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ACKNOWLEDGEMENT We are very much indebted to Suborna Barua, Lecturer, Department of International Business, and University of Dhaka.

The supervisor of my project work for his continuous support and guidance. His valuable suggestions gave us the strength to complete the project. We owe my deepest gratitude to the Department of International Business, University of Dhaka Finally, we acknowledge the profound blessings and kindness of the Almighty. We would like to dedicate this project to our friends and family members who have given us the strength to build our career and life.

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Executive Summary:
In Bangladesh, FDI acts as key elements for economic growth in last two decades. Most of the industrial infrastructure, human skill development, large capacity of production of Bangladesh are based on Foreign Direct Investment (FDI). Foreign Direct Investment (FDI) also improves the the technological knowledge and managerial abilities and helping to integrate domestic economy to global economy .Bangladesh has many comparative advances to attract the Foreign Direct Investment (FDI) such as the availability to get skilled manpower and relatively stable macroeconomic environment. At the same time Bangladesh has many disadvantages in Foreign Direct Investment (FDI).but if the Bangladesh Government takes stapes, it would be a relatively better place for Foreign Direct Investment (FDI). Foreign Direct Investment (FDI) is an important way to achieve industrial development and growth .This study analyzes the Foreign Direct Investment (FDI) in Bangladesh, prospects and challenges and its impacts on the economy .as a developing country, Bangladesh needs more Foreign Direct Investment (FDI) for its industrial, social and economic development. To accelerate the development in this sectors the Government of Bangladesh trying to create more favorable environment for Foreign Direct Investment (FDI).for this the government has taken some stapes such as making favorable industrial policies, economic policies ,attracting foreign investors, reducing complexity and so on. Foreign Direct Investment (FDI) is a major economic tools that helps industrial development as well as the GDP growth, infrastructure and socio cultural development of the host country. It creates new opportunities for employments, high per capital income and more productivity that enhances the growth rate of the host country. bureaucratic

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Foreign Direct Investment (FDI) is an important way to achieve industrial development and growth .This study analyzes the Foreign Direct Investment (FDI) in Bangladesh, prospects and challenges and its impacts on the economy .as a developing country, Bangladesh needs more Foreign Direct Investment (FDI) for its industrial, social and economic development. To accelerate the development in this sectors the Government of Bangladesh trying to create more favorable environment for Foreign Direct Investment (FDI).for this the government has taken some stapes such as making favorable industrial policies, economic policies ,attracting foreign investors, reducing bureaucratic complexity and so on. Foreign Direct Investment (FDI) is a major economic tool that helps industrial development as well as the GDP growth, infrastructure and socio cultural development of the host country. It creates new opportunities for employments, high per capital income and more productivity that enhances the growth rate of the host country. In Bangladesh, FDI acts as key elements for economic growth in last two decades. Most of the industrial infrastructure, human skill development, large capacity of production of Bangladesh are based on Foreign Direct Investment (FDI). Foreign Direct Investment (FDI) also improves the the technological knowledge and managerial abilities and helping to integrate domestic economy to global economy .Bangladesh has many comparative advances to attract the Foreign Direct Investment (FDI) such as the availability to get skilled manpower and relatively stable macro economic environment. At the same time Bangladesh has many disadvantages in Foreign Direct Investment (FDI).but if the Bangladesh Government takes stapes, it would be a relatively better place for Foreign Direct Investment (FDI). In 1980s, Bangladesh has very little Foreign Direct Investment (FDI). That focused in banking and a few other sectors. Bangladesh started attracting FDI since 1996 that was based on energy and power sector. Because the favorable and supportive policies for FDI, economic reform and unexplored gas and oil. In 1972, FDI inflow was 0.09 million USD and it became 231.61 million
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USD in 1996.which become 1086 million USD in 2008 and it decreased to 913.32 million USD in 2010 (source: Bangladesh Board of Investment).

Background of Bangladesh Economy (Major economic indicators, a historical overview and current status)

Bangladesh Economy an Over View

Bangladesh economy

has grown 5-6% per year from 1996 in spite of insufficient power

supplies, political unrest , corruption, undeveloped infrastructure and slow implementation of economic reforms. Bangladesh is a poor, inefficiently-governed nation and overpopulated.

Above 50% of GDP in Bangladesh is achieved from the service sector, agriculture sector employment is 45%with rice the main product. Bangladesh's growth was declined by global financial crisis and recession in 2008-09. GDP (purchasing power parity) 2012 2010 2009 note: data are in 2012 US dollars $282.5 billion $265.7 billion $249.8 billion

GDP - real growth rate 2012 2011 6.3% 6.4%

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Unemployment, youth ages 15-24

total: 9.3%

Male Female Central bank discount rate 31 December 2011 est. 31 December 2010 est. 5% 5%

8% 13.6%

Inflation rate (consumer prices) 2012 2011 10.7% 8%

Commercial bank prime lending rate 31 December 2011 est. 13.4%

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31 December 2010 est.


Agriculture - products
Rice, jute, tea, wheat, sugarcane, potatoes, tobacco, pulses, oilseeds, spices, fruit; beef, milk, poultry.Industries ,jute, cotton, garments, paper, leather, fertilizer, iron and steel, cement, petroleum products, tobacco, drugs and pharmaceuticals, ceramic, tea, salt, sugar, edible oil, soap and detergent, fabricated metal products, electricity and natural gas.

Industrial production growth rate 2011 7.4%

Electricity - production


25.62 billion kWh

Electricity - production by source(2011)

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fossil fuel hydro nuclear other

93.7% 5% 0% 0%

Imports - commodities

Machinery and equipment, chemicals, iron and steel, textiles, foodstuffs, petroleum products, cement.

Imports - partners
China 18.9%, India 12.7%, Singapore 6%, Malaysia 4.7%, Japan 4% (2009)

Reserves of foreign exchange and gold

$10.98 billion (31 December 2011 est.) $11.18 billion (31 December 2010 est.)

