Bangladeshi exporters will be able to make overseas equity investments from now on, subject to an adequate balance in their export retention quota (ERQ) – a portion of export earnings they have saved as foreign currency.
Exporters will be able to invest, in the form of equity, the lowest amount that is between 20% of their five-year average annual export earnings and 25% of the net assets shown in their latest audited annual financial report, according to guidelines recently issued by the Financial Institutions Division.
On Wednesday, the Foreign Exchange Investment Department of Bangladesh Bank (BB) sent a directive to all authorised dealers of foreign exchange transactions in this regard.
According to the directive, the Financial Institutions Division issued the Capital Account Transaction (Equity Investment Abroad) Rules, 2022 under Section 27 of the Foreign Exchange Regulation Act, 1947.
Under the rules, an applicant organisation has to apply to the Bangladesh Bank through its nominated authorised dealer bank along with the required documents, which will be scrutinised by a 15-member selection committee headed by the governor of the central bank. The dealer bank will be notified of the committee's decision and a copy of the letter will be sent to the applicant organisation.
The new guidelines have been largely welcomed by exporters. However, some have also expressed concern about scope for inappropriate use and abuse of the process.
This initiative will facilitate easy overseas investments. However, excessive investment abroad might have a negative impact on the country's economy, said Fazlee Shamim Ehsan, vice president of Bangladesh Knitwear Manufacturer & Exporters Association (BKMEA).
"Also, it would not be right to invest in places that could challenge or increased competition for the country's exports. For instance, if Bangladeshi entrepreneurs set up a readymade garment factory in Ethiopia, it could create more competition for us, as they get duty-free export to the US market," Fazlee told The Business Standard.
But, he added, "If someone invests in an African country to produce cotton, or invest in the chemical industry of another country, it can benefit us without doing any harm."
Although the new rules set the standard amount for overseas equity investment at 25%, exporters can be permitted to invest more if the Bangladesh Bank committee responsible for scrutinising overseas investment applications, deems them eligible.
So far, the Bangladesh Bank has given 16 Bangladeshi companies the opportunity to invest abroad. Applications of six more organisations will be presented at the central bank's committee meeting on 2 February.
The new rules further state that receivables, including dividends, profits, interest, sales proceeds of shares, disinvestment proceeds, royalty, consultancy fees, commissions, etc, from companies formed abroad, need to be remitted to Bangladesh within 30 days of receipt.
Misuse of investment will be treated as money laundering under the Money Laundering Prevention Act.