Foreign Direct Investment (FDI) refers to the investment made by a foreign entity, such as a company or an individual, in a business enterprise located in another country. FDI involves a long-term commitment of capital and other resources, with the aim of establishing a lasting interest in the operations of the enterprise.
What is Foreign Direct Investment and importance
Foreign direct investment (FDI) refers to an investment made by a company or individual from one country into a business or entity located in another country. This investment can take many forms, such as buying or establishing a new business, acquiring a company, or investing in an existing enterprise.
FDI is often considered a key driver of economic growth and development, as it can bring in new capital, technology, and skills to a host country, which can boost productivity, employment, and income levels. Foreign Direct Investment can also help diversify a country’s economy, provide access to new markets, and promote innovation and knowledge transfer.
Governments often encourage FDI through policies and incentives, such as tax breaks, subsidies, and streamlined regulations, as they can bring in significant economic benefits. However, FDI can also raise concerns about issues such as national security, sovereignty, and cultural impact, which can lead to debates about its merits and drawbacks.
Types of Foreign Direct Investment
There are two main types of foreign direct investment (FDI):
- Inward FDI: Inward FDI refers to the investment made by a foreign company or individual into a business located in the host country. For example, a German car company investing in a car manufacturing plant in the United States.
- Outward FDI: Outward FDI refers to the investment made by a company located in the host country into a foreign business or entity. For example, an American technology company investing in a software development firm in India.
Methods of FDI
There are several methods of FDI which are given below:
- Greenfield investment: A greenfield investment refers to establishing a new business or entity in a foreign country from scratch. This can involve building new facilities, hiring employees, and starting operations.
- Mergers and acquisitions: Mergers and acquisitions (M&A) involve purchasing an existing business or entity in a foreign country. This can involve acquiring the entire business or just a controlling stake.
- Joint venture: A joint venture is a partnership between a foreign company and a local company in the host country. The two companies agree to pool their resources and expertise to create a new business entity.
- Strategic alliance: A strategic alliance is a partnership between two or more companies to achieve a specific goal. This can involve sharing resources, technology, and expertise to develop a new product or enter a new market.
What is the current state of foreign direct investment in Bangladesh?
Foreign direct investment (FDI) has been steadily increasing in Bangladesh over the past decade. According to the World Investment Report 2021 by the United Nations Conference on Trade and Development (UNCTAD), FDI inflows to Bangladesh increased by 25% in 2020 to reach USD 2.1 billion, despite the global pandemic.
The key sectors attracting foreign investment in Bangladesh include:
- Ready-made garments (RMG) industry: Bangladesh is the world’s second-largest RMG exporter, and the sector accounts for over 80% of the country’s total exports. The government has taken various initiatives to boost the sector, including establishing special economic zones and offering tax incentives to investors.
- Power and energy: Bangladesh is investing heavily in power and energy infrastructure to meet the growing demand for electricity. The government has launched various projects to increase power generation capacity, including renewable energy sources such as solar, wind, and hydroelectricity.
- Information technology and communication: The country has a large pool of talented IT professionals, and the government is actively promoting the sector through various initiatives, including offering tax exemptions and establishing IT parks.
- Pharmaceuticals: The pharmaceutical sector in Bangladesh is growing rapidly, driven by the increasing demand for affordable drugs in the domestic and international markets. The government is providing various incentives to encourage investment in the sector, including tax holidays and duty-free imports of raw materials.
- Infrastructure: The government has launched various infrastructure development projects, including roads, bridges, and ports, to improve connectivity and attract foreign investment in the country.
Overall, Bangladesh offers several investment opportunities in various sectors, and the government is taking proactive steps to create a business-friendly environment for foreign investors.
What are the government policies and incentives in place to promote foreign direct investment in Bangladesh?
The government of Bangladesh has implemented several policies and incentives to promote foreign direct investment (FDI) in the country. Some of the key policies and incentives are:
- Tax breaks: The government offers tax holidays ranging from three to seven years for new industries and for the expansion of existing industries. It also offers reduced tax rates for certain industries, such as software development and IT-enabled services.
