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Introduction
The Board of Investment (BOI) was established in 1989 by the Investment Board
Act to encourage investment in private sector, to identify the hindrance of investment and
provide necessary facilities and assistance in the establishment of industries. The wide
range of services BOI provides includes investment promotion and facilitation covering
support, suggestion and aftercare support to the investors. The prime vision of BOI is to
promote domestic and foreign investment as well to enhance international
competitiveness of Bangladesh and contribute to overall social and economic
development of Bangladesh.
To identify the problem of FDI & prescribe some issues for their solution.
Sources of Information
Throughout the report I presented historical background of the flow of FDI and to
get insight about the possible changes in the coming years. I have gathered information
and data relevant to this analysis from several sources. The collected data are highlighted
in the tabular analysis and trend analysis. This analysis helps me to know about the
movement of FDI flow over the year. I also tried to find out the possible causes and
factors that shaped the trend line of the flow. In a particular year the flow is upward
moving at another time this is downward moving. So what is the reason behind that is the
objective of the study as a whole. The analysis of the report is supported by some
theoretical arguments that enhance the overall findings and guide towards a reasonable
recommendation.
Investment does not confirm what the Bangladesh bank published and vice versa. On the
other hand the recording of FDI data is almost a new concept in our country.
Investment Status: The present democratic government concentrates on more local &
foreign investments in oil, gas, cement, infrastructure, textile sectors of Bangladesh to
face the challenges of the twenty first century. Though prospects are there in Bangladesh,
due to insufficiency of capital & technology greater investment is no taking place.
However the recent trends o administrative, banking and infrastructure reform process,
low rate of inflation compared to the neighboring countries( in Pakistan 11.2%, in India
8.5%, Srilanka 16.7 % and Bangladesh 5%) and separate export processing zones are
some of the indicators of the countries development process. That may help in attracting
local and foreign investors from developed countries.
Besides, the most important tasks is to revive the rural economy so that the
migration of rural people will come down, because a country like Bangladesh has poor
resources to meet the bargaining demand of the citizens already settled in the urban areas.
All Bangladeshi products (other than armaments) enjoy complete duty and quota
free access to EU, Japan, Canada, Australia and most other developed countries.
Bilateral agreements to avoid double taxation have been signed with 28 countries
with a further nine countries under negotiation.
The Foreign Private Investment (Promotion & Protection) Act 1980 provides
protection for investments made in Bangladesh.
59.3 % of the population are economically active (15 years and over).
Thousands of Bangladeshis who have wide work experience abroad add to the
national reservoir of skill.
Yet our second language, English, is widely spoken, understood and written.
Bangladesh offers a most liberal FDI regime in South Asia, with no prior approval
requirements or limits on equity participation and repatriation of profits and
income in most sectors.
Bangladesh enjoys tariff-free access to the EU, Canada, Australia and Japan.
Bangladesh is the top manufactured products exporter to the least developed
countries as well as to Europe, with more than 50% market share.
Bangladesh offers a truly low competitive cost base. Wages and salaries are still
lowest in the region, a strong business advantage. Yet this is an increasingly well
educated, adaptive and peaceful population with many skilled workers.
Dhaka's skilled labor cost base is still less than the other major cities.
Dhaka's management grades are 2-3 times less than in Singapore, Shanghai, and
Bangkok.
Industrial estate rent in Dhaka is cost effective than Shanghai, Jakarta, Bangkok
Office rents are also very competitive with other international cities.
Dhaka's housing rent for foreigners are less expensive than Singapore, Mumbai,
Karachi, Hanoi.
Cost of diesel in Dhaka is found to be more competitively priced than most other
large cities.
Tax holidays :
o
In the Dhaka & Chittagong Divisions: 100% in first two years: 50% in the
year three and four: and 25% in the year five.
Depreciation allowances :
o
90% loans against letters of credit and funds for export promotion.
Cash incentives and export subsidies are granted on the FOB value of
selected exports ranging from 5% to 20% on selected products.