Debt - external

$24.93 billion (31 December 2011 est.) $24.6 billion (31 December 2010 est.)
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Stock of direct foreign investment - at home

$7.216 billion (31 December 2011 est.) $6.107 billion (31 December 2010 est.)

Stock of direct foreign investment - abroad

$94.2 million (31 December 2011 est.) $91.2 million (31 December 2010 est.)

Exchange rates
Taka (BDT) per US dollar 73.7 (2011 est.) 69.65 (2010 est.) 69.04 (2009) 68.554 (2008) 69.893 (2007)

Fiscal year
1 July - 30 June

(Source: CIA World Factbook2011)

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Doing Business in Bangladesh (Ease and difficulties, ratings etc..a detailed discussion on how different agencies and international bodies have rated and evaluate Bangladesh in terms of starting and doing business in Bangladesh)
As we know Bangladesh has achieved steady growth for the past two decades and drop of almost 10 percent in the poverty rate so we can say that the investment situation in Bangladesh is very respectable for the country. Bangladesh economic growth over the last half decade is more than 6 percentages and fastest real trade growth country rank 13th out of 152 countries (WTI 2008). The real export growth is more than 9 percent higher than all other south Asian countries except India (WTI 2008). Bangladesh export share to GDP was 10 percent in 2004 which was the lower than India, Pakistan, Sri Lanka, even Cambodia just higher than some least developed Countries in Africa. The export share to GDP has been increasing over the year but not very significant. The export share to GDP in 2007 is 17 percent (Export Promotion Bureau 2008).Bangladesh launched comprehensive trade reforms in the early 1990s that included substantial reduction of tariffs, removal of quantitative restrictions, and moves from multiple to a unified exchange rate and from a fixed to freely floating exchange rate system to increase its export performance. The Economy of Bangladesh is still saddled with one of the least liberal trade policy regimes in the world, reflected in its rank near the bottom (140th out of 152 countries) on the latest Trade (MFN) Tariff Restrictiveness Index (TTRI) .The garments export industry is allowed duty free import of raw materials. The maximum tariff rate (inclusive of ad valorem equivalents of specific tariffs) has declined from a high of300 percent in the late 1990s
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to just 25 percent in 2007 (WTI 2008). The country has liberalized its banking and telecommunication sectors. Although, Bangladesh did not make any commitment in financial sector under GATS but the rate of liberalization in the financial sector has been quite rapid. This is a sector where Bangladesh has limited export but very crucial for countrys economic development. However, the low overall GATS commitment suggests ample room for greater future multilateral commitments to services liberalization.

Bangladesh as a Destination for FDI (Why BD is lucrative? competitive advantages,Incentives available, strength of the Bangladesh Economy etc.)
Bangladeshs business environment generally compares favorably with other Asian countries. Its rank 108th on the 2008-2009 Global Competitiveness Index which is very ominous feature for Bangladesh. However, according to the World Bank Ease of Doing Business ranking

Bangladesh rank is 107th behind the Pakistan(76), Sri Lanka (101), Vietnam (92), China (83), Malaysia (20) but ahead of India(122), Nepal (111) Cambodia (135), Indonesia (129) and Philippines (140). Among the South Asian Bangladesh position is better than India and Nepal but behind the Pakistan and Sri Lanka .There are 115 competitiveness indicators of 12 pillars of the World Economic Forum and Bangladesh has only 10 comparative advantage indicators.

Bangladesh has some advantage in Financing through local equity market, Number of procedures required to start Business, Domestic market size, Strength of investor protection, Non wage labor cost etc

But performance in these areas is also very far behind standard. Bangladesh has significant weakness and most important issues are following: Quality of port
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Infrastructure, Nature of competitive Advantage, Public trust of politician, Efficiency of legal framework, Burden of customs procedures, Time requires starting business

However, Bangladesh labor productivity is higher than Pakistan, Nepal, Cambodia, but lower than India and Vietnam. As we have seen, GDP growth has been impressive over the decade, and could have been even higher but for policy and institutional weaknesses in important investment areas that have been identified as main barriers for economic growth.

In terms of openness to FDI, Bangladesh ranks 137 among the 141 countries in the WDI database on gross FDI inflows to GDP ratio during the 1997-2007. The Inward FDI is very low compare to India, China, Pakistan and Vietnam and higher than only Nepal, Iran, Republic of Congo and Samoa. This is despite the fact that Bangladesh has a relatively liberal FDI regime. Clearly, foreign investors are entered by the licensing requirements for private activity in the energy and the telecom sectors as well as other investment climate problems. The perception of widespread corruption is also likely to have dampened FDI inflows, as has been shown for other countries as well.

Why Bangladesh

Bangladesh is a winning combination with its competitive market, business-friendly environment and cost structure that can give you the best returns. Industrious Low-Cost Workforce. Bangladesh offers a well-educated, highly adaptive and industrious workforce with the lowest
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wages and salaries in the region. 57.3% of the population is under 25, providing a youthful group for recruitment. The country has consistently developed a skilled workforce catering to investors needs. English is widely spoken, making communication easy. Strategic Location, Regional Connectivity and Worldwide Access Bangladesh is strategically located next to India, China and ASEAN markets. As the South Asian Free Trade Area (SAFTA) comes into force, investors in Bangladesh will enjoy duty-free access to India and other member countries.

Strong Local Market and Growth

Bangladesh has proved to be an attractive investment location with its 146.6 million population and consistent economic growth leading to strong and growing domestic demand.

Low Cost of Energy

Energy prices in Bangladesh are the most competitive in the region. Transportation on green compressed natural gas is less than 20% of the diesel price.

