The central bank yesterday issued rules allowing local firms to invest in other countries in a major move towards capital liberalisation that will enhance the country’s export prospects and create jobs for Bangladeshis abroad.
The Bangladesh Bank has so far permitted 16 companies on a case-to-case basis to open subsidiaries in countries such as Malaysia, Singapore, Ethiopia, and Kenya. Since 2014, the BB has allowed them to invest $59.9 million abroad.
Now, businesses will be able to invest abroad 20 per cent of their average exports in the previous five years or 25 per cent of net asset values based on the latest audited reports, whichever is lower.
However, only export-oriented firms will be allowed to make the investment in other countries, according to a guideline, issued on January 16.
Exporters and economists welcomed the move.
In order to qualify, exporters will need to have an adequate balance in their export retention quota (ERQ) accounts, where entrepreneurs keep a portion of their export proceeds in foreign currencies.
Before giving any consent, the BB will take into consideration whether the potential foreign investments will give a boost to the country’s exports.
Prospective firms will have to have a specific proposal to employ workers from Bangladesh, according to the guideline.
Countries usually restrict the number of employees a firm can take in from other countries. In such a situation, firms will have to appoint the highest number of employees from Bangladesh following rules.
Companies have to be solvent financially as per their audited financial statements in the last five years and secure at least a credit rating grade of two in line with the guidelines on the risk-based capital adequacy drawn up by the BB.
No defaulter will be allowed to invest abroad.
Priorities will be given to the investment bids in the nations with which Bangladesh has bilateral treaties on investment and development.
Investment proposals aimed at the countries that have been slapped with sanctions or restrictions by the United Nations, the European Union and the Office of Foreign Assets Control of the US will not be entertained.
Investors seeking to do business in other countries identified as the destinations for illegal transactions by the Financial Action Task Force, a Paris-based intergovernmental body combating money laundering, will not get the permission as well.
Firms will have to take approval from the BB if they want to purchase or sell any portion of their shares from foreign companies and ensure the prices of the shares by appointing well-reputed investment banks or chartered accountant farms.
A nod from the BB will require if firms intend to go public in the host countries.
Companies will have to repatriate the money immediately to Bangladesh if they face liquidation or wrap up operations.
Firms will have to submit a certificate to the central bank, stating that they do not have any unsettled import payments and all documents related to the tax and VAT. In addition, the income tax certificate of the companies’ directors will have to be submitted.
There will be a scrutiny committee comprising 15 members. It will be led by the BB governor.
The committee will take advice from the government to give the final approval to a firm investing abroad. Any misuse of investment will be treated as money laundering.
Uzma Chowdhury, director for corporate finance of Pran-RFL Group, a top exporter, said now companies would be able to invest in other countries as per their capacity and need.
“A transparent policy on outward foreign investment was long overdue,” said Zahid Hussain, a former lead economist of the World Bank’s Dhaka office.
The policy intends to promote foreign equity investments that will enhance Bangladesh’s export prospects and create employment opportunities for Bangladeshi workers abroad, he said.
The guideline comes with a slew of conditions the investors must comply with. And these will need to be reconsidered in the light of how the investment process unfolds, he said.
Even though the BB appears to be in the driving seat of regulation, it is not clear how many stops the investors will have to go to in practice for clearances of all related transactions, he said.
“Just as we are trying to establish one-stop shops for domestic investment regulation, we should also have similar one-stop shops for regulating outward foreign direct investments.”
The authority appears to have opted in favour of a cautious approach to make sure that this limited liberalisation of capital account transactions does not create a balance of payment problem, Hossain said.
Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue, described the guideline as a time-befitting move.
The government would have to ensure returns from the investment, he said.
He urged the government to verify the sectors, companies or business environment of foreign companies to be teamed up with by local firms by taking reports from well-reputed global credit rating agencies into consideration.
He called the investment ceiling higher as the country does not have any experience in this field.
“The government should consider reducing the ceiling for the next two years.”
Moazzem warned that there had been many money-laundering cases and some influential groups might try to misuse the opportunity.
“The central bank should create a fund to inspect the foreign investments from time to time.”