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Country promotion.
Sector/industry promotions.
Investment Facilitation
Facilitating utility connections (electricity, gas, water & sewerage, telecom etc.).
Policy Advocacy
Assisting the government in framing new policies for private sector development.
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Organization Structure
Sl.Position
1. Chairperson
Vice
2.
Chairperson
Sheikh Hasina
Honble Prime Minister
Dilip Barua
Honble Minister
Ministry of Industries
Abul Maal Abdul Muhit
3. Member
Honble Minister
Ministry of Finance
Honble Minister
Ministry of Textiles & Jute
6. Member
Honble Minister
Ministry of Planning
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Sl.Position
7. Member
Honble Minister
Ministry of Expatriates Welfare and Overseas
Employment
Col. (Retd) Faruk Khan
8. Member
Honble Minister
Ministry of Civil Aviation and Tourism
Honble Minister
Ministry of Foreign Affairs
Architect Yeafesh Osman
10.Member
11.Member
Governor
Bangladesh Bank
Secretary
Ministry of Industries
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Sl.Position
14.Member
Secretary
Ministry of Finance
Secretary-in-Charge
Internal Resources Division
A. T. M. Waziullah
17.Member
MemberSecretary
18.
President
Bangladesh Chamber of Industries (BCI)
14
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Bangladesh offers the most liberal FDI regime in South Asia, allowing 100%
foreign equity with unrestricted exit policy, easy remittance of royalty, and repatriation of
profits and incomes.
7. Positive Climate
A largely homogeneous society with people living in harmony irrespective of race
and religion, Bangladesh is a democratic country enjoying broad bi-partisan political
support for private investment. The legal and policy framework for business is conducive
to foreign investment. For detailed about legal infrastructure of Bangladesh please visit
Business Laws.
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3. EPZ-Dhaka
4. EPZ-Mongla
5. EPZ-Uttara
6. EPZ-Ishwardi
7. EPZ-Comilla
8. EPZ-Karnaphuli
If you are interested in setting up your business in an EPZ, the Board of Investment
will be pleased to advise you and introduce you to BEPZA.
st
nd
rd
th
100%
50%
25%
17
18
Foreign Direct Investment is one of the vital forces to boost up the economy. In
this project report I would like to draw a current scenario of Foreign Direct Investment in
Bangladesh. In this regard I present the most updated data, avoid the uncompleted data
and use the best judgment at the time of presenting the data to better knowing the current
trend about the Foreign Direct Investment in Bangladesh. Foreign Direct Investment
(FDI) has played a key role in the modernisation of the Bangladesh economy for the last
15 years. Foreign Direct Investment (FDI) is the acquisition of managerial control by a
citizen or corporation of a home nation over a corporation of some other host nation.
Corporations that widely engage in FDI are called multinational companies, multinational
enterprises, or multinational corporations. FDI traditionally implies export of real capital
from home to the host nation, but even when economic investment results from FDI,
capital may not be transferred from the home nation to the host one. Rather, multinational
corporation may acquire/utilize real capital from local (or a third-nation) sources foreign
capital means capital invested in Bangladesh in any industrial undertaking by a citizen
of any foreign country or by a company incorporated outside Bangladesh. In the form of
foreign exchange, imported machinery and equipment, or in such other form as the
government may approve for the purpose of such investment; Bangladesh invites FDI for
industrial growth, in particular welcoming establishment of manufacturing firms and
service sector enterprises that would sell their products within the country and also export
outside it.
