Independent University, Bangladesh

International Business
Course ID: INB 301
Section: 04
Semester: Autumn 2019
Topic: Foreign Companies Facing Investment Challenges in Bangladesh
Submitted To: Kazi Md. Jamshed
Date of Submission: 25th November, 2019

Name ID
Nishat Billah 1821561
Mst. Sadiya Sultana 1830893
MD. Amir Ahad 1830258
Samin Yeasir Safa 1830155
Syed Abdullah shahadat 1821618
Letter of transmittal

To,
Kazi Md. Jamshed
Faculty, International Business, INB301
Independent University Bangladesh (IUB)
Bashundhara, Dhaka.
Date: 25th November, 2019.
Subject: Submission of Report on Foreign Companies Facing Investment Challenges in
Bangladesh.

Dear Sir,
With due respect, it is our pleasure and honor to be your students and have this opportunity to
present a report on Foreign Companies Facing Investment Challenges in Bangladesh. While
preparing the report, we have given our all to best focus thoroughly on the topic of FDI. We have
provided all relevant information regarding this topic and we believe and hope that our report will
provide a clear conception about FDI. We all gave our best to accumulate required information
and we will be more than happy to answer any question and clarify it fully to your understanding.
Thank you for all your help and support which helped us significantly in preparing this report.

Sincerely yours,
Table of Content
Executive Summary
 Introduction

A Foreign direct investment (FDI) is an investment made by a firm or individual in one country
into business interests located in another country. An investor can make a foreign direct investment
by expanding their business in a foreign country. Amazon opening a new headquarters in
Vancouver, Canada would be an example of this. Business that make foreign direct investments
are often called multinational corporations (MNCs) or multinational enterprises (MNEs). An MNE
may make a direct investment by creating a new foreign enterprise, which is called a Greenfield
Investment, or by the acquisition of a foreign firm, either called an acquisition or Brownfield
Investment

In Bangladesh, Grameenphone is the leading provider of mobile telecommunication services.

Having started its operations in 1997, Grameenphone now provides voice, data and other value-
added services on prepaid and contract bases. Grameenphone has been a pioneer in bringing
innovative mobile-based solutions to Bangladesh. Notable among these are Healthline, a 24- hour
medical call centre manned by licensed physicians, GPay, used for electronic purchases of train
and lottery tickets, and Billpay, used for paying utility bills via mobile phones. GPay also allows
mobile-to-mobile fund transfers with certain handsets.
Regulatory

Government rules and Regulations:

The government's approval is mandatory. The company will have to file an application through
Foreign Investment Facilitation Portal, which facilitates single-window clearance. The application
is then forwarded to the respective ministry, which will approve/reject the application in
consultation with the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry
of Commerce. DPIIT will issue the Standard Operating Procedure (SOP) for processing of
applications under the existing FDI policy.

Governance of a country comprises economic and business policy and regulations such as taxation
system and tax rate, interest and Bank rate, drive against corruption etc. All this factors are related
with the cost business and profit. Foreign investors very consciously consider the governance of a
country to invest. An important aspect of governance is the ease with which investors can enter
and exit a market. It is and important determinant of productivity, investment and
entrepreneurship.

Tax Holiday (Income Tax):

Tax holiday facilities will be available for 5 or 7 years depending on the location of the industrial
enterprise. For industrial enterprises located in Dhaka and Chittagong Divisions (excluding Hill
Tract districts of Chittagong Division) the tax holiday facility is for 5 years while it is 7 years for
locations in Khulna, Sylhet, Barisal, and Rajshahi. Tax holiday facilities are provided in
accordance with existing laws. The period of tax holiday will be calculated from the month of
commencement of commercial production. Tax holiday certificate will be issued by NBR
(National Board of Revenue) for the total period within 90 days of submission of application.

