© Embassy of the Kingdom of the Netherlands (EKN), Dhaka, Bangladesh Dhaka: 2011

Address: Embassy of the Kingdom of the Netherlands Road 90, House 49 Gulshan – 2, DHAKA Bangladesh E-mail: [email protected] http://www.netherlandsembassydhaka.org/ Investing in Bangladesh: A Guide for New Investors

Dhaka, June 2011 Map 1: Map of Bangladesh

R R B A

T T Table of Contents

List of Abbreviations ...... vii

Message from the Ambassador ...... ix

1 Favorable Conditions, Constraints and Niche Markets in Bangladesh ...... 1

2 Introduction to Bangladesh, its Geography and its Economy ...... 5

3 Structure of the Government of Bangladesh ...... 8

4 Steps for Establishing a Company in Bangladesh: Preliminaries ...... 11

5 Getting the Required Documents: Steps for Establishing a Company in Bangladesh ...... 15 5.1 Clearance of Company Name ...... 15 5.2 Opening a Bank Account ...... 15 5.3 Certifcate of Incorporation (Investment Permit) ...... 16 5.4 Business Registration ...... 17 5.5 Tax Identifcation Number (TIN) ...... 17 5.6 Value Added Tax (VAT) Number ...... 17 5.7 Trade License ...... 18 5.8 Industrial Registration Application ...... 18 5.9 Tax Privileges ...... 18 5.10 Import Registration Certifcate (IRC) ...... 19 5.11 Export Registration Certifcate (ERC) ...... 19 5.12 BOI Recommendation Letter (for visa) ...... 19 5.13 Visa Application ...... 20 5.14 Work Permit ...... 20 5.15 Acquisition of Land ...... 20 5.16 Environmental Clearance Certifcate ...... 21 5.17 Social Compliance ...... 21 5.18 Driving License ...... 22 5.19 Overview of Costs of Registration ...... 22

6 Indicative Costs of Doing Business ...... 24

7 Transport and Energy Infrastructure in Bangladesh ...... 26

8 Financial System and Loan Facilities in Bangladesh ...... 30

9 Obtaining Utility Connections ...... 34

A Guide for New Investors in Bangladesh V 10 Employers’ Organizations ...... 35

11 Labor Force and Tripartite Dialogue ...... 37

12 Good Business Practices ...... 38

13 Practical Information on Dhaka and Other Cities ...... 41

List of Annexes Annex 1 Export Processing Zones (EPZ) and the Economic Zones (EZ) Act 2010 ...... 47

Annex 2 Chittagong Port ...... 49

Annex 3 Climatic Indicators of Bangladesh ...... 51

Annex 4 Application Forms ...... 52

Annex 5 List of Business Licenses, Agencies and Websites ...... 53

Annex 6 Investment Incentives ...... 54

Annex 7 Translations of Specifc Bangla Words ...... 59

Annex 8 Sector Study: Water ...... 60

Annex 9 Ranking of Bangladesh and Selected Countries on Several Indices ...... 66

List of Maps Map 1 Map of Bangladesh ...... iv

Map 2 Transport Network of Bangladesh ...... 27

Map 3 Map of Dhaka City ...... 43

Map 4 Map of Gulshan, Baridara and Banani ...... 45

Map 5 Map of Chittagong District and City ...... 50

Embassy of the Kingdom of the Netherlands in Dhaka List of Abbreviations

AD Authorised Dealers (in foreign exchange) AISD American International School of Dhaka AL Awami League AOA Articles of Association ASEAN Association of South East Asian Nations BB Bangladesh Bank BDCC Bangla Dutch Chamber of Commerce (in Groningen) BDT Bangladesh Taka BEF Bangladesh Employers’ Federation BEI Bangladesh Enterprise Institute BGMEA Bangladesh Garment Manufacturers and Exporters Association BKMEA Bangladesh Knitwear Manufacturers and Exporters Association BEPZA Bangladesh Export Processing Zones Authority BGSL Bakhrabad Gas System Ltd. BILS Bangladesh Institute of Labor Studies BIWTA Bangladesh Inland Water Transport Authority BIWTC Bangladesh Inland Water Transport Corporation BNP Bangladesh Nationalist Party BOI Board of Investment BOST BOI Online Service Tracking BRTA Bangladesh Road Transport Authority BSCIC Bangladesh Small and Cottage Industry Corporation BTTB Bangladesh Telegraph and Telephone Board CBC Customs Bond Commissionerate CCI&E Chief Controller of Imports and Exports CDA Chittagong Development Authority CIFE Chief Inspector of Factories and Establishment CPA Chittagong Port Authority CSR Corporate Social Responsibility DBCCI Dutch Bangla Chamber of Commerce & Industry (in Dhaka) DCC Dhaka City Corporation DDCI Dhaka Chamber of Commerce and Industry DESA Dhaka Electric Supply Authority DESCO Dhaka Electric Supply Company

A Guide for New Investors in Bangladesh VII DOE Department of Environment DPDT Department of Patents, Designs & Trademarks DSE Dhaka Stock Exchange EIU Economist Intelligence Unit EKN Embassy of the Kingdom of the Netherlands EPB Export Promotion Bureau EPZ Export Processing Zone ERC Export Registration Certifcate EU European Union EVD (Dutch) Economic Information Service (Economische Voorlichtings Dienst) FDI Foreign Direct Investment FOB Free on Board FS&CD Fire Service and Civil Defense FY Fiscal Year GOB Government of Bangladesh GSP Generalized System of Preferences ICT Information and Communication Technology IDCOL Infrastructure Development Company Limited ILO International Labor Organization IRC Import Registration Certifcate JGTDSL Jalalabad Gas Transmission & Distribution System Ltd. JV Joint Venture KDA Khulna Development Authority LFMEAB Leather goods & Footwear Manufacturers & Exporters Association of Bangladesh MOA Memorandum of Association MOLE Ministry of Labor and Employment NBFI Non-Bank Financial Institution NBR National Board of Revenue NRC Netherlands Recreation Centre (‘Dutch Club’) NRTA Non-Resident Taka Account PDB Power Development Board PMO Prime Minister’s Ofce PPP Public Private Partnership RAJUK Dhaka City Development Authority (Rajdhani Unnayan Kartripakkha) REB Rural Electrifcation Board RJSC&F Registrar of Joint Stock Companies and Firms TGTDCL Titas Gas Transmission & Distribution Company Ltd. TIN Tax Identifcation Number USC Utility Service Cell (of the BOI) VAT Value Added Tax WASA Water and Sewerage Authority

Embassy of the Kingdom of the Netherlands in Dhaka MESSAGE FROM THE AMBASSADOR

Asia is the world’s economic powerhouse, Bangladesh is part of this dynamic environment. During the last decennium Bangladesh has realised impressive economic growth, approximately 6% annually, and managed to decrease the percentage of people living below the poverty line from 40% in 2005 to 31.5% in 2010. Bangladesh is a new emerging market with a young population of close to 165 million and a fast increasing middle class. As a consequence, this growing internal market ofers ample opportunities for trade and investment in consumer goods and luxury items. The Government of Bangladesh aims at diversifying the economic base of the country by facilitating investments in an identifed series of priority areas. Furthermore it provides incentives to the earmarked sectors that will lead the growth of the export performance such as Ready Made Garments, Pharmaceuticals and Shipbuilding. It is a well known fact that the country faces challenges such as the lack of proper road and rail infrastucture and frequently interrupted power supply. Since the Government of Bangladesh has unveiled plans to address these challenges and actually facilitates investments in these areas the aforementioned constraints provide actually business and investment opportunities. Issues of governance and the absence of implementing policies in general remains, 01 however, a serious impediment for attracting FDI and require constant attention. The brochure ‘Investing in Bangladesh’ will give you an insight in the above mentioned issues and will provide you with answers to your initial questions when considering investing in this ‘destination of the future’. The Netherlands Embassy at Dhaka looks forward to assist you further to set up business in Bangladesh.

Alphons Hennekens Ambassador

IX Garments

Workers make clothes at a garment factory in Dhaka. Bangladesh’s exports, dominated by the sale of low-cost garments to mass-market retailers like Wall-Mart, have fared well. © Mominul Haque Dulu

Pharmaceuticals

Bangladesh, one of the least developed countries, is trying to boost its pharmaceutical exports to, for example, the Middle East as the country enjoys unique concessions as a least developed country in the drug patent rules of the World Trade Organization (WTO).

Shipbuilding

Shipbuilding has been the fastest growing export sector in the past year © [email protected]

Embassy of the Kingdom of the Netherlands in Dhaka Favorable Conditions, Constraints and Niche 01 Markets in Bangladesh

Bangladesh can be considered as a rapidly emerging market pushed forward by its export industries: exports have grown by 40 % in the period from July 2010 to January 2011. This is remarkable in a time when most economies are still sufering from the efects of the global fnancial crisis. The main products responsible for this growth are knitwear and woven products, together responsible for over three-quarters of Bangladesh’s exports. Interestingly, the fastest growing sector in this period was shipbuilding (with almost 1,400 % gro wth).1

Apparel exports increased mainly because of the shift of international buyers from China to Bangladesh; due to the increasing costs of production in China, this country has a Bangladesh’s decreasing competitiveness, and signifcantly it is losing market to Bangladesh.2 The other opportunity that promises to exports have grown strengthen Bangladesh’s position further is related to the new with 40% in the rules of EU’s Generalized System of Preferences (GSP), in particular second half of the changed Rules of Origin, which are in place since the 1st of 2010. January 2011. In the frst two months of 2011 this has already resulted in a rise of exports of garment products.3 In addition, Japan is also planning to adjust its trade rules in favor of least developed countries (including Bangladesh) from April 2011.

The shift towards Bangladesh could have been much larger were it not for the energy crisis in particular the inability of the grid to meet the demand. As a result of the regular power outages potential new ventures are being deferred and private sector job creation is stalled; in addition, some reports indicate that Chinese, Taiwanese and Korean investors are delaying concrete plans to build factories in Bangladesh, especially in Export Processing Zones (EPZs), until the energy crisis is being solved, although the energy situation in EPZs is better than elsewhere.4 The government has announced plans to deal with the energy shortage on a priority basis, but progress seems slow. The political situation is currently quite stable, although the image of the country as an investment destination could be damaged if labor unrest and hartals fare up once too often.

1. Data from Export Promotion Bureau, EPB (cf. The Daily Star 8 February 2011). Total export earnings were 12.2 billion US$ in the period July 2010-January 2010, and grew by 40 % compared to the same period a year earlier. 2. Sources: Interviews with Dutch Textiles buyers in Bangladesh (cf. EKN 2010: Opportunities and Constraints for Dutch Entrepreneurs in Bangladesh; A Work Plan for EKN), and EPB: The Daily Star (20/02/2011): Garment exports to go big. 3. Compared to the same period in 2010, the earnings from EU countries have doubled, the number of GSP certif- cates issued by EPB has risen by 20%, and the pieces of garment items exported has also risen by 20% (The Daily Star 03/04/2011). 4. Cf. EKN (2010): op. cit.; and The Daily Star (7 December 2010): Power crunch stalls top houses’ hiring.

A Guide for New Investors in Bangladesh 1 Bangladesh as an emerging market ofers a number of favorable conditions to Dutch and other frms for doing business: it has a series of cost competitive advantages, it ofers a large domestic market and it has a strategic location near to the fastest growing economies of the world. At the same time, the main constraints will also be identifed. This chapter will be concluded with a brief indication of selected niche markets which deserve special mention. Favorable Conditions Bangladesh is a cost competitive investment destination in several respects. Firstly, it ofers a young, industrious workforce with the lowest wages in the region, and English is the second language after Bengla. Secondly, industrial estates, ofces and housing for foreigners in the country are often cheaper than in other South and South East Asian countries. Thirdly, Bangladesh enjoys tarif-free access to the European Union (through EU’s Generalized System of Preferences, GSP), Canada, Australia and Japan. Fourthly, it has a proven export competitiveness that can be illustrated as follows:

Bangladesh ofers some of the world’s most competitive fscal and non-fscal investment incentives.

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

Bangladesh ofers export-oriented industrial enclaves, Export Processing Zones (EPZ) with infrastructural facilities and logistical support for foreign investors. Bangladesh has recently embraced a more fexible and competitive economic zones regime with the enactment of the Economic Zones Act 2010 which paves the way for private economic zones (cf. Annex 1).

The Foreign Private Investment (Promotion & Protection) Act 1980 provides protection for investments made in Bangladesh.

Lastly, in itself the energy prices in Bangladesh are the most competitive in the region; however, currently there is a shortage of electricity and gas supply (and a stop on new connections) which the government is trying to counter on a priority basis.

Recent international ratings are generally quite Box 1.1: International ratings: WB Doing Business Rank 2011: Bangladesh occupies the positive on Bangladesh’s economic potential (cf. 107th place among 183 countries, well above India and Box 1.1). Also rather positive are the national indices Indonesia (cf. Annex 9). and rankings concerning governance, gender and Goldman Sachs’ s Next 11: Bangladesh was indicated as one of eleven emerging markets in 2005 indicating its potential wellbeing, but the rankings for Dhaka on livability, of becoming one the world’s larger economies. people risk and social networking are extremely JP Morgan’ s Frontier Five: Bangladesh was listed in 2007, low (cf. Annex 9). just as Vietnam, as one of fve countries with impressive economic and investment potential. With about 160 million inhabitants and a middle Standard & Poor’s and Moody’s sovereign credit ratings: Bangladesh received its credit ratings (BB- and Ba3) in 2010 class that is rapidly growing in size compared to (reconfrmed in April 2011). Moody’s rating puts the other classes, there is an increasing domestic Bangladesh on par with Vietnam. demand for example for consumer goods. The ADB list of Asian growth drivers: Bangladesh has failed to manage a place on the list of eight Asian countries (incl. Bangladesh is strategically located near the emerg- Malaysia and Vietnam), which are projected to account for 95 % of Asia’s growth between 2010 and 2050 ing economic giants, India and China, and near to (The Daily Star 21/03/2011). the ASEAN markets.

Embassy of the Kingdom of the Netherlands in Dhaka At the same time, some economic data prompt a cautious outlook. Firstly, Bangladesh has the lowest FDI infow in South Asia (0.8% of GDP). Secondly, the country continues to add 2 million people to its labor force every year and unemployment is currently at 8% while underemployment is much higher. Constraints: “High Risk, High Proft” The main challenges for the country remain in the areas of energy, transport infrastructure, and governance. More specifc risks could also be mentioned, such as the recent increases in food prices, possible disruptions of Chittagong Port and the maintenance of general industrial harmony, but below only the frst three challenges will be discussed.

Bangladesh is currently confronted with an energy crisis, especially due to a shortage of gas for electricity generation; load shedding could afect business and investment decisions. However, the government has declared power supply as a priority. Contracts are being signed for rental power supply infrastructure in order to relieve short-term shortages, and longer term expansion of capacity is being reviewed (for example, contracts have been concluded with Russia in the area of nuclear energy).

