LightCastle Investment Study Bangladesh

Nestled between India and Myanmar in South Asia, Bangladesh – a country filled with hopes and dreams of 160 mn

people (8th largest) and spanning 147,540 sq. kilometers – surfaces as one of the most prominent, lucrative

investment frontiers in the world. Despite its fair share of myriad challenges, the country has shown remarkable

resilience to register a steady economic growth of > 6% in the last decade, an accomplishment to take pride in. This

significant growth has resulted in a massive change in the composition of the country’s workforce today, as is

evidenced by the rise of consumerism.

Bangladesh – The Dazzling Delta: Your Growth Strategy in Asia

Frontier Market Series: A LightCastle Analytics Publication

Page | 1 – Investment Advisory Services

Acronyms BDT Bangladeshi Taka MW Mega Watt Kg Kilogram MT Metric Ton M MT Mn Metric Ton USD United States Dollar GBP Pound Sterling bn Bn mn Mn


Table of Contents

Emerging Bangladesh – A Part of Your Global Growth Strategy ................................................................................. 3

Apparel Export Industry – Clocking Ahead ................................................................................................................... 7

Power Infrastructure – A Gold Mine ............................................................................................................................ 9

Footwear – The Next Export Tiger .............................................................................................................................. 11

Pharmaceutical Industry – The Thrust Sector ............................................................................................................ 13

Information Technology – The Gateway to Middle Income Status ........................................................................... 15

Footprints – Big Names that have made big .............................................................................................................. 17

Investing in Bangladesh – Government Policy Support ............................................................................................. 18


Emerging Bangladesh – A Part of Your Global Growth Strategy

Economy has been experiencing steady growth over the last decade and prospects are looking

better for the coming one, with a booming RMG sector, flourishing remittance flow, record high

foreign currency reserve and international investors’ interest in FDIs. Geographic proximity to

emerging Asian powerhouses - India and China - will further add impetus to the country’s drive

towards middle income status.

Strong performance relative to emerging economies Bangladesh economy has performed well over the last decade with GDP growing by 6-7%, while many of its competitors have faltered and lost their ways (growth has been over the median of ‘Ba’ rated countries and BRIC). The growth is considered impressive taking into account frequent instances of natural calamities and political unrests that have at times hindered economic activities. Inflation has remained stable over 2013 at 7% (Source: Bangladesh Bank) despite frequent supply chain disruption due to political unrest. Reining of inflation is attributed to declining growth of non-food inflation such as rent, which has contributed to lower inflationary pressure. In addition, the Bangladesh Bank has adopted a tighter monetary policy, leading to further lowering of inflation.

Moody affirms Bangladesh’s rating at Ba3 with stable outlook

Bangladesh has performed well compared to other comparable countries. Sovereign ratings by both Moody’s and S&P’s are testament to the economy’s resilience. The ratings are driven by healthy

economic outlook, progress on policy reform and limited vulnerability to fiscal and external funding stress. Local currency country risk ceiling is affirmed at Baa3, long term foreign currency bond, B2 and bank deposit ceiling at B1.

Bangladesh economy vitals are on growth trajectory Exports have been growing based on the blossoming RMG sector, which has clocked USD 23 bn over 2013. Remittance revenues have grown to the tune of USD 12 bn, albeit at a slower pace. However, import growth has declined at a relatively higher rate, contributing to a positive current account balance. Bangladesh is experiencing record high forex reserve position, currently standing at USD 19 bn. The current reserve can comfortably cover 7 months of country’s import and the Forex reserve is expected to grow with steadily improving RMG export and growth in remittance earning. Manpower export is also set to improve as the Malaysian labor market reopens and as government undertakes measures to train and send more semi-skilled and skilled workers abroad.

Influx in infrastructure development Government has been investing heavily in infrastructure development, especially in the field of power generation. Public sector authorities have tackled the demand-supply gap by directly involving the private sector. Entrepreneurs have established quick rental power generation plants, which have been regularly supplying to the national grid, contributing to lower electricity shortage. Additionally, the government has reached an agreement with India to import electricity, starting with 500 MW per day. The existing installed capacity is 10,213 MW.


Government has been working to improve efficiency of the Chittagong Port which has the potential of doubling their capacity. There also are long term plans of establishing a deep sea port in Sonadia and both Chinese and Indian investors have expressed interest in developing the sea port. Establishment of a proper seaport can significantly reduce export lead time and earn steady flow of revenue for the government.

Expanding consumer market providing growth opportunities Spending power of Bangladesh is steadily enhancing and by 2021, Bangladesh is projected to become a middle income nation of 175mn people.

With an emerging economy consumer spending, disposable income and personal savings are also experiencing a positive momentum. Bangladesh is a mammoth sized consumer market consisting of nearly 160 mn consumers. This huge consumer base is being driven by catalytic factors like age and gender distribution (60% of the population is aged between 15-64), increasing urban population (growing at a rate of over 30%/year), expanding labor force (increasing purchasing power of the mass), increasing literacy rate (primary education enrollment is 95%+), rising middle class, growing white collar culture, and globalization.

Strategic Location at the Heart of Asia Beneficial location at the crux of “Chindia.” Proximity to India and China leads to strong trade relations. Additionally, Bangladesh leverages on the exceptional growth environment in the region and commutable distance to key Asian cities – traction from the 975 mn new Asian middle class market.

Economy offering long-term growth opportunities Bangladesh is developing as a key export hub in the heart of Asia. With Indian and Chinese consumer spending projected to grow by USD 2.6 trillion+ and USD 4.2 trillion+ in the coming decade – this powerhouses will become key markets for Bangladesh. Moreover, Bangladesh is one of the few locations that possess the capacity, access and cost-base to capture the manufacturing shift out of China. RMG continues its success story with USD 23 bn in exports, mostly catering to the nations in EU. With proliferation of product diversification and new markets in Asia, this volume may well exceed USD 40 bn by 2020. Bangladesh has competitive wage rates compared to other emerging markets.

Additionally, Bangladesh has one of the lowest public debt to GDP ratio compared to other frontier markets including the likes of India and Vietnam.


A host of emerging sectors Bangladesh has started foraying into diverse higher value sectors. Light Engineering, Pharmaceuticals, Leather, and IT services are exhibiting high potential. Non RMG exports stand at USD 5 bn now and are expected to exceed USD 11 bn by 2025.

Next investment hub in Asia Bangladesh provides an opportunity space for foreign investors to bring forward technology and market access while reciprocally the country provides a favorable cost base, trade terms and capacity for set-up of production facilities. At present, Bangladesh is involved in the production of motorbikes, consumer electronics (TVs, refrigerators, mobile devices) and even ships.

FDI yet to reach its full potential

Bangladesh has been experiencing increasing FDI over the last decade. FY 2013 inward FDI was USD 1.7 bn (highest in the manufacturing sector – USD 713 mn).

Additionally, FDI is currently 1.2% of GDP, which is low compared to frontier market average.

Potential Gap of USD 2 bn +

Capital market provides long positions and risk diversification for investors Bangladesh capital markets have very low and even negative correlation with developed, emerging and other frontier equity markets. Therefore, an exposure to Bangladesh significantly improves risk adjusted returns. The market has returned 203% since Jan 2007 (16.33% p.a.). For long term investors looking to participate in the Bangladesh growth story – now the time is just about ripe to start investing.

Largest Stocks as of May 30, 2014


Get Ready to Enter Bangladesh


Apparel Export Industry –

Clocking Ahead

Bangladesh’s RMG sector outlook projects a bright future as close competitors like China are moving up the value chain, leaving value apparel manufacturing to cost effective players like Bangladesh. Mckinsey, a leading consulting firm, in their recent report on Bangladesh’s RMG sector, has testified to RMG sector’s growth potential. According to the report, RMG export is set to grow to USD 36 bn by 2020.

The growth story of the RMG sector The export oriented readymade garments (RMG) sector in Bangladesh started its modest journey as a small non-traditional sector of export in the late 1970s. In this short span of three decades, RMG has transformed itself as the country’s highest revenue generating sector, contributing 82% (USD 23 bn FY13) of country’s total export. Bangladesh is currently the largest RMG exporter behind China and India having a growth potential in the coming years. With GSP facility in EU and duty free access to Canada and Japan, Bangladesh is benefitting from competitive cost advantages that have translated into higher export revenue.

