Bangladesh's weak, slow legal system impedes foreign investment: US

Bangladesh's weak and slow legal system, which is widely believed to be corrupt, impedes foreign investment, says a report by the US State Department published today.

Furthermore, courts in Bangladesh have little ability to enforce their decisions and the country does not have a separate court division dedicated to commercial cases, says the report titled "2023 Investment Climate Statements: Bangladesh".

"The legal system lacks independence from the government, which directs judicial appointments. Other pillars of the justice system such as the police are also closely aligned with the ruling political party," the report says.

Local enterprises, mainly state-owned enterprises whose leadership is appointed by the government, tend to be favoured by the courts in business disputes, it adds.

The report mentions that four government agencies offer some streamlined services, but "corruption and excessive bureaucracy have held back the complete and effective rollout of the One Stop Service Act".

It further says inadequate infrastructure, limited financing instruments, bureaucratic delays, lax enforcement of labour laws, and corruption continue to hinder foreign investment.

However, Bangladesh has made gradual progress over the past decade in reducing some constraints on investment. But the full implementation of its foreign investment policies has yet to materialise, the US State Department observes.

"Regulations are often unclear, inconsistent, or not publicised, so it is hard to find the right channel to overcome problems such as protectionism and subsidies for certain industries."

Some investors have cited unclear regulations and lack of implementation as barriers to investment, the report says.

It says the Financial Reporting Act (2015) is followed inconsistently and the quality of financial reporting is uneven with some firms' financial reports audited to international standards while others have unreliable or multiple sets of accounting records. 

"Not all government budget documents are prepared to internationally accepted standards."

However, international firms with local offices in Bangladesh have been a positive influence in improving accounting practices, the report says.

It further states that the Bangladesh Competition Commission tasked with overseeing competition issues lacks sufficient resources to operate effectively. 

"Several US companies have experienced difficulties securing the incentives initially offered by the government. They reported that infrastructure guarantees (ranging from electricity to gas connections) were not fully delivered and tax exemptions were delayed," it says.  

Bangladesh is slowly bringing its  intellectual property rights legislation into compliance with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), it adds.

However, law enforcement agencies lack the training and resources to give appropriate attention to IPR complaints. Police are sometimes willing to investigate counterfeiters when informed, but are unlikely to initiate independent investigations, the report observes.

Capital markets in Bangladesh are developing and the financial sector remains highly dependent on bank lending, the US State Department says. 

However, foreign participation in the capital market remains low due to perceptions of corruption, limited liquidity for shares, and the lack of publicly available and reliable company information, it says.

It also criticises the floor price method in the market, saying, "Foreign investors dislike this policy because they cannot gauge the true price of a stock".

Foreign direct investment (FDI) in Bangladesh rose by 20.2% to $3.48 billion in 2022, the second highest in the country's history, according to Unctad's World Investment Report 2023.

As of 2022, the total FDI inward stock stood at $21.1 billion, said the report. The FDI in India was at $49.35 billion and Pakistan had $1.34 billion.

'Volatile politics'

The report also expresses fears that Bangladesh's political and security situation may become volatile as the country is nearing general elections.

The last election in December 2018 was marred by irregularities, violence, and intimidation, reads the report, adding, "Prime Minister Sheikh Hasina and her ruling party, the Awami League, adopted legislation and policies that diminished space for the political opposition, undermined judicial independence, and threatened freedom of the media and civil society."

The report says opposition party members, media, civil society, and members of religious minorities claim the Digital Security Act has been used by political leaders to harass them.