Tax exemption:

100% tax exemption on income and capital gain for certain projects under Public Private
Partnership (PPP) for 10 years. 100% tax exemption from software development, Nationwide
Telecommunication Transmission.Network or Information Technology Enabled Services.
50% of income derived from export is exempted from tax
Tax exemption on royalties, technical knowhow and technical assistance fees and facilities for
their repatriation
Tax exemption on interest paid on foreign loan

Land Acquisition:

Access to land is a major issue for setting up Grammenphone in Bangladesh, and this factor is
rated as the second most important. In our field research interviews, all interviews responded that
the cost, availability, and difficulty in procuring land are some of the major concerns when making
investment choices in Bangladesh. Moreover, there are other sensitive issues, such as costly
litigation and ownership issues, as there are multiple titles of land ownership, which makes the
entire land acquisition process costly, time consuming, and risky. Additionally, when investors are
successful in acquiring large tracts of land in a suitable place, there are several pockets
the landowners do not want to give up and use them as a bargaining tool for raising prices, thus
creating additional costs for the investors. However, for some respondents, this was not a major
issue, as they have been provided with lease land from the government due to their strong
affiliations with the political process or had the recourse to make available their own private land
to complement the land acquisition process.

Ownership

Bangladesh welcomes foreign investors in any form and type. Except for the reserved sectors, the
number of which has declined over time and is currently only four, private-sector investment is
allowed in all activities, although it is discouraged in the RMG and financial industries. Investment
may be made either independently or through joint ventures.

There is no limitation on equity participation for foreign investment in Bangladesh. Foreign

participation is allowed up to 100 per cent under the existing laws in all areas except the four
reserved ones. Projects with foreign participation, whether fully owned or joint ventures, are not
required to secure prior approval. Joint ventures must register with the BOI or other authorities as
must fully owned ventures.

Obtaining industrial plot

Entrepreneurs requiring industrial plot for setting up of an industry in any industrial areas/estates
apart from BEPZA and BSCIC, may approach BOI mentioning the size of plot required by them
along with copies of sanction/registration letter and industrial layout plan for justifying actual
requirement. After receiving the application BOI provides assistance to get the industrial plot.

Most of the industrial areas/estates are owned/controlled by city development authorities in three
divisional headquarters, RAJUK in Dhaka, CDA in Chittagong and KDA in Khulna. Besides these,
there are a few industrial estates owned and controlled by some other government agencies namely,
(a) Public Works Department and (b) Housing and Settlement Directorate.

BOI also recommends for acquisition of land to the concerned authorities if required by the
industrial units. In such cases the entrepreneurs are required to submit relevant papers and
information in connection with the land to be acquired by the Deputy Commissioners (D.C.)
concerned.

Procedure of obtaining electricity, gas, water, and sewerage & telephone connection for industries
Entrepreneurs may apply either directly to the concerned authority for obtaining utility services or
approach BOI for assistance along with copy of registration/sanction letter.

Intellectual Property Rights

The Government recognizes the importance of intellectual property rights (IPRs) for attracting FDI
and is making efforts to update legislation and improve enforcement. The country has been a
member of the World Intellectual Property Organization (WIPO) since 1985 and signed the Paris
Convention on Intellectual Property in 1991.

The existing Bangladeshi legislation in this area, however, dates mostly from the period of British
rule and includes the Patent and Design Act of 1911, the Patent and Design Rule of 1933, the
Trademark Act of 1940 and the Copyright Ordinance of 1962. Draft legislation is currently
awaiting cabinet approval and will, if approved by the cabinet and passed by parliament, ensure
compliance with the WTO’s Agreement on Trade related Aspects of Intellectual Property (TRIPs).

No prior permission is required for entering into agreements for remitting fees for royalties,
technical know-how and technical assistance. Approval is automatically granted for remitting
these fees if the total of the fees and other expenses connected with technology licensing are within
the following limits: 1) for new projects, 6 per cent of the cost of imported machinery, and 2) for
established firms, 6 per cent of the previous year’s sales as declared in the firm’s tax return. Once
the agreements are signed, they are to be furnished to the BOI for registration. Proposals which
exceed the prescribed limits will require the prior approval of the BOI.