The transport infrastructure of the country requires improvements in diferent areas, which in turn can be translated into increasing business opportunities. Cases in point are the supervision and construction of the Padma Bridge, the Dhaka Elevated highway (the contract was awarded in December 2010 to an Italian-Thai consortium), the Dhaka – Chittagong Highway, the Dhaka Mymensing highway, and the plans to upgrade railroads and inland waterways. This shows that the Government is committed to tackle these constraints with priority.

In terms of Governance it is signifcant to mention that Bangladesh has gradually improved its ranking Box 1.2: Doing Business Rank 2011 on the Corruption Perceptions Index (CPI) composed In the World Bank Doing Business Rank 2011 Bangladesh occupies the 107th rank among 183 countries; it not only by Transparency International from the very bottom improved its ranking but it also leaves countries like India and of the list in 2005 (158th, jointly with Chad) to the Indonesia behind. Of the nine indicators Bangladesh ranks highest on ‘protecting investors’ (20th) and lowest on ‘enforc- 134th place out of 178 countries in 2010. In addition, ing contracts’ (179th); the most improvement was made in Bangladesh’s ranking is on par with the Philippines ‘starting a business’; for details see Annex 9. (same rank), higher than Pakistan (143), but lower Source: World Bank Group (2010): Doing Business Rank 2011. 01 than Vietnam (116) and Indonesia (110). These indices are discussed in more detail in Annex 9. Corruption can sometimes be a barrier for doing business in Bangladesh, and although the Anti-Corruption Commission (ACC), installed by the Caretaker Government, started its task with high profle cases, its independence seems currently to be challenged. A weak and slow legal system can be another impediment to investment in Bangladesh resulting in uncertain enforceability of contracts (See also Box 1.2). The judicial system does not provide for interest to be charged in tort judgments, and hence there is no penalty for delaying proceedings. While the Supreme Court and High Court (appellate level courts) are independent, the lower courts are part of the executive branch of government. In some cases the Bangladesh Export Promotion Bureau (EPB) could be helpful in assisting in dispute settlement of export-related transactions. Major Bangladeshi trade and business associations can also be helpful in assisting in transaction disputes.5

5. Cf. the US Department of State (2006): Chapter 5 at: http://www.manufacturebd.com/images/doing_business_in_bangladesh-a_country_guide.pdf

A Guide for New Investors in Bangladesh 3 In sum, the favorable conditions mentioned above in combination with the constraints mentioned here lead to a situation that can be characterized as “High Risk, High Proft” in particular in certain niche markets discussed below. Niche Markets The key sectors of the Bangladesh economy are thriving, fuelled by the vision of international companies that recognize the unique opportunities that the country has to ofer. Over 100 companies have invested in the country in the last three years, but FDI has remained relatively low: US$ 3.1 billion in 2009-2010 of which about 60% is in the service sector (esp. telecom). The Board of Investment (BOI) has identifed ten key sectors, to which we can add Pharmaceuticals and Shipbuilding:

Power Industry Agribusiness Light Engineering ICT & Business Services Frozen Foods Leather and Leather Goods Garments and Textiles Ceramics Pharmaceuticals Life Sciences Electronics Shipbuilding

Source: http://www.boi.gov.bd/key-sectors

Information on export products can be found on the website of the Export Promotion Bureau (EPB) of the Ministry of Commerce (http://www.epb.gov.bd/). Reference is also made to the picture page in the present brochure before Chapter 6.

In Annex 8 we present an example of a Sector Study which provides more detailed information on specifc niche markets which are promising for Foreign Investors. It concerns a Market Scan on the Bangladesh Water Sector, commissioned by the Embassy of the Kingdom of the Netherlands in Dhaka, Bangladesh, in 2010. © Katalyst

Vegetable Market in Bangladesh

Embassy of the Kingdom of the Netherlands in Dhaka Introduction to Bangladesh, its Geography and 02 its Economy

Geography Bangladesh with over 160 million inhabitants on a landmass of 147,570 square kilometers is one of the most densely-populated countries in the world. Despite articulate ambitions of the Government of Bangladesh to become a middle-income country by 2021, at present it remains a low-income country with 31.5 percent of its population living below the © Katalyst 6 poverty line, and a per capita income of US$ 750. Fishing in the Floodplains of Bangladesh

Geography is a strong determinant of Bangladesh’s development. The country is bordered by India on the west, north, and north-east, by Myanmar on the south-east, and by the Bay of Bengal on the south. Eighty percent of its area consists of floodplains created by more than 300 rivers and channels, including three major rivers: the Ganges, the Brahmaputra, and the Meghna. It has a 710 km long coastal belt that is home to nearly 35 million people. Bangladesh’s geographical position and very high population density make it extremely vulnerable to natural disasters including foods, droughts and cyclones. Global climate change has increased these vulnerabilities substantially.

The two most important cities in Bangladesh are Dhaka, which is the capital, and Chittagong, the main harbor city. The transport networks of the country are discussed in Chapter 7, while more details on the harbor of Chittagong are provided in Annex 2. Climate Weather in Dhaka can be described as follows: Hottest month, July, 23°-35°C (average daily Source: Bangladesh Bureau of Statistics (BBS): Statistical Pocket Book minimum and maximum); 2009. http://www.bbs.gov.bd/Home.aspx coldest month, January, 11°-28°C (average daily minimum and maximum); driest months, December and January, 5 mm average monthly rainfall;

6. Cf. Sources: a) Bangladesh Sixth Five Year Plan: FY2011-FY2015: Accelerating Growth and Reducing Poverty. Draft March 2011,Planning Commission, Ministry of Planning, GoB; and b) Household Income and Expenditure Survey (HIES) 2010, Bangladesh Bureau of Statistics (Dhaka).

A Guide for New Investors in Bangladesh 5 wettest month, July, 567 mm average monthly rainfall. Further details are given in Annex 3. Facts and Figures The main language spoken is Bengali or Bangla, while Urdu and Hindi are minority languages; English is used often as a second language. The religion of the large majority of inhabitants is Muslim (89.7% in 2001 census); other religions are Hindu (9.2%); Buddhist (0.7%); and Christian (0.3%).

Numbers are commonly expressed in crores and lakhs; 1 crore = 10 million, written 1,00,00,000; 1 lakh = 100,000, written 1,00,000 (see Annex 7 for a translation of selected Bangla words).

The Bangladesh Time is 6 hours ahead of GMT.

Currency: Bangladesh Taka (BDT)7 The currency is the Taka (BDT) being divided in 100 paisa. The exchange rate in January 2011 was: BDT 70 = US$1; BDT 93 = Euro1. The Dhaka Stock Exchange (DSE) Index was on 28th November, 2010 as follows: DSE Index was 7215.78, and General was 8698.94. However, on 11 January 2011 the Securities and Exchange Commission (SEC) stopped trading in the midst of the biggest crash in the country’s capital market history. The general index of Dhaka Stock Exchange (DSE) went down and dropped 660 points or 9.25% within just 40 minutes of trading. In February and March 2011 the index remained volatile. A Commission has been installed to investigate the main actors involved, the reasons behind the crash and its aftermath. Export/Import The main export and import products and countries are summarized in the table below. For more information on economic data, see: http://www.boi.gov.bd/about-bangladesh/ bangladesh-at-a-glance

Major Exports 2009/10* % of Total Major Imports 2009/10* % of Total Readymade Garments 69.0 Capital Goods 20.9 Fish & Prawns 3.2 Textiles 19.1 Jute Products 2.4 Petroleum & Petroleum Products 11.5 Leather & Hides 2.0 Iron & Steel 6.7

Leading Markets 2009 % of total Leading Suppliers 2009 % of Total US 20.2 China 16.2 Germany 12.7 India 12.6 UK 8.6 Kuwait 7.6 France 6.5 Singapore 4.6

*The Fiscal Year (FY) runs from July 1st to June 30th Source: Economist Intelligence Unit: http://country.eiu.com/article.aspx?articleid=507601435&Country=Bangladesh

7. Cf. Economist Intelligence Unit: http://country.eiu.com/article.aspx?articleid=1487600733&Country=Bangladesh

Embassy of the Kingdom of the Netherlands in Dhaka Digital Bangladesh The vision of the present Government is to make Bangladesh Digital by 2021. The philosophy of “Digital Bangladesh” comprises:

“Ensuring people’s democracy and rights, transparency, accountability, establishing justice ‘Digital Bangladesh’: and ensuring delivery of government services in each Visit the website: door through maximum use of technology-with the http://www.digitalbangladesh.gov.bd/ ultimate goal to improve the daily lifestyle of general people.” 8

This includes for example E-Registry, E-Commerce and Online Service Tracking. Currently these services are being developed, and often documents are not yet available as downloads (or only in Bangla); instead one has to collect them from various ofces. BOI Online Service Track- ing (BOST) is an online interactive e-governance solution that facilitates the investors to track their service requests made to BOI. 9 Media

There are good English language newspapers, © Miriam Otto such as The Daily Star, The Independent, New Age An ICT Centre providing information on agriculture and Daily Sun. There is also an excellent website with the latest news items: http://www.bdnews24. com/.

State-run television channel BTV airs English news every night. Other privately owned satellite channels such as ATN NEWS, ATN BANGLA, Boishakhi, Diganta TV and 02 Banglavision air daily news bulletins in English (mainly evening hours). Besides, these local news channels, the international channels such as BBC, CNN and Al-jazeera are also aired in Bangladesh. In order to get access to these local and international channels (except the state © Miriam Otto television channel BTV) one has to subscribe Bangladesh has a high density of mobile phone users with over 70 for a package with an area based local provider million users from January 2011 (contact with employer or house owner to fnd out the company in your area).

8. Cf. http://www.boi.gov.bd/about-bangladesh/government-and-policies/digital-bangladesh-overview 9. Cf. http://www.boi.gov.bd/boi-interactive/online-service-tracking

A Guide for New Investors in Bangladesh 7 Structure of the Government 03 of Bangladesh

The characteristics of the national government of Bangladesh are as follows (October 2010):

Ofcial Name People’s Republic of Bangladesh Bangladesh has been a parliamentary democracy since a Form of Government constitutional amendment in 1991 The Prime Minister is chief executive and head of the Council of Ministers (the cabinet), which she selects; the The Executive presidency is a largely ceremonial role, although the president appoints members of the cabinet and the judiciary and has the power to dissolve parliament. A unicameral parliament, consisting of 300 members directly elected from geographical constituencies for National Legislature fve-year terms, plus 45 seats reserved for women elected by sitting lawmakers. The most recent election was held on December 29th 2008. A caretaker government will be appointed in January 2014 National Elections to supervise the next election, which must then be held within 90 days. An alliance headed by the Awami League (AL) won more than two-thirds of the seats in parliament at the December 2008 election, which was overseen by a non- partisan caretaker government. The AL dominates the National Government alliance, with a two-thirds majority in parliament in its own right. Four other parties in the alliance also won seats: the Jatiya Party, the Jatiya Samajtantrik Dal (JSD), the Workers Party of Bangladesh and the Liberal Democratic Party (LDP). AL; Jatiya Party; JSD; Workers Party of Bangladesh; LDP; Main Political Bangladesh Nationalist Party (BNP); Jamaat-e-Islami; Organizations Bangladesh Jatiya Party (BJP)

President President Zillur Rahman Prime Minister Prime Minister Sheikh Hasina

Source: Economist Intelligence Unit: Country Report Bangladesh (October 2010).

Embassy of the Kingdom of the Netherlands in Dhaka Key Ministers: Agriculture Begum Motia Chowdhury Civil Aviation & Tourism G M Quader Commerce Lt. Col. (Retd.) Faruq Khan Communication Syed Abul Hossain Education Nurul Islam Nahid Finance Abdul Maal Abdul Muhit Fisheries & Livestock Abdul Latif Biswash Food & Disaster Management Dr. Abdur Razzak Foreign Afairs Dr. Dipu Moni Home Afairs Advocate Sahara Khatun Industries Dilip Barua Labour & Employment Engineer Khandaker Mosharraf Hossain Law, Justice & Parliamentary Afairs Barrister Shafq Ahmed Local Government & Rural Development Syed Ashraful Islam Planning Ari Vice Marshal (Retd.) A K Khandaker Shipping & Inland Water Transport Shahjahan Khan Textile & Jute Industry Abdul Latif Siddiqui Water Resources Ramesh Chandra Sen Central Bank Governor Atiur Rahman Source: Economist Intelligence Unit: Country Report Bangladesh (October 2010). Tiers of Government The diferent tiers of national, regional and local governments vary in part for rural and for urban areas. The following tiers can be distinguished: 10

Tiers of Government Head of Government No. of Units * Status National Government Prime Minister 1 Elected Divisional Divisions (Province) 6 Not elected Commissioner 03 Zila Parishad (District) Deputy Commissioner 64 Not elected Rural: Upazila Parishad Chairman 482 Elected (Sub-District) (ex: Thana) Union Parishads Chairman 4,223 Elected Gram (Palli) Sarkar/ Village Head About 40,000 Selected bodies Parishad Urban: City Corporations Mayor 6 Elected Municipalities Chairman 310 Elected (Pourashavas) Determined by Zones, Wards & Mahallas ------the Government * Numbers are approximate since it changes according to the joining and/or separation of units.

10. Based on: Kamal Siddiqui (2005): Local Government in Bangladesh; Revised Third Edition. Dhaka: UPL. CGS/BRAC (2006): The State of Governance in Bangladesh 2006. Knowledge, Perceptions, Reality. Dhaka: BRAC. Various articles in Daily Newspapers, including: The Daily Star (4 December 2010): Municipality Polls next month.

A Guide for New Investors in Bangladesh 9 House of the People (Jatiya Sangsad) Beninger © Peter The frst elections in 2011 were the Municipal elections in January, and they were held in 257 out of 310 Municipalities. These were mainly peaceful, and held in a democratic way; the main opposition party, BNP, won just a few more mayoral posts than the ruling Awami League party (each about 40%), while AL-rebel candidates won more posts than the BNP-rebel candidates (about 9% and 5% respectively). This should be followed later in the year by the elections for the Union Parishads and the Dhaka City Corporation which have been postponed several times for various reasons. Policies & Protection The Bangladesh economy is managed within the framework of a market economy with “.. government interventions intended to correct market distortions, to ensure equality of opportunities and to ensure equity and social Important websites on policies: justice for all.” as it is indicated in the draft Sixth Five t
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http://www.plan- comm.gov.bd/about.asp the draft Plan indicates that Bangladesh remains amongst the most heavily protected countries in the world. Useful websites on Laws Regarding legislation and specifc laws, several websites can be consulted for the most up-to-date information: Government of Bangladesh: http://www.bangladesh.gov.bd/ Bangladesh Election Commission: http://www.ecs.gov.bd/English/index.php The website for the Ministry of Law, Justice and Parliamentary Afairs: http://www.minlaw.gov.bd/indexin.htm The web site for the codifed laws: o Alphabetically: http://bdlaws.minlaw.gov.bd/alp_index_update.php o Chronologically: http://bdlaws.minlaw.gov.bd/chro_ind

11. cf. Bangladesh Sixth Five Year Plan: FY2011-FY2015: Accelerating Growth and Reducing Poverty. Draft March 2011, Planning Commission, Ministry of Planning, GoB.

