Pressure is mounting on the government to allow foreign currency investment abroad at a time when some big business houses are planning to expand their overseas exposure making investment in manufacturing and service sectors.
This is coming to the forex for quite some time when many business houses see they are competent to run profitable business abroad against sluggish investment in domestic market for reasons ranging from political risk to regulatory bottlenecks and high cost of bank loans,
But Bangladesh Bank is not willing to open transfer of money on capital accounts fearing that capital flight will take a devastating turn as a result of it at a time when more investment in domestic sectors is quite important to accelerate economic growth, job creation and income generation for new entrants in the labour market.
The issue top the discussion in the business circles again this time as Bangladesh Bank recently turned down request by three business houses for permission to invest abroad on some specific projects.
Many believe while asking for permission to invest abroad that huge foreign currency reserves are sitting idle at Bangladesh Bank to the tune of US$ 32.55 billion. The government is not using it for any productive purpose except paying import bills. So it is time to allow its investment abroad.
Bit others are opposed to it for fear that much of it will be misused by vested interest quarters in the name of investment when the country needs fund to finance mega projects.
The three business houses — Akij, Nitol and Ha-Meem groups recently demanded permission to invest abroad. Akij Group proposed to invest $20 million in Malaysia, Ha-Meem wants to set up garment factory at a cost of $10 million in Haiti and Nitol is looking to invest $7 million in Gambia to set up a bank.
Ha-Meem intended to invest in the island nation’s garment sector to prop up its shipments to the US, while Akij wanted to buy a Malaysian company that produce fireboard and hardboard.
Between 2011 and 2016, the BB allowed nine businesses to undertake foreign investment from their export retention quota. Those investment amounts were not as large as the one being proposed by the three groups. But since bigger amount is at stake the central bank has now sought the finance ministry’s opinion on the matter, sources in the bank said.
The proposals are too big for the BB to approve on its own as per the foreign exchange guideline, they said.
In its review on the proposals, the central bank held the view that both remittance and export, - the two main sources of foreign currency for Bangladesh, are now on slow lane.
In the first eight months of fiscal 2016-17, remittance slumped 17.6 percent year-on-year to $8.11 billion, according to data from the BB. Export earnings in February stood at $2.72 billion — down 4.49 percent year-on-year and 21.49 percent month-on-month.
Though the country’s foreign currency reserves are healthy, the government is planning to form a sovereign wealth fund with sum, the review said.
Moreover, the government plans to set up 100 economic zones that it plans to fill up with local and foreign investors alike.
“So, local investors should not be allowed to invest abroad when they have huge opportunities to invest in the country,” the report added. But many believe that the reason is good but incompetence of the government and inefficiency of bureaucracy is not allowing the nation to benefit from the huge reserves.
“We are already investing huge amounts in Bangladesh,” said Ha-Meem Group managing director, adding that the apparel exporter has plans to invest $50 million by next year.
But Ha-Meem also has planned to set up operations in Haiti, which gets a host of attractive trade facilities from Europe and the US, to boost its export earnings. He said foreign investors are reluctant to invest in Bangladesh as risk factors are still high,
The Metropolitan Chamber of Commerce and Industries (MCCI) recently called upon the BB Governor to relax the capital account by bringing in amendments to the foreign exchange guideline to facilitate foreign investment.
In response, he said BB will be more liberal about the use of export retention quota but it will not open up the capital account.
Bangladesh needs its own investment as the private sector investment to GDP ratio has remained stagnant at 21-22 percent, said AB Mirza Azizul Islam, former advisor to the caretaker government.
The private sector has huge scope to invest in Bangladesh, so it is perplexing why they want to invest abroad, he added asking the government to create more business friendly environment for massive investment into the economy.