- Special economic zones (SEZs): The government has established SEZs across the country to attract FDI and provide a business-friendly environment. These zones offer various incentives, including tax exemptions, duty-free import of raw materials, and streamlined administrative procedures.
- Investment facilitation services: The government has set up various investment facilitation services to assist foreign investors in setting up their businesses in Bangladesh. These services include a One Stop Service (OSS) to provide streamlined administrative procedures, and the Bangladesh Investment Development Authority (BIDA) to facilitate investment and promote business-friendly policies.
- Export subsidies: The government offers various export subsidies to promote exports and attract FDI in export-oriented industries. These subsidies include cash incentives, duty drawback, and bonded warehouse facilities.
- Infrastructure development: The government is investing heavily in infrastructure development to improve connectivity and attract FDI. It has launched various projects, including the construction of roads, bridges, and ports, and is also investing in power and energy infrastructure.
Overall, the government of Bangladesh has implemented several policies and incentives to promote FDI and create a business-friendly environment for investors.
What are the investment procedures and regulations for foreign investors in Bangladesh?
Foreign investors looking to invest in Bangladesh must follow certain investment procedures and regulations set by the government. Here are some key points to keep in mind:
- Registration: Foreign investors must register their company with the Registrar of Joint Stock Companies and Firms (RJSC) under the Companies Act, 1994. They also need to obtain a Tax Identification Number (TIN) from the National Board of Revenue (NBR).
- Licensing: Depending on the sector and type of investment, foreign investors may require additional licences or permits from relevant authorities such as the Bangladesh Investment Development Authority (BIDA), Bangladesh Bank, or the Board of Investment (BOI).
- Investment approval: Foreign investments over a certain threshold require prior approval from the government. For example, investments in the manufacturing sector over USD 5 million require approval from the BIDA, while investments in the service sector over USD 2 million require approval from the BOI.
- Repatriation of profits: Foreign investors are allowed to repatriate profits, dividends, and capital gains from their investments in Bangladesh. They must obtain permission from the Bangladesh Bank and comply with foreign exchange regulations.
- Taxation: Foreign investors are subject to corporate income tax, which is currently 25%. However, certain industries such as software development and IT-enabled services are eligible for reduced tax rates.
So, foreign investors must comply with investment procedures and regulations set by the government of Bangladesh to invest in the country.
How can foreign investors get started with investing in Bangladesh
Foreign investors who are interested in investing in Bangladesh can take the following steps to get started:
- Conduct Market Research: Before investing in Bangladesh, foreign investors should conduct market research to determine the potential demand for their products or services. This includes analyzing market trends, identifying competitors, and understanding consumer behavior’s.
- Identify Local Partners: Identifying local partners is an important step for foreign investors to get started with investing in Bangladesh. Local partners can provide valuable insights into local regulations, business practices, and cultural nuances. They can also help establish relationships with key stakeholders and customers.
- Seek Expert Advice: Foreign investors can seek advice from experts such as lawyers, accountants, and consultants who have experience with investing in Bangladesh. These experts can provide guidance on legal and regulatory requirements, tax laws, and investment opportunities.
Like, “JK Associates“ is a top-ranked Corporate Consultancy and Law firm in Bangladesh with an international presence providing specialized services in Intellectual Property Rights, Corporate Affairs, Foreign Direct Investment and Trade, Taxation, and Litigation.
- Attend Trade Events and Join Industry Associations: Attending trade events and joining industry associations can provide foreign investors with valuable networking opportunities and insights into industry trends. Industry associations can also help investors stay up-to-date with local regulations and market developments.
- Set Up Business and Obtain Required License’s: Once foreign investors have identified local partners, conducted market research, and sought expert advice, they can set up their business and obtain the required license’s and permits from relevant authorities such as the Bangladesh Investment Development Authority (BIDA) and the Board of Investment (BOI).
Overall, foreign investors who want to invest in Bangladesh should take a strategic and cautious approach. Conducting thorough market research, identifying local partners, seeking expert advice, attending trade events and joining industry associations, and obtaining required license’s and permits are key steps to get started with investing in Bangladesh.