Proven Export Competitiveness

Bangladesh enjoys tariff-free access to the European Union, Canada, Australia and Japan. In Europe, Bangladesh enjoys 60% of the market share and is the top manufacturing exporter amongst 50 least developed countries.

Competitive Incentives

Bangladesh offers the most liberal FDI regime in South Asia, allowing 100% foreign equity with unrestricted exit policy, easy remittance of royalty, and repatriation of profits and incomes.

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Export Processing Zones.

Bangladesh offers export-oriented industrial enclaves with infrastructural facilities and logistical support for foreign investors. The country is also developing its core infrastructures, including roads, highways, surface transport and port facilities for a better business environment.FDI Magazine of The Financial Times in March 2010 conducted a competition under the head Global Ranking Competition of Economics Zones based on the following nine categories of ranking:

Best Overall Global Special Economic Zone Best Economic Potential Best Cost Effectiveness Best Facilities Best Transportation Link Best Incentives Best Promotion Best Airport Best Port

In the competition out of 700 Economic Zones globally 200 participated in the competition. All the zones were evaluated on a 10 point scale on the basis of some set criteria. Among the top 10 of the two categories Chittagong Export Processing Zone, Bangladesh scored 3rd position in the Best Cost Effectiveness and also 4th position in the Best Economic Potential for 2010-2011. (Source: FDI Magazine,2012)

Positive Climate

A largely homogeneous society with people living in harmony irrespective of race and religion, Bangladesh is a democratic country enjoying broad bi-partisan political support for private
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investment. The legal and policy framework for business is conducive to foreign investment. For detailed about legal infrastructure of Bangladesh please visit Business Laws.This section provides facts and figures on Bangladesh and its potential to support foreign business and investment. Please select the links on the left menu and in right column for more specific information.

Statistical Overview of FDI Inflow (Latest, Time Series, Comparative Cross Sectional on Bangladesh and the World) Try to use as more data and charts possible to present and compare the scenario of Bangladesh with the world.
Bangladesh has attracted USD 913 million foreign direct investments (FDI) in 2010 calendar year. The countrys position boasts from 114 to 119 out of 140 nations in the World Investment Report (WIR).In the telecom sectors USD 360 million FDI, in the manufacturing sectors USD 238 million, in the textile & clothing sector USD 145 million, 46 million in the labor sector received during this period. (The financial Express, 27 July, 2011).Bangladesh is in badly needed of Foreign Direct Investment (FDI) for its ongoing economic progress. Bangladesh made efforts to be a suitable country for FDI since its independence. In 1989 the government set up Board of Investment (BOI) of which the primary objective is aimed at attracting and facilitating investment from abroad (Mondal 2003) through lifting restrictions on capital and profit repatriation gradually and opened up almost all industrial sectors for foreigners to invest either independently or jointly with the local partners. Besides, the government introduced various financial and non-financial incentives like tax exemptions for power generations, import duty exemptions for export processing industries, almost no restrictions on the entry and exit mode, zero duty rate for the import of capital machinery and spare parts for 100 percent export oriented industries, tax holiday schemes for undertaking investment in priority sectors and low development areas and reduction of bureaucratic hassles in getting faster approvals of foreign projects. Altogether these incentives followed by a low labor cost structure, Bangladesh have been an attractive destination for FDI in the South Asian region since the late 1980s.

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The trend of Inflow of FDI in Bangladesh has increased over the 1980s as compared to earlier periods and this same momentum continues in 1990s as well. The total inflow of FDI has been increasing over the years. During the period of 1977-2010, total inflows of FDI were USD 8927.9 million, among which the total inflows of FDI during 2006-2010 was USD 4158.63 million. In 1977, this inflow was USD 7 million and in 2008, annual FDI reached to USD 1086.31 million. Unfortunately, there was a declination in inflows of FDI in 2010 which was USD 913.32 million (Source: Survey Report, Statistics Department, Bangladesh Bank).

The process of FDI in Bangladesh:

The Government of Bangladesh has emphasizes comprehensive array of policies aimed at significant & socio cultural progress for the nation. In respect of the private sectors ability to contribute towards achievement of some goals, the government has recently implemented a number of significant policy reforms which is designed to create a more open and competitive climate for foreign investment.For achieving industrial growth and capturing greater share of industry in the Gross Domestic Product (GDP) and forming the industrial policy responsive to the changes occurring in the global economy, the present government announced a new Industrial Policy-1999.

The main features of the Industrial Policy 1999 are as follows:

Attracting foreign direct investment in both export and domestic market oriented Industries in order to make up for the deficient domestic investment resources and obtaining access to export markets and acquiring new technology.

Ensuring rapid growth of industrial employment by encouraging investment in labor intensive manufacturing industries along with investment in efficient small and cottage industries.

Expanding the production base of the economy by accelerating the level of industrial investment.

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Permitting public undertaking only in those industrial activities where public sector involvement is inevitable to help the growth of the private sector. Promoting the private sector to lead the growth of industrial production and investment. Focusing the initiatives of the government as a facilitator in forming an enabling environment for expanding private investment. Generating female employment in higher skill categories and in quick time through special emphasis on skill development. Raising industrial productivity to move progressively to higher value added products through skill and technology up gradation. Co coordinating trade and fiscal policies. Enhancing operational efficiency in all remaining public manufacturing enterprises through appropriate management restructuring and pursuit of market oriented policies. Diversifying and rapidly increasing export of manufactures. Developing indigenous technology and to expand production based on domestic raw materials. Rehabilitating deserving sick industries. Ensuring a process of industrialization which is environmentally sound and consistent with the resource endowment of the economy? Encouraging balanced industrial development throughout the country by introducing suitable measures and incentives. Effectively utilizing existing production capacities. Encouraging the competitive strength of import substituting industries for catering to a growing domestic market.

Reserved sector (public sector) industries: The following areas are reserved for public sector investment: Production of nuclear energy Mechanized extraction and forest plantation within the bounds of reserved forests Arms and ammunition and other defense equipment and machinery Security printing (currency notes) and minting.