Transferring Technology

No permission is required for import of free list items. For items in the restricted list, BOI, BEPZA
and BSCIC are responsible for issuance of import entitlement. Import Registration Certificate will
be issued by the concerned authority in favor of the industrial enterprises within 30 days of
receiving applications. Items included in the banned list cannot be imported unless otherwise
specified. (Banned and Restricted list items are at Appendix-C & Appendix-D) In case of import
of raw and packing materials of the pharmaceutical industry, the Drugs Administration Directorate
under Ministry of Health & Family Welfare prepares Block Lists on half yearly basis.
BOI/BEPZA/BSCIC provides all other assistance relating to imports in the private sector in their
respective jurisdictions. In this connection procedure followed by BOI is as under:

On receipt of application in the prescribed form along with copies of (1) TIN certificate, (2) Trade
License, (3) Membership Certificate of relevant trade association/chamber, (4) Certificate from
the nominated bank regarding opening of account, (5) Incorporation Certificate, in case of limited
companies and (6) Letter of registration with BOI, necessary field inspection is done to determine
annual production capacity and half yearly/yearly import entitlement of raw & packing materials.

The entrepreneur is then advised to deposit IRC fees (on the basis of annual import entitlement)
by Treasury Challan to the Bangladesh Bank/Treasury. On receipt of the copy of treasury challan,
recommendation is referred to the office of the Chief Controller of Imports & Exports (CCI&E)
for issuance of ad-hoc IRC. The entrepreneur will then approach nominated bank for opening
Letters of Credit for import. After starting commercial production the entrepreneur may apply to
BOI for regularization of the ad-hoc import entitlement. On receipt of application for
regularization of the entitlement, utilization of ad-hoc import entitlement is verified through field
inspection and if found satisfactory BOI recommends to CCI&E for regularization. Import
entitlement may, however, be relaxed on verification of the actual requirement.
Obtaining work Permit

Work permit for foreign nationals is a pre-requisite for employment in Bangladesh. Private sector
industrial enterprises desiring to employ foreign nationals are required to apply in advance in the
prescribed form of BOI. For expatriate employment the guide-lines followed are:

 Nationals of the countries recognized by Bangladesh are considered for employment.

 Employment of expatriate personnel be considered only in industrial establishments which

are sanctioned/registered by the appropriate authority.

 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.

 Decision of the Board of Directors of the concerned company for new

employment/extension is to be furnished.

 Number of foreign employees should not exceed 5% of the total employees including top
management personnel.

 Initially employment of any foreign national is considered for a term of 2 years which is
extensible on the basis of merit of the case.

 Necessary security clearance by the Ministry of Home Affairs.

Environment-related Requirements
Investors need to conform to certain environmental safety standards to get clearance certificates
from the Department of the Environment (DOE). These include appropriate water-treatment
plants, air-pollution-controlling devices, noise-pollution and safety measures, et al. For example,
export-oriented shrimp factories need to conform to the HACCP requirements. The DOE has
classified industrial activities into three categories: ‘Green’, ‘Yellow ‘and ‘Red’, with the
environmental safety standards becoming stricter in ascending order. All project proposals must
include appropriate environmental impact assessment (EIA) and pollution -control measures.
Existing industries with possibly negative implications for the environment or public health will
be required to take corrective measures. No venture that poses a threat to wildlife is permitted.

Economic Growth and development

The country’s march towards materializing its vision ‘Digital Bangladesh’ has brought impressive
growth in the telecommunication and information technology sector. Bangladesh is now the eighth
largest mobile market in the world in terms of unique subscribers and the sector now contributes
almost 1.8% of total GDP. Two major telecom service offerings are “Voice Calls” and “Internet
Data” services. Revenue from voice calls still dominates the industry while contribution from data
revenue is growing exponentially since the launching of 3G in Bangladesh.

Demographics

 Population of 168 million and rapidly growing >1% per year.

 Comprising mostly of young population, 48% below 25 years of age.

Market size

The telecom industry in Bangladesh has scaled up rapidly over past decade having a total of
157 million active subscription and more than 85 million unique subscribers. The industry has
turned out to be fifth largest market in Asia Pacific Region, according to GSMA. Unique
 subscriber penetration in Bangladesh rose to almost 55% by 2018 from only 1% in 2003 due
to rapid adoption of telecommunication services.

However, about half of the entire population are yet to be connected with the mobile
telecommunication network, also indicating that there is enormous room to grow. The real
market penetration remained steady in the last three years as mandatory bio-metric SIM
reregistration has slowed down the pace of new customer acquisition.

