Japanese Investment In Bangladesh

Japanese Investment In Bangladesh

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The People’s Republic of Bangladesh is a least developed country (LDC) with consistent economic growth over the years. Approximately half of its population of over 140 million people lives below the poverty line, and its annual per capita national income is approximately US$450. Nonetheless, Bangladesh has sustained an annual economic growth rate of approximately 5% in the past decade or so. This rate is a high level for an LDC. Consequently, the ratio of people living below the poverty line has been falling, and social development indicators have been visibly improving at the same time. Bangladesh is also known for creating a number of new development models such as microfinance. Although poverty reduction remains the most immediate challenge for Bangladesh, this country has a great potential that will spearhead a new vision of development in the world.

Concept of trade

Trade involves the transfer of goods or services from one person or entity to another, often in exchange for money. A system or network that allows trade is called a market.

An early form of trade, barter, saw the direct exchange of goods and services for other goods and services Barter involves trading things without the use of money. Later, one bartering party started to involve precious metals, which gained symbolic as well as practical importance. Modern traders generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or earning. The invention of money (and later of credit, of paper money, and of non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade involving more than two traders is called multilateral trade.

Concept of international trade

International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has existed throughout history (for example Uttarapatha, Silk Road, Amber Road, scramble for Africa, Atlantic slave trade, salt roads), its economic, social, and political importance has been on the rise in recent centuries.

History of international trade of Bangladesh

The relation between Bangladesh and Japan which was in trouble during the British period and Partition of Bengal 1947 got regular in mid-1950 when the Consular Mission of Japan (CMJ) in Dhaka started to make contact with people-to-people. The value of imports doubled between 1971 and 1991 as compared to the value of exports. The trade deficit has declined considerably owing to an increase in exports since 1991. A closer look at the trade statistics of the country reveals that in 1989-90, imports exceeded exports by 120%. This percentage came down to 56% in 1996 and 62% in 1997. The economy of Bangladesh was once riding on jute, its major produce. In the late 1940s, its share of the world jute export market was 80%, which came down to 70% in the 1970s. Unfortunately, the trend of polypropylene products across the globe led to a setback for the jute industry of Bangladesh.

Bangladesh Imports Commodities:

Here are the major import commodities of Bangladesh:

  1. Machinery and equipment
  2. Chemicals
  3. Iron and steel
  4. Textiles
  5. Foodstuffs
  6. Petroleum products
  7. Cement

Bangladesh Imports Partners:

The following were Bangladesh’s import partners as of 2015:

  1. China: 15.8%
  2. India: 15.7%
  3. Kuwait: 8.1%
  4. Singapore: 7.6%
  5. Japan: 4.4%

Bangladesh Exports Commodities:

Here are the major export commodities of Bangladesh:

  1. Garments (totaling $12.3 billion in FY09)
  2. Frozen fish and seafood
  3. Jute and jute goods
  4. Leather

Bangladesh Trade Export Partners:

The following were Bangladesh’s export partners as of 2008:

  1. United States: 24%
  2. Germany: 15.3%
  3. United Kingdom: 10%
  4. France: 7.4%
  5. The Netherlands: 5.5%
  6. Italy: 4.5%
  7. Spain: 4.2%

Bangladeshi international trade is extremely small relative to the size of its population, although it experienced accelerated growth during the last decade. It is not very diversified and depends on the fluctuations of the international market. The Bangladeshi government struggles to attract export-oriented industries, removing red tape and introducing various financial and tax initiatives. Between 1990 and 1995 Bangladesh doubled its exports from US$1.671 billion in 1990 to US$3.173 billion in 1995 and then almost doubled them again from US$3.173 billion in 1995 to US$5.523 billion in 1999. During the 1990s, the United States has been the largest trading partner for Bangladesh, with its exports to the United States reaching 35.7 percent in 1998-99. This percentage consisted mainly of Ready-Made Garments (RMG). Germany is the second-largest export market, with the proportion of goods reaching 10.4 percent; and the United Kingdom is in third place at 8.3 percent. Other export destinations are France, Italy, the Netherlands, Belgium, and Japan. Bangladeshi imports originate from

Trade (expressed in billions of US$): Bangladesh
Exports Imports
1975 .327 1.321
1980 .793 2.599
1985 .999 2.772
1990 1.671 3.598
1995 3.173 6.497
1998 3.831 7.042
Chart: Trade scenario since 1975 to 1998

SOURCE: International Monetary Fund. International Financial Statistics Yearbook 1999.

Bangladesh and Japan trade relations

Bangladesh–Japan relations were established on 10 February 1972.  By 2015, the bilateral annual trade of these two countries was US$2.3 billion. Bangladesh and Japan have long been historically, culturally, and religiously strong bonded nations. Japan is Bangladesh’s 7th-largest export market as of 2015, imports from Bangladesh make up 0.17% of all Japanese imports. Common imports from Bangladesh to Japan include textiles, leather goods, and shrimp. By 2004, Japan had become Bangladesh’s fourth-largest source of foreign direct investment, behind the United States, United Kingdom, and Malaysia. Japan is also a significant source of development aid to Bangladesh. Japan’s political goals in its relationship with Bangladesh include gaining support for their bid to join the United Nations Security Council and securing markets for their finished goods.

In 2001, there were about 9,500 Bangladeshis in Japan. Japan recognized the People’s Republic of Bangladesh on February 10, 1972, soon after its independence. Both parties celebrated thirty years of relations in 2002. The relationship between Bengali and Japanese people is centuries old. The Japanese-Bengali relationship reflects in the flag. In a BBC World Poll, 71% of Bangladesh had a favorable view of Japan, making Bangladesh one of the most pro-Japanese countries in the world. Since its independence in 1971, Bangladesh has consistently maintained good relations with Japan and the people of Bangladesh have a strong affinity towards Japan. While the bilateral relations appear to be described in such a common expression at first glance, the relations between Japan and Bangladesh deserve special meaning, especially compared to the relations between Bