Bangladeshi exporters will now be able to make equity investments overseas, subject to an adequate balance of their Export Retention Quota (ERQ) – a portion of the export earnings they have saved in the form of foreign currency .
Exporters will be able to invest, in the form of equity, the lowest amount between 20% of their five-year average annual export earnings and 25% of the net assets indicated in their last audited annual financial report, according to guidelines recently issued by the Financial Institutions Division.
On Wednesday, the Foreign Currency Investment Department of Bangladesh Bank (BB) issued a directive to all licensed foreign exchange brokers in this regard.
Pursuant to the directive, the Financial Institutions Division has issued the Capital Account Transactions (Overseas Equity Investment) Rules 2022 under Section 27 of the Foreign Exchange Regulation Act 1947.
Under the rules, an applicant organization must apply to the Bangladesh Bank through its designated approved bank, along with the required documents, which will be reviewed by a 15-member selection committee headed by the governor of the central bank. .. The distributing bank will be informed of the committee’s decision and a copy of the letter will be sent to the applicant organization.
The new guidelines have been widely welcomed by exporters. However, some have also expressed concern about the potential for the process to be misused and abused.
This initiative will facilitate easy foreign investment. However, excessive investment abroad could have a negative impact on the country’s economy, said Fazlee Shamim Ehsan, vice president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).
“Also, it would not be right to invest in places that could challenge or increase competition for the country’s exports. For example, if Bangladeshi entrepreneurs set up a garment factory in Ethiopia, it could create more competition for us, because they get free export rights to the US market,” Fazlee told The Business Standard.
But, he added, “if someone invests in an African country to produce cotton, or invests in the chemical industry of another country, it can benefit us without doing harm.”
Although the new rules set the standard amount of overseas equity investment at 25%, exporters may be allowed to invest more if the Bangladesh Bank committee responsible for reviewing overseas investment applications deem them eligible.
So far, Bangladesh Bank has given 16 Bangladeshi companies the opportunity to invest abroad. Applications from six other organizations will be presented at the central bank committee meeting on February 2.
The new rules further state that claims, including dividends, profits, interest, proceeds from stock sales, divestment proceeds, royalties, advisory fees, commissions, etc., of companies incorporated overseas, must be delivered to Bangladesh within 30 days of receipt.
Misuse of investments will be treated as money laundering under the Prevention of Money Laundering Act.