Bangladesh’s RMG export has spiked in the post MFA regime from USD 6.9 bn in 2005 to USD 11.8 bn in 2008. The global financial crisis also had minimal impact on Bangladesh’s export, initially stagnating at USD 11.8 bn in 2009 before increasing to USD 19.2 bn in 2011.

Emerging markets for Bangladesh apparel EU is Bangladesh’s highest RMG export destination constituting 58% of total export followed by US market with export of 23%. Bangladesh has recently diversified into emerging export markets including Australia, Brazil, China, Japan, and South Africa accounting for 14% of total export.

Sustaining competitive costs The RMG sector has flourished over the years catalyzing on inexpensive labor. The country still sustains the competitive advantage despite conceding 77% minimum wage hike in early 2014.


Way forward for further growth with renewed compliance The RMG sector has undergone upheaval in 2013 mainly due to a series of industrial accidents which brought international attention towards factory compliance issues. Amid pressure from international retailers, Bangladeshi factories have undergone structural changes for adhering to strict compliance norms. Meanwhile, political unrest in the latter half of 2013 had a crippling effect on the sector. In spite of the double whammy, RMG export has managed to register growth (c.10%), both in the last quarter of 2013 and first half of 2014. This indicates to the resilience of the sector and buyer’s continued reliance of Bangladesh as an export destination. In the backdrop of the recent signing on the TICFA agreement with the U.S., talks are underway to revive GSP facilities. The new GSP deal may also include tariff and quota free access of Bangladesh apparel that went missing in the previous GSP agreement.


Power Infrastructure – A Gold

Mine

Bangladesh’s annual economic growth of 7% calls for the scalability of its power infrastructure to keep up with the demands of industry and increased urbanization.

Heavy investment in energy infrastructure has made improvements but by 2030 Bangladesh’s demand may well reach 34,000 MW. Meeting this increase may result in a multi-bn dollar opportunity for business.

Status quo The current demand in the country is around 6,264 MW with maximum demand having hit 8,250 MW in April 2013. The electricity demand is set to grow at 11% in the 2015-2020 period (PSMP 2010) and the installed capacity was 10,213 MW as of November 2013. However, there is shortfall due to mismatch between fuel mixes and plant types. Moreover, 62% of the population is currently covered by the electricity grid with the rest of the population set to come online in the near future. This represents a still untapped market of 61 mn people who will be connected to the national grid in the coming years as Bangladesh continues its growth trajectory out of the LDC category. The power industry is unique in the fact that overhauling it can impact all components across the vertical production chain. This presents ample opportunity for investment in areas ranging from electricity generation to distribution channels in the fuel sourcing function.

Insights on fuel sources The fuel mix of the power plants are heavily dependent on natural gas, set to meet the power demands of the country until 2019. The power development’s master plan lays out a roadmap to reduce dependence on the natural gas and move fuel priority towards usage of coal, having plans to generate 50% of total electricity by 2030.

The private units are operating in the market, comprising of 42% of the total installed capacity.

Quick power rental from private sector Various quick rental power plants were set up by the private sector units, aiming to reduce the generation deficit during the 2010/11 period. 22 plants were rolled out by the private sector. These plants have high production costs owing to exorbitant furnace oil prices and are poised for replacement now with alternative energy sources.

Game plan for the future In keeping pace with the level of economic growth in Bangladesh, the power authorities have devised a master plan through the PSMP 2010 to upgrade the linkages in the sector to reach the optimum fuel mix. Some major developments in the sector have also occurred to ensure that demand is met adequately in near future.

Regional connectivity Bangladesh has started to move towards regional power grid connectivity, the first manifestation of which has been the beginning of electricity import from India. This move was started on a pilot basis in October 2013 with import of 175 MW of electricity.


It has the potential to reach 1000 MW given the infrastructure in place. This gives Bangladesh a cushion with respect to energy security in the near term.