Embassy of the Kingdom of the Netherlands in Dhaka Steps for Establishing a Company in Bangladesh: 04 Preliminaries

There are several preliminary steps which are advisable to take before continuing to establish the company itself. In the Home Country Before going to Bangladesh one should make sure to have all the required documents, which may well include a certifed translation in English of the Memorandum of Association and/or the Articles of Association of the company or mother company.

For Dutch companies up-to-date information can be obtained by contacting the following organisations:

1) The Economic Information Service (EVD) of the Ministry of Economic Afairs, Agriculture and Innovation (ELI) in the Hague: http://www.evd.nl/home/index.asp 2) The Embassy of the People’s Republic of Bangladesh in the Hague: http://www.bangladeshembassy.nl/ 3) De Bangla Dutch Chamber of Commerce (BDCC) in Groningen: http://www.bdcc.eu/

Local Agent/Partner The registration of a company in Bangladesh can be time-consuming because of the relatively Box 4.1: Screen Local partner large number of rules and regulations. Therefore, “Many local agents admit to having paid bribes and using undue infuence to get a contract awarded in public procure- it is advisable to secure oneself of local assistance, ments. Although local agents routinely sign documents agree- for example a good local partner or consultant ing to comply with the Foreign Corrupt Practices Act, many of them continue to conduct under-the-table deals without the who is experienced in these matters. According U.S. companies’ knowledge or approval. Companies need to to most of the experienced foreign entrepreneurs exercise signifcant caution when hiring local agents and thor- oughly educate the agent about acceptable business prac- in Bangladesh this investment will pay itself back tices. Companies also should monitor local agents’ activities as easily. A ‘Power of Attorney’ may be necessary for closely as possible. Personal interviews are useful in discussing a business proposal with a potential agent or distributor.” the local agent/partner. At the same time, it is often Source: US Dept. of State (2006): Chapter 3 at: http://www. strongly advised to screen carefully any potential manufacturebd.com/images/doing_business_in_bangladesh- agents working on your behalf. For example, the a_country_guide.pdf068. U.S. Embassy’s experience suggests that a signifcant proportion of local agents do not adhere to U.S. standards of business ethics, and that continuing monitoring is required (cf. Box 4.1). The Netherlands Embassy can also be requested for advice in such matters.

A Guide for New Investors in Bangladesh 11 Board of Investment (BOI) The frst point of contact in Bangladesh for a foreign investor is usually the Board of Investment (BOI), which is part of the Prime Minister’s Ofce (PMO). BOI provides information on the investment opportunities in Bangladesh and the incentive packages on ofer. Other services are:

Assistance can be obtained in completing application forms and referring investors to the relevant department within the BOI.

If the investor is to locate in an export processing zone then BOI will introduce the company to the Bangladesh Export Processing Zones Authority, who will facilitate the early start up processes.

BOI can provide information on the procedures required to establish a company in Bangladesh and the time that registering and establishing a company will typically take.

Information is provided on the types of companies that can be formed, the general costs of doing business in Bangladesh, how to obtain the necessary work permits for you and your staf, remitting funds to Bangladesh, and so on.

Once you decide that you want to set up a company in Bangladesh your registration with BOI can be managed electronically, through the BOI Online Registration process (http://www.boi.gov.bd/)

Type of Business You will need to set up an appropriate company structure. By this stage you will need to know: t
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Business in Bangladesh can be carried out by a company formed and incorporated locally or by a company incorporated abroad but registered in Bangladesh. The incorporation or registration is done by the Registrar of Joint Stock Companies and Firms (RJSC&F) which will be discussed in the next chapter.

Companies may be private or public limited companies or unlimited companies. In establishing a place of business of a foreign company, the company has to be registered with the RJSC&F as the place of business. Such registration is required in respect of capital issue and obtaining clearance from the Bangladesh Bank.

To open or extend a branch/liaison representative ofce of a foreign company, the company has to apply to the BOI. After starting commercial operations BOI will be following up with what you need subsequently. Investors need to submit a half-yearly performance report to the BOI on production and employment in their projects. Any changes to the information provided in the registration should be indicated to the BOI.

Check this website for the help that can be provided regarding investments: http://www.boi.gov.bd/how-to-invest/roadmap-to-investment

Embassy of the Kingdom of the Netherlands in Dhaka EU Investors All EU investors are also invited to visit the website of the EU Delegation in Dhaka, Bangladesh, as a local reference point for rules related to trade and investment in this country, and two related websites:

EU Delegation in Dhaka: http://www.eudelbangladesh.org/en/index.htm

Bangladesh - European Community Country Strategy paper (CSP) 2007-2013: http://www.eudelbangladesh.org/en/eu_and_country/ Bangladesh_CSP_en_2007-2013.pdf

The EU Export Helpdesk: http://exporthelp.europa.eu/index_en.html

Another very useful website (though not updated since 2006) is entitled “Doing Business In Bangladesh: A Country Commercial Guide for U.S. Companies” by the U.S. & Foreign Commer- cial Service and U.S. Department of State (2006): http://www.manufacturebd.com/images/ doing_business_in_bangladesh-a_country_guide.pdf. Throughout the present Brochure references will be made to the relevant pages of this website.

The following fow-chart provides an overview of the steps needed for company registration and the institutions involved (the numbers refer to the respective sections in Chapters 4 and 5).

04

A Guide for New Investors in Bangladesh 13 STEPS IN THE REGISTRATION PROCESS

Preparations in the Home Country Home C.

4.1 Find and Screen a Local Partner Partner

4.2 Contact the BOI BOI

4.3 Select Appropriate Company Structure BOI Website

4.4 Check with EU Trade Section and Websites EU

5.1 Clearance of Company Name RJSRF

5.2 Opening a Bank Account Bank

5.3 Certifcate of Incorporation (Investment Permit) RJSRF

5.4 Business Registration BOI

NBR

5.6 Value Added Tax (VAT ) Number NBR

5.7 Trade License DCC

5.8 Industrial Registration Application BOI

5.9 Tax Privileges NBR

BOI & CCI&E

CCI&E

5.12 BOI Recommendation Letter (for visa) BOI

5.13 Visa Application Embassy

5.14 Work Permit BOI

5.15 (optional) Acquisition of Land BOI

BOI & DOE

5.17 Social Compliance CIFE

5.18 Driving License BRTA

Embassy of the Kingdom of the Netherlands in Dhaka Getting the Required Documents: Steps for Establishing a Company 05 in Bangladesh12

The steps foreign entrepreneurs have to take in order to register their companies properly in Bangladesh are discussed in this chapter. An overview of these steps has been given in the fow-chart in Chapter 4.

5.1 Clearance of Company Name The company name selected should not be identical with or closely resemble the name of an existing company. An application in plain paper along with required nominal fees is to be submitted to the Registrar of Joint Stock Companies and Firms (RJSR&F) for verifcation and clearance of the proposed name. According to RJSC&F, the Name Clearance procedure for a Joint Venture includes the following: “Sponsors of the Companies are requested to follow the following procedure: for Joint venture companies, the entire equity of the foreign sponsors is required to be paid in foreign exchange; as such the 5% pre-registration deposit must also be made in foreign currency. The bank shall specifcally mention this FOREX transaction in its certifcate with the names of the sponsors.”

5.2 Opening a Bank Account With the name clearance certifcate one has to open a bank account, which according to the Foreign Exchange (ForEX) Guidelines of the Bangladesh Bank is stipulated as follows: Authorised Dealers (ADs) in foreign exchange, such as commercial banks, “… may open Non-Resident Taka Account (NRTA) in the name of the proposed company/enterprise of foreign investors contemplating to invest in Bangladesh without prior approval of Bangladesh Bank. Such accounts may be credited with inward remittances received from abroad only. Upon registration/commencement of the business, a new account in the name of the company may be opened following usual procedure. However account opened previously should be closed immediately and balances lying therein shall be transferred to the new account.”13

Foreign Exchange (ForEX) Guidelines of the Bangladesh Bank: http://www.bangladesh-bank.org/regulationguideline/foreignexchange/feguidevol1all.pdf

12. This chapter has benefted greatly from the information received from Mr. Maarten Verbruggen en Mr. Rob Jongkees of DeltaDesh, and therefore we would like to thank them sincerely. 13. Bangladesh Bank, 31st May 2009, page number 59, Chapter 9, Article 2C in ForEX Guidelines: http://www.bangladesh-bank.org/regulationguideline/foreignexchange/feguidevol1all.pdf

A Guide for New Investors in Bangladesh 15 This leads to the following implications and advice: a. One has to open a temporary Bank Account after the name clearance where the foreign investor(s) will send their equity requirement. The documents required to open this NRTA are: i. Name clearance copy ii. Draft MOA iii. Draft AOA iv. Board minutes of meeting with reference to JV agreement b. The equity of the local partner can only be deposited after incorporation of the company. c. Select a local bank branch that is nearby (a favorable attitude at this branch towards the specifc project can also be helpful).

Transfer equity from abroad: after receiving the foreign remittance from the foreign investor(s) in the bank, the bank will issue an encashment certifcate in the personal name of the foreign investor (required in order to be able to transfer – parts of the invested amount out of Bangladesh at a later stage).

After receiving the ‘Certifcate of Incorporation’ (see Section 5.3 below), the NRTA in the bank has to be changed to normal current account. Documents required: a. Final MOA b. Final AOA c. Incorporation Certifcate

The bank will now open a current account (A/C) in the name of the company with signatories’ authority according to the Board minutes of meeting and/or JV agreement. At this point the local partner in the joint venture has to transfer his/her equity contribution into the Bank account. More information on fnance and banking is included in Chapter 8.

5.3 Certifcate of Incorporation (Investment Permit) All the required documents now need to be submitted to the RJSCF in order to complete and fnalize the incorporation of the company and to acquire a ‘Certifcate of Incorporation’ (cf. Annex 5, Nr. 3). The documents required are: a. Encashment certifcates for the foreigners b. Income Tax Certifcates for the Local investors c. Final MOA d. Final AOA e. JV agreement f. Board minutes of meeting with reference to JV agreement

Embassy of the Kingdom of the Netherlands in Dhaka 5.4 Business Registration Application to the BOI for Registration of Joint Venture Investment (cf. Annex 5, nr. 8). The BOI registration makes the company eligible to avail the incentives and facilities provided by the government. Required documents are: a. Application Forms b. Certifcate of Incorporation c. MOA d. AOA e. Joint Venture Agreement f. Attested copy of deed agreement for rental premises g. Project Profle h. Background of the promoters (shareholders) i. List of Machineries indicating quantity and price j. Copy of the relevant Loan documents k. Pay Order/Bank draft for the fee

In case a diferent type of company than a joint venture is being registered, other requirements are among others the following: Factory: Approval of Factory Plan (cf. Annex 5, nr. 1); Bonded Warehouse License (cf. Annex 5, nr. 2); Registration of Local Investment Project (cf. Annex 5, nr. 9).

5.5 Tax Identifcation Number (TIN) The application for a Tax Identifcation Number (TIN) has to be submitted to the National Board of Revenue (NBR) with the following supporting documents (cf. Annex 5, nr. 11): a. Copy of AOA b. Copy of MOA 05 c. Copy of Incorporation certifcate d. Prescribed government forms e. Deposit the receipt (challan) of the bank for the application fee

For the Tax Holiday Certifcate one also needs to contact the NBR (see Annex 5, nr. 10).

5.6 Value Added Tax (VAT) Number The Value Added Tax (VAT) number can be acquired as well from the NBR, whereby the following documents are required (cf. Annex 5, nr. 15): a. Trade License b. TIN c. MOA d. AOA e. Rental agreement of the factory premises

A Guide for New Investors in Bangladesh 17 Owing to the narrowness of the tax base, revenue is generated largely by customs and excise. Personal income is subject to a progressive tax, and corporation tax varies between 25% and 45%. (cf. EIU 2010). For more details on taxation reference is made to Chapter 6.

5.7 Trade License Trade License application for the new company has to be made with the Dhaka City Corporation. Required are: a. TIN certifcate copy b. VAT registration copy c. Bank introduction letter d. Copy of the MOA e. Copy of the AOA f. Prescribed forms of the government g. Ofce rent agreement paper copy

There are two types of trade licenses, one for commercial and one for manufacturing frms: see Annex 5, nrs. 12 and 13). For the Trade Marks Registration, see Annex 5 (nr. 14).

5.8 Industrial Registration Application Application for BOI Industrial Registration with following supporting documents: a. Project Profle b. MOA c. AOA d. Land Information & Document e. Machinery Details f. Financing sources g. TIN

BOI will issue an Industrial License and register foreign investment.

5.9 Tax Privileges Apply to the National Board of Revenue (NBR) for tax exemption on the import of the capital machinery. Documents required: a. Project Profle b. AOA c. MOA d. Incorporation certifcate e. List of Machineries and costs to be imported f. Industrial License

For more detailed information on the broader investment incentives, see Annex 6.

Embassy of the Kingdom of the Netherlands in Dhaka 5.10 Import Registration Certifcate (IRC) For the Import Registration Certifcate (IRC) one needs to register with the BOI and the Chief Controller of Imports & Exports, CCI&E (cf. Annex 5, nr. 7). The following supporting documents are needed: a. Trade License photocopy b. Valid membership of association (e.g. DBCCI) c. Attested copy of: i. AOA ii. MOA iii. Incorporation certifcate d. Passport photocopy of the Managing Director e. Bank solvency certifcate (original) f. Original receipt (challan) of bank deposit for the fees

The forms for the Import and Export Registration Certifcates (IRC and ERC) are on the website only available in the Bangla language (cf. http://www.ccie.gov.bd/). Both Forms in English have to be collected from the ofce of the Chief Controller Import and Export (CCI&E) of the Ministry of Commerce.

5.11 Export Registration Certifcate (ERC) For the Export Registration Certifcate (ERC) the following documents are needed (cf. Annex 5, nr. 5): a. Attested copy of: i. Trade License ii. Valid membership of association or chamber (e.g. DBCCI) iii. AOA iv. MOA v. Incorporation certifcate 05 b. Original of Bank receipt (challan) for deposit of the fees

For any information required on Exports, check out the website of the Export Promotion Bureau (EPB), Bangladesh, of the Ministry of Commerce (http://www.epb.gov.bd/).

5.12 BOI Recommendation Letter (for Visa) Two types of Visa exist: the PI-type for a Private investor, and the E-type for an Employee.

An application has to be made to the BOI for a PI Visa for foreign investors. The documents required are: a. Business introduction letter b. Forwarding letter c. Passport photocopies

A Guide for New Investors in Bangladesh 19 5.13 Visa Application

Foreign Nationals have to apply for Visa in any foreign mission of GoB, e.g. in the Netherlands, along with: a. BOI recommendation letter b. Company letter introducing the business

This Visa must be renewed yearly or bi-yearly depending on various factors (e.g. country of origin). The form required can be downloaded (see Annex 4, nr. 7).

