SOUTH KOREAN AMBASSADOR INTERVIEWED
Korean job market for Dhaka resumes; Prospects of investment bright

Our Correspondent

Bangladesh is likely to see an influx of substantial investment from South Korea as Korean entrepreneurs are looking at new destinations to shift their labour-intensive industries to remain competitive.
   South Korean Ambassador in Dhaka, Suk-Bum Park, while talking to this correspondent at his embassy office recently, said.
   Higher wages in China, Vietnam and Cambodia are becoming a matter of concern for the Korean investors who are now searching for new destinations with low wages to shift their labour intensive industries because they want to remain competitive in the global market.
   CW Lee, President and Chief Executive Officer of Pungkook Corporation, who visited Bangladesh sometime ago, submitted a proposal to the Bangladesh Export Processing Zones Authority (BEPZA) offering to set up a high quality leather plant in the EPZ with a capacity to produce 10,000 pieces of leather bags. He felt that as labour costs in Bangladesh are considerably cheaper in comparison to China and other countries in the region, Dhaka can now persuade Korean investors to either set up new industrial units or relocate the existing ones from other countries.
   As of today South Korean entrepreneurs have invested a total of US$946 million in Bangladesh mostly in labour intensive industries. Of this, they invested $320 million invested in the export processing zones (EPZs) while $626 million was outside the EPZs.
   On the question of sending Bangladeshi manpower to South Korea, Ambassador Park Suk-Bum said, this year about 4,000 workers are expected to go to South Korea. He said so far about 2,600 Bangladeshis have passed medial and Korean language tests, out of which about 1,300 workers will most probably get jobs. Almost 5,000 Bangladeshis are likely to get selected through Korean language examinations to be held in August under the merit-based Employment Permit System (EPS). Out of this, over 2,500 are expected to be sent to South Korea this year.
   He has clearly mentioned that Bangladesh can only tap blue collar job market that is expanding in Korea, but chances are slim for white collar jobs. Farmers, plumbers, carpenters, electricians and masons are in great demand in Korea and the monthly minimum wage is about $900, Park said.
   The South Korean ambassador pointed out that his country would require about 50,000 foreign workers this year for employment in the small and medium enterprises, in the construction sites and in services sectors and Bangladeshis can acquire a major share of it if they fulfil the requirements of Korean companies that include proficiency in Korean language under merit-based Employment Permit System (EPS) introduced in August 2004.
   Meanwhile, the first batch of 35 Bangladeshi workers recruited under the Employment Permit System (EPS) reached Seoul last week. The arrival of the first batch of Bangladeshi workers in Korea marks the resumption of Korean labour market for Bangladeshi workers. Korea had discontinued recruitment of Bangladeshi workers due to the host government's concern over rising number of undocumented Bangladeshi workers in Korea. More workers from Bangladesh are likely to be recruited under EPS throughout the year as Korean small and medium enterprises (SMEs) have placed their demands for employing Bangladeshi workers.
   Park said that after the readymade garment sector, the shipping sector has the possibility to become a major export earner for Bangladesh. He said, STX, a South Korean company, signed an agreement with Meghna Group of Bangladesh to build ships recently.
   The size of bilateral trade of the two countries has not been very large but it is heavily in South Korea's favour. For example, in 2006-07 fiscal year, Bangladesh exported goods worth US$79.63 million while it imported goods worth $552.71 million from South Korea. On the trade imbalance, the South Korean Ambassador said that Bangladesh should diversify its product-base to penetrate into the Korean market. He said that in fact Korea's exports to Bangladesh dropped slightly in 2006-07 while Dhaka's export to Seoul slightly increased during the period.
   Ambassador Park without mincing word said that his country has vast experience in nuclear power plants and is willing to provide technological support to Dhaka for setting up nuclear power plants that can ease Dhaka's acute power crisis.
   He said some of the Korean companies have expressed interest to participate in developing the power sector in Bangladesh, but a proposal to develop the coal mine at Dighipara and also to generate 1000MW power by using the coal from the same mine has been pending since 2005. He said Korean companies are also interested in exploring offshore natural gas and pointed out that Korea's Daewoo has successfully explored natural gas in the coastal areas of Myanmar.