Alternative sources of power Coal: As a fuel source, coal consists of around 3% of the total composition. This is set to reach 50% within the year 2030 according to the master plan by the Power Development Board. Salient reasons for a foray into coal production are because of two reasons. First, because there are huge reserves of coal in the Northern regions of the country, estimated to be around 3 bn tonnes; and second, there is potential to import coal from neighboring countries to fulfill demand if necessary. Hydroelectricity: Drawing from the prior-mentioned point on regional connectivity, there is a huge potential for Bangladesh to tap in to Nepal’s and Bhutan’s huge hydroelectric generation capacity.

Renewable Energy (Solar): Bangladesh has successfully managed to implement one of the biggest Solar Home System (SHS) projects. Almost 3 mn SHSs have been installed to date with a targeted installation base of 6 mn by 2015. Currently renewable energy makes up 2% of the total electricity generation. Wind Energy: Having a 710 km coast line, Bangladesh is yet to take full advantage of wind turbines. Upside from this sector can be extensive.

LNG import facilities and off-shore gas reserves Liquefied Natural Gas (LNG) can augment the country’s energy needs by allowing for import of liquefied natural gas and subsequent gasification on landing and distribution. The groundwork has been laid to construct Bangladesh’s first floating LNG terminal at Moheshkhali that is going to have a capacity to handle 5 mn MT/year of LNG. The proposed infrastructure for this purpose will also act as a platform for offshore power exploration as well as subsequent extraction and transfer. It’s fair to say that Bangladesh has substantial reserves of untapped gas in its offshore wells.

Investment potential Projected demand to hit ~ 34k MW by 2030. Total investment in the sector over the next 15 years is estimated at USD 70.5 bn.

Major investment

opportunities via BOO,

BOOT arrangements

under the PPP

mechanism

Overhaul of road,

waterway and

infrastructure to

facilitate fuel

transport

Overhaul of

Pipeline

Infrastructure to

carry imported

LNG and Drilled

Natural Gas from

sea to distribution

hubs

Commercial &

Household demand for

power set to reach

33,708 MW by 2030


Footwear – The Next Export

Tiger

Although Bangladesh export basket is heavily skewed in favor of RMG export, several new sectors have cropped up over the last decade. Footwear is one such sector which has tremendous potential to significantly boost the country’s export while diversifying the economy’s export basket.

Global footwear industry is at an upward trajectory Given rising global demand for footwear, which is expected to reach USD 211 bn by the end of 2018 (Source: Transparency Market Research), Bangladesh holds the potential to leverage benefits through high-quality production.

Local footwear market is growing Bangladesh’s footwear export has doubled during 2010-13 and continues to rise further as illustrated below. Bangladesh is involved in the export of components at various stages of footwear value chain ranging from raw materials to work-in-progress such as soles and finished goods e.g., shoes.

Source: Export Promotion Bureau (EPB)

Eyeing the global leather market

The sector has been growing over the last 5 years with exports increasing by 46% in 2011 followed by another healthy 25% growth in 2013. Recently, total export has exceeded USD 1 bn mark chiefly due to the rising global demand and renewed interest among local entrepreneurs for manufacturing footwear. Some international investors have already carved a niche by setting up factories in local Export Processing Zones (EPZs). As illustrated above, Bangladesh has the potential to accommodate relocating footwear units from China due to Bangladesh’s inherent input cost advantages. However, Bangladeshi labor need to undergo significant learning curve to improve on efficiency and productivity. As illustrated above, Bangladesh has the potential to accommodate relocating footwear units from China, due to Bangladesh’s inherent input cost advantages. However, Bangladeshi labor need to undergo the learning curve to improve their efficiency and productivity.


Bangladesh has a distinct advantage in footwear production as it is involved in all stages of the value chain from raw leather to final product. The annual export of these components is expected to reach a value of USD 5 bn within the next decade.

Leather sourcing will be a competitive advantage Bangladesh produces superior quality leather from local livestock, which is subsequently processed by tanneries concentrated around the capital. These inputs are then transformed into final products including footwear, whose exports stood at USD 419 mn as of 2013. (Source: EPB) The annual production of leather hovers around 250 mn square feet each year with supply peaking during the religious festivals of Eid. In 2013, the supply of rawhide stood around 7 mn units, leaving the tanneries to struggle to keep up with the supply.