5.14 Work Permit A work permit for foreign nationals is a prerequisite for employment in Bangladesh. Private sector industrial enterprises desiring to employ foreign nationals are required to apply in advance to the BOI in the prescribed from. For expatriate employment the guidelines are as follows: 1. Nationals of countries recognized by Bangladesh are considered for employment. 2. Employment of expatriate personnel will be considered only in industrial establishments which are registered by the appropriate authority. 3. Employment of foreign nationals is normally considered for the job for which local experts/technicians are not available. 4. Persons below 18 years of age are not eligible for employment. 5. A decision of the board of directors of the concerned company for new employment/ employment extension is to be furnished in each case. 6. The number of foreign employees should not exceed 5% of the total employees, including top management personnel. 7. Initially employment of any foreign national is considered for a term of two years, which may be extended on the basis of merit of the case. 8. Necessary security clearance has to be obtained from the Ministry of Home Afairs.

BOI Form: See Website: http://www.boi.gov.bd/how-to-invest/forms-a-procedures/ obtaining-a-work-permit:

Residence permit: No evidence can be found that a residence permit is required in addition to this work permit (and the Visa mentioned in the previous section).

5.15 Acquisition of Land Being one of the most densely populated countries in the world, it is not surprising that land has become the scarcest factor of production in Bangladesh. This is refected in galloping land prices especially in the large cities.14

Entrepreneurs requiring industrial land for setting up a facility in any industrial area/estate apart from those of Bangladesh Export Processing Zones Authority (BEPZA) and Bangladesh Small and Cottage Industry Corporation (BSCIC), should approach the BOI, and provide them with the plot size required, copies of the sanction/registration letter and the industrial layout plan. After receiving the application BOI provides assistance to get the industrial plot.

Embassy of the Kingdom of the Netherlands in Dhaka Rules and regulations for land registration do change regularly, and at the time of writing these were considered to be quite strict; for example, one has to come up with attested photographs of both the buyer and the seller (for updated information the Bangla-Dutch Chamber of Commerce or any of the other chambers can be contacted; see Chapter 10 for their contact details). A word of caution is necessary at this point: the Acquisition of land beyond government-owned land (khans land) could face long-term litigation.

Export Processing Zones (EPZs) are export oriented industrial enclaves which provide the infrastructures, the facilities, administrative and support services for a wide variety of enterprises. Bangladesh’s highly successful EPZs in Dhaka and Chittagong are now complemented by new EPZ developments and other valuable real estate developments around the country. The primary objective of an EPZ is to provide special areas where potential investors would fnd a congenial investment climate, and a location free from cumbersome procedures. Businesses from 32 countries have so far invested in the existing zones. For further information reference is made to Annex 1.

In addition to the Export Processing Zones, there are also 67 Industrial Estates spread throughout the country and administered mainly by the BSCIC. These have no special regulatory regime, and all are welcome to locate there, but only a few of them ofer attractive locations and adequate infrastructure to the investor, and investor services are minimal. Most of the industrial areas/estates are owned/controlled by city development authorities in three divisional headquarters: RAJUK (Rajdhani Unnayan Kartripakkha) in Dhaka, Chittagong Development Authority (CDA) in Chittagong and Khulna Development Authority (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.15

5.16 Environmental Clearance Certifcate The company has to apply to the BOI Utility Service Cell (USC) for Environmental Clearance Certifcate (cf. Annex 5, nr. 4). BOI USC will obtain the necessary clearance from the 05 Department of Environment (DOE) who will visit the factory for inspection.

5.17 Social Compliance The registration for Social Compliance can be acquired from the Chief Inspector of Factories and Establishments (CIFE). Any manufacturing company employing ten or more workers is required to be registered under the Factories Act 1965 at the ofce of CIFE. This act is primarily intended to regulate working conditions and to ensure safety in the factory. The prescribed Application Form has to be collected from the ofce of CIFE, flled in and submitted with all requirements. The CIFE ofce issues registration within the stipulated period. A diferent example concerns the acquisition of the Fire License (cf. Annex 5, nr. 6).

14. cf. Bangladesh Sixth Five Year Plan: FY2011-FY2015: Accelerating Growth and Reducing Poverty. Draft, March 2011, Planning Commission, Ministry of Planning, GoB. http://www.plancomm.gov.bd/about.asp 15. Source: http://boi.gov.bd/how-to-invest/obtaining-industrial-plot

A Guide for New Investors in Bangladesh 21 5.18 Driving License The driving license can be acquired from the Bangladesh Road Transport Authority (BRTA) which has the following web address: http://www.brta.gov.bd/. The various types of driving licenses, the forms to be downloaded and the costs are mentioned at the following website: http://www.brta.gov.bd/app_form_next.php In practice, however, most expatriates living in Dhaka employ a driver, which is useful for their knowledge of local conditions, the language, parking and safety. Salaries range from BDT 8.000 to 15,000 per month and are negotiated with the driver, according to previous experience and the length of the working week.

5.19 Overview of Costs of Registration Listed below is a detailed summary of the bureaucratic and legal hurdles an entrepreneur must overcome in order to incorporate and register a new frm, along with their associated time and costs. Specifcally, it examines the procedures, time and cost involved in launching a commercial or industrial frm with up to 50 employees and start-up capital of 10 times the economy’s per-capita gross national income (GNI). The information provided here was collected as part of the Doing Business project of The World Bank Group, which measures and compares regulations relevant to the life cycle of a small to medium-sized domestic business in 183 economies. The most recent round of data collection for the project was completed in June 2010. In total it took a period of 19 days (since step 6 is simultaneous with Step 5), and 11,300 Taka. The example concerns a standardized Company, a Private Limited Liability Company, located in Dhaka, as follows:

Time to No. Procedure Associated Costs Complete Verify online the uniqueness of the 1 proposed company name with 1 day BDT 100 RJSC&F Pay adhesive stamp fees at a desig- 2 1 day BDT 2,000 nated bank File documents with the RJSC&F for BDT 2,925 registration fees + 3 1 day registration BDT 1,200 registration fling fees 4 Make a company seal 1 day BDT 30-50 5 Register with the tax authority 9 days no charge 7 days, simultane- 6 Register for VAT ously with procedure no charge 5 7 Obtain a trade license 6 days BDT 5,000

Source: http://www.doingbusiness.org/data/exploreeconomies/bangladesh/starting-a-business

Embassy of the Kingdom of the Netherlands in Dhaka Exportable Products as presented, for example, by the Export Promotion Bureau, Bangladesh (EPB) of the Ministry of Commerce*

Fruits Leather Garments

Vegetable Jute Products ICT Products Pharmaceuticals

Handicrafts Woven Garments Knitwear ICT Products

Shrimps Food Products Bicycle Home Textiles

Tea Potteries Ceramics Products Ship Building * Source: http://www.epb.gov.bd/index.php?NoParameter&Theme=default&Script=exportproductshow

A Guide for New Investors in Bangladesh 23 Indicative Costs of Doing 06 Business

The cost of doing business in Bangladesh is in general highly competitive in comparison to other economies in the region. The following table based on information from BOI summarizes the relevant costs typically incurred by businesses. As prices change on a regular basis it is advisable to check the website of the BOI mentioned below the table to view the latest prices and/or check with one of the employers organizations (cf. Chapter 10). Regarding the tax structure mentioned, this depends of course on the country of origin and the individual situation, but in general expatriates are not obliged to pay personal income tax in Bangladesh. Summary of Business Costs Land US$ Average price of developed land in the diferent industrial belts 10.0-15.0 varies depending on location (price per square meter). Construction Average per square meter 100-125 Gas Tarif Average per ‘000 meter 64 Power Tarif Average per kw/h 0.07 Human Resources: Labor Force Average per month depending on skill level 50-100 Human Resources : Management Salaries Mid-level: average US$ per month depending on the skills and 400-500 experience Top-level: average US$ per month depending on the experience 1000-2500 Sea Freight (in US$ approx. per FCL, Full Container Load): 20’FCL 40’FCL Destinations * Rotterdam, Netherlands 1,625 2,970 New York, USA 3,050 3,750 Sydney, Australia 1,250 2,100 Hong Kong, China 550 870 Jebel Ali, United Arab Emirates 850 1,420 Tax Structure Personal income: On the frst Tk. 165,000 Nil On the next Tk. 275,000 10% On the next Tk. 325,000 15% On the next Tk. 375,000 20% On the balance 25%

Embassy of the Kingdom of the Netherlands in Dhaka Corporate Income: Publicly traded company 27.5% Non-publicly traded company 37.5% Bank, insurance and fnancial company 45% Mobile phone operator company 45%

Source: http://www.boi.gov.bd/about-bangladesh/costs-of-doing-business, with the exception of: * : Information obtained from Hap International Movers, Dhaka, Bangladesh (April 2011).

The above costs are for reference purposes only. For specifc and detailed information, you may contact relevant service agencies, business consultants, employers organisations (cf. Chapter 10), etc.

06

A Guide for New Investors in Bangladesh 25 Transport and Energy 07 Infrastructure in Bangladesh

Transport and energy are two crucial elements in any investment decision. Transport Network16 The transport sector of Bangladesh consists of a variety of modes. As the country is essentially a fat plain all three modes of surface transport, i.e. road, railway and water, are widely used in carrying both passengers and cargo. The airline network is also extensive and efective. These diferent types of transport are summarized in Map 2. 1) Road In Bangladesh, among the various modes of transport, road transport system has been playing a signifcant role in transporting passengers and goods. The Roads and Highways Department (RHD) manage several categories of road. RHD has total length of 20,948 km of roads under its control. RHD also controls a total number of 4,659 bridges and 6,122 culverts. RHD are currently operating about 161 ferry boats in 81 crossings (13 on national highways, 11 on regional highways and 57 on feeder roads) on its road network throughout the country. As of January 2010, the Local Government Engineering Department (LGED) has so far constructed a total of 133,514 km of upazila and union roads (approximately half dirt road and half paved roads) and 971,498 bridges/culverts.

The 4.8 km long Bangabandhu Bridge (formerly known as Jamuna Bridge) was opened to trafc in 1998, and currently is the eleventh longest in the world. It has established a strategic link between the East and the West of Bangladesh. It is generating multifaceted benefts to the people and promoting inter-regional trade. Apart from quick movement of goods and passenger trafc, it is facilitating transmission of electricity and natural gas and has integrated the telecommunication links. The planned Padma Multipurpose Bridge Project is The planned Padma Multipurpose Bridge Project intended to serve similar purposes in particular in opening up the south-western region. It also includes a railway level. The costs are estimated at $2.9 billion to be provided by contributions of World Bank, ADB, IDB & JICA.

16. This section is mainly based on: http://www.boi.gov.bd/about-bangladesh/transport-infrastructures

Embassy of the Kingdom of the Netherlands in Dhaka Map 2: Transport Network of Bangladesh

07

Source: http://www.boi.gov.bd/about-bangladesh/transport-infrastructures

A Guide for New Investors in Bangladesh 27 2) Air The Civil Aviation Authority is a public sector entity entrusted to construct, maintain and supervise airports and regulate air trafc. The national fag carrier Biman fies to 26 international and eight domestic destinations. There are now 13 operational airports and Short Take-of and Landing (STOL) ports in Bangladesh. These are Dhaka, Barisal, Chittagong, Comilla, Cox’s Bazar, Iswayrdi, Jessore, Rajshahi, Syedpur, Sylhet and Thakurgaon. Of these, the airports at Dhaka, Chittagong and Sylhet serve international routes. Air cargo and Short Take-of and Landing (STOL) services have been handed over to the private sector by the government. Bangladesh can be reached by air from any part of the world. Several international carriers fy to and from Dhaka (e.g. Emirates, Singapore Airlines, Qatar Airways, Thai Air and Malaysian Airlines). Biman Bangladesh airlines connects Dhaka with 27 major cities of the world. Within the region and within the country several private airlines are operating such GMG, United and Regent airways.

3) Rail The Bangladesh Railway provides service to places of interest such as Chittagong, Sylhet, Khulna, Mymensingh, Bogra, Rajshahi & Dinajpur, starting from Dhaka. The inter-city Express Service is available to and from important cities at cheap fares. About 32% of the total area of Bangladesh is efectively covered by railways. Bangladesh Railway had a total network of 2,835.04 km (Broad Gauge 659.33 km, Dual Gauge 374.83 km and Meter Gauge-1,800.88 km) and a total of 440 stations at the end of the year 2008-2009. Train services between Dhaka-Kolkata have been commenced on 14 April 2008 in order to establish communication between Bangladesh and India. After inclusion of a railway track over the Bangabandhu Bridge, a railway link between east and west zone has been established.

4) Waterways Country-made crafts are the most widely used carriers on the rivers. These carry passengers and merchandise on a large scale. The landscape of Bangladesh is dominated by about 250 major rivers which fow essentially north-south.The alluvial food plain formed by these rivers covers most of the country. Wherever there is a river and a village, a launch or steamer will ply for trade. Bangladesh Inland Water Transport Authority (BIWTA) has been established by the government for maintenance of navigability of ports and channels while © [email protected] Inland water transport

Embassy of the Kingdom of the Netherlands in Dhaka the state-owned corporation (BIWTC) provides passenger, and cargo services in inland waterways and coastal areas of the country. Selected information on waterways is summarized in the following table:

Length of inland waterways 24,000 km Length of navigable waterways: Monsoon 5,968 km Dry season 3,865 km Least available depth range 3.90 to 1.50 meter Annual water discharge 1,400 bn cubic meter Annual quantum of silt 2.5 bn tons No. of passenger carried/year 87.80 m Quantum of cargo carried/year 0.58 m tons

Source: Bangladesh Inland Water Transport Authority (BIWTA): http://www.biwta.gov.bd/ The entire coast along the Bay of Bengal is 710 km long. There are two major ports in the country. Chittagong, the oldest port, has been an entry-port for at least 1,000 years (cf. Annex 2). The Mongla port in Khulna region serves the western part of Bangladesh, and in future is planned to serve India (especially in the West and North of Bangladesh) as well as Bhutan and Nepal. Recently the Government has indicated its desire to develop a third port, Pathuakali, in between Chittagong and Mongla.

Energy As indicated in Chapter 1 the energy crunch is currently a crucial constraint to doing business in Bangladesh. This applies especially to electricity and gas. A moratorium on new electricity and gas connections severely hampers the establishment of new businesses. In addition the frequent power outings result in interruptions in the production and/or in increased production costs through the use of (diesel) generators. Renewable energy (e.g. solar power) is receiving increased attention, for example the Solar Home Systems (SHS) but cannot make up for the lack of energy as such. More background information on the Power 07 Industry in Bangladesh can be found at: http://www.boi.gov.bd/key-sectors/power-industry © Miriam Otto Inland waterways

A Guide for New Investors in Bangladesh 29 Financial System and Loan 08 Facilities in Bangladesh

Finance and Banking System: Overview The fnancial sector in Bangladesh is continuously evolving towards a more modern and efcient system of fnance which is supportive of greater investment and inclusive economic growth. The fnancial system of Bangladesh consists of The Bangladesh Bank, scheduled banks, non-bank fnancial institutions, micro fnance institutions, insurance companies, co-operative banks, credit rating agencies and stock exchange.