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20
Necessity of FDI
The world has seen a spectacular wave of global corporate activity particularly
during the second half of the last decade. This has been facilitated by advances made in
the information technology. This trend, strengthened with the direction toward border
less-Economies, is drawing more and more TNCs (Trans National Corporation) into the
global operation. FDI is no longer only a strategic option of corporations; it also plays a
key role in the national economic development strategies. Various countries are
attempting to attract foreign investors through a variety of measures, i.e. liberalization of
investment environment, fiscal reforms and a package of incentive offers. FDI can
transform a countrys economic scenario within shortest possible time. It is not merely
access to fund, but also provide transfer of technical know-how and management
expertise. It is also a stabilizing factor in any economy, because once TNCs have made an
asset-based direct investment, they can not simply pull out overnight like in the case of
portfolio investment. Normally the benefits accruable from FDI are inclusive of
(a) Transfer of technology to individual firms and technological spill-over to the wider
economy,
(b) Increased productive efficiency due to competition from multinational subsidiaries.
(c) Improvement in the quality of the factors of production including management in
other firms, not just the host firm.
(d) Benefits to the balance of payments through inflow of investment funds.
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22
Inflows of FDI
There was an inflow of $666m foreign direct investment in 2007 which raised
significantly in 2008 to $1086m. As of 2011, inflows of foreign direct investment
recorded to $1136.38m.
No. of Projects
Saudi Arabia
Australia
USA
Finland
India
South Korea
Malaysia
Netherlands
China
United Kingdom
Pakistan
Japan
Denmark
Sri Lanka
Canada
Taiwan
Singapore
Turkey
3
4
5
2
9
12
3
5
12
5
2
8
1
2
2
1
4
1
478.652
2.036
2.990
3.023
8.451
33.768
3.056
8.544
21.000
3.507
0.990
2.624
1.217
0.646
1.017
0.502
1.929
0.150
23
Greece
Italy
Hong Kong
Total
1
2
5
89
0.156
1.039
14.805
590.102
Best Facilities
Best Incentives
Best Promotion
Best Airport
Best Port
In the competition out of 700 Economic Zones globally 200 participated in the
competition. All the zones were evaluated on a 10 point scale on the basis of some set
criteria. Among the top 10 of the two categories Chittagong Export Processing Zone,
Bangladesh scored 3rd position in the Best Cost Effectiveness and also 4th position in
the Best Economic Potential for 2010-2011.
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25
Both FDI and private debt inflows in Bangladesh have largely financed imports of
machinery and equipment a sign that Bangladesh is only in the preliminary phase of FDI
flows.
FDI and debt inflows have not helped in augmenting foreign exchange reserves so far
and are not expected to do so over the next 10 years. In fact, as inflows grow so do
outflows in the medium- to long-term.
The benefits of FDI are many and worth harnessing. But the downside risks must not be
overlooked. The growing repayment obligation presents the prospects of net negative
transfers in the future and poses major challenges requiring the country to search for new
avenues of earning (or saving) additional foreign exchange. The benefits of FDI in terms
of physical capital formation, transfer of technology, and know-how are sufficient to
justify sustaining these flows. Capital controls are not the answer to a rising flow of FDI.
To ensure that resulting payments liabilities remain within the country s debt-servicing
capacity, it is essential to develop an effective non-intrusive reporting and monitoring
system the main ingredients of which are presented in the study.
1. Information Search
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Other sources of the Government of Bangladesh like Ministries and trade related
offices.
Chambers:
Chambers can provide real experiences of the existing investors. Among other chambers
following are some helpful chambers helpful to the foreign investors:
Associations:
International Organizations:
UN bodies like World Bank, UNCTAD, UNDP, WTO, IFC, MIGA, FIAS etc. and
other international organizations could also be a trustworthy source.
Consultants:
Websites:
A number of independent websites on Bangladesh hosted in different locations of the
world could be surfed from the Web. The keyword searching by 'Bangladesh Investment',
'Bangladesh Business', 'Bangladesh Profile', 'FDI Bangladesh' etc. would provide
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numerous results. To have more results, please search in different search engines like
Google, Yahoo and Lycos etc.
2. Physical Verification
Upon analysis of the collected information and initial decision to move forward, the
investor requires to visit Bangladesh to have physical verification. He could either visit
independently or ask LEIC or the partner to arrange the visit.