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Private sector investment: Private sector plays role as a predominant one. Except reserved sectors, private sector investment has been kept open without any ceiling. Both foreign and local or joint venture Private investment between local and foreign or with public sector is allowed.

Foreign investment: The policy framework for foreign investment in Bangladesh is based on Foreign Private Investment (Promotion and Protection) Act, 1980 which provides for:

Non-discriminatory treatment between foreign and local investment Protection of foreign investment from expropriation by the state and Ensured repatriation of proceeds from sale of shares and profit

Foreign investment, with particular preference to foreign direct investment will be encouraged in all industrial activities in Bangladesh including service industries and toll manufacturing, excluding those in the list of "Reserved Industries" and readymade garments, banks, insurance companies and other financial institutions. Such investments may be undertaken either independently or through joint ventures, either with the local private or public sector. The capital market will also remain open for portfolio investment.

For foreign investment, there will be no limitation pertaining to equity participation, i.e. 100 percent foreign equity will be allowed. Fully foreign owned firms or joint ventures will in no way be obliged to sell their shares through public issues, irrespective of the amount of their paid-up capital. However, foreign investors or companies with foreign investment will be eligible to buy shares through the stock exchange. Foreign investors on companies may obtain full working capital loans from local banks.

Foreign entrepreneurs will enjoy the same facilities as the domestic entrepreneurs in respect of tax holiday, payment of royalty, technical know-how fees etc. A foreign technician employed in foreign companies will not be subjected to personal income tax
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upto 3 years, and beyond that period his/her personal income tax payment will be governed by the existence of non-existence of agreement on avoidance of double taxation with country of citizenship.

Full repatriation of capital invested foreign sources will be allowed. Similarly profits and dividend accruing to foreign investment may be transferred in full. If foreign investors reinvest their reparable dividends and or retained earnings, those will be treated as new investment. Foreigners employed in Bangladesh are entitled to remit up to 50 percent of their salary and will enjoy facilities for full repatriation of their savings and retirement benefits.

Foreign investment in "Thrust Sectors", particularly in small industrial units, will be given priority in allocation of plots in BSCIC industrial estates.

The process of issuing work permit to foreign experts on the recommendation of investing foreign companies or joint ventures will operate without any hindrance or restriction. "Multiple entry visas" will be issued to prospective foreign investors for 3 years. In case of experts, "multiple entry visas" will be issued for the whole tenure of their assignments.

Investment of non-resident Bangladeshis will be treated as par with foreign direct investment.

Investment guarantee and dispute settlement will be guided by international arrangements and provisions.

Measures will be taken to protect the intellectual property rights of new products and processes.

Facilitative role of the public institutions: The following is the investment framework for the development of the private sector:
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Bangladesh Export Processing Zones Authority (BEPZA) will allot land in its own estates. Board of Investment (BOI) will recommend and pursue allotment of public land wherever available. Bangladesh Small and Cottage Industries Corporation (BSCIC) will allot industrial plots to respective industrial units in its own industrial estates and estates developed by it under special orders. Similarly,

Industries located in the private zones (EPZs) will enjoy the same facilities as those enjoyed by the units located in the public EPZs Private sector is allowed to develop industrial parks and develop industrial parks. Government will extend support to these zones and parks.

BSCIC, BEPZA and BOI will approve the payment of any payment of remuneration of foreign personnel royalties, technical assistance fees and approve appointment and. Prior clearance will be required for setting up of, banks, insurance companies, easy-made garments (RMG) units and other financial institutions. Concerned facilitating agencies will, after discussion with the relevant authorities, determine the time limit for receipt of drainage and telecommunication connection and power, gas, water, as well as provide clearance relating to environment pollution. These facilities will be provided by the "One Stop Service" cell of the facilitating agencies.

All foreign investments shall be registered in the prescribed manner with the concerned promotional body before setting up an industry.

BOARD OF INVESTMENT (BOI) The Government of Bangladesh established the Board of Investment (BOI) in 1989 for accelerating private investment in Bangladesh. The Board, headed by the Prime Minister of the Republic is vested with necessary powers to take decisions for speedy implementation of new industrial projects and provide operational support services to the existing ones.

The major functions of Board of Investment (BOI) include the following: Undertaking investment promotion activities at home and abroad Providing all types of facilities for promotion of capital investment and rapid industrialization.
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Registration of industrial projects as well as royalty, technical know-how and technical assistance agreements wherever required Approval of payment of royalty, technical know-how and technical assistance fees to foreign nationals/ organizations beyond the prescribed limits. Issuing work permit to expatriate personnel working in private sector industrial enterprises Providing import facilities to industrial units in the private sector. Approval of the terms and conditions of foreign private loan and suppliers credit Allotment of land in the industrial areas/estates for industrial purpose Conciliation of disputes relating to foreign investors and Providing assistance to avail infrastructure facilities for industries.

One Stop Service Centre: The infrastructure and institutional support service that are available with the One Stop Service Centre are: Pre investment counseling Electric connection Gas connection Water and sewerage connection Telecommunication facilities Solution of problems in case of difficulties arising in clearing imported machinery under concessional rate of import duty and obtaining bonded warehouse license Environmental clearance

Courtesy service: The Board of Investment offers courtesy service to the visiting foreign investors. The service includes reception at airport, hotel booking, transport arrangement and drawing up itinerary in accordance with the need of the foreign investors visiting Bangladesh. To avail of the services the investors are advised to intimate BOI in advance.

Welcome service at airport:

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"BOI welcome service' counter manned by BOI officials has been set-up to offer round the clock service to all foreign investors arriving at the Zia International Airport, Dhaka. Foreign investors are requested to avail the services on arrival.