The Banking infrastructure (March 2010) of the country can be summarized as follows:

Type of bank No. No. of branches State owned 4 3,391 Specialized 4 1,365 Private 30 2,387 Foreign 9 58 Total 47 7,201

For more details, see BOI’s website: http://www.boi.gov.bd/about-bangladesh/fnance-and- banking

The Foreign Investment Act of 1980 guarantees the right of repatriation of invested capital, profts, capital gains, post-tax dividends, and approved royalties and fees. Although the repatriation of funds is indeed guaranteed in practice it takes sometimes substantial time to materialize. Foreign investors are free to make investments in Bangladesh in the industrial enterprises except for a few reserved sectors. A bilateral (investment) treaty between the Netherlands and Bangladesh on ‘Double Taxation Avoidance’ exists since 1993.17

An industrial venture may be set up in collaboration with local investors or may even be wholly owned by the foreign investors. Similarly, there is no restriction under the Foreign Exchange Regulations Act on the import of securities into Bangladesh. However, no securities can be exported or taken out of Bangladesh without general or special permission from Bangladesh Bank (the central bank). The Guidelines for Foreign Exchange Transactions regarding foreign direct and portfolio investment are issued by the Bangladesh Bank (BB), and can be downloaded at these two websites: http://www.bangladesh-bank.org/regulationguideline/foreignexchange/ feguidevol1all.pdf http://www.boi.gov.bd/how-to-invest/forms-a-procedures/guideline-for-foreign- direct-and-portfolio-investments

17. Date of Signing: 13/07/1993; Statutory Regulatory Order, SRO No: 267-L/94 dated 14/9/1994, NBR, Min. of Finance.

Embassy of the Kingdom of the Netherlands in Dhaka For more details on selected fnancial subjects reference is made to the relevant websites in the following table.

Subjects Relevant Website Exchange Control and http://www.boi.gov.bd/how-to-invest/forms-a-procedures/ Remittances exchange-control-a-remittance http://www.boi.gov.bd/how-to-invest/forms-a-procedures/ Foreign Loans, Suppliers’ registrationapproval-for-foreign-loan-suppliers-credit- Credit, PAYE Scheme etc. paye-scheme-etc Letters of Credit/Due http://www.manufacturebd.com/images/doing_business_ Diligence in_bangladesh-a_country_guide.pdf http://www.boi.gov.bd/about-bangladesh/finance-and- Finance and Banking banking

The Role of the Bangladesh Bank As a foreign entrepreneur/investor the role of the Bangladesh Bank is at least indirectly of importance (cf. for example Section 5.2). Below background information is provided concerning the broader role of this Bank. The core functions of the Bangladesh Bank (BB) are:

1. BB as the central bank of Bangladesh executes all the functions that a central bank traditionally performs as elsewhere in the world. The core functions of BB are briefy discussed as follows:

2. BB formulates and implements monetary policy aiming at stabilizing domestic monetary value and maintaining competitive external per value of taka for fostering growth and development of country’s productive resources in the best national interest. BB formulates and implements intervention policies in the domestic money market and foreign exchange market. BB intervenes in the money market with some policy instruments such as: a. Open market operation (treasury bills/bonds, repo, reverse repo auctions) 08 b. Variations in reserve ratios such as Cash Reserve Requirements (CRR) and Statutory Liquidity Ratio (SLR) c. Secondary trading d. Discounting rate/bank rate and e. Moral suasion

3. BB monitors and supervises scheduled banks and non-bank fnancial instructions (NBFIs) that include of-site supervision and on-site supervision in order to enhance the safety, soundness, and stability of the banking system to ensure banking discipline, protect depositors’ interest and retain confdence in the banking system.

4. BB holds sole responsibility of the management of international reserve representing aggregate of BB’s holding of gold, foreign exchange SDR and reserve position in the IMF.

5. BB, as the central bank of Bangladesh reserves sole responsibility to issue bank note

A Guide for New Investors in Bangladesh 31 6. BB performs as a clearing house for the scheduled banks to clear and settle inter-bank payment arising through drawing cheque, drafts, bills, etc. to one another.

7. BB acts as a banker to the government

8. BB functions as a lender of the last resort for the government as well as for the country’s scheduled banks

9. BB acts as an advisor to the government

10. BB directs the growth expediting programs for the national interest.

Additionally, BB’s functions include some other promotional activities such as development of new instruments, guidelines for money and fnancial market participants, providing training to the banks and NBFIs, monitoring and encouraging corporate social responsibilities (CSR) executed by banks and NBFIs and so on (Source: http://www.bangla- desh-bank.org/)

The Mission of the BB includes separate elements for the business community and for Bangladeshis abroad:

For the business community: We shall maintain liquidity conditions and credit policies ensuring adequate credit fows at market driven fexible interest rates for all productive economic activities, including in sectors like agriculture and SMEs where markets have not been very responsive. We shall foster macroeconomic stability through monetary and external sector management. We shall promote and support development of new fnancial products, services and instruments. We shall maintain a secure and quick payment system for settlement of claims.

For Bangladeshis abroad: We shall facilitate remittances from your earnings abroad to Bangladesh through legitimate banking channels free of involvement of money launderers or terrorism fnanciers. We shall support and promote development of new investment opportunities for your remittances to Bangladesh.

Loan Facilities in Bangladesh In order to establish the diferent kinds of development credits (short, medium or long-term) that are provided by fnancial institutions in Bangladesh, and to fnd out for which purpose, at what interest rates, for how many years, and which documents are required, one is advised to consult the website of the BOI (http://www.boi.gov.bd/about-bangladesh/ fnance-and-banking) and the Bangladesh Bank (http://www.bangladesh-bank.org/).

Specifcally for renewable energy projects fnancing can be acquired from the Infrastructure Development Company Limited (IDCOL), which was established in 1997 by the GOB. The Company was licensed by Bangladesh Bank as a non-bank fnancial institution (NBFI) in 1998. Since its inception, IDCOL is playing a major role in bridging the fnancing gap for developing medium and large-scale infrastructure and renewable energy projects in Bangladesh. For more information see: http://www.idcol.org/

Embassy of the Kingdom of the Netherlands in Dhaka © Kavita Van der Loop Van © Kavita

“Embassy of the Kingdom of the Netherlands in Dhaka: economic diplomacy involves Holland branding during major sport events, such as the ICC Cricket World Cup in early 2011.” Supporting Programs from the Dutch Government

We strongly suggest that potential investors check the webpage of the Embassy (http:// www.netherlandsembassydhaka.org/), and that of the EVD (www.evd.nl) for the following support programs:

Supporting Programs from the Dutch Government PSI: Private Sector Investment FMO ORIO CBI Matchmaking Facility 2Explore PUM: Dutch Senior Experts 2G@together 08 The United States Embassy in Dhaka The website of the US Embassy in Dhaka is worth consulting, in particular: http://dha- ka.usembassy.gov/doing_business.html. It provides a list of the services ofered by the embassy’s U.S. Trade Center (USTC) to American businesses seeking export and investment opportunities in Bangladesh.

A Guide for New Investors in Bangladesh 33 Obtaining Utility 09 Connections

Entrepreneurs should either apply directly to the concerned utility authority for obtaining utility services, or they can approach BOI for assistance, as long as they provide a copy of the company registration/sanction letter. A Utility Service Cell (USC), a one-stop-service, within BOI is responsible to help investors in obtaining the necessary utility services in locations outside of the export processing zones (consult the website: http://www.boi.gov.bd/about- boi/key-organogram/371-facilities-a-services-and-one-stop-service).

For utility services in locations within the export processing zones, BEPZA is the responsible authority for obtaining utility services.

Although entrepreneurs are encouraged to contact BOI’s Utility Service Cell (USC) for obtaining utility services, in the following table an overview is given of the respective providers for information:

Utility Connection Provider Electricity: Power Development Board (PDB) Dhaka Electric Supply Authority (DESA) Dhaka Electric Supply Company (DESCO) and Rural Electrifcation Board (REB) Gas: Titas Gas Transmission & Distribution Company Ltd. (TGTDCL) Bakhrabad Gas System Ltd. (BGSL) Jalalabad Gas Transmission & Distribution System Ltd. (JGTDSL) Telephone: Bangladesh Telegraph and Telephone Board (BTTB) Water: Water and Sewerage Authority, WASA (in rural areas self-generated) Sewerage: Water and Sewerage Authority, WASA (in rural areas self-generated) Tubewell Licensing: Water and Sewerage Authority, WASA

Source: BOI (2007): Bangladesh Investment Handbook. Dhaka: BOI, May 2007, 3rd Edition.

As a word of caution, utility connections can at times be difcult to obtain. Not only do such connections take their own time and efort, but in some periods (e.g. second half of 2010) new connections for electricity and gas were simply not available due to a policy implemented as a result of the energy shortage in the country.

Embassy of the Kingdom of the Netherlands in Dhaka 10 Employers’ Organizations

A great variety of employers’ organizations exists in Bangladesh, with the major distinctions between national federations, chambers of commerce and industries, and industrial associations. They can be distinguished as follows:

1) Federations: a. Bangladesh Employers Federation (BEF) b. Federation of Bangladesh Chambers of Commerce and Industry (FBCCI): all Business Associations (cf. item 2 below) are afliated with this federation c. Bangladesh Chamber of Industries (BCI)

2) Business Associations: a. Chambers of Commerce, registered with the Ministry of Commerce b. Industry Associations, registered with the Ministry of Industry

It is in general advisable to become a member in one or more of these organizations, be it the Dutch-Bangla Chamber of Commerce and Industry (DBCCI) or one of the specialized industry associations, in order to receive up-to-date information, and be able to call upon them when questions arise. The details are summarized in the table below, and the websites in the next table.

The main Employers’ Organizations in Bangladesh and selected characteristics.

Empl. Year Acronym Name Details Organ Established Changed name in 1998 (before it was Federa- BEF Bangladesh Employers’ Federation 1951/1998 called the Bangladesh Employers’ As- tions sociation – BEA) FBCCI Federation of Bangladesh CCI 1973 BCI Bangladesh Chamber of Industries 1985 Changed name in 1980 (before it was CCI * MCCI Metropolitan CCI 1904/1980 Narayanganj CCI) DCCI Dhaka CCI 1958 CCCI Chittagong CCI 1963 Changed name in 1987 (before it was FICCI Foreign Investors’ CCI 1905/1987 Agrabad CCI) KCCI Khulna CCI 1934 RCCI Rajshahi CCI 1950 SCCI Sylhet CCI 1966 BCCI Bogra CCI 1962

A Guide for New Investors in Bangladesh 35 Mission is to support the women busi- BWCCI Bangladesh Women CCI 2001 ness community B. Garment Manufacturers & Exporters Set up a regional ofce in Chittagong in IA * BGMEA 1978/9 Association 1985 B. Knitwear Manufacturers & Exporters Enhances social compliance status of its BKMEA 1996 Association members Revival of jute production could boost BJMA B. Jute Mills Association 1983 the association Caters for private yarn and fabric manu- BTMA B. Textile Mills Association 1983 facturing and Dyeing-Printing-Finishing mills B. Finished Leather, Leather-goods & BFLLFEA 1985 207 tanneries are associated Footwear Exporters Ass.

* CCI = Chamber(s) of Commerce and Industry. IA = Industry Association(s). Sources: (i) Kochanek, Stanley A. (1993): Patron-Client Politics and Business in Bangladesh. University Press Limited (UPL), Dhaka. (ii) ILO/Dr A. Al Faruque (2009b): Current Status and Evolution of Industrial Relations System in Bangladesh. Geneva/Printed in India (82 pp.). (iii) BEF: http://www.ioe-emp.org/en/member-federations/index.html?tx_gsifeuserl- ist_pi1%5BshowUid%5D=10

The websites of the main Employers’ Organizations in Bangladesh.

Employers’ Organization Website http://www.ioe-emp.org/en/member-federations/in- Bangladesh Employment Federation (BEF) dex.html?tx_gsifeuserlist_pi1%5BshowUid%5D=10 Federation of Bangladesh Chamber of Commerce and Industry http://www.fbcci-bd.org/ (FBCCI) Metropolitan Chamber of Commerce and Industry (MCCI) http://www.mccibd.org/ Dhaka Chamber of Commerce and Industry (DCCI) www.dhakachamber.com Chittagong Chamber of Commerce and Industry (CCCI) www.chittagongchamber.com Foreign Investors’ Chamber of Commerce and Industry (FICCI) www.fcci.org.bd Khulna Chamber of Commerce and Industry (KCCI) www.khulnachamber.com Rajshahi Chamber of Commerce and Industry (RCCI) www.rajshahichamber.org Bangladesh Garment Manufacturers & Exporters Association www.bgmea.com (BGMEA) Bangladesh Knitwear Manufacturers & Exporters Association www.bkmea.com (BKMEA) Bangladesh Jute Mills Association (BJMA) www.bjmc.gov.bd Bangladesh Textile Mills Association (BTMA) www.btmadhaka.com Bangladesh Women Chamber of Commerce and Industry http://www.bwcci-bd.org/index.php?view=home (BWCCI) Dutch-Bangla Chamber of Commerce and Industry (DBCCI) in http://www.dbcci.org/ Dhaka Bangla-Dutch Chamber of Commerce (BDCC) in Groningen http://www.bdcc.eu/

Information on Trade Fairs can be received from these organizations, as well as from the Export Promotion Bureau (EPB) of the Ministry of Commerce: http://www.epb.gov.bd/

Embassy of the Kingdom of the Netherlands in Dhaka Labor Force and Tripartite 11 Dialogue Employment Conditions The minimum age for workers in Bangladesh is 16 years in factories and establishments. Contracts are made in the form of a letter of ofer. Workers may also be engaged on verbal agreements. Workers in the public or private sector typically work eight and a half hours daily (including half an hour for meal or prayer), or 48 hours per week. Friday and Saturday are the weekly holidays (‘the weekend’). In government organizations and in some private organizations as well, a probationary period exists for skilled or semi-skilled workers varying between three months to one year. During this period either party may serve one month’s notice for terminating or resigning the job. In the private sector, the dignity of labor is ensured in accordance with the principles enunciated in the International Labor Organization (ILO) conventions and recommendations, usually captured under the phrase ‘Social Compliance’, which is often enforced from the side of the markets of developed countries.

Labor Laws and Policies In Bangladesh the following major labor laws are now in operation: Labor Acts 2006 Private Road Transport Labor Welfare Fund Law 2005 Labour Welfare Foundation Law 2006 Minimum Wages Board Laws The main labor policies are: Child Labor Policy Domestic Worker Protection and Welfare Policy 2010 This information including proposed amendments to the Labor Law and Labor Policy, can be found on the website of the MOLE but only in the Bangla language (http://www.mole. gov.bd/).