Financial

Grameenphone became stock listed in November 2009, with, as at the date of this Base Prospectus,
the largest ever public offering in Bangladesh. It is listed on both the Dhaka and Chittagong Stock
Exchanges. As at 31 March 2017, Telenor held 55.8% of the shares in Grameenphone, while
Grameen Telecom, the other main shareholder, held 34.2%. The remaining 10% of the shares were
held by general retail and institutional investors.

As at 31 March 2017, Grameenphone had 60 million subscriptions, while the estimated mobile
penetration (SIM cards) and number of inhabitants in Bangladesh were 76% and 171 million,
respectively.

 Expanding middle class, GNI per capita of USD 1200.

 Stable inflation rate at 5.6% annuall and stable currency performance of approximately 84.50
TK per dollar.
 Largely a cash based economy

Political and Legal Information

GrameenPhone was established in Bangladesh during the time Awami League was ruling party in
Bangladesh. That time ruling government first for the first time gave private companies the licence
in telecommunication thus making easy for companies to enter.

According to BTRC one must acquire these licences to operate:

1 2G Cellular Mobile Telecom Operator

2 3G Cellular Mobile Telecom Operator

3 4G/LTE Cellular Mobile Telecom Operator

4 Mobile Number Portability Services (MNPS)

5 Broadband Wireless Access (BWA)

6 International Gateway (IGW) Services

7 Interconnection Exchange (ICX) Services

8 International Internet Gateway (IIG) Services

9 National Internet Exchange (NIX)

10 Call Centre

11 Nationwide Telecommunication Transmission Network (NTTN) Service Provider

12 Vehicle Tracking Services

13 Internet Protocol Telephony Service Provider(IPTSP)

14 Internet Service Provider(ISP) – Nationwide

15 Internet Service Provider(ISP) – Central Zone

16 Internet Service Provider(ISP) – Zonal

17 Internet Service Provider(ISP) – Category A

18 Internet Service Provider(ISP) – Category B

19 Internet Service Provider(ISP) – Category C

20 Public Switched Telephone Network (PSTN) Operator

21 International Terrestrial Cable (ITC) Services

22 VSAT User

23 VSAT Provider

24 VSAT Provider with HUB

25 Hosted Call Centre

26 Hosted Call Centre Service Provider

27 International Call Centre

28 VoIP Service Provider

29 Tower Sharing Licenses List

30 TVAS Registration Certificate

In 1997 the government was willing to give license to operators as they wanted new companies to
invest in Bangladesh, during the time they were welcomed with warm hands to invest here.

At that moment there was no Telecommunication company except City Cell and state owned
BTRC (Landline) the government was wanting new competitors to come in national market so
Telenor Group got their entry as soon as possible with full support but now if one new company
wants to enter the market it will have to go through a lot of bureaucratic delay because of these
many licences and also on the basis of corruption in Bangladesh there are 4 telecommunication
companies which made syndicate and formed a barrier for new companies to enter this market,
new companies may also lose interest due to these many licences and they would consume rather
they would acquire existing companies.

CORRUPTION

Corruption in Bangladesh has been a continuing problem. According to all major ranking
institutions, Bangladesh routinely finds itself among the most corrupt countries in the world.
Transparency International's 2017 Corruption Perception Index ranks the country 143rd place out
of 180 countries. The public sectors conducted by the Government are the most corrupt sectors
of the country.
Anti Corruption Commission is formed in 2004, but is considered to be largely ineffective in
investigating and preventing corruption because of governmental control over it.
POLITICAL STRUCTURE

The three major parties in Bangladesh are the Bangladesh Nationalist Party (BNP) and
Bangladesh Awami League and Jatiya Party. BNP finds its allies among some Islamist parties
like Jamaat-e-Islami Bangladesh while the Awami League aligns itself traditionally with leftist
and secularist parties. Another important player is the Jatiya Party, headed by former military
ruler Hossain Mohammad Ershad. The Awami League-BNP rivalry has been bitter and
punctuated by protests, violence and murder. Student politics is particularly strong in
Bangladesh, a legacy from the liberation movement era. Almost all parties have highly active
student wings, and students have been elected to the Parliament.