PROCEDURE FOR OBTAINING FACILITIES AND SERVICE In order to avail of the facilities and services provided by BOI for setting up of industries, the procedure mentioned below is to be followed by the entrepreneurs:

Registration of joint venture/100% foreign investment proposals in the private sector: For registration of the projects entrepreneurs/investors are required to apply in a prescribed form available in the One Stop Service Centre of BOI. Registration of self-financed local investment projects including industries

sanctioned/financed by financial institutions or commercial banks: The entrepreneurs/investors of such projects are also required to apply in prescribed form to BOI for registration. Permission for setting up joint venture industrial units with the public sector corporations: An entrepreneur, either local or foreign, can set up an industry with public sector corporation, Such joint venture is required to be registered with BOI if the private sector share holding is more than 50%, and in such case it is treated as private sector project. For any public sector which makes contribution out of their own fund needs approval of the concerned ministry. If the share holding of the corporation is 50% or above, it is treated as a public sector project. The public sector project is processed by the concerned ministry for approval of the Planning Commission.

Procedure of import of raw and packing materials and spare parts: No permission is required for import of free list items. For items in the restricted list, BOI, BEPZA and BSCIC will fix up the import entitlement and recommend to Chief Controller of
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Imports & Exports (CCI&E) for issuance of IRC (Import) Registration Certificate). CCI&E issues IRC in favor of the industrial enterprises within 30 days of receiving application. Items included in the banned list cannot be imported unless otherwise specified. In case of import of raw and packing materials of the pharmaceutical industry, the Drugs Administration Directorate under Ministry of Health and Family Welfare prepares Block Lists on half-yearly basis. BOI/BEPZA/BSCIC provides all other assistance relating to import in their respective jurisdictions. In this connection procedure followed by BOI is as under: On receipt of application in the prescribed form along with copies of (I) TIN certificate, (2) Trade License, (3) Membership Certificate of relevant trade association/chamber, (4) Certificate from the nominated bank regarding opening of account, (5) Incorporation Certificate, in case of limited companies and (6) Letter of registration with BOI, necessary field inspection is done to determine annual production capacity and half yearly/yearly import entitlement of raw & packing materials. The entrepreneur is then advised to deposit IRC fees (on the basis of annual import entitlement) by Treasury Chalan to the Bangladesh Bank/Treasury. On receipt of the copy of treasury challan, recommendation is made to the office of the CCI&E for issuance of IRC. The entrepreneur will then approach the nominated bank for opening Letters of Credit for import.

Guide-lines for registration/approval of foreign loan, suppliers, credit, PAYE scheme, etc: Private investors arranging foreign loan, supplier's credit, deferred payments, PAYE scheme etc. are required to obtain prior approval from BOI. Investors need to approach BOI in the prescribed application form for the purpose.

Remittance of royalty, technical know-how and technical assistance fees: Royalty: Royalty fee is paid by the local manufacturer to its foreign collaborator in consideration of License to use the brand name and trade mark of the foreign manufacturer on the local product.

Technical know-how and technical assistance fees : Technical know-how and technical assistance fee is paid by the local unit to its foreign collaborator in consideration of preparation of factory layout, engineering specifications of the
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project, assistance in selecting machine, supervision of civil construction and installation of machinery and equipment, know-how and assistance in production, testing, safety and quality control, assistance by way of making available patented process and /or know-how and right to avail of the technical information resulting from research and development, training of local personnel, technical assistance in management and marketing in deserving cases and assistance in other technical matters etc. No prior permission of BOI is required for entering into agreements for remitting fees for the purpose of royalty, technical know-how and technical assistance if the total fees and other expenses connected with technology transfer (service fee, marketing commission etc.) are within the following prescribed limits: a) For new and existing projects such fees and other expenses should not exceeds an aggregate limit of 6% of the C&F value of respective imported machinery. b) Within the agreement period recurrent annual fees for royalties and other expenses such as fees for technical know-how, technical assistance, operational services, marketing of products etc. should not exceed an aggregate limit of 6% of the previous years sales of the firms as declared in the Tax Return and Audited Balance Sheet of the company. Once the technology transfer agreements falling within the above limits are signed, these are required to be furnished to BOI for registration and for remittance. Proposals which are not covered under the prescribed limits will require prior approval of BOI for which application have to be submitted along with necessary documents and copy of the draft agreement.

Procedure for obtaining work permit for foreign nationals: Work permit for foreign nationals is a pre-requisite for employment in Bangladesh. Private sector industrial enterprises desiring to employ foreign nationals are required to apply in advance in the prescribed form of BOI. For expatriate employment the following guidelines are followed: Nationals of the foreign countries recognized by Bangladesh are considered for employment. Employment of expatriate personnel is considered only in industrial establishments which are sanctioned/registered by the appropriate authority.

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Decision of the Board of Directors of the concerned company for new employment/ extension and the certified copy of the Memorandum and Articles of Association duly signed by the share holders are to be furnished.

Experts/Technicians in the irrespective fields are required to furnish their certificate of educational qualifications and experience through their employers. Service contract/agreement/appointment letter/buyer's nomination along with the copy of passport is to be furnished. The Number of foreign employees should not exceed 15% of the total employees including top management personnel. Initially employment of any foreign national is considered for a term of one year which can be extended on the merits of the case. Necessary security clearance by the Ministry of Home Affairs is required.

Procedure for obtaining industrial plots: Entrepreneurs requiring industrial plots for setting up of an industry in any industrial area/estate apart from BEPZA and BSCIC, may approach BOI mentioning the size of plot required by them along with copies of registration/sanction letter and industrial layout plan for lifting actual requirement. After receiving an application the BOI provides assistance to the entrepreneur in getting an industrial plot. Most of the industrial areas/estates are owned/controlled by the city development authorities in three divisional head quarters, RAJUK in Dhaka, CDA in Chittagong and KDA in Khulna. Besides these, there are a few industrial estates owned and controlled by some other government agencies namely, (a) Public Works Department and (b) Housing and Settlement Directorate. BOI recommends for acquisition of land to the concerned authorities if required by the industrial units, In such case the entrepreneurs required to submit relevant papers and information in connection with the land to be acquired by the Deputy Commissioner concerned.