Tripartite Dialogue A useful overview paper has been written under the auspices of EKN entitled “Tripartite Dialogue in Bangladesh: Trade Unions and Employers’ Organizations; A position paper” (December 2010). This is available at the website of Embassy and explains the role of the various types of trade unions and employers’ organizations as well as the eforts to form platforms to engage in a tripartite dialogue with the government on issues of industrial relations and workers’ rights; the ILO and the Bangladesh Institute of Labour Studies (BILS) also play a role in this dialogue.

Organizations Involved in Tripartite Dialogue Website Ministry of Labour and Employment (MOLE) http://www.mole.gov.bd/ International Labour Organization (ILO) http://www.ilo.org/dhaka/lang--en/index.htm Bangladesh Institute of Labour Studies (BILS) http://www.bils-bd.org/main.html http://www.ioe-emp.org/en/members-regions/index. Bangladesh Employment Federation (BEF) html?tx_gsifeuserlist_pi1%5BshowUid%5D=10

A Guide for New Investors in Bangladesh 37 12 Good Business Practices 18 Corporate Social Responsibility Entrepreneurs realize more and more that investments and economic activities in developing countries have not only a direct but also an indirect impact on the local society, region or even the whole country. This is one of the driving forces behind the emergence of Corporate Social Responsibility (CSR); companies are increasingly recognizing that to secure their long-term success, they need to address wider societal and environmental problems and adhere to social and environmental compliance.

In short CSR stands for ‘positive value creation’ for people, proft and planet and to provide answers on legitimate questions from the society as a whole. Companies have to take responsibility for these aspects in a positive and balanced manner.

If CSR is done in a well thought-out way this will beneft the company and create many new opportunities. For example reducing use of pesticides will not only have a positive efect on the environment it will also improve farm economics. Good and inspiring working conditions will reduce staf turnover and good relations with the local community will prevent the problems of petty theft. Moreover, companies which are actively pursuing CSR may minimize the risks of reputation damage in the marketplace.

Setting up a new company requires a lot of efort and resources and many investors tend to think “Let’s frst get the business up and running, later we’ll do something about CSR”. Although this approach is understandable it is neither wise nor advisable. Much better is to start from the beginning with well thought-out human resources and environmental strategies. At the same time one is advised to start building a good relationship and possible activities with the local community.

The Government of Bangladesh has no explicit policy on CSR, but some of the ministries, such as the Ministry of Commerce and the Ministry of Information, are encouraging private industry to engage in CSR activities, which are also tax deductible, for example donations. Some CSR activities are being carried out in Bangladesh, many of them by companies that are members of textile associations such as the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA). The Dhaka Chamber of Commerce and Industry (DDCI), and think tanks like the Bangladesh Enterprise Institute (BEI) and banks (Standard Chartered Bank) are involved in other initiatives.

The United Nations Global Compact brings together representatives of private industry, UN agencies, employee associations and civil-society organizations to promote social and environmental initiatives. Companies also enjoy the support of two private institutions with

18. This Section is in part based on: (i) ‘Investing in the Agricultural Sector of Ethiopia; A Guide for New Investors.” Ethiopian Investment Agency with support of the Netherlands Ministry of Agriculture, Nature and Food Quality and the Embassy of the Kingdom of the Netherlands in Addis Ababa, Ethiopia: October 2008; and (ii) http://www.csr-weltweit. de/en/laenderprofle/profl/bangladesch/index.nc.html

Embassy of the Kingdom of the Netherlands in Dhaka CSR expertise: the Bangladesh Enterprise Institute (BEI) and the CSR Center Bangladesh. BEI facilitates partnerships and programs in the private sector that are working to achieve Bangladesh’s development goals, and it also organizes the local Global Compact network. The CSR Center Bangladesh identifes cases in which companies are not adequately implementing social and environmental standards, and also provides tools to help them improve their performance. It also serves as a network for the exchange of views and experiences. Both institutions provide a good contact point for companies seeking to become involved in CSR activities in Bangladesh (see table below).

Platform/Organization Website UN Global Compact http://www.unglobalcompact.org/ http://www.unglobalcompact.org/Networks UN Global Compact Local Net- AroundTheWorld/local_network_sheet/BD.html work – Bangladesh http://globalcompactasiapacifc.org/gcasia/ CountryNetworks/Bangladesh.aspx Bangladesh Enterprise Institute http://www.bei-bd.org/ (BEI) http://www.csrcentre-bd.org/ (under construction); see also: CSR Center Bangladesh http://www.csr-weltweit.de/en/laenderprofle/ profl/bangladesch/index.nc.html

Social Business A special type of business is the ‘new kind of capitalism’ promoted by Muhammad Yunus in his recent book “Building Social Business” (2010, UPL, Dhaka). In this book he explains the seven principles of social business (cf. p. 3): 1. “The business perspective is to overcome poverty, or one or more problems that threaten people and society – not to maximize proft. 2. The company will attain fnancial and economic sustainability. 3. Investors get back only their investment amount. No dividend is given beyond the 12 return of the original investment. 4. When the investment amount is paid back, proft stays with the company for expansion and improvement. 5. The company will be environmentally conscious. 6. The workforce gets market wage with better-than-standard working conditions. 7. Do it with joy!!”

There is already experience with this kind of business through such companies as Danone, BASF Grameen Ltd. and Grameen Shakti, and recently interest is shown by OTTO GmbH. Large companies, like Danone, can easily use their CSR-funds and then social business can indeed become sustainable and income-generating, in particular when it concerns small or medium-sized projects.

A Guide for New Investors in Bangladesh 39 Do’s and Don’ts CSR is an integral part of modern business; it requires a clear vision and strategy. At the same time it should be realized that there are some simple basic principles. Here are some of the basic principles mentioned: Know what you stand for as a company. Have good secondary conditions of employment. For instance a good leave policy for family circumstances, like maternity leave or weddings or deaths in the family. Ensure a safe working environment and make sure that dangerous chemicals are properly stored and locked away and that workers wear the necessary protective clothing. When you are not satisfed with an employee, give him/her a warning frst. For people to do good work, the most important is to train them well. Make sure people know what they have to do and know how they should do it. Give them clear job descriptions and be there to teach or train them.

Embassy of the Kingdom of the Netherlands in Dhaka Practical Information on 13 Dhaka and Other Cities

Bangladesh is bordered by India on all sides except for a small border with Burma on the south-east and the Bay of Bengal to the south. Together with the Indian state of West- Bengal, it makes up the ethno-linguistic region of Bengal. The name ‘Bangladesh’ means ‘The Country of Bengal’ in the ofcial Bengali language.19 Tourism Prior to the time of Bangladesh’s liberation in 1971, most tourists kept their visits to mainly Dhaka and Chittagong. Since 2000, however tourism in other areas of Bangladesh has increased in popularity. Some of the more popular destinations are Cox’s Bazar, Teknaf, Sundarbans, Kuakata, Paharpur and Tetulia. Dhaka Dhaka (Bangla: XvKv; formerly known as Dacca and Jahangir Nagar, under Mughal rule), is the capital of Bangladesh and the principal city of Dhaka District. Dhaka is a megacity and one of the major cities of South Asia. Located on the banks of the Buriganga River, Dhaka, along with its metropolitan area, has a population of almost 12 million, making it the largest city in Bangla- desh. It is one of the most densely populated cities in the world and forms the world’s 9th largest agglomeration. Dhaka is known as the City of Mosques and renowned for producing the world’s fnest muslin. Dhaka is also known © Miriam Otto Old Dhaka by night as the Rickshaw Capital of the World. Approximately 400,000 cycle rickshaws run each day. Today it serves as one of the centers for culture, education and business in the region.

Secondary Cities in Bangladesh Very few foreign entrepreneurs have established themselves permanently in one of the secondary cities, such as Chittagong, Khulna or Rajshahi. Therefore, no separate section is included on such cities, but instead reference is made to the internationally acclaimed Tourist Guides such as Bradt and Lonely Planet.

19. Sources used in this chapter are among others: http://www.boi.gov.bd/about-bangladesh/expatriate-living-condi- tions/culture-and-nature, and http://www.boi.gov.bd/about-bangladesh/expatriate-living-conditions

A Guide for New Investors in Bangladesh 41 Expatriate Living Conditions in Dhaka International comparisons generally indicate that Dhaka is among the least popular cities of the world to live in. For example, the 2011 Livability Index of the Economist Intelligence Unit (EIU) ranks Harare as the most unlivable city in the world followed by Dhaka on second place (139th out of 140 cities surveyed). The criteria used were based on such factors as stability, health care, environment and culture, education and infrastructure (The Daily Star, 24/02/2011). Similarly, an AON Consulting study has labeled Dhaka the riskiest city for employers; ranked last out of 90 cities, it scores even lower than Phnom Penh, Lagos, Karachi and Teheran. AON’s People Risk Index looks at demographics, education, employment practices and government regulation. The cities mentioned above with the highest risk ratings have a few key factors in common: rapid urbanization, low literacy and poor spending on education (The Daily Star, 30/09/2010).

Popular wards to live in among expatriates include Gulshan, Baridhara and Banani. In up-market Gulshan and Baridhara apartments cost around BDT. 80,000 to 150,000, while in Banani and DOHS it starts from BDT. 40,000 upwards; this concerns 3 to 4 room apartments with the more expensive ones having a surface area of up to 4,000 sq. Ft. An overview of typical daily living costs in Dhaka is given in the following website: http://www.boi.gov.bd/ about-bangladesh/expatriate-living-conditions Orientation Map of Dhaka The orientation Map of Dhaka City on the next page indicates the locations of such areas as (moving from South to North): The Old town near the Buriganga River around Kotwali; The area with many relevant government ofces (e.g. the BOI): Motijheel; Nearby is also Banga Bhaban, the ofcial residence of the President, which was built in the Moghul architectural style; Kamalapur Railway Station in the East where the containers from Chittagong arrive; Dhaka University in the New Market area; Hazaribag with a concentration of leather Industries (to be relocated in the coming years to Savar in the north-western part of Dhaka); Dhanmondi’s upper-class residential area includes many of the cultural institutes and galleries, as well as shopping centres; Tejgaon industrial area; The Jatiya Sangsad Bhaban is the National Parliament Building (in the map indicated as National Assembly Hall), located at Sher-e-Bangla Nagar. It is designed by the famous architect Louis I Kahn, and is known for its distinctive architectural features (see photograph in chapter 3); Gulshan and Baridhara contain most of the Embassies, including the Embassy of the Kingdom of the Netherlands. It is located in what is marked as Gulshan-2 in Map 3 below; the Dutch Club is also located in this area (http://www.dutchclubdhaka.org/ default.asp); The Hazrat Shahjalal International Airport in the North; Finally, not on the Map, to the North of the airport is the new residential area of Utara.

Embassy of the Kingdom of the Netherlands in Dhaka Map 3: Map of Dhaka City

Netherlands Embassy

13

Source: Dhaka Calling; Monthly Tourist Guide. January 2011. Prime Art Press Dhaka.

A Guide for New Investors in Bangladesh 43 Hotels Dhaka ofers several 5 star hotels. They include the following: Pan Pacifc Sonargaon Hotel, Radisson Water Garden Hotel, The Westin Hotel, Seagull Hotel, Ruposhi Bangla Hotel, Regency Hotel and Resort and Hotel Sarina. These hotels provide deluxe accommodation, restaurants, health clubs and entertainment facilities. For further information reference is made to “Dhaka Calling. A Monthly Tourist Guide” which is available in the larger hotels and bookshops. Schools A range of private, international schools are present in Dhaka city. The American International School of Dhaka, AISD (http://www.ais-dhaka.net/) is the only one that provides education of grades one to twelve including the International Baccalaureate (IB); it is located in Baridhara near the British High Commission (cf. Map 4). A selection of some of the other international school is as follows: International School Dhaka; Australian International School, Dhaka; The Aga Khan School, Dhaka; Canadian International School, Dhaka; Grace International School, Dhaka; and the International Turkish Hope School. Healthcare Basic health care needs can be met at the Traveler’s Clinic of the ICDDR,B. the International Centre for Diarrheal Disease Research, Bangladesh (http://www.icddrb.org/). They have foreign physicians who also practice at certain days at the American International School of Dhaka (AISD; see above). Notable hospitals in Dhaka include: United Hospital; Square Hospital ; Apollo Hospital; and Labaid Cardiac Hospital.

Netherlands Recreation Centre

© http://www.dutchclubdhaka.org/default.asp Entertainment and Recreation Dhaka city ofers entertainment, such as cultural shows, concerts, fashion show events, and international cuisine, and are found in the popular districts of Dhanmondi and Gulshan/ Baridhara/Banani. Dhaka city ofers a range of private clubs, starting with the Dutch Club (http://www.dutchclubdhaka.org/default.asp); other clubs are: American Recreation Association (ARA), Nordic Club, British High Commission, International Club, Gulshan Club, Bagha Club, etc.

Embassy of the Kingdom of the Netherlands in Dhaka Map 4: Map of Gulshan, Baridara and Banani

BADDA

Netherlands Embassy

13

Source: http://en.wikipedia.org/wiki/Gulshan_Thana

A Guide for New Investors in Bangladesh 45 LIST OF ANNEXES

Annex 1 Export Processing Zones (EPZ) and the Economic Zones (EZ) Act 2010 ...... 47

Annex 2 Chittagong Port ...... 49

Annex 3 Climatic Indicators of Bangladesh ...... 51

Annex 4 Application Forms ...... 52

Annex 5 List of Business Licenses, Agencies and Websites ...... 53

Annex 6 Investment Incentives ...... 54

Annex 7 Translations of Specifc Bangla Words ...... 59

Annex 8 Sector Study: Water ...... 60

Annex 9 Ranking of Bangladesh and Selected Countries on Several Indices ...... 66

Embassy of the Kingdom of the Netherlands in Dhaka Annex 1 Export Processing Zones (EPZ) and the Economic Zones (EZ) Act 2010

Export Processing Zones (EPZs) are export oriented industrial enclaves which provide the infrastructures, the facilities, administrative and support services for a wide variety of enterprises. Bangladesh’s highly successful EPZs in Dhaka and Chittagong are now complemented by new EPZ developments and other valuable real estate developments around the country. BEPZA The Bangladesh Export Processing Zones Authority (BEPZA) is the ofcial organ of the government to promote, attract and facilitate foreign investment in the Export Processing Zones. The primary objective of an EPZ is to provide special areas where potential investors would fnd a congenial investment climate, and location free from cumbersome procedures. Businesses from 32 countries have so far invested in the existing zones. More information on BEPZA can be found at: http://www.epzbangladesh.org.bd/.

Currently eight EPZ’s exist with others due to open in the next few years. The following table provides data on these eight EPZ’s.

