ঠিণূ
Highlights:
- Bangladesh plans cash rewards for facilitating new foreign investments
- Incentives may range from 1% to 1.5% equity inflows
- Individuals, not institutions, eligible under strict registration rules
- Experts stress business reforms matter more than cash incentives
- Verification process involves multiple agencies to prevent misuse
- FDI inflows declined in 2024, prompting government action
The government is set to introduce a new incentive scheme, offering cash rewards of 1.5% to resident and non-resident Bangladeshis who facilitate fresh foreign direct investment (FDI) through equity inflows.
The “Foreign Investment (FDI) Incentive Scheme” aims to encourage a wider network of individuals to attract crucial foreign capital into the country.
To kickstart the initiative, an initial fund of $7.5 million will be created, representing 1.25% of the nearly $600 million in equity FDI that flowed into Bangladesh during the 2023–24 financial year.
Under the draft policy, individuals who secure a minimum of $1 million in fresh equity FDI will be eligible for a cash incentive.
However, the Finance Ministry has suggested a flat rate of 1% across all qualifying investments.
Bangladesh Investment Development Authority (Bida), which is finalising the draft, confirmed that this measure is designed to expand the country’s inflow of fresh equity capital.
Inspired by remittances and exports
Chowdhury Ashik Mahmud Bin Harun, Executive Chairman of Bida, stated that the scheme draws inspiration from successful cash support programmes for remittances and specific export sectors.
“We are trying to replicate the incentive idea from remittance and export earnings. We believe this will help boost fresh equity inflows into Bangladesh,” he told The Business Standard.
He added that the programme would encourage Bangladeshis to act as facilitators of foreign investment.
Nahian Rahman Rochi, Head of Business Development at Bida, indicated that the final policy could potentially raise the incentive rate to as high as 1.5%. He clarified that the scheme will exclusively apply to new equity investments, excluding additional shares purchased by existing shareholders or for capacity expansions. However, existing investors making investments in completely new sectors would be eligible.
The policy’s origins trace back to a Bida Governing Board meeting in June 2024, chaired by then-Prime Minister Sheikh Hasina, where the idea of exploring FDI incentives was first floated. A committee, led by Finance Adviser Salehuddin Ahmed, held its initial meeting later that month to lay the groundwork for the draft.
Rochi confirmed that the draft has been circulated to the central bank, the Finance Ministry, and other relevant agencies for their feedback. Bida anticipates finalising the policy and commencing implementation in the last quarter of this year.
He explained the rationale, saying, “Many Bangladeshis are connected with institutions abroad. The scheme is designed to encourage them to act as promotional agents and bring investment into the country, with the assurance of financial rewards.”
Expert concerns and business environment focus
While the initiative is welcomed, experts urge a realistic assessment of its potential impact. Zahid Hussain, former lead economist at the World Bank’s Dhaka office, stressed that any use of public funds for incentives must be based on a realistic evaluation of expected returns.
“It is also necessary to evaluate who would receive the incentives and what costs individuals might incur while acting as intermediaries to attract foreign investment,” he told The Business Standard.
He cautioned that studies on remittance incentives have not conclusively proven their effectiveness in increasing remittances, and further noted that in the case of FDI, “it is important to consider carefully who would benefit from taxpayers’ money as incentives.”
Mohammed Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association, emphasised that attracting FDI primarily requires ensuring a favourable business environment for both domestic and foreign investors.
“Simplifying business regulations is essential to achieve this,” he told TBS.
He asserted that incentives alone would not suffice, highlighting the need for efficient licence and approval processes through Bida’s one-stop service centre or the revenue board’s single window.
Investment in logistics and measures to reduce costs by streamlining port management are also crucial.
Hatem also pointed out challenges within the banking sector. “Currently, the biggest barrier to business is the banking sector. They continuously issue new policies.
While Bangladesh Bank’s rules may reflect global best practices, the government must consider whether the private sector can realistically adopt them. Otherwise, FDI cannot be attracted through incentives alone,” he added.
Eligibility criteria and verification
The draft policy strictly limits eligibility for incentives to individuals, excluding institutions.
Applicants must be Bangladeshi citizens with valid National ID (NID) cards or passports, including expatriates with e-TIN registration. Crucially, they must pre-register on the Bida portal before any investment takes place.
To prevent conflicts of interest, the policy mandates that intermediaries have no direct links with the investing company for two years before or after the investment. This will be verified through digital background checks and affidavits, with any proven violation leading to punitive measures against both the investor and the recipient company.
Applications for incentives must be submitted via the designated portal within 30 working days of the investment’s arrival in Bangladesh.
A verification committee, comprising representatives from Bida, Bangladesh Bank, the Ministry of Finance, the National Board of Revenue, and the Ministry of Home Affairs, will review applications.
Upon approval, Bangladesh Bank will disburse incentives in local currency directly to applicants’ bank accounts, with expatriates permitted to transfer the money abroad.
Fresh equity FDI refers to a foreign investor injecting new money directly into a company by purchasing newly issued shares, as opposed to acquiring existing shares from other shareholders.
Central bank data indicates a decline in Bangladesh’s net FDI, which fell to $1.27 billion in the 2024 calendar year, a 13.25% drop from $1.46 billion in 2023. Equity FDI also saw a decrease, reaching $545 million in 2024, down from $588 million the previous year.