Immigration Procedures
Business travellers may request for visas with year duration and multiple entries.
Bangladesh issues following categories of business visas:
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The foreign investors are identified on the basis of certification from Board of
Investment (BOI)/ BEPZA / Ministry of Industries. Officials from the BOI are on
duty round-the-clock to facilitate certification of the relevant documents to get
VOA/LP.
The foreign businesspersons who are directly associated with import of Bangladeshi
products are identified on the basis of the certificate by the relevant associations of
export-oriented commercial/industrial organizations or the FBCCI or the BGMEA. The
certificate shall include Tax Identification Number (TIN) of the respective local
commercial/industrial organizations.
The conditions of issuing LP/VOA include following:
The LP/VOA Fee will be determined on Reciprocity Policy with the respective
countries.
The applicant shall utilize same port for entry and departure.
Limited Companies:
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Limits the number of its members to minimum 2 and maximum 50 excluding the
persons employed in the company
Prohibits any invitation to the public to subscribe for the shares or debentures of
the company
May issue invitation to the members of the public to subscribe the shares and
debentures of the company through a prospectus which complies with the
requirements of the Companies' Act 1994 and the Securities and Exchange
Commission Act 1993 as amended from time to time
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Registration Fees
31
Copies of Charter, statutes or MOA and AOA or other similar instrument. Duly
certified by Oath Commissioner or Notary Public and authenticated by
Bangladesh Embassy in the respective country.
32
Certificate of Incorporation.
Prescribed application form has to be collected from BOI Office or downloaded from
BOI website. Documents to be enclosed with the application are:
o
33
Venture Project (JVP), JVP Agreement duly signed in by both the parties. 2
(two) copies.
o
If the total project cost exceeds Tk. 50 (fifty) million, submit Project Profile 2
(two) copies.
After receiving the application duly filled in, signed and required documents
enclosed, BOI reviews the application and, if found suitable, Registration Certificate
is issued by 7 days.
3. Plant Setup
BOI registration makes the company eligible to avail the incentives and facilities
provided by the Government.
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The entrepreneurs of such projects are to fill up a simple prescribed application form and
submit to BOI for registration. After a first hand scrutiny of the information, BOI issues
registration letter.
If the total project cost exceeds Tk. 50 (fifty) million, submit Project Profile. 2
(two) copies.
After receiving the application duly filled in, signed and required documents
enclosed, BOI reviews the application and, if found suitable, Registration
Certificate is issued by 7 days.
BOI registration makes the company eligible to avail the incentives and facilities
provided by the Government.
Any individual entrepreneur either local or foreign can set up an industry with Public
Sector Corporation. Such joint venture is required to be registered with the BOI if the
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private sectors contribution is more than 50% of the project cost and in such case it is
treated as private sector project. For any public sector which makes contribution out of its
own fund needs approval of the concerned ministry. The public sector project is
processed by the concerned Ministry for approval of the Planning Commission.
Infrastructure and high involvement projects like power have been encouraged for publicprivate joint venture.
Obtaining Industrial Plot
Entrepreneurs requiring industrial plot for setting up of industry in any industrial
areas/estates apart form BEPZA and BSCIC, may apply to BOI as following with a view
to justifying actual requirement:
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37
Employment of foreign nationals is normally considered for the job for which
local experts / technicians are not available and persons below 18 years of age are
not eligible for employment.
Initially employment of any foreign national is considered for a team of one year
which may be extended on the basis of merit of the case.
For obtaining new Work Permit, the expatriate investors and employee must
arrive in Bangladesh with PI and E types visa respectively obtainable from
concerned Bangladesh Mission in abroad.
Application for Expatriate Work Permit must be submitted (List annexed in the
Appendix) to BOI within 15 (fifteen) days from the date of arrival.
Number of the expatriate employees in an industrial enterprise should not exceed 1:20
(foreign: local) ratio at any time during regular production and the ratio for commercial
enterprises be 1:5 (foreign: local).