No. of industries Investment Export Name of EPZ Under Employment Manufacturing (m US$) (m US$) Implementation Chittagong 157 34 751.42 10,998.03 145,578 Dhaka 95 25 686.42 8,991.51 71,423 Comilla 21 24 90.70 379.88 6,533 01 Mongla 08 09 4.23 43.25 221 Uttara 06 01 4.46 1.59 2,389 Ishwardi 07 21 25.49 10.80 2,075 Adamjee 15 37 80.01 143.35 8,983 Karnaphuli 13 63 66.97 80.52 9,014 Total 325 215 1,709.64 20,648.92 246,216

Source: Bangladesh Economic Review-2010 (Bangla version), Ministry of Finance; http://www.boi.gov.bd/about-bangladesh/export-processing-zones EPZ benefts and incentives

The following are just some of the special incentives ofered to businesses located in an EPZ: 10 year tax holidays Concessionary tax for fve years, after the frst ten Duty and tax free exports from the zone

A Guide for New Investors in Bangladesh 47 Annex 1 Intra and inter zone exporting and sub-contracting Fully serviced plots Readymade factory buildings Available infrastructure facilities Warehouses and bonded areas Duty free import of machinery, raw materials, construction materials and spare parts Sale of 10% fnished product to domestic tarif area Sale of 10% surplus raw material to domestic tarif area Sale of 10% defective fnished goods and domestic tarif area items 100% backward linkage and accessories items are allowed to be sold in export oriented industries (deemed as exports) Sale of old/scrap machineries in domestic market Business and administration support services Customs clearances on site Recreational amenities

The location of the eights EPZs are indicated on Map 5 Economic Zones Act, 2010 In August 2010, the GOB enacted the Bangladesh Economic Zones Act, 2010. Although their current EPZs have been efective in creating jobs and increasing investment, the GOB recognized that they have not provided investors with the fexibility they demand with respect to selling to the local market and purchasing heir inputs from the local market. The EZ Act 2010 provides the investor with a more fexible zone regime which allows the private sector to develop zones, investors to sell into the local market, and further streamlines administrative processes. The frst economic zones are programmed to be opened by 2013.20

20. For further information contact the Prime Minister’s Ofce in Tejgaon, Dhaka (Ph. +880-2-8151308)

Embassy of the Kingdom of the Netherlands in Dhaka Annex 2

Chittagong Port © T © © Western Marine Western © Marine Western © Containers in Chittagong Vessels ready to be launched for export in May 2011

The history of shipbuilding in Bangladesh goes back a long way. It is little known today that Bangladesh was the center of building ocean-going vessels in Asia between the 15th and 17th century. In the early 19th century, the shipyards of Chittagong built many commercial ships of up to 1,000 tons and also British navy vessels that participated in the battle of Trafalgar in 1805 (see for example: http://m.koreatimes.co.kr/www/news/ special/2011/04/211_63043.html).

Chittagong is the second largest city in Bangladesh, and most of the large industries of Bangladesh are situated here. It is the chief port of Bangladesh, organized by the Chittagong Port Authority, CPA (See: http://www.cpa.gov.bd/index.php). The port has extensively developed facilities for ocean steamers, such as sufcient feeder vessels as the draught is not 02 sufcient for mother vessels to reach the port itself. Chittagong is situated on the Karnaphuli River some 19 km (12 mi) from its mouth at the Bay of Bengal (cf. Map 6 on the next page), with a population of over 3.6 million (2008).

A Guide for New Investors in Bangladesh 49 Annex 2 Map 5: Map of Chittagong District and City

Source: http://www.chittagongsomity.us/historical.pdf

Embassy of the Kingdom of the Netherlands in Dhaka Annex 3 Climatic Indicators of Bangladesh

Average monthly temperatures and precipitation:

Climate data for Dhaka Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year Average 24.4 26.7 30.6 31.7 32.8 31.1 32.2 31.1 30.6 30.6 28.3 25 29.4 high °C (°F) (76) (80) (87) (89) (91) (88) (90) (88) (87) (87) (83) (77) (85) Average low 14.4 17.2 22.2 25 26.1 27.2 27.2 27.2 26.7 25 20.6 16.1 22.8 °C (°F) (58) (63) (72) (77) (79) (81) (81) (81) (80) (77) (69) (61) (73) Precipitation 8 20 58 117 267 358 399 318 257 163 30 5 1,979 mm (inches) (0.3) (0.8) (2.3) (4.6) (10.5) (14.1) (15.7) (12.5) (10.1) (6.4) (1.2) (0.2) (77.9)

03 © Lien Jongkees

Forces of nature

A Guide for New Investors in Bangladesh 51 Annex 4 Application Forms

Prospective investors in Bangladesh are required to fll in the following application forms at various stages of the registration process:

1) Application for Registration of Foreign Investment (in English) 2) Application for Registration of Local Investment (in Bangla) 3) Application for Open Extension of Branch Ofce (in English) 4) Application for Employment of Foreign Nationals in the private sector (in English) 5) Application for Employment of Foreign Nationals in a Branch Ofce (in English) 6) Application for Approval of Remittances (in English) 7) Visa Application Form (in English) 8) Application for New Bonded Warehouse License (in Bangla) 9) Application for Import Registration Certifcate (in Bangla) 10) Approval of Foreign Borrowings: Application Form & Checklist (in English) 11) Application for Foreign Borrowings: Procedures and Guidelines (in English)

These forms can be downloaded from the following BOI website page: http://www.boi.gov.bd/how-to-invest/forms-a-procedures

Embassy of the Kingdom of the Netherlands in Dhaka Annex 5 List of Business Licenses, Agencies and Websites

Below is a List of Business Licenses, the relevant Agencies and the links to their websites:

Sl. Name Agency Link Ofce of the Chief Inspector of Facto- 1 Approval of Factory Plan http://www.mole.gov.bd ries and Establishment (CIFE)

2 Bonded Warehouse License Customs Bond Commissionerate (CBC) http://www.nbr-bd.org/

Register of Joint Stock Companies and 3 Certifcate of Incorporation http://www.roc.gov.bd/ Firms

4 Environmental Clearance Certifcate Department of Environment (DOE) http://www.doe-bd.org/

Ofce of the Chief Controller of Im- 5 Export Registration Certifcate (ERC) http://www.mincom.gov.bd ports & Exports (CCI&E)

6 Fire License Fire Service and Civil Defense (FS&CD) http://www.freservice.gov.bd/

Ofce of the Chief Controller of Im- 7 Import Registration Certifcate (IRC) http://www.mincom.gov.bd ports & Exports (CCI&E) Registration of Foreign Investment/ 8 Board of Investment (BOI) http://www.boi.gov.bd/ Joint Venture Registration of Local Investment 9 Board of Investment (BOI) http://www.boi.gov.bd/ Projects

10 Tax Holiday Certifcate National Board of Revenue (NBR) http://www.nbr-bd.org/

11 Tax Identifcation Number (TIN) National Board of Revenue (NBR) http://www.nbr-bd.org/ 05

12 Trade License for a Commercial Firm Dhaka City Corporation http://www.dhakacity.org/

Trade License for a Manufacturing 13 Dhaka City Corporation http://www.dhakacity.org/ Firm Department of Patents, Designs & 14 Trade Marks Registration http://www.dpdt.gov.bd/ Trademarks (DPDT)

15 VAT Registration National Board of Revenue (NBR) http://www.nbr-bd.org/

Sources: The websites mentioned, and: http://www.businesslaws.boi.gov.bd/index.php?option=com_eregistry.

A Guide for New Investors in Bangladesh 53 Annex 6

Investment Incentives 21

In order to encourage the infows of FDI the Government of Bangladesh ofers one of the most liberal investment policies and attractive packages of fscal, fnancial and other incentives to foreign entrepreneurs in South Asia. The Board of Investment (BOI) can advise further on this matter. In summary and in most cases, these investment incentives amount to the following according to the BOI: Remittance of royalty, technical know-how and technical assistance fees Repatriation facilities of dividend and capital at exit. Permanent resident permits on investing US$ 75,000 and citizenship on investing US$ 500,000 Tax holidays In the Dhaka & Chittagong Divisions: 100% in frst two years: 50% in the year three and four: and 25% in the year fve In the Rajshahi, Khulna, Sylhet, Barisal Divisions and three Chittagong Hilly Districts: 100% for frst three years, 50% for next three years, and 25% for year seven Depreciation allowances Accelerated depreciation for new industries is available at the rate of 50%, 30% and 20% for the frst, second and third years respectively, on the cost of plant and machinery Cash and added incentives to exporting industries Businesses exporting 80% or more of goods or services qualify for duty free import of machinery and spares, bonded warehousing 90% loans against letters of credit and funds for export promotion Export credit guarantee scheme Domestic market sales of up to 20% is allowed to export oriented business located outside an Export Processing Zone (EPZ) on payment of relevant duties Cash incentives and export subsidies are granted on the Free on Board (FOB) value of selected exports ranging from 5% to 20% on selected products.

In more detail the above mentioned investment Incentives to stimulate private sector direct investment are as follows:

21. Based on the following websites: http://boi.gov.bd/ http://www.businesslaws.boi.gov.bd/index.php?option=com_content&view=article&id=55&Itemid=74&lang=en, and http://www.fnancialinfobd.com/index.php?option=com_content&task=view&id=173&Itemid=303.

Embassy of the Kingdom of the Netherlands in Dhaka Annex 6 1. Tax Exemptions Generally fve to seven years’ tax exemptions are available for many business investments. However, for electric power generation tax exemptions are provided for up to 15 years. 2. Duty No import duty is applicable for export oriented industry. For other industries it is 5% ad valorem. 3. Income Tax Double taxation can be avoided in most cases as the country (Bangladesh) benefts from many bilateral investment agreements: the bilateral agreement with the Netherlands is discussed in Chapter 8. Exemptions of income tax up to three years for the expatriate employees in industries are specifed in the relevant schedules of the income tax ordinance. 4. Remittances Facilities for full repatriation of invested capital, profts and dividends are the norm in most situations 5. Exit An investor can wind up an investment either through a decision of an annual or extraordinary general meeting. Once a foreign investor completes the formalities to exit the country, he or she can repatriate the net proceeds after securing proper authorization from the central bank (Bangladesh Bank). 6. Ownership Foreign investors can set up ventures, either wholly owned or in joint collaboration, with local partners. 7. Investing in the Stock Market 06 Foreign Investors are allowed to participate in Initial Primary Oferings (IPOs) and right issues without any regulatory restrictions. Also, incomes from dividends are tax-exempt for investors. 8. Incentives and Facilities for the Investors Industries are eligible for tax holidays for the following periods according to the location of the establishment.

The period of tax holiday is calculated from the month of commencement of commercial production or operation of the industrial undertaking. The eligibility of a tax holiday is to be determined by the National Board of Revenue (NBR). The tax holiday facility is applicable to industries set up in Bangladesh before June 30, 2012. Accelerated depreciation in lieu of a 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 years specifed by the NBR.

A Guide for New Investors in Bangladesh 55 Annex 6 9. Concessionary Duty on Imported Capital Machinery Import duty at the rate of 7.5% ad valorem is payable on Capital Machinery and Spares imported for initial installation or ‘Balancing, Modernization, Rehabilitation and Expansion’ (BMR/BMRE) of the existing industries. The value of spare parts should not, however, exceed 10% of the total cost and freight value of the machinery. Out of this, 7.5% rate of duty payable, export-oriented industries and industries in the under developed areas, may enjoy a further concession of the import duty in the following manner:

No import duty is charged in case of capital machinery and spares listed 100% export oriented industries: the form of a bank guarantee or an indemnity bond to be returned after Minimum 70% export oriented industries in the form of a bank guarantee or cash deposit to be returned after instal- developed areas: Minimum 70% export - oriented industries in cured in the norm of a bank guarantee or cash deposit to be returned after developed areas: Other industries outside - developed areas: cured in the form of a bank guarantee or cash deposit to be returned after Other industries in devel- oped areas:

10. Non-Resident Bangladeshis (NRBs) Special incentives are provided to encourage non-resident Bangladeshis for

11. Other incentives agreements

Embassy of the Kingdom of the Netherlands in Dhaka Annex 6 from the date of commercial production 12. Additional Incentives to Export Oriented and Export Linkage Industries

06 payable

A Guide for New Investors in Bangladesh 57 Annex 6 concerned sponsoring agency and the NBR other facilities

Embassy of the Kingdom of the Netherlands in Dhaka Annex 7 Translations of Specifc Bangla Words

Babosha Business Village Labh Lakh Lokshan Loss Parishad Pourashava Sramik Labor Sub-district District 07

A Guide for New Investors in Bangladesh 59 Annex 8 Sector Study: Water

A Market Scan on the Bangladesh Water Sector has been commissioned in 2010 by the Embassy of the Kingdom of The Netherlands in Dhaka, Bangladesh, which was undertaken by Mott MacDonald (Arnhem, the Netherlands). The Executive Summary of the Final Report, dated December 2010, is provided below; it gives a clear overview of the market opportunities in this sector. The full report can be found on the website of the Embassy: http://www.netherlandsembassydhaka.org/.

Market Scan on the Water Sector in Bangladesh: Executive Summary Introduction 1. The study “Market Scan on the Bangladesh Water Sector” aims to provide an insight into the business opportunities that are available within the various water markets in Bangladesh and whether the Dutch private sector would be interested to transact in that market. The perception of the Dutch private sector about doing business in Bangladesh and a matching of market opportunities with interests of private sector from both countries is a strong focus of this study. In preparing the study surveys of Dutch and Bangladesh private sectors as well as relevant public organizations and donors with signifcant portfolio have been carried out. Data and information from the surveys, discussions with several key players in the Dutch and Bangladesh public and private sectors, reviews of recent relevant studies on diferent as- pects of the water sector provided the basis for the Consultant’s fndings and conclusions outlined in this report.

The Water Sector and Water Markets 2. The water sector covers a range of diferent markets and themes. The water sector is defned by positing an outline of the water chain and combining product types such as services, works, and goods/supplies. The resulted defnition corresponds reasonably close to those defned by the Water Mondiaal Mission Report, the publication Dutch Water Sector 2009-2010, which provides a directory of companies under various market segments. The water market segments then includes (i) water surface (food protection and drainage), (ii) Water harvesting, (iii) water use for consumption purposes (urban and rural drinking water, agricultural water), (iii) water use for non-consumption purposes (river and sea transport, dredging, tourism), and (iv) water discharge (wastewater). Chapter 2 of the report provides a broader defnition and outlines a typology of the full water markets. The inclusion of the

Embassy of the Kingdom of the Netherlands in Dhaka Annex 8 above water markets is rationalized in terms of identifcation of specifc opportunities for business development through product market combinations. Several of the markets have been left out from this study because of a lack of market opportunity and involvement of the private sector, small size of the market, and that market is locally dominated.