In 1997 the government was willing to give licence to operators as they wanted new companies
to invest in Bangladesh, during the time they were welcomed with warm hands to invest here.

At that moment there was no Telecommunication company except CityCell and state owned
BTRC (Landline) the government was wanting new competitors to come in national market so
Telenor Group got their entry as soon as possible with full support but now if one new company
wants to enter the market it will have to go through a lot of bureaucratic delay because of these
many licences and also on the basis of corruption in Bangladesh there are 4 telecommunication
companies which made syndicate and formed a barrier for new companies to enter this market,
new companies may also lose interest due to these many licences and they would consume rather
they would acquire existing companies.

Social Security of FDI

Petter B. Furberg, CEO of Grameenphone, said, “It is encouraging to see how Grameenphone
operations have made a significant impact in the social-economic growth of the people in
Bangladesh as well as on the key financial indicators of the country. As Grameenphone shifts its
focus on transforming the digital landscape in Bangladesh we expect to even greater social
empowerment and development. Telenor has committed to its journey in Bangladesh and we at
Grameenphone are proud to play a core part of this nation’s enlightenment
Foreign direct investment is especially well suited to effecting this transfer and translating it into
broad-based growth, not least by upgrading human capital. Growth is the single most important
factor in poverty reduction, so foreign direct investment is also central to achieving that important
World Bank goal. Government-led programs that improve social safety nets and explicitly
redistribute assets and income might direct more of the fruits of growth to the poor.

Attitudes to locals towards foreign investment

The comments came at a time when private investments, both by local and foreign entrepreneurs,
remained below expectation despite the government’s initiative WO researchers, Heiwai Tang &
Yifan Zhang, published a paper in 2017 examining the impact of multinational corporations on
women's employment in the manufacturing sector in China. They found that FDI has a positive
impact on women’s economic empowerment when it comes from more gender equal countries.
Specifically, their research showed that foreign invested firms from countries with more equal
culture, as measured by their score on the UNDP Gender Inequality Index (GII), tend to hire more
women and have more women managers.

During the liberation war in 1971 a nationalist weave emerged which gives Bangladeshis a spirit
of freedom and dignity of independence but it also results on more reserved position in case of
economic policy. Policy makers at that period used to see foreign companies access with a negative
eyes. Foreign investments were discouraged as a result foreign direct investment (FDI) inflow in
Bangladesh till 1980 is very insignificant. The growth of Bangladesh’s FDI inflow was around
US$ 308 – 356 million for long fifteen years (1980 – 1995) which started with an amount of US $
0.090 million in 1972. Afterwards this concept has been changed into a reverse position and
government start encouraging foreign direct investment from 1990s. A series of policy incentives,
investment sovereignty has been offered to the FDI investors including tax holiday for several
years, duty free facility for importing capital machinery, 100% foreign ownership, 100% profit
repatriation facility, reinvestment of profit or dividend as FD

Government Accountability to Its Citizens

Telenor Group recently unveiled its first Global Impact Report quantifying the socioeconomic
impact of the Group’s contributions in 13 markets across the world, including six in Asia with
Bangladesh being one of its major Asian markets

The increased role of FDI in developing and emerging economies has raised expectations about
its potential contribution to their development. FDI can bring significant benefits by creating high-
quality jobs and introducing modern production and management practices. And many
governments have developed policies to further promote inward FDI.

The increased visibility of social movements and citizens demands for well-functioning
governance over the last decade has been accompanied by an increase in transparency and
accountability initiatives (TAIs) in many countries. Driven by combinations of grassroots
organizations, transnational advocacy net-works, and international donors, these initiatives seek to
harness information and citizen participation to strengthen accountability from public officials.
They include citizen monitoring and oversight of public sector performance, access to and
dissemination of information, public complaint and grievance redress mechanisms, and citizen
participation in public decision making. TAIs are supported by the growing number, influence,
and range of “social intermediaries” (such as nongovernmental organizations, community-based
organizations, and the media), and they are backed by the availability of new modes of
communication (mobile phones, internet, and social media