Registering with Factoring Act
In order to regulate working conditions and to ensure safety in the factory, any
manufacturing company employing ten or more workers is required to be
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registered under the Factories Act, 1965 along with the office of the Chief
Inspector of Factories and Establishment (CIF&F).
The act is primarily to regulate working conditions and to ensure safety in the
factory.
Prescribed Application Form has to be collected from the office of the Chief Inspector of
Factories and Establishment, filled in and submitted with requirements. The CI&E office
issues registration within the stipulated period.
Registering with Environmental Legislation
The main criteria for obtaining clearance are set out in the Environment
Conservation Rules 1997 which was established under the Act.
Investors may apply in prescribed forms for Environmental Clearance Certificate to BOI
Utility Service cell (USC) enclosing required documents. The USC arranges necessary
clearances from the DOE within the stipulated period.
Remittance of Royalty, Technical Know-How and technical Assistance Fees
No prior permission of BOI is required for entering into agreements for remitting
fees for the purpose of royalty, technical know how and technical assistance if the
total fees and other expenses connected with technology transfer are within the
following prescribes limit:
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For new projects, such fees and other expenses should not exceed an
aggregate limit of 6% of the C&F value of imported machinery.
Recurrent annual fees for royalties and other expenses such as fees for
technical know-how, technical assistance, operational services, marketing
of products etc. should not exceed an aggregate limit of 6% of the
previous years sales of the firms as declared in the tax return.
Once the technical transfer agreement s falling within the above limits are signed,
these are required to be furnished to BOI for registration.
Proposals which are not covered under the prescribed limits require prior approval
of BOI for which application has to be submitted along with necessary documents
and copy of relevant agreement.
Prior approval/registration should be required from BOI for remitting any technical fees
by industrial concern registered with the BOI.
4. Commercial Operation
After completion of the setup, the plant goes into trial production.
Any changes in information provided in the registration letter have to be informed and
made approved by BOI immediately.
Local Investment
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Since the establishment of the Privatization Board in 1993 and thereafter the
Privatization Commission in 2000, 74 state owned enterprises (SOEs) have been
privatized. 54 were privatized through outright sale and 20 through offloading of shares.
The major sectors for privatization are jute, textiles, steel, engineering, sugar and food,
banking and financial institutions, fisheries and livestock, environment and forestry,
chemicals, telecommunications and tourism.
Industry
Trade
Agriculture
Construction
Services
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Proposed
Investment
Project
LocalProposed
Investment
ForeignTotal
Investment
ProposedGrowth %
BDT
Project
BDT
Project
BDT
2005-2006 1754
18370
135
24986
1889
43356
124.62
2006-2007 1930
19658
191
11925
2121
31583
-27.15
2007-2008 1615
19553
143
5433
1758
24986
-20.89
2008-2009 1336
17117
132
14749
1468
31867
27.54
42
2009-2010 1470
27414
160
6261
1630
33678
5.67
2010-2011 1298
39976
148
26935
1446
66912
98.71
497078
209
338910
1813
835989
212
2011-2012
1604
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Recommendation
Overcoming the barriers one can now look for the ways to overcoming the barriers to
FDI as we have mentioned above. Here, we would recommend following measures that
the authorities concerned might consider:
1. Ensuring good governance
Good governance denotes a desirable state of affairs and so is the key to success
of all the reforms. Political and bureaucratic accountability are the two principal
components of good governance, and without ensuring them, good governance is not
possible. Securing progress on this front is the highest priority as continued difficulties
pose a serious threat to the sustainability of even the development achieved already.
2. Accountability and transparency
Accountability and transparency continue to remain the twin elusive prerequisites
for the overall development of the country. Private sector investment and FDI inflow are
severely hindered by the administrative barriers that arise out of a lack of transparency
and accountability, which logically leads to inefficiency and corruption. Competence and
efficiency, which are both appallingly, lacking in the bureaucracy, will both become
achievable goals with the infusion of transparency in decision-making and governance.
