The “Foreign Investment (FDI) Incentive Scheme” aims to encourage a wider network of individuals to attract important foreign capital to the country.
Highlights:
- Bangladesh is planning cash compensation to boost new foreign investments
- Incentives will range from 1% to 1.5% on stock inflows
- Individuals must adhere to strict registration rules
- Experts argue that business reform matters more than cash incentives
- Verification will involve several agencies to avoid misuse
- FDI influx dropped in 2024, leading the government to act
The government intends to roll out a new incentive scheme that offers 1.5% cash compensation for both residents and non-residents in Bangladesh, aiming to promote fresh foreign direct investment (FDI) through stock inflows. The “Foreign Investment (FDI) Incentive Scheme” is designed to encourage a broader network of individuals to draw significant foreign capital into the country. To kick off this initiative, an initial fund of $7.5 million will be established, representing 1.25% of the nearly $600 million FDI received by Bangladesh between 2023 and 2024.
Under the proposed policy, individuals who attract a minimum of $1 million in fresh equity FDI will qualify for cash incentives. However, the Treasury has set a flat rate of 1% for all eligible investments. The Bangladesh Investment and Development Authority (BIDA), responsible for finalizing the draft, has confirmed that this measure aims to boost the country’s fresh stock capital inflows.
Inspired by remittances and exports
BIDA Executive Chairman Chowdhury Ashik Mahmud Bin Harun noted that the scheme takes cues from successful cash support programs for remittances and specific export sectors. “We are trying to replicate the idea from remittances and export revenues. This could enhance the inflow of new stocks into Bangladesh,” he stated. He also emphasized that the program positions Bangladesh to facilitate foreign investment.
According to Nahian Rahman Rochi, BIDA’s Head of Business Development, the expected final policy could elevate the incentive rate up to 1.5%. It’s noteworthy that the scheme is exclusive to new stock investments, particularly those arising from additional shares or capacity expansions by existing shareholders. However, existing investors engaged in entirely new sectors will also be eligible.
The policy’s roots trace back to a BIDA Steering Committee meeting in June 2024, initiated by then-Minister Sheikh Hasina. The committee, chaired by financial advisor Salehadin Ahmed, laid the groundwork for the draft in its inaugural meeting that month.
Rochi stated that the draft has been circulated for feedback among the central bank, the Finance Ministry, and other relevant bodies. BIDA anticipates finalizing the policy for implementation in the last quarter of the year. He elaborated on the motive: “Many Bangladeshis are linked with overseas institutions. The scheme is intended to motivate individuals to act as promoters and attract investments to the country.”
Professional Concerns and Business Environment Focus
While the initiative is a positive step, experts stress the importance of realistic evaluations regarding its potential outcomes. Zahid Hussain, a former lead economist at the World Bank’s Dhaka office, emphasized that the use of public funds for incentives should stem from a thoughtful analysis of expected revenues. “We must also look at who benefits from the incentives and the potential costs for individuals serving as intermediaries,” he remarked.
He cautioned that although research on remittance incentives has not proven effective in increasing remittances, it’s crucial to scrutinize who benefits when taxpayer money is used for incentives in the context of FDI.
Mohamed Hattem, president of the Bangladeshi Knitwear Manufacturers and Exporters Association, underlined that attracting FDI necessitates creating a favorable business environment for both domestic and foreign investors. “To achieve this, it’s vital to simplify business regulations,” he stated, emphasizing that incentives alone aren’t enough. He pointed to the need for an efficient licensing and approval process through BIDA’s One-Stop Service Center and the Revenue Board’s single window.
Investments in logistics and cost-reduction measures through improved port management are equally critical. Hattem also flagged issues within the banking sector, stating, “The banking sector remains a significant obstacle, with continuously changing policies. The Bangladesh Bank may adopt global best practices, but the government needs to determine if the private sector can realistically implement them. Otherwise, just offering incentives won’t attract FDI.”
Eligibility Criteria and Verification
The draft policy sharply focuses on individual eligibility for incentives, excluding institutions. Applicants must be Bangladeshi citizens with a passport, a valid National ID card or e-TIN registration, and must pre-register on the BIDA portal before investments are made.
To mitigate conflicts of interest, the policy mandates that intermediaries cannot have direct ties with the investment company for two years before or after the investment. This will be validated through digital background checks and affidavits, and violations will incur penalties for both investors and intermediaries.
Incentive applications need to be submitted via the designated portal within 30 business days after the investment arrives in Bangladesh. A verification committee comprising representatives from BIDA, the Bangladesh Bank, the Ministry of Finance, the National Revenue and Means Committee, and the Ministry of Home Affairs will review these applications.
Upon approval, the Bangladesh Bank will directly disburse the local currency incentives into the applicant’s bank account, allowing expatriates to transfer the funds overseas. Fresh Equity FDI specifically refers to new capital infusions by foreign investors through the purchase of newly issued shares rather than acquiring existing shares from current shareholders.
According to central bank data, net FDI in Bangladesh fell to $1.27 billion in 2024, marking a 13.25% decrease from $1.46 billion in 2023. Additionally, FDI dropped to $545 million in 2024 from $588 million the previous year.