Procedure for obtaining electricity, gas, water, sewerage & telephone connection:

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Entrepreneurs may apply either directly to the concerned authority for obtaining utility services or approach BOI's One Stop Service for assistance along with copy of registration/sanction letter. INCORPORATING A COMPANY IN BANGLADESH Business in Bangladesh may be carried on by a company formed and incorporated locally and a foreign company incorporated outside but registered in Bangladesh by establishing a place of business here. There are mainly two types of companies Limited companies and Unlimited companies

Limited companies are divided into two categories; Company limited by shares; and Company limited by guarantees.

Unlimited companies and companies limited by guarantees may or may not have share capital.

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Companies limited by shares: There are two broad categories of companies limited by shares namely: Public limited companies, and Private limited companies:

Private limited companies: A Private Limited company means a company which by its Articles Prohibits any invitation to the public to subscribe for the shares or debentures of the company; Restrict the right to transfer the shares; Entitles to commence business from the date of its incorporation, and Limit the number of its members to a minimum of 2 and maximum of 50 excluding the persons who are in the employment of the company. Public limited companies: The minimum number of Directors is 3. A company can be formed as a public company or alternatively a company which is incorporated as a private company can also be converted into a public company. In order to commence business the public company shall have to obtain a commencement certificate from the Registrar of Joint Stock Companies. The required minimum number of Members are 7 but there is no maximum limit, and A public Limited company may issue invitation to the members of the public to subscribe the shares and debentures of the company through a prospectus which complies with the requirements of the companies Act. 1994 and the Securities and Exchange Commission Act, 1993 as amended from time to time.

Memorandum of Association: The public limited or private limited and the location of the registered office of the company whether it is memorandum of association of the company shall state the name of the company. The memorandum should clearly exposes the main objectives, the authorized capital-division of this capital into shares of fixed amount and liability of its members.

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Articles of Association: The Articles of Association are the regulations governing the internal management of the affairs of the company and the conduct of its business.

Financial and Physical Security Issues of the Investors

INCENTIVES AND FACILITIES FOR THE INVESTORS A. Tax Holiday: Tax holiday is allowed to companies for the following periods according to the location of industries. Dhaka and Chittagong Division (Excluding the 3 hill districts of Chittagong Division) Rajshahi, Khulna, Sylhet, Barisal and the 3 Hill districts of Chittagong Division 7 years 5 years

The period of tax holiday is calculated from the month of commencement of commercial production or operation of the industrial undertaking. The eligibility of tax holiday is to be determined by the National Board of Revenue (NBR). Tax holiday facility can be availed of by industries set up within June 30, 2000. B. Accelerated Depreciation: Accelerated depreciation in lieu of tax holiday is allowed at the rate of 80% of actual cost of machinery or plant for the year in which the unit starts commercial production and 20% for the following years. The rate of depreciation is 100% for areas specified by the NBR. C. Concessionary Duty on Imported Capital Machinery: Import duty at the rate of 5% advalorem is payable on capital machinery and spares imported for initial installation or BMR/BMRE of the existing industries. The value of spare parts should not however exceed 10% of the total C & F value of the machinery and will also get the benefit of this concessionary rate of duty. For 100% export oriented industries, no import duty is charged in case of capital machinery and spares. However, import duty @ 5% is secured in the form of bank guarantee or

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an indemnity bond to be returned after installation of the machinery. Value Added Tax (VAT) is not payable for imported capital machinery and spares. D. Rationalization of Import Duty: Duties and taxes on import of goods which are produced locally will be higher than those applicable to import of raw materials for producing such goods. E. Incentives To Non-Resident Bangladeshis: Special incentives are provided to encourage non-resident Bangladeshis for investment in the country. Non-resident Bangladeshi investors will enjoy facilities similar to those of foreign investors. Moreover, they can buy newly issued shares/debentures of Bangladeshi companies. A quota of 10% has been fixed for non-resident Bangladeshis in primary public shares. Furthermore, they can maintain foreign currency deposits in the Non-resident Foreign Currency Deposit (NFCD) accounts. F. Other Incentives: * Tax exemption on royalties, technical know-how fees received by any foreign collaborator,

firm, company and experts. * * Tax exemption on the interest on foreign loans under certain conditions. Avoidance of double taxation in case of foreign investors on the basis of bilateral

agreements. * Exemption of income tax up to 3 years for the foreign technicians employed in industries

specified in the relevant schedule of income tax ordinance. * Tax exemption on income of the private sector power generation company for 15 years from

the date of commercial production. * * * * Facilities for full repatriation of invested capital, profit and dividend. Six months multiple entry visa for the prospective new investors. Re-investment of repairable dividend treated as new investment. Citizenship by investing a minimum of US$ 5, 00,000 or by transferring US$ 10, 00,000 to

any recognized financial institution (non-reparable). * * Permanent resident ship by investing a minimum of US$ 75,000 (non-repairable). Tax exemption on capital gains from the transfer of shares of public limited companies listed

with a stock exchange. G. Incentives to Export Oriented and Export-Linkage Industries: Export oriented industrialization is one of the major objectives of the Industrial Policy 1999. Export-oriented industries will be given priority and public policy support will be ensured
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in this respect. An industry exporting at least 80% of its manufactured goods or an industry contributing at least 80% of its products as an input to finished exportable, and similarly, a business entity exporting at least 80% of services including information technology related product will be considered as an export oriented industry. To make investment in 100 percent export-oriented industries attractive, the following incentives and facilities will be provided. Duty free import of capital machineries and spare parts upto 10 percent of the value of such capital machinery. The arrangement for providing loans up to 90 percent of the value against irrevocable and confirmed Letter of Credit/Sales Agreement will continue. The Export Credit Guarantee Scheme will be further expanded and strengthened. The local products supplied to local industries or projects against foreign exchange payment or foreign exchange L/C will be treated as indirect exports and be entitled to all export facilities Existing facilities for setting up of Bonded Warehouses and back-to-back Letters of Credit will continue. The import of specified quantities of duty-free samples for manufacturing exportable products will be allowed consistent with the prevailing relevant government policy.