3. Co-ordination among state agencies
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Without reducing the utter lack of co-ordination among the state agencies, the
services and functionaries cannot be efficient. Assuring proper co-ordination among
ministries, departments, regulatory bodies, and faster decision-making in the
implementation process will enhance the flow of investment.
4. Strengthening the regulatory authority
Government agencies responsible for facilitating investment need to be more
active. In this regard, full autonomy to the agencies like the central bank, investment
promotion agencies, telecom regulatory authority, energy regulatory authority, securities
and exchange commissions etc., is a prerequisite.
5. Rightsizing the government
The size of the state organs is quite large and thus mostly inefficient, unproductive
and hazardous. So, rightsizing the government is important. By reducing the number of
officials in the decision making process in various state organs, transparency and
accountability of bureaucracy can be established. Offering a reasonable compensation
package to the officials retained is also one of the key factors in ensuring transparency
and accountability.
6. Judicial and legal reforms
A sound judicial system, which is a must for good governance, is possible when
the judiciary can exercise its authority independently. In this regard, separation of the
judiciary from executive branch of the government is essential as influence of the
executive on the lower judiciary continues to be exercised. There is need for capacity
building in the judicial system in order to ensure speedy disposal of cases
7. Tackling corruption
Tackling corruption in banking, power, other state-owned enterprises and tax
administration ought to be an urgent priority. A comprehensive resolution of the
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corruption problem in banking, power and other state-owned enterprises will require
privatization along with independent regulatory bodies functioning in the public sector.
8. Fiscal reform
Regarding tax administration, reform option includes establishing an autonomous tax
institution with proper incentive and accountability. Countries of the region can learn
from the international experience of a number of countries including the Internal Revenue
Service of the USA.
9. Infrastructure reform
The main policy challenge is to redefine the role of public sector in infrastructure
development by gradually allowing the private sector to play a bigger role. Public
sectors role should be restricted to regulatory functions only. Mention may be made here
that, Bangladeshs existing Industrial Policy includes infrastructure as a thrust sector
acknowledging a lead role of the private sector supported by special incentives and the
Finance Minister of Bangladesh, in his 2002 budget speech, stressed the need for more
private sector participation in infrastructure development of the country.
Conclusion
In conclusion, it could be said that experiences referred to as above are based on
the same encountered in Bangladesh. But, these are more or less the same in other
countries of the region. If the respective governments do not take appropriate measures, it
would be difficult to attract the expected level of FDI. The policy regarding the foreign
direct investment should be clear and flexible and should contain some lucrative options
for foreign investors. This will certainly boast up the health of FDI in our country. Our
country is very much underdeveloped. In the context of an underdeveloped country the
role of FDI is very vital and essential. We do not have sufficient internal resources to
meet up the growing demand of increasing population at different aspect. As a result we
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have to rely greatly on FDI to accelerate our economic growth and to meet up the
demand.
Another point is credible and must have to note is the necessity of common
census of foreign direct investment. Only few months back the BOI and BB have
provided contradictory result regarding the FDI in our country. But there should not be
any discrepancy in regard to this. This figure represents the condition of the country and
should be accurate in nature.
References
1. http://www.assignmentpoint.com/business/finance/report-on-foreign-directinvestment-in-bangladesh.html
2. http://www.youngconsultants-bd.org/fdi_policy.php
3. http://www.boi.gov.bd/
4. http://www.pc.gov.bd/
5. http://www.epzbangladesh.org.bd/
6. http://www.betelco.com/bd/bdsbus/investmt.html
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7. http://www.sdnbd.org/sdi/statisticapocketbook/Chap01/0114.htm
8. http://www.thaibizbangladesh.net/investors_guide.php
9. http://www.bonshai.com/local_industry_permission.html
10.
http://profilebd.blogspot.com/2012/11/investment-in-bangladesh-through-
boi-bd.html
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