Properly harnessed, long-term foreign investment can bring important benefits to the Bangladesh economy. Bangladesh’s projected needs for investment in infrastructure for an expanding transport network and burgeoning urban centres cannot and need not be met from domestic resources alone. With improved economic management and a highly liberalized investment regime, and with strategic locational shifts in labor-intensive industries, Bangladesh could become an attractive destination for private capital flows over the next decade. This would be in addition to official bilateral and multilateral assistance to finance development projects. The investment climate of a country is very important determinant of the countries attractiveness to foreign investment. For the longer-term, FDI must be encouraged for the technology transfer and spillover effects from improved management and productivity. Low levels of FDI so far have meant that Bangladesh has missed out on positive technology spillover. FDI policy framework: During the Sixth Plan and beyond, foreign direct investment is encouraged in all industrial activities in Bangladesh excluding those on the list of reserved industries excluded on grounds of national security. Gas and electricity, roads, ports and telecommunications are priority areas for foreign capital.
Incentives to foreign investment. The government has liberalized its industrial and investment policies in recent years by reducing bureaucratic control over private investment and opening up many areas. Some of the major incentives are tax exemptions for power generation, import duty exemptions for export processing, an exemption of import duties for export oriented industries, and tax holidays for different industries. Double taxation can be avoided by foreign investors on the basis of bilateral agreements. Facilities for the full repatriation of invested capital, profit and dividend exist.
Strategic Actions
The Perspective Plan will consider the following strategic actions:
• A concerted and focused effort will have to be made during the Sixth and Seventh Plan to change the investment climate by giving high priority to constraints in infrastructure, regulatory framework, and policy environment.
• The general governance situation will be addressed. Efforts will be made to reduce cost of doing business to improve the country’s image and stimulate foreign investment.
• A special effort will be made to encourage regional investment in emerging and potentially high return sectors (e.g. software development and IT from India, electronics from China).
• A major effort will be made to establish a string of Special Economic Zones (SEZs) along international borders. This is designed to stimulate cross-border investments and trade, in line with the successful examples of China and Vietnam.
• The private sector will be encouraged to enter joint ventures and other forms of collaborative investment with NRBs and foreign partners in areas of high potential.