Four firms get nod to invest abroad

Infographics: TBS

The Bangladesh Bank has given permission to four private business entities to invest $10 million in foreign countries, in a major leap forward for reining in capital flight alongside easing global marketing of local products. 

One of the permitted companies, Square Pharmaceuticals Limited, a subsidiary of Square Group, will invest $1 million in The Philippines, opening up an opportunity for the company to gain a foothold in the import-dependent $6 billion pharmaceutical market – the third largest in the Asean region. 

Without getting registered with the Food and Drug Administration of the Philippines, no companies with their own brands can directly market medicines in the destination. So, Square needs to resort to a third party for that. 

Mohammad Habibuzzaman, company secretary at Square Group, said the investment plan in the Philippines is in its infancy. They will establish a new company under the name of Square Pharmaceuticals Limited Philippines. The whole thing is now at an early stage.

Earlier, Square Pharmaceuticals Ltd, the domestic pharma giant, constructed its manufacturing plant in the Kenyan capital Nairobi at a cost of $17 million in 2017. All necessary infrastructure is also ready and the manufacturing will start soon.

Square looks to get hold of the $30 million drug market in Kenya and five other East African countries – Tanzania, Rwanda, Burundi, Uganda and South Sudan – and fulfil the unmet demands of medicines in those countries.

Renata Pharmaceuticals, is going to invest $2 million in Ireland as part of increasing the paid-up capital in its already established subsidiary. The approval for this equity investment will allow the drug-maker to sell its medicines directly instead of hiring a third party. 

Besides, Renata will also make an investment amounting to $5 million in the United Kingdom for the same target.

Seeking anonymity, a company official said, "We have already set up subsidiaries in the two countries to directly sell our manufactured drugs in the markets. But not having enough equities for business expansion, we have to have our sales done by a third party by paying 10%-30% commission."

Apart from the two drug makers, ACI Pharmaceuticals, with the central bank's permission on a case-to-case basis, invested $100 million in 2015 to grab a huge drug market in the United States. 

Earlier, in 2014, Incepta Pharmaceuticals was allowed to invest outside the country. The company was supposed to form a joint-venture company in Estonia initially. But the approval is the only thing they got out of the effort because of tough conditions imposed by the government.

Another company that secured the seal of approval is Bangladesh Steel Re-Rolling Mills Ltd (BSRM) will invest $0.5 million to enhance its paid-up capital in its existing subsidiary in Hong Kong.

Shekhar Ranjan Kar, chief financial officer at BSRM Group, said, "We have set up the subsidiary mainly to procure raw materials from China. But we could not do that because of low capital."

The barrier has now been removed as a result of equity investment approval. There is also an opportunity to export goods to those regions through this subsidy, he added.

In 2016, the Bangladesh Bank gave approval to BSRM for investing in the steel sector in Kenya. Subject to fulfilling some conditions, the company was permitted to invest $4.6 million from its balance in the export retention quota to build a factory in the country.

Besides, Colombia Garments Limited, a subsidiary of M&J Group - a leading global manufacturer specialised in jeans production, was given permission to invest $1,5 million in Hong Kong for procurement and business promotion.  

The companies that failed to secure approval are Sonargaon Seeds Crushing Mills Ltd, a subsidiary of Meghna Group of Industries and Bangladesh Venture Capital Limited.

The Sonargaon Seeds Crushing Mills wanted to invest $25,000 to set up a subsidiary in Singapore to expand its business, reduce risks in the supply chain, procure raw materials at affordable prices and deliver goods to customers at even lower prices.

In its application to the central bank for investment abroad, the company said the seed crushing company does not have its own Export Retention Quota Account. So, they want to take this investment in the name of Tasnim Chemical Company belonging to the same group. 

The mill started commercial operation in 2020, which has only one year of export experience.

On the other hand, Venture Capital Limited sought permission to invest $10,000 to acquire 0.85% stake in BrioAgro, a Spanish agro-tech based startup.  

On 27 January, the central bank in a gazette notification permitted Bangladeshi businesses to make overseas equity investments, subject to an adequate balance in their export retention quota (ERQ) – a portion of export earnings they have saved as foreign currency.

The number of Bangladeshi companies that have investments abroad now stands at 18, with a fresh permission to a new company - Colombia Garments Limited.

Performance of businesses abroad 

Sparrow Group, a Bangladeshi apparel exporter, invested in Jordan in 2007 by forming a joint venture company with one of the leading Indian garment manufacturers. 

Some 1600 Bangladeshi and 500 local people are now working in the factory with an annual turnover of $70 million. 

Akij Group, one of the leading private sector conglomerates in the country, took over a Malaysian company named Robin Resources for $20 million. The company fetched a good return from the investment. 

Sk Bashiruddin, managing director of Akij Group, said they did not face new challenges in running the business as they acquired an old company. The return on the equity investment is satisfactory. At present, more than 500 people are working in it.

In a bad example, the DBL Group set up a garment factory in Ethiopia's Tigray region to cash in on the country's duty-free access to the US market, low prices of land and cheap labour in 2018. 

But conflict in the region in 2020 forced them to bring back its workers from Ethiopia after closing the factory. A reopening is still uncertain as the country's civil war rages on.

In 2013, MJL Bangladesh Limited, as the first Bangladeshi company, formed a joint venture with a Myanmar-based petroleum company and invested $5.1 lakh in the neighbouring country. The company made good profit Initially.

But a few years later, MJL started facing losses owing to the increasing political unrest in Myanmar, frequent policy changes and lack of accountability. Eventually, the company came back home by closing down its business in 2020 after suffering a massive loss.