Bangladesh has robust backward linkage In Bangladesh, incoming raw hides are sorted and processed in tanneries that are concentrated in the outskirts of the capital in Hazaribagh. These entities have come under censure for being environmentally unfriendly prompting the government to build a 200 acre Leather Industrial Park in Savar at a cost of USD 60 mn. The park will include state-of-the-art Effluent Treatment Plants (ETPs) to treat the waste generated while processing leather in the tanneries.

The Asian market to drive demand In sync with international proliferation, the domestic market, and the region as a whole, also has potential for growth. This is due to rising per capita income in Bangladesh, recently passing the USD 1,000 mark. In addition, the economic conditions of the countries in this region is changing rapidly with increasing economic growth translating into higher per capita income, in effect indicating higher purchasing power. This is going to pull the demand for products such as footwear upward as they move from being a mere necessity to a luxury and status oriented product.


Pharmaceutical Industry – The

Thrust Sector The pharmaceutical sector in Bangladesh is one of the thrust sectors and plays a vital role for the country’s economy. The sector utilizes highly skilled manpower along with advanced machinery for manufacturing high quality generic medicines and vaccines for local and international markets at competitive prices. Currently, the market consists of around 150 pharmaceutical companies, out of which top 20 companies control 85% of the market share. The local manufacturers cater to 97 % of the country's consumption with a market size of USD 1.2 bn and are continuously expanding their reach in the global horizon.

Global vs. local market synopsis IMS projects the global pharmaceutical market to reach 1.135 trillion from 9.53 bn at a compound annual growth rate (CAGR) of 3–6% during 2013-2017. Led by China, the BRIC countries (Brazil, Russia, India, and China) account for almost 70% of all pharmaceutical market sales. Parallel to the global picture, the emerging countries show a positive growth trend, where Bangladesh is one of the Tier 3 pharmerging countries that is forecasted to contribute to this industry growth by 6–9% between 2013–2017. The local market demand in Bangladesh differs significantly from the international market; about 85% of the drugs sold are generics and 15% are patented drugs. The market comprises 83 active pharmaceutical companies, of which the top 20 controls 85% market share. The local market size currently rests at USD 1.2 bn.

Market demand and supply insights Bangladesh has one of the lowest per capita drug consumption in the world. However, the onset of the sector growth was accelerated by the promulgation of the Drugs (Control) Ordinance, 1982 Act. Furthermore, the local demand for generic drugs sharply increased within the past few years due to the development of health care infrastructure, increase of health awareness both in rural and urban areas, escalation in standard of living in general, and increase in life expectancy. Incepta Pharmaceuticals Ltd, Renata Ltd, Drug International Ltd, Eskayef Bangladesh Ltd, Sanofi, Beximco Pharmaceuticals Ltd, and Opsonin Pharma are the top market players. Square Pharmaceuticals stands out as the market leader with a whopping 19.3 % market share. Trailing it closely are Incepta, Beximco, and Opsonin.

All these companies are well known for exporting high-end branded drugs such as anti-cancer drugs and cardiac medicines. Some high-tech insulin manufacturing plants have started operations in recent times to meet the country's growing demand. Beximco has recently entered the EU market and became enlisted in London Stock Exchange as well.

Export status quo As a member of WTO and being enlisted as one of the LDCs, Bangladesh currently enjoys the benefits of intellectual property rights that allow producing generic drugs and exports until 2016 without compulsory licenses or paying the patent holders,


thus providing an advantage to the local manufacturers and exporters.

Source: EPB

The local manufacturers are determined to meet the domestic demand fully by 2014 and penetrate leading foreign markets. At present, pharma companies’ export to 85 countries in Europe, Asia, Africa, and Latin America with export standing at USD 60 mn in 2013. Due to the rise in demand in Southeast Asia, Asia Pacific and Africa, the pharma exports recorded a rise of 23.9% in FY 2012-13. Leading companies have already obtained accreditation from USFDA, UKMHRA, TGA and GCC and are endeavoring to penetrate into U.S.A and other EU based markets.