The export-oriented industries, further to the provisions of Bangladesh Bank foreign exchange regulations, will be entitled to receive additional foreign exchange, on a caseto-case basis, for publicity campaigns, opening overseas offices and participating in international trade fairs.

The entire export earnings from handicrafts and cottage industries to be exempted from income tax. For all other industries, income tax rebate on export earnings will be given at 50 percent.

The facility for importing raw materials, which are included in the banned/restricted list, but required in the manufacture of exportable commodities, will continue. To ensure backward linkage, incentives will be extended to the deemed exporters supplying indigenous raw materials to export-oriented industries. Export-oriented industries including export-oriented RMG industries using indigenous raw materials will be given facilities and benefits at prescribed rates..
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The system for duty drawback will be further simplified and to this end, duty drawback will be fixed at a flat rate on exportable and potentially exportable goods. Exporter will receive duty drawback at a flat rate directly from the relevant commercial bank

10 percent products of the enterprises, located in both public and private EPZs will be allowed to be exported to domestic tariff area against foreign currency L/C on payment of applicable duties and taxes.

100% percent export-oriented industry outside EPZ will be allowed to sell 20% percent of their products in the domestic market on payment of applicable duties and taxes. The Export-oriented industries which are identified by the government as Thrust Sector will be provided special facilities and venture capital support. Apart from the above mentioned facilities, other facilities announced and provided in the Export Policy will be applicable to export-oriented and export-linkage industries. Bangladesh has been promoting FDI for decades with the most liberal investment policy and incentive regime in South Asia. The Foreign Private Investment (Promotion and Protection) Act, 1980, ensures equal treatment for local and foreign Investors. This act also provides legal protection to foreign investment in Bangladesh against

nationalization and expropriation. It also gives the guarantee of repatriation of capital and dividend.

Two Case Studies of FD investors sketching their initialization and current status:

Lafarge Surma Cement Ltd. (LSC)

As a private limited company in Bangladesh under the Companies Act 1994 having its registered office in Dhaka, Lafarge Surma Cement Ltd. (LSC) was incorporated on 11 November 1997 of which main successful top-ranking positions in Cement, Aggregates & concrete and Gypsum. Besides making into a public limited company and is listed in Dhaka and Chittagong Stock Exchange. Today, Lafarge Surma Cement Ltd. has more than 20,000 shareholders. After its founding in 1833 it has been improving steadily and currently, it is seen as the world leader of construction materials
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Over the 175 years, with a sustainable growth policy Lafarge Surma Cement Ltd. (LSC) its efficient production process by using natural resources helps to protect environment, generate value, & to show respect to societies and cultures through taking the advantage of global relationship with WWF ,the conservation organization, as the only construction material producers. Taking unique project of state-of-the-art fully integrated cement plant it imports raw materialslimestone & shale from india.lafarage surma cement(LSC) limited incorporated in November 1997 in Bangladesh. The plant is located at chhatak,sylhet,which is far north-east corner of Bangladesh. This location is 10 km away from broader with the Indian state of Meghalaya. It is a integrated ,dry process cement of the country.

This commercial venture with an investment of USD 280 million, which is one of the largest foreign investments in Bangladesh, has been financed by Lafarge of France, world leader in building materials, Cementos Molins of Spain, leading Bangladeshi business houses together with International Finance Corporation (IFC The World Bank Group), the Asian Development Bank (ADB), German Development Bank (DEG), European Investment Bank (EIB), Lafarge Group, with 176 years of experience, holds worlds top-ranking position in Cement, Aggregates, Concrete and Gypsum. It operates in 64 countries with around 68,000 employees. Lafarge is named as one of the 100 Most Sustainable Companies in the World.

Cementos Molins of Spain, with 75 years of experience, also operates in Mexico, Argentina and Uruguay.

Now, after three years of production operations, we are producing world class clinker and cement which is a demonstration of the sophisticated and state-of-the-art machineries and processes of our plant at Chhatak. The Company is already meeting about 8% of the total market need for cement and 10% of total clinker requirements of Bangladesh market whereas we continue to enjoy strong growth rates. By supplying clinker to other cement producers in the market, we contribute some USD 50~60 million per annum worth of foreign currency savings
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for the country. We contribute around BDT 1 (one) billion per annum as government revenue to the national exchequer of Bangladesh. About 5,000 people depend on our business directly or indirectly.

We believe that cement is an essential material that addresses vital needs of the construction sector. We are optimistic to meet the growing needs for housing and infrastructure in the construction sector of Bangladesh.

Model of success story: Kafco (fertilizer factory)

Kafco is the largest joint venture in Bangladesh established with shareholding and support of the government and private sectors of Bangladesh, Japan, Denmark and the Netherlands. The integrated complex of Kafco lies on 55 acres of Land ,located in Rangadia , Anowara,Chittagong just alongside with the karnapuli river . Bangladesh government received 200 million US dollar in 2007-08 and 218 million Us dollar in 2008-09 as taxes, dividend and purchases of gas from Kafco.The gas price is the biggest component of its cost. Kafco now-a-days supplies approximately 70% of its product to BCIC particularly at the peak demand season which avoids serious crisis in the Agriculture sectore. Its current store of Fertilizer is approximately 1.8 million metric tons. Now Kafco uses 64 MMSCFD of gas in a year & produces166500 tons Ammonia & 666000 tons Urea. It has 660 educated and experienced employee(2 expatriates,278 management,350 non management ). Kafcos strength are 1) Commitment of management and staff, 2 ) DCS based plant operation, 3) Risk based analysis and inspection, 4) Computerized maintenance management system-CMMS,
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5) e-documenting, 56) Computerized store and inventory It also has some social responsibility to the society. It represents a model of successful joint venture in Bangladesh.