3. The water markets, as identifed above, have solid growth potentials and need expansion in order to contribute and support economic growth in Bangladesh. A brief analysis of markets in (i) Dredging, (ii) Shipbuilding, (iii) Inland Water Transport and Container Terminal, (iv) Urban and Rural Drinking Water, (v) Sewerage, (vi) Seeds, (vii) Irrigation Pump Technology, (viii) Water-Based Tourism, and (ix) Flood Protection and Drainage indicates an increased level of private sector engagement, robustness of the market, and fscal and other incentive regimes in place. In all these markets the private sector has established itself, and it will more in the near future, as the key player. Foreign frms have also entered several markets such as Dredging, Shipbuilding, Water Treatment Plants, Water-Based Tourism, and Efuent Treat- ment Plants forming joint venture operations with Bangladeshi counterparts indicating the markets soundness and feasibility. Public Sector – Roles and Performance

4. While the water sector has been signifcantly supported by funding agencies, the public sector within the water market plays a dominant role in overall planning, design, and implementation of programs and projects. In the majority of the cases, the agencies within the public sector act as the regulatory body and ensure the management and operation of relevant activities. Public sector is directly and indirectly involved in the planning, programming, management and operations of all activities for water resource management, water and sanitation supply, food protection and drainage, and coastal zone management. It also through its policy and regulatory roles impact other areas such as shipbuilding, inland water transport, tourism, wastewater, and water treatment where increasingly private sector engagement is seen. A large number of departments and agencies supporting 10 diferent ministries have shared responsibility for such an extensive engagement of the 08 public sector. It is to be noted that success has been achieved in terms of managing cyclones and disasters, tackling emergency issues, establishing decentralized planning and community based participation that has increased accessibility of water and sanitation services. However, performance of most agencies is poor and governance remains weak. The critical issues relating to public sector institutional performance are:

Lack of coordination: While each agency’s roles are strongly interconnected, they are inefective in coordinating activities leading to a failure in project implementation and addressing market needs.

Lack of an integrated Approach: There is no comprehensive analysis of the fnancing requirements necessary to achieve the objectives of the projects and ensure the sustainability of the investments. Neither there is an analysis of the project’s suitability within existing plans and strategies.

Capacity: There is a lack of manpower or manpower with appropriate skills, lack of technology, database, and institutional strategy. In some cases, this has led donors to add clauses to loans stating that additional staf will need to be employed prior to the

A Guide for New Investors in Bangladesh 61 Annex 8 provision of the loan. However, recruitment of suitably qualifed staf, particularly in rapidly growing new felds (e.g. water quality management, database and information management) remains difcult, with many posts left unflled.

Strategies and ad hoc operations: Many existing plans and policies (National Water Policy, National Water Master Plan) provide a clear and efective framework for projects and operation but they are not followed during implementation.

Fund Allocation and disbursement: Often it is reported that the funds are insufcient resulting in the agency’s inability to meet investment and O&M costs. Service charges for water consumption are low and inadequate to cover even O&M costs.

Corruption and transparency: The issue is a signifcant challenge within the water sector. The Bangladesh Private Sector Engagement in Water Markets

5. Until recently even within the non-consumption areas of the water sector such as inland waterways, wastewater, tourism, the public sector is engaged in direct management and operations. Private sector contractors are engaged in works and services mostly restricted to small-scale contracts awarded to small and medium size frms. Selection of contractors/service providers is based on low cost proposals resulting in low qual- ity construction and maintenance works. Where large-scale schemes exist, for exam- ple in case of BWDB and BIWTA, contracts are fxed terms and there is a tendency to break the overall value into smaller parts. A lack of forum to hold dialogue with private sector operators exacerbates a long-tradition of distrust between the two parties making it difcult to jointly pursue challenges of and solutions for the water sector by attracting private sector management and fnance. The GOB has recently put in place a Policy and Strategy for Public Private Partnership 2010. Without a PPP law or pertinent regu- lation that underpins any envisaged PPP it still is not sure how much of investment in infrastructure, particularly in the water sector could be attracted. There are several PPP frameworks arrangements being implemented such as in power generation (IPP), central efuent treatment plants in Export Processing Zones, water treatment plants, and these may provide further boost and lessons for increased PPP arrangements in water infrastructure projects.

6. Although private sector has been a key player in Bangladesh’s achievement of sustained economic growth its involvement in the water sector has been limited. The water policy emphasizes private sector involvement in the water sector essentially to provide specifc services in carrying out public institution’s mandates. It does not mention the potential role of the private parties in fnancing or operating water infrastructure. A lack of clear policy and investment program by the government on PSP in the water markets is the principal reason for limited involvement of the private companies. Findings from the market research indicate substantive involvement of the private sector in non-consumption areas such as in shipbuilding, river port and transportation, dredg- ing, industrial wastewater treatment, water-based tourism, pump technology, and water treatment. Commercial prospects and increased growth in those markets are attracting private sector activity and interests with the ability to provide better

Embassy of the Kingdom of the Netherlands in Dhaka Annex 8

technology, management, and fnancing. In the traditional water sector such as water resources, coastal zone management, drinking water and sanitation, food protection and drainage private businesses provide consultancy services and contract works and that will continue in the future. Unless there is a change in business models under which the public sector operates the above sectors and fair and transparent procurement processes are established private sector participation under B2G framework in traditional water sectors would remain local and within small and medium size contracting companies.

7. A sound enabling environment and investment climate is key to attracting any foreign investment, including Dutch private sector investments. Bangladesh has a good investment code comparable to regional country codes and it has appropriate incentive structures in place to attract foreign investment. There are though several investment climate constraints that thwart increased foreign investments in the country. Lack of serviced land and availability of land at an economic price, increased shortage of elec- tricity, gas, and water, poor road network and transportation, difculties with fnancial transactions such as L/C guarantees, customs regulations, all are contributing to a low level of investments, poor image that is further exacerbated by unstable political and security issues. With increased level of foreign investments in the country exploiting its comparative advantage of inexpensive labor, strategic location, and a long-term growth prospect, the removal of investment climate constraints could usher the country in sustainable growth path. The investment climate constraints that has created an image of the country as a difcult place to work in and operate impacts the perceptions of the Dutch private sector. The Dutch Private Sector Engagement in the Water Sector and Perceptions of Bangladesh

8. More than half of the surveyed companies are currently transacting and/or considering carrying out business in Bangladesh, but this number is a result of the 08 focus of the survey/questionnaire. It would be accurate to state that a large number of Dutch companies involved in the water sector do not operate in South Asia and more specifcally in Bangladesh. Among the surveyed companies all are internationally active and while Europe appears to be the primary market, interests in the Asian market are high, and more specifcally in the South Asian market. They also operate in at least one of the Delta countries of Indonesia, Vietnam, Bangladesh, Egypt and Mozambique. Dutch companies possess superior technology, top end know-how, and proven products and services and these are the key strengths of their operations in the international markets. These strengths indicate high-end markets where quality is sought after. What companies consider strengths in the water market vary from the type of market ofers made. For services ofers, for instance consultancy companies, having local contacts is a signifcant strength compared to other types of market ofers. Besides the above, the Works group considers local contacts and the ability to fnance as strengths, while the Services group considers the Dutch public sector support as a key strength.

9. Those operating in the Dutch private sector water markets, having been engaged in Bangladesh in the past or is currently operating, views the market as satisfactory and

A Guide for New Investors in Bangladesh 63 Annex 8 possessing a positive or neutral risk-reward ratio. The majority of the companies operate with some forms of local presence such as association with local frms, working with agents, and partners. Where a local ofce is set up and operated by a Dutch company or other foreign companies the results are very satisfactory. Much of this though would depend on market opportunities, management organization, and a strategic goal for long-term investment. In terms of barriers to doing business Dutch companies engaged in services sector indicate poor local management skills, lack of market information, low labor productivity, red tape, and supervising activities from the Netherlands as top ranked issues. The goods and supplies companies on the other hand see signifcant barriers in the business environment such as banking operations, organizing trade fnance, proft repatriation, payment collections, fscal structure, all fnancial aspects and lower down business environment aspects such as security risks and administrative hassle and corruption.

10. Those Dutch companies contemplating to entering the Bangladesh market perceive red tape and corruption as top barriers to doing business. Those companies still considering to entering the market in Bangladesh have similar views, placing a heavy emphasis on Business Environment barriers. Bangladesh’s image as a corrupt, complex administrative and bureaucratic structure, uncertain rules and policies, are refected in most responses. It is noted that there are diferences in perceptions between the services/ works groups and goods/supplies groups as the former does business specifcally in Bangladesh (B2G framework) where projects are fnanced by the international fnancing institutions (IFI), while the latter are directly engaged (B2B framework) with Bangladeshi private sector where projects are fnanced from commercial sources. Most IFI fnanced projects tendered by the public sector goes through unfair bidding practices. This view is also expressed by the Bangladeshi private sector. Some perceptions such as poor and deteriorating economic conditions, lack of knowledge of market and information is perhaps due to the inability of the Bangladesh Investment Board to promote Bangladesh as an attractive investment destination. Facilitating Identifed Business Opportunities

11. Business opportunities for Dutch private sector in Bangladeshi water sector have been identifed mainly in the water non-consumption areas where B2B engagement is feasible. Opportunities in river and sea transport are highly perceived by Dutch companies already engaged in Bangladesh, as well as urban drinking water, wastewater and drainage and sewerage markets. Those companies operating in other countries of South Asia and not in Bangladesh perceive market opportunities to exist in surface and ground water, rural drinking water and agricultural water. The Bangladesh private sector indicates the need for partnering with foreign companies in order to fll gaps in management, technology, skills, and knowledge of specifc technical areas. Interests from Bangladeshi private sector range from forming joint venture partnership to design, construct, and operate shipyards, inland container terminal, water treatment plants, efuent treatment plants, and providing water-based tourism marketing and technical assistance.

Embassy of the Kingdom of the Netherlands in Dhaka Annex 8 12. In order to ensure B2B and B2G/G2G engagement as outlined above further activities need to be carried out and they are outlined as follows.

Supporting companies providing goods and supplies could include (i) preparation of specifc market information briefs and leafets, (ii) facilitating acquaintance with Bangladesh in order to overcome negative perceptions by supporting BOI in preparing appropriate promotion materials, publications, strategy, use of local companies for match-making, due diligence studies, (iii) supporting market entry to make initial contact, improvement of entry barriers such as partnering with commercial banks, (iv) broader networking and capacity building.

Supporting companies engaged in the services sector could include (i) national and international policy domains by entering into public/private dialogue, (ii) supporting PP framework and capacity, (iii) exploring co-fnancing eforts for large projects to position Dutch expertise/companies, and (iv) engaging in specifc studies such as port development (more ports, more shipbuilding, more maritime business), climate adaptation measures, etc.

08

A Guide for New Investors in Bangladesh 65 Annex 9 Ranking of Bangladesh and Selected Countries on Several Indices

The World Bank Doing Business Ranking 2011 indicates that Bangladesh (107th) ranks substantially higher than India and Indonesia, but lower than Vietnam.

The ranking of Bangladesh varies greatly according to the specifc topic.

The ranking of Bangladesh on the Democracy Index 2010 is much higher (83rd) than that of Vietnam, but lower than India and Indonesia (Economist Intelligence Unit).

Embassy of the Kingdom of the Netherlands in Dhaka Annex 9

Transparency International’s Corruption Perception Index (CPI) indicates that Bangladesh ranks fairly low: 134th out of 178 countries.

However, it has improved since 2005 when Bangladesh ranked at the very bottom out of 158 countries.

MAIN INDICES AND RANKINGS OF BANGLADESH/DHAKA

Rank of Total nr. of Indexed Organisation Index/Ranking Acronym Year Bangladesh / countries to 100 Dhaka A) Economic Development

World Bank Group Doing Business Ranking DB 2011 107 183 58 2010- World Economic Forum WEF Global Competitiveness Index GCI 107 139 77 2011 World Bank Group Logistics Performance Index LPI 2010 79 155 51

1 of 11 Goldman Sachs Next 11 --- 2005 11 countries 1 of fve JP Morgan Frontier Five --- 2007 5 countries Asian Develop-ment Bank Did not List of 8 Asian Growth Drivers --- 2011 8 09 - ADB qualify Standard & Poor Sovereign credit rating --- 2010 BB- ---

Moody Sovereign credit rating --- 2010 Ba3 ---

Nation Brands Index Anholt-GfK Roper NBI 2008 Not included 50 (12-Netherlands)

B) Human Development

UNDP Human Development Index HDI 2010 129 169 76

Livability Ranking of cities Economist Intelligence Unit LR 2011 139 140 99 (Dhaka) People Risk Index of Cities AON PRI 2010 90 90 100 (Dhaka) C) Governance

Transparency International Corruption Perception Index CPI 2010 134 178 75

Economist Intelligence Unit Democracy Index DI 2010 83 167 50

Freedom House Freedom of the Press FoP 2010 118 196 60

A Guide for New Investors in Bangladesh 67 D) Gender

Inter-Parliamen-tary Union % of women in National WNP 2011 63 187 34 (IPU) Parliament

E) Social Networking

Networked Society City Index Ericsson/Arthur D. Little NSCI 2011 23 25 92 (Dhaka)

F) Wellbeing

University of Leicester Satisfaction with Life Index SLI 2006 104 178 58

2000- Erasmus Univ. Rotterdam Happiness in Nations HiN 100 149 67 2009

Sources of Main Indices of Bangladesh/Dhaka:

INDEX Source / Website WB’s Doing Business http://www.doingbusiness.org/

WEF: Global Competitiven. http://www.weforum.org/issues/global-competitiveness

WB’s Logistics Performance http://info.worldbank.org/etools/tradesurvey/mode1b.asp

Goldman Sachs’s Next 11 http://www2.goldmansachs.com/ideas/brics/book/BRICs-Chapter13.pdf

JP Morgan’s Frontier Five http://www.at-capital.com/index.php?option=com_content&task=view&id=25&Itemid=50

ADB’s Asian Growth Drivers http://www.thedailystar.net/newDesign/news-details.php?nid=178490

S&P’s Sov. credit rating http://www.standardandpoors.com/ratings/articles/en/us/?assetID=1245226449301

Moody Sov. credit rating http://www.moodys.com/

Nation Brands Index http://www.gfkamerica.com/practice_areas/roper_pam/nbi_index/index.en.html

UNDP’s HDI http://hdr.undp.org/en/statistics/

EIU’s Livability Ranking http://www.eiu.com/site_info.asp?info_name=The_Global_Liveability_Report&rf=0

http://www.aon.com/thought-leadership/asia-connect/Attachments/research-center/People-Risk- AON’s People Risk Highlights-15Sep10.pdf?elq_mid=11046&elq_cid=1596104&elq=0bccd65c34f436884726b7d28a 3a846

Corruption Perception Index http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results

EIU Democracy Index http://graphics.eiu.com/PDF/Democracy_Index_2010_web.pdf

Freedom of the Press http://www.freedomhouse.org/template.cfm?page=560&year=2010

IPU’s Women in Nat. Parll. http://www.ipu.org/wmn-e/classif.htm

http://www.ericsson.com/thinkingahead/the-networked-society-blog/2011/05/11/city-life-index- Networked Society City shows-true-value-of-connections/

Satisfaction with Life Index http://en.wikipedia.org/wiki/Satisfaction_with_Life_Index

Happiness in Nations http://worlddatabaseofhappiness.eur.nl/hap_nat/nat_fp.php

Embassy of the Kingdom of the Netherlands in Dhaka