Growth incentives and benefits

Healthy growth trajectory is boosting the pharmaceutical manufacturers towards R&D for newer generics with global standards in place. The DGDRA Bangladesh is playing the key role in inspecting the WHO GMP and SOP of the pharmaceutical manufacturers and enrolling the certifications for subsequent two years validity from the date of inspection.

At the moment, companies import 80% of thier raw materials (APIs) from India and China, which significantly escalates the cost of production. However, currently 15 Bangladeshi companies (such as Beximco, Square, and Opsonin) are manufacturing active pharmaceutical ingredients (API). The government is taking significant steps to implement API Industries Park at Munshiganj, a distance of 40 km from the capital. About 40 industries will be established at the plant, which will include a central Effluent Treatment Plant incinerator. Building this backwards-integration is a giant leap for this sector as it will eventually give the local pharmaceutical manufacturers price competitiveness in the global arena. Moreover, to meet the staggering local and international demand, the government has extensively imposed lower or nil import duty and VAT for certain raw materials/ items and certain capital machineries, and also allowed tax holidays of four to six years to investors in this sector.

Rapid growth poised to stay The Bangladesh pharmaceutical market is growing at a fast pace and radiates a promising future. According to Business Monitor International's latest report, Bangladesh has moved one step upward to occupy the 14th position among the 17 regional markets. This sector offers an enormous investment opportunity and has the potential to export alongside to the RMG sector catering to the burgeoning worldwide consumption.


Information Technology – The

Gateway to Middle Income

Status

Bangladesh IT sector has historically remained outside limelight due to neighbor India’s spectacular IT success. Lack of infrastructure and inadequate training facilities compounded the slow progress of this sector. However, over the last decade, there has been a proliferation of IT ventures earning foreign currency reserves for the nation. The government also undertook several development measures for improving overall infrastructure, culminating in more reliable and cheaper internet connectivity while ensuring training facilities for budding IT professionals.

Market in growing with more product depth Currently there are over 800 IT and ITES companies

registered in Bangladesh with an estimated total

industry turnover of around USD 250 mn. Nearly

76% of these companies are involved with

customized application development and

maintenance. The specialization of the local IT and

ITES companies is shown in the following figure.

Source: BASIS

Whereas most local market players initially offered their services and products predominantly on the domestic market, much to the delight of the nation, Bangladeshi software solutions and ITES are nowadays exported to other parts in the world, too, like Europe and Northern America.

Thriving domestic ITES market Recently, many large-scale automation projects have been implemented in sectors such as banking, telecom, pharmaceuticals, RMG and Textile sectors, increasing the domestic demand for software and ITES solutions. Manufacturing sectors including garments, textiles, and pharmaceuticals, have created sustainable demand for IT solutions like ERP, HR, and Payroll management systems, and production and financial management software. As a result, the domestic IT service industry has grown by 20 to 30% per annum over the last few years (Source: BASIS).

Prospect of outsourcing is positive

The ITC estimates that around 200 Bangladeshi ICT companies are serving international markets offering outsourcing services and project delivery models. In regards to export destinations, North America (Canada and the U.S.) dominates, but European countries like the U.K., Denmark, the Netherlands and Germany have nonetheless emerged over the last few years as major export destinations (Source: BASIS). According to the ITC Exporter Directory, there are over 10,000 ICT freelancers active in Bangladesh as of 2014, billing an export revenue of nearly USD 200 mn.

Source: BASIS


Big names are taking notice Bangladesh’s prospects have been identified by several global ICT companies. For example, the Korean technology giant, Samsung, has opened a high-end research and development (R&D) center in Bangladesh employing over 250 engineers. VizRT, a Norwegian company that creates content production tools for the digital media industry, is building captive centers following acquisitions of ICT production companies in Bangladesh. Other global IT companies like AMD, LG, and IBM are currently in the process of setting up either their back-office R&D or support centers in Bangladesh.

