Govt plans to allow exporters to invest abroad

Highlights:

• 20% of five-year average annual export earnings can be invested
• At least 30% Bangladeshi manpower should be employed
• No investment scope for loan defaulters, duty-tax evaders

The government is going to award the local exporters a big opportunity to invest abroad subject to an adequate balance in their export retention quota – a portion of export earnings they have saved as foreign currency.

An exporter will be able to invest, in the form of equity, an amount which is the lowest between the 20% of his five-year average annual export earnings and the 25% of the net assets shown in the latest audited annual financial report.

The Bangladesh Bank has drafted rules under the foreign exchange control law to facilitate exporters to invest abroad.

The Financial Institutions Division (FID) on Tuesday published, on its website, a copy of the draft signed by Deputy Governor Ahmed Jamal after the central bank sent it to the finance ministry.

Officials of the Bangladesh Bank will hold a meeting today, with FID Senior Secretary Md Ashadul Islam in the chair, on the draft rules titled "Capital Account Transaction (Overseas Equity Investment) Rules, 2020".

Shafiul Islam Mohiuddin, former president of the Federation of Bangladesh Chambers of Commerce and Industry, told The Business Standard that Bangladesh is now a $374-billion economy – the 34th largest in the world. Therefore, the country's businessmen must have an opportunity to invest abroad within the rules and regulations.

He said a textile trader can invest in a spinning mill of a cotton-producing country and power companies can buy coal mines abroad. If Bangladeshi businessmen are given the opportunity to invest abroad under the rules, money laundering from the country will shrink.

Bangladesh Bank officials said there is no law on foreign investments by Bangladeshis. If an interested businessman applies to the Bangladesh Bank for investing abroad, it is sent to the Cabinet Committee on Economic Affairs for approval. With the committee's approval, the central bank allows him to invest abroad, but subject to various conditions.

Since 2013, the Bangladesh Bank has given 8 Bangladeshi companies an opportunity to invest abroad. Among them is DBL Group in the readymade garments sector, which has factories in Ethiopia.

In addition, Mobil Jamuna has been allowed to invest in Myanmar while ACI Healthcare and Square Pharma in the United States, Incepta Pharmaceuticals in the United Kingdom and Estonia, BSRM Steel in Kenya and Spectrum Engineering in Singapore. Last month, the government approved Akij Group to invest $20 million to acquire two factories in Malaysia.

Ha-Meem Group is interested in investing in a garment factory in Haiti while Nitol-Niloy Group in a Gambia bank, Summit Group in a shipyard in Singapore, Meghna Group in Cambodia and Pran-RFL Group in India.

According to Bangladesh Bank officials, even if the rules are issued, interested traders will have to apply to the central bank which will initially allow only exporters to invest abroad from the retention quota in compliance with these rules.

However, the central bank will be able to order the repatriation of the entire amount by cancelling the approval if the conditions of the rules are violated.

The draft rules state that exporters with adequate status in the export retention quota will be considered suitable for investment abroad. The intending organisation will have to be financially sound as per the audited statement of five years.

It will have to submit a certificate endorsing that it has no defaulted loans or uncoordinated large debt. A certificate of payment of all kinds of duty, VAT or tax must also be given. The credit rating of the applicant should be at least 2 issued by the Bangladesh Bank based on the mapping prescribed in the Basel-III policy.

The draft further says the applicant organisation should have skilled and experienced manpower in conducting international business, financing and investing. In addition to ensuring a possibility of earning foreign currency in the future, it should make an opportunity to increase exports from Bangladesh and create employment for Bangladeshis abroad.

According to the draft, investments can be made in countries with which Bangladesh has agreements for bilateral capital investment, development, expansion and conservation, and with which Bangladesh has dual tax avoidance agreements.

However, investments cannot be made in countries where the United Nations, the European Union and the Office of Foreign Assets Control have restrictions.

It has also been said that, in the case of equity investments abroad and for the acquisition of the company, the proposed partner must hold the required shares to control the entire ownership or management of the company.

Proceeds from investment abroad, dividends or sale of shares cannot be reinvested without prior approval of the Bangladesh Bank. All receivables due from affiliates located abroad – dividends, salaries, royalties, consultancy fees, commissions, etc – must be repatriated within 90 days of receipt or within the period prescribed by the Bangladesh Bank.

Besides, the number of Bangladeshi manpower in recruitment at all levels should be at least 30%.

In case of a fund misuse, the Bangladesh Bank will be able to order repatriation of the entire amount sent for investment.

Failure to repatriate the money will be considered as a money laundering offence, and the proprietor, director, chief executive or other officials of the applicant organisation will be punished under the Prevention of Money Laundering Act. At the same time, the Bangladesh Bank will collect the same amount of investments abroad from them.