The Financial Express

Tapping MNCs' China exodus: Admin reform, increased incentives hold the key

| Updated: June 27, 2020 16:18:51

Evaly and Fianancial Express Evaly and Fianancial Express
Representational image: Cars jam a major thoroughfare at evening rush hour in the Central Business District in Beijing, China, April 07, 2020 — Reuters Representational image: Cars jam a major thoroughfare at evening rush hour in the Central Business District in Beijing, China, April 07, 2020 — Reuters

Bangladesh needs massive administrative reforms and provisions for increased incentives to leverage the shifting global supply chain, which is likely to move out of China.

Since many top multinational companies are set to relocate from China on the heel of US-China trade war and the Covid outbreak, the question of Bangladesh's preparedness for attracting a slice of this investment prospect has now come to the fore.

Talking to the FE, experts and interest groups made it clear that the problem with regard to policy implementation is thought to be Bangladesh's Achilles’ heel in attracting foreign direct investment or FDI.

Bangladesh needs to attract a considerable volume of FDI to attain the next fiscal's budget target of having private investment equivalent to 25 per cent of the GDP, though it is projected to remain at a very low level during the outgoing fiscal year.

Many countries, which were behind Bangladesh in the investment climate index a few years ago, are now ahead of the country due to their desperate attempt to woo overseas investors.

For example, in 2010, Bangladesh's ranking in the index was 118 while India's 139, much behind Bangladesh, and Vietnam's 90.

In 2019, Bangladesh slipped to the 168th position, whereas India jumped to the 63rd position and Vietnam to the 70th position.

Commenting on the issue, immediate past chairman of Bangladesh Investment Development Authority or BIDA Aminul Islam, who initiated many reforms, said that in the last one decade, Bangladesh has advanced a lot in liberalising the FDI regime, but the country's competitors have done even better.

Citing the example of poor policy implementation, he said while constructing a building, an investor requires 14 permissions.

"We had a series of meetings with the public works ministry and identified that 10 of the 14 steps were unnecessary. The then minister also agreed and instructed the RAJUK to allow the construction of an investor if he gets permission from only four agencies," he said.

"RAJUK told the minister that there were new guidelines but when we conducted a review in the field level we found that no investor was allowed to construct a building without all the 14 approvals."

This illustrates if policies, approved by the top level, are not implemented by the implementing bodies, things cannot be improved, he added.

Besides reform and infrastructure, the availability of skilled human resources is also crucial to attracting FDI, he said.

"Our competitors have more skilled manpower than us, so we have to concentrate on this issue too," Mr Islam added.

Talking to the FE over investment from the Middle East, Bangladesh ambassador in Saudi Arabia Golam Mosih also expressed his frustration over the slow processing of FDI proposals.

"A Saudi company that intended to invest in Bangladesh was forced to change the project site thrice and it is very discouraging," he added.

Bangladesh has been on the scanner of the global investors in recent times, economist Dr AB Mirza Azizul Islam said.

But from my experience, I want to say one thing very clearly, that is, foreign investors will not invest in a country where local investors are reluctant to invest," said Dr Islam, an economist who was at the helm of finance and commerce during a caretaker government.

Of late, private investment in the country has stagnated in terms of growth, he said, suggesting the improvement of governance that can better investment climate.

According to statistics, private investment has been hovering at around 23 per cent of GDP in the last five fiscals.

President of the American Chamber of Commerce, Bangladesh Syed Ershad Ahmed, however, felt the urgency of promoting Bangladesh abroad through vigorous economic diplomacy to attract FDI.

Foreign missions abroad should engage in a well-orchestrated effort to woo FDI, he said, but was disappointed by the poor performance of the diplomatic campaign.

Asked whether Bangladesh has failed in branding the country to attract FDI, planning minister MA Mannan said Bangladesh's image has been highly enhanced in the last one decade. "We have a liberal FDI policy, which is more attractive than many countries'. Now we are trying to gear up our missions abroad to be more focused on FDI and export promotion," he added.

Meanwhile, Indonesia and Vietnam have already managed to convince a significant number of foreign manufacturers about shifting their manufacturing units to their countries.

According to a recent report, Indonesia is clearing up 4,000 hectares of land in Central Java to accommodate US companies planning to relocate from China in the wake of the virus outbreak and an escalating trade war.

India has also started frantic efforts to attract the foreign companies to relocate their units to the neighbouring country.

India is seeking to lure US businesses, including medical devices giant Abbott Laboratories, to relocate from China as President Donald Trump's administration steps up efforts to blame Beijing for its role in the coronavirus pandemic.

In April, the Indian government reached out to more than 1,000 companies in the US through overseas missions to offer incentives for manufacturers seeking to move out of China, said a recent report of the Economic Times.

Out of the 690 Japanese companies registered in China, 34 have decided to relocate and they are in search of suitable locations and foreign ministry officials said that Bangladesh is also in the preference list of these 34 companies.

The Japanese government has recently declared a $2.2 billion dollar stimulus package for the companies who will switch elsewhere from China.

Bangladesh has formed two committees, one by the commerce ministry and one by the Prime Minister's Office, to explore the potentials, but the activities appear to have halted due to the coronavirus, an official said.

Talking to the FE, Paban Chowdhury, executive chairman of the Bangladesh Economic Zones Authority or BEZA, said that competitors like Vietnam have some added advantage like free trade agreements with several importing countries and improved infrastructure.

"We are also improving our infrastructure, but we need to concentrate on signing FTAs with more countries to lure foreign investors," he added.

Besides, "we have to offer better incentive package than others," he noted, adding that already the BEZA had submitted a revised incentive package for the consideration of the prime minister.

For instance, Indonesia has offered 100 per cent tax holiday for five years on investment above $7.0 million to $70 million.

BEZA's six- point package includes a blanket waiver for all machinery, other related goods instead of capital machinery only. "Currently we don't encourage importing old machinery. But now for the purpose of relocation many manufacturing plants might need to bring their already-used machinery. We should allow all sorts of machinery import by amending our Import Policy," the proposal said.

Industries, which will come to this G2G zones within 2023, can be offered 100 per cent corporate tax exemption for 10 years.

The proposal prescribed to extend the present 100 per cent tax exemption from three years to seven years for investment over $100 million. And investors will enjoy 10-year tax holiday if they invest $ 200 million dollars or more.

The new package also proposed to provide bond licence to the investing company once the project is cleared by the BEZA. They need to apply to the NBR separately for this.

It also offered a waiver of VAT on land lease and cash incentives for investors at the EPZ.

Presently, cash incentive is provided on the basis of ownership structure, but the new package suggests same incentives for all the investors.

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