Why domestic firms' overseas investments send back so little

While Bangladeshi enterprises have been allowed to make direct investments abroad, the incomes are insignificant and the country's dividends seem minimal.

After analysing Bangladesh Bank data and talking with investors, The Business Standard found that most business ventures are losing money while income-generating ones are unwilling to repatriate money as they want to increase share capital abroad. Some companies have also taken loans from foreign sources who are not bringing in dividends. Some firms also open foreign offices to operate as export agents and use the income to run their businesses there.

Some of the money-losing ventures have wound up their operations.

The central bank permitted outbound investment of a total of $400 million, or equivalent to nearly Tk4,000 crore, in foreign economies in the past 22 years since 2000, according to central bank data.

Of the total, $229 million was equity investment, $60.89 million was reinvested earnings, and $110 million inter-company loans.

However, the return looks insignificant against the investment. For instance, in 2022, only $12.13 million – equivalent to nearly Tk134 crore – returned home from investments abroad.

Of the returned amount that year, a major part came from Nepal as IFIC Bank sold its entire 40.41% holding of Nepal Bangladesh Bank. Some portions also came from China and the UK, according to the Bangladesh Bank data.

The Bangladesh Bank has so far allowed 18 local businesses for outbound investment but returns from those companies are modest.

This is because most of their business ventures are losing money while income-generating ones are unwilling to repatriate money as they want to increase share capital abroad, The Business Standard found after analysing the BB report and talking with investors.

Six commercial banks that were allowed to set up subsidiaries abroad have sent small amounts back home, central bank data shows.

For instance, Bangladesh received only $2.98 million, or nearly Tk26 crore, in 2021. This amount was generated from the subsidiary operations of banks.

Investors and destinations

Outward investment by Bangladeshi firms started to increase significantly after the government in 2015 allowed the facility for export-related enterprises by amending the Foreign Exchange Regulation Act, 1947, by adding a conditional provision.

Besides, some business firms were permitted to invest abroad in 2000 on a small scale on special consideration by the central bank.

Now Bangladeshi companies invest in 20 countries, according to the report titled "Foreign Direct Investment and External Debt" for July-December 2022.

Bangladeshi firms' top five destinations for investment are Hong Kong, India, Nepal, the UAE and the UK.

MJL was one of the first companies allowed to invest abroad. Though its operation closed in Myanmar, it has investment in Singapore.

Bangladesh received $19.46 million in 2020, which came from MJL Bangladesh as the company wound up its business operation in Myanmar.

Leading Bangladeshi apparel exporter DBL Group got permission to set up a garment factory in Ethiopia in 2016. However, the venture did not succeed due to the civil war in that country.

Summit Alliance Port Limited (SAPL) took permission from the Bangladesh Bank to form a company in India to manage three river terminals in Kolkata and Patna in 2015. The company is now generating income but yet to start bringing return in Bangladesh.

Osman Sajid, company secretary of SAPL, told TBS that they took permission for 1 lakh rupee as share capital to form a company in India. The company took part in an international tender for the contract of terminals management and formed the company.

"Now, the company is generating income but is not returning earnings as it is planning to increase the share capital by reinvesting," he said.

Pran Group was permitted to invest in India in the year 2021 but is yet to start the operation, according to company insiders.

Besides, Square Pharmaceuticals got permission to set up business in Kenya in 2017 and the company is expected to start bringing dividends next year, according to central bank officials.

Why some unwilling to bring dividend

Talking to TBS, a top executive of the Bangladesh Bank, who is involved with the relevant department of allowing outbound investment, said most business firms took permission for setting up offices abroad.

"Equity investment abroad is very small. As a result, the overall outbound investment figure is small," he mentioned.

Besides, businesses investing abroad often secure funding through loans from foreign sources, either by partnering with foreign companies or obtaining guarantees from parent companies or banks for foreign-sourced loans to support their operations, he mentioned.

However, another option many companies follow to build resources in foreign countries is retaining export proceeds, the banker added.

He said local business firms open offices abroad to use it as an export agent. Local firms export via that company and earn commission which is used for running business abroad.

"For example, a local company will sell its goods to its subsidiary in India at Tk8 and that subsidiary will sell goods to the ultimate buyer at Tk12. In this process, the foreign subsidiary of the local company will earn Tk4," he said.

In this way, the country is being deprived from real export earnings, he noted.

Indirect dividend

Nevertheless, the central bank official said, a positive aspect is that these companies are gaining technical knowledge by operating abroad. For instance, Summit Group invested in the power sector in Bangladesh through its Singapore-based Summit Power International (SPIL).

Besides, Hong Kong is a major destination for investment as Bangladeshi firms have agent offices there to hunt buyers, he said. "As a result, though, there is no direct return but indirect dividend is huge."

Moreover, local companies operating abroad hire many Bangladeshis for their business operations, contributing to remittance earnings.

Citing the example of commercial banks' subsidiary operations abroad, the official said, although some banks are in loss, they are contributing to bring remittance through banking channels.

"If those banks were not allowed to operate abroad, remittance would come through hundi. In this process, outbound investment is giving indirect return to the country," he explained.

The banker further mentioned that it is not mandatory to bring earnings in Bangladesh when a company is registered abroad. The matter depends on the host country.

Md Ali Hossain Prodhania, supernumerary professor at the Bangladesh Institute of Bank Management, said outbound investment should be allowed considering its indirect dividend.

Sharing his experience at Agrani Bank, where he was deputy managing director, Prodhania said the bank was allowed to invest $200,000 in Singapore in 2001 to set up an exchange house which later annually brought $500 million to $600 million remittances. "This is how the bank is providing indirect return to Bangladesh."