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Share Shah

Every business needs adventure and showmanship. Without the presentation of new opportunities the public taste becomes stale. The stock market is no different from a circus. It must have new acts or a show each day otherwise the public will loose interest. For this we must thank the government and issuers of shares. These new opportunities awaken new desires in the investing public and help the market to grow. Without new issues the market becomes indifferent because from time to time investors must change their portfolios and try new ventures.
   Direct listing has given many issuers an opportunity to fast track an entry into the market. There is a great savings and also there is a chance to really capture the shares to extent one wants. This is never possible in the normal IPO. To most issuers especially when they see the prices of their shares at astronomical range feel that they have lost out. Though this phenomenon of short time bubble eventually bursts but the price usually remains higher than the offer price.
   The allegation in direct listing covers price manipulation, hype etc. The prices are often speculative which induce small investors into the price trap. My great concern also is the pricing of shares in the direct listing. This is indeed a bone of contention because even some highly successful investors make mistakes and is often forced in buying at absurd prices. These investors are trying to conform to what appears to them as the norm. Take for instance a Taka 900+ price bid by an official for the oil company which in fact did not have the pied piper effect.
   Therefore the prime goal of the regulator should be to ensure that there is no manipulative behaviour by the selling brokers. The biggest issue is to ensure that there is no conflict of interest. That is to ensure that no special deals are being given to sister companies. Or that the price is being hyped by insiders and company officials. Of the many allegation against the selling broker-Investment Corporation of Bangladesh (ICB), the main being that their act is monopolistic and not unlike the East India Company.
   The question that remains unresolved is how to ensure fair price. While SEC and the exchange have been pondering this issue they have done little to control the fly away prices. Perhaps there is little they can do except put some more hurdles like circuit breakers. But we have seen what this circuit breaker does to the market in the past. There is, however one thing that the regulatory body may do to cool the mutual fund market. That is to ensure that net asset value is published each day and displayed in the stock exchange. Take for instance the value of Taka one mutual fund which is today on a two digit level and may take 60 years to payback. Being bothered I asked a senior official of the Unit Trust of India about this matter. His reply was that all closed ended mutual funds in the Indian market were usually traded much below the net asset worth. Moreover the value was determined by the scheme and its life. No such safeguard has been introduced by our regulators. All our mutual funds are traded at absurd levels far above the net asset value.
   I feel that once the concept of daily publication of net asset value would have the same effect on the market as they have had on the Islamic Bank's Mudraba Bond. At its opening this bond had a hype of over 50 per cent but soon went below the offer price when the market realised that only a certain sum would come their way parallel to the interest rate. Now these bonds are trading at a discount and there is always an opportunity to gain from arbitrage.
   Often our regulator forgets that our securities laws have been written to safeguard investors from this danger of manipulative action at the time of offering. If one reads the fine print one shall realise that it was written for new direct listings and for the book building approach as it exists in the USA. If someone deters away from the path then he should not be left alone even if he is a fellow public sector man. Otherwise these booties will become rivers of no return.

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BASE VALUE TAX WILL BE IDEAL
Restaurant owners demand rationalisation of VAT

Shamsul Huda

Imposition of flat rate of 15 per cent VAT in the budget on all restaurants -- lower, middle and higher class -- is discriminatory as working capital, sales volume and types of customers are not equal in all restaurants. An ordinary roadside restaurant can attract low-income people who cannot afford to pay 15 per cent extra as VAT. But the restaurant owners face harassment by the VAT collectors. In other words, the restaurants that pay 15 per cent VAT¾ are actually paying it on their capital. This means, out of Tk.100 (80+20), Tk. 80 is capital and rest of the Tk. 20 is profit (including expenses). VAT should be imposed depending on the size and capital of restaurants.
   So, 15 per cent VAT is imposed on Tk.80 plus Tk. 20. If, the government charges 15 per cent VAT on profit that is on Tk. 20 that is possible to pay VAT for all kinds of restaurant owners, said Khandaker Ruhul Amin, founder president, of Bangladesh Restaurant Owners Association (BROA).
   Other sectors like gold jewellery, clinic, printing, photo studio, courier service and many others are exempted from paying 15 per cent VAT. The government has imposed "truncated base VAT system" on them. Khandaker said, the government should introduce base value tax on restaurants. If it happens, the collection will increase and restaurant owners would be encouraged to pay VAT to the government. There would also be a broker and hassle free environment in this basic demand based sector. Though Jewellery and some other sectors are not basic demand of the people, they are enjoying turnover based VAT. What appears rather unjustified is that all top and posh hotels and small restaurants are put together in the same category and have to pay 15 per cent VAT.
   "We pay VAT when we purchase raw foods for our restaurants. We again pay VAT when we sell cooked food to the customers. In this discriminatory system it is very hard to make profit on the part of the restaurant owners," he said. "So, we demand that the government should impose truncated base VAT on restaurant owners in the new budget," 'Khandaker said. In the new 2008-2009 budget the government has also introduced E.C.R (electronic cash registrar) for the restaurant owners. The proposed new system might come to help 'truncated base VAT collection'.
   If the government rationalises the discriminatory VAT system as proposed in the new budget, the restaurant owners would be encouraged to pay VAT to the government willingly, he said and added that the collection will increase. In many countries restaurants are patronised by the government as these serve basic food to the people and promote tourism, he said.

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