy young science and technology graduates are also coming out of our universities in large numbers every year.
Japanese investors in Bangladesh can hire from these manpower pools at much lower cost than elsewhere. Besides scope for cost efficient labor intensive manufacturing, there are ample opportunities for big ticket Japanese investments in Bangladesh in areas like energy, development of deep sea port, LNG storage terminals and other physical infrastructure, tourism, tertiary healthcare and so forth.
Bangladesh has a vibrant SME light engineering sector that Japanese automakers and machine builders can take advantage of with orders for parts and spares. Manufacture of solar PV panels, energy efficient LED lamps, TVs, computer monitors and other electrical and electronic appliances are also likely to be cost efficient.
Japanese businesses would also find Bangladesh attractive as an outsourcing destination for software development and other IT enabled back office services. Relocation of export manufacturing units in Bangladesh will give Japanese businesses the advantage of favored access to many advanced economy markets, besides cost efficiency. Our government has already promised a sizable new Special Economic Zones (SEZ) in Chittagong specifically for Japanese investors, and is further considering a generous set of incentives for investors in SEZs including time bound full and partial waivers on tax/vat/stamp duty etc. The depth of economic relationship between the two countries has leaped forward since the visits of two of our Prime Ministers. I also visited Japan a few days earlier of the visit of our Prime Minister and was deeply impressed by the warmth of goodwill amongst Japanese investors, policy makers, regulator and ordinary people for Bangladesh’s development efforts.
Let me now focus on the liberalization of regulations that we have rolled out keeping in mind higher flow of foreign direct investments including Japanese ones. Manufacturing for Bangladesh’s own large domestic market with a large and growing middle to higher income population segments would also be attractive for Japanese entrepreneurs. Both wholly foreign ownership and joint venture options with the private and public sector are open for Japanese and other foreign investors.
Up to 100 percent foreign ownership is freely permissible for FDIs in the industrial sector; FPI inflows are freely permitted in the local equity and bond markets. Post-tax profit or dividends earned by non-residents on that FDIs and FPIs are freely repatriable abroad including royalty/technical fee; disinvestment proceeds (at market value for listed companies and sale proceeds of foreign equity in unlisted companies at fair value based assets, income and earnings trend instead solely at net asset value) along with capital gains are like-wise also freely repatriable. Capital gains are free of income tax. Import tariff waivers/concessions on capital goods and serviced industrial zones are available for foreign and local investors.
Recent new facilitation include enhancement of family remittance ceiling for expatriates to 75% of their salaries. Taka term loan from the domestic market and working capital financing in foreign currency from parent company are also now permissible for foreign owned/controlled companies engaged in manufacturing or services output activities in Bangladesh.
As Japanese businesses are looking towards new investment destinations and as Bangladesh authorities are eager and willing to facilitate Japanese investments as part of the look East re-orientation of trade and investment promotion,
I would earnestly welcome and urge the Japanese and Bangladeshi business leaders present here today to work together in taking full advantage of all the existing and new facilities and bring about a major new upturn in our bilateral trade and investment relationships. Bangladesh is one of the stablest economies in Asia and Pacific region and this MOU will further bolster our economic development process.