Government is strongly backing the sector Government’s “Digital Bangladesh” initiative has assisted in increasing export revenues in the IT sector from USD 35 mn to USD 200 mn over the last five years. In conjunction, it is also helping to set up infrastructure for enhanced connectivity, ICT based citizen service delivery, and ICT based education system, and multiple internet connectivity. Initiatives like Digital World and BASIS Softexpo are playing a positive role in building awareness and promoting IT sector to both the domestic and the international market. Internet connectivity has been enhanced vastly over the country.

The sector outlook is optimistic With cooperation and support from both government & the private sector, the sector is expected to reach export earning of USD 1 bn within the next 5 years courtesy of the European and the U.S. markets.

Booming startup community

Bangladesh is witnessing the rise of a vibrant startup ecosystem. Many initiatives from public as well as private sectors are being regularly held with the likes of Digital World 2014, A2I Innovation Fund, GIST Bootcamp, StartupBash, Startup Cup, DCCI Innovation, and Entrepreneur expo to promote the startup concept and support the budding entrepreneurs. Local ventures like BDJobs.com and NewsCred have raised international funds with many local tech companies like chaldal.com raising seed finance from local and international investor networks. A host of freelancers is now forming small teams and making way towards setting up their own IT firm. With the right mentoring and access to market linkage, these local entrepreneurs can become the next generation of leading global tech startup founders.


Footprints – Big Names that

have made big Many multinational companies are maintaining market presence as a precursor to more heavy involvement. However, some major international companies in different sectors have chosen to take the plunge and enjoy superior returns. Some of them are:


Investing in Bangladesh –

Government Policy Support

Since economic liberalization of the Bangladesh economy in early 90s, successive governments have pursued a pro-investment policy with a view to increasing foreign direct investment (FDI). Special economic zones have been setup across the country and major foreign investors provided with subsidized lands, tax holidays, profit repatriation, and priority in utility connections.

Bangladesh – Emerging investment hub Recently, attractiveness of Bangladesh as an investment destination has increased manifold, especially due to the country’s preferential trade status in major international markets, inexpensive labor, and proximity to China and India. Increasing labor costs in China has further precipitated a shift of investment to neighboring regions. Under the context, Bangladesh government is keen to attract investment not only to positively tilt the balance of payment position, but to further rejuvenate the economy through employment generation and GDP growth.

Investment friendly policy framework A host of policies has been adopted to incentivize foreign investment. Tax holidays: Foreign investors will receive tax holidays ranging from 5 to 7 years based on geographic locations. For industrial enterprises located in Dhaka and Chittagong, tax holiday is for 5 years while it is 7 years for locations in Khulna, Sylhet, Barisal, and Rajshahi divisions. Accelerated depreciation facility: Industrial units financed by foreign investors will enjoy accelerated depreciation allowance post tax holiday period. Such allowance is available at 100% cost of the machinery or plant if the industrial undertaking is set up in the areas falling within Dhaka, Chittagong, and Khulna. If the industrial undertaking is set up elsewhere in the country, accelerated depreciation is allowed at the rate of 80% in the first year and 20% in the second year.

Concessionary duty on imported capital machinery: No import duty will be charged for imported machinery for industrial units that are 100% export oriented in nature. For the rest, 5% import duty will be charged for initial installation or BMRE/BMR of the existing industries. Full repatriation of capital: Full repatriation of capital invested from foreign sources will be allowed. Similarly, profits and dividend accruing to foreign investment may be transferred in full. If foreign investors reinvest their dividends and or retained earnings, those will be treated as new investment. Legal protection: The policy framework for foreign investment in Bangladesh is based on 'The Foreign Private Investment (Promotion & Protection) Act 1980,’ which ensures legal protection to foreign investment in Bangladesh against nationalization and expropriation. It also guarantees non-discriminatory treatment between foreign and local investment, and repatriation of proceeds from sales of shares and profit. Despite change in government, there has been a continuity of policies with regards to attracting foreign investments. Bilateral agreement and treaty: Government of Bangladesh has a series of bilateral investment agreement with a number of countries in Asia (China, India, Japan, Singapore, South Korea, Sri Lanka, Thailand, Iran, Malaysia, Pakistan, Philippines), Europe (Belgium, Denmark, France, Germany, Poland, Romania, Sweden, The Netherlands, United Kingdom, Italy, Romania, Switzerland, Turkey) and North America (Canada, U.S.A). In addition, Bangladesh is a signatory to MIGA (Multilateral Investment Guarantee Agency), OPIC (Overseas Private Investment Corporation) of U.S.A, ICSID (International Centre for Settlement of Investment Disputes) and a member of the WIPO (World Intellectual Property Organization) permanent committee on development co-operation related to industrial property. Preferential trade agreements: Bangladesh has a number of preferential trade agreements with countries having significant market size e.g., GSP with EU, quota and tariff free access to Canada, Japan.


