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Japanese investments to foster Bangladesh’s economic development

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Japanese economic zone to start production from March 2023

Japanese companies are showing great interest in Bangladesh as the next investment destination. Just a decade ago there were only 82 Japanese companies with investments in Bangladesh.

The past 10 years have seen remarkable improvements in the business environment that has helped to attract foreign direct investment and given a boost to the economy. Japanese companies have observed that the domestic market of Bangladesh with 170 million consumers is growing rapidly.

Japanese investment-Bangladesh-private-companies

On this back, Japanese companies feel motivated to invest in Bangladesh and the number of such companies has tripled over the decade. Last year, the total number of Japanese companies in Bangladesh was 300, up from 278 in 2018, 260 in 2017 and 245 in 2016. Yuji Ando, Country Representative of the Japan External Trade Organization (JETRO), is expecting the number of Japanese firms to double within the next five years.

The next five years are very important for Japanese investors and for Bangladesh also as within the next five years, the basic infrastructure of Bangladesh will be completed which will encourage foreign direct investment including that of Japanese firms.

The latest survey of JETRO, said Bangladesh is the top choice for Japanese companies seeking to expand business in Asia and Oceania in the next two years due to its high business potential and profitability. Some 70.3 percent of Japanese companies are mulling expanding business in Bangladesh in the next one to two years.

In August 2018, Japan Tobacco International acquired local Akij Group’s tobacco business for USD 1.5 billion. It is the single largest FDI in Bangladesh’s private sector so far.

Besides, in November 2018, Honda inaugurated its lone manufacturing plant at Munshiganj, which it set up with the state-owned Bangladesh Steel and Engineering Corporation for Tk 230 crore. As of December, last year, the amount of Japanese investment in Bangladesh by private companies is USD 386 million.

Japanese Economic Zone

In the Araihazar upazila of the Narayanganj District, Bangladesh, a Japanese Economic Zone is being developed on 1,000 acres of land by the Government of Bangladesh and the Japan International Cooperation Agency (JICA). Japan is eyeing to raise $1 billion investment from around 100 companies.

A number of companies from various sectors have shown their interest in investing in Bangladesh Special Economic Zone, also known as the Japanese economic zone. Japanese investors are expecting to invest in light engineering, chemical, automobile, agro-food, apparel, pharmaceuticals, etc. The government has already allocated 620 acres of land and the handover of the remaining 380 acres is expected by June this year, said officials at Beza.

The creation of a Japanese special economic zone (SEZ) –scheduled to begin by 2025, though production will begin in March 2023–will see the final fruition of billions of dollars in Japanese investment, not to mention employment of thousands of skilled and semi-skilled workers.

Japanese Economic Zone-Bangladesh
Figure: Japanese Economic Zone overall scenario.

The executive committee of the National Economic Council (Ecnec) in March 2019 approved a project to set up the Japanese EZ at a cost of Tk2,585 crore. Out of the total project cost, the Bangladesh government gave Tk450 crore while Japan accounted for the remaining Tk2,135 crore as project assistance through Japan International Cooperation Agency (Jica).

According to Beza officials, some 45% of the project work was completed as of December last year. Beza will set up a power substation, gas transmission lines & CGS and telecommunication network under the project soon. Japan’s Sumitomo Corporation, developer of the EZ, and Beza, has set up a company named Bangladesh SEZ Limited.

Initially, Beza will hand over 500 acres of land by April 2023 and 120 acres of land by June 2023 to Bangladesh SEZ Limited. Beza is working toward establishing 100 economic zones across the country by 2030. Investors can avail of tax holidays, duty-free imports of raw materials and machinery, exemption from dividend tax, VAT-free electricity, gas and water and other fiscal facilities in the zones.

Challenges

There is a challenge however for the investors in starting a business in Bangladesh due to long documentation related processes. Yuji Ando cited few problems those are faced by Japanese investors such as frequent changes of policy regarding value added tax, corporate tax, etc., as some other problems.

He suggested that the government should make the process for starting business easy by introducing online services through one-stop services. He said that long-term policies can help ensure the viability of businesses of investors who are eyeing expansion in Bangladesh. According to him, frequent policy changes are a difficulty for business plans while stability helps settle investment targets.

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