Prospect of FDI growth in Bangladesh:

Bangladesh has achieved a consistent GDP growth of over 5% in the last decade and never experienced a negative growth. Even Bangladesh sustained growth of over 5% during the recent global economic crisis. In 2009 Bangladesh achieved a 5.9% GDP growth. Various necessary steps like generation of huge number of SMEs, success in microcredit and NGO activities, rapid spread of telecommunications services, record level of foreign remittances, acceleration of export earnings are taking the economy at a higher level of growth. Its investment friendly climate offers generous and attractive packages of incentives for foreign investors like 100% ownership, tax and duty exemptions and others. Actually, Bangladesh has gained a higher ranking than many developing countries in terms of incentive package. A lot of additional fiscal incentives are offered to export oriented industries. The government has created Export processing zones (EPZs) to attract private investment. The government targets foreign investors to invest in EPZ.

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The vision is that the unique opportunities in energy and power, infrastructures, manufacturing and knowledge-based sectors will attract substantial investment. Bangladesh has become a least cost producer in the world with various positive factors like industrious low-cost workforce, strategic location, regional connectivity and worldwide access, strong local market and growth, low cost of energy, proven export competitiveness, competitive incentives, export and economic zones, positive investment climate.

Bangladesh is ranked 119th position globally and 4th in the SAARC region in the Ease of Doing Business Ranking by World Bank and IFC report entitled "Doing Business in 2010".

FDI has been allowed in all sector of the economy except five industries - defense equipment, nuclear energy, forest plantation, security printing and railways. The investors enjoy the following incentives for investing in Bangladesh 5 to 7 years corporate tax holiday for selected sectors. Private power companies enjoy corporate income tax exemption for a period of 15 years. Tax exemption on royalties, technical knowhow and technical assistance fees and facilities for their repatriation. Tax exemption on foreign loans regarding interest. Tax exemptions on capital gains from transfer of shares by the investing company.

Remittances of up to 50% of salaries of the foreigners employed in Bangladesh and Facilities for repatriation of their savings and retirement benefits at the time of their return. No restrictions on issuance of work permits to project related foreign nationals and employees. Facilities for repatriation of invested capital, profits and dividends. Provision of transfer of shares held by foreign shareholders to local investors. Reinvestment of remittable dividends would be treated as new investment.

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An investor can wind up on investment either through a decision of the AGM. Once a foreign investor completes the related formalities to exit the country, he or she can repatriate the sales proceeds after securing proper authorization from the Central bank.


Foreign Direct Investment (FDI) has become the most critical way of the economic development, industrial growth and macro-economic development in Bangladesh over the last two decades. Though some challenges and obstacles Foreign Direct Investment (FDI) is increasing day by day . for example last year Bangladesh received FDI of $1.13 billion and in 2010 of $910 million. it increases of about 25% that is higher than the average worldwide growth of FDI of 23% . According to the UNCTAD World Investment Report (WIR) -2012 the main sector for FDI are garment ,banking, energy and telecommunication respectively. Bangladesh is ranked 9th position among the countries which have improved their business start-ups. for attracting across-theboard investment through broad-based incentives the Board of Investment (BOI) has adjusted its investment promotion strategies by developing workforce expertise, transfer of skills among different levels of workforce, providing R&D and technology skill and allowing innovation to attract quality investment. the prime sectors of FDI are RMG,electronics, ceramics, leather goods ,frozen foods, ICT, and leather etc. Although Foreign Direct Investment (FDI) in Bangladesh is increasing day by day,it faces some challenges and problems that comes as a hindrance on the way of increasing it The problems that Bangladesh faces in the way of FDI are identical and need not be solved. This problems are bureaucracy political instability inefficiency absence of autonomous regulatory bodies, irregular power supply, lack of administrative coordination In order to sustain current economic growth and inflow of FDI the government should take some steps. Government should take appropriate and effective measure to reform administrative

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system. It should reorganize the bureaucratic system. Control of bureaucracy should be minimized. The government should take some other stapes such as: To take effective steps in accelerating reform measures for banks, other financial institutions and capital market A good governance and political stability should be ensured Corporate governance will play a key role in enhancing the investment climate of Bangladesh.

In future Bangladesh economy would be favorable for the prospects of FDI if the government can take initiatives to consolidate the proposed reforms.bangladesh has taken some steps to simplify various process to encourage FDI. The government, the financial sector and investors should work together to achieve the goal of making Bangladesh a progressive economy by the end of this decade.

Rahman, A. (May 2012). FOREIGN DIRECT INVESTMENT. 39.

Ara, D. L. (2003). The Competitiveness and Future Challenges of Bangladesh in. 56. Rahman, A. (May 2012). FOREIGN DIRECT INVESTMENT. 39.

Ara, D. L. (2003). The Competitiveness and Future Challenges of Bangladesh in. 56. Hasan, M. T. (2009). Prospects of Foreign Direct Investment. 112. Rahman, A. (May 2012). FOREIGN DIRECT INVESTMENT. 39. VADLAMANNATI, K. C. (2005). Impact of Political Risk on FDI RevisitedAn. 76.

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Ara, D. L. (2003). The Competitiveness and Future Challenges of Bangladesh in. 56. Hasan, M. T. (2009). Prospects of Foreign Direct Investment. 112. Rahman, A. (May 2012). FOREIGN DIRECT INVESTMENT. 39.

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