Alongside, Bangladesh has recently signed Trade and Investment Co-operation Framework Agreement (TICFA) with the U.S. where bilateral trade issues will be discussed. Currently, talks are underway to revive the GSP suspension imposed by the U.S. government last year.

Gateway to Bangladesh International investors undertake investments seamlessly through Board of Investment (BOI) and Central Bank’s support.

Entering the capital markets Foreign investors can also invest directly in Bangladesh’s vibrant capital market, which can hedge investor’s portfolio risks in the event of global economic downturn. The following steps need to be taken by a foreign investor for investing in the capital market:

A Foreign Currency Account (FCA) is needed for inward and outward remittance.

A Non-resident Investor’s Taka Account (NITA) is required for converting foreign currency into Taka.

All Capital Market investors are required to conduct trading through a Stock Broking Account maintained with any Stock Broker/Member of the respective Stock Exchange.

In order to trade dematerialized shares listed with the Stock Exchanges, investors must have a Beneficiary Owners (BO) Account with CDBL.

NRB & Foreign Investors may choose to appoint a custodian to ensure trade execution and safe custody of shares.


About us: At LightCastle Partners, we help you simplify decisions by providing advisory and analytics services. Advisory: We empower you to make prudent investment decisions by providing authentic due diligence, consumer research, company valuation, business design, and impact investment consulting services. Analytics: We develop crisp, digital dashboards and run predictive analysis to articulate major insights from a wide assortment of data, enabling you to adopt strategic shifts to drive profitability. From working with over 40 national and international firms, we have gained in-depth knowledge and honed expertise to advance our goal to simplify the complex process of decision making. On the private sector side, we consulted for some of the biggest global brands - Mitsubishi (Japan), Generac (U.S.A), Telenor (Norway), Starbucks (U.S.A) - international investment funds such as Asian Capital Advisors and a number of local conglomerates. Under impact investment, we worked in multiple projects with top tier firms like CARE Bangladesh, Swisscontact Katalyst, Traidcraft (UK), Habitat for Humanity (Philippines) and Hivos (Indonesia). The founding partners have background in Investment and Corporate Banking, Audit and Advisory from firms like Citi, HSBC, Standard Chartered and KPMG. All information contained herein is obtained by LightCastle from sources believed to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is “As IS” without warranty of any kind. LightCastle adopts all necessary measures to ensure that the information it uses is of sufficient quality and is from sources considered to be reliable including, when appropriate, independent third-party sources. However, LightCastle is not an auditor and cannot in every instance independently verify or validate information received in preparing publications.

Analysts – Asif Khan, CFA Bijon Islam, Co-founder LightCastle Kashif Choudhury, Business Associate LightCastle Raitul Rabith, AVP LightCastle Saifur Rahman, Co-founder LightCastle Tanzina Moktadir, VP LightCastle Zahedul Amin, Co-founder LightCastle

For any queries, please contact: LightCastle Partners FR Tower 19 Floor 32 Kamal Ataturk Avenue Banani Dhaka 1213, Bangladesh Email: [email protected] Read our blog at http://www.lightcastlebd.com/blog Visit us at http://www.lightcastlebd.com

mailto:[email protected]

http://www.lightcastlebd.com/blog

http://www.lightcastlebd.com/blog

http://www.lightcastlebd.com/

LightCastle Investment Study Bangladesh

Documents

Transcript of LightCastle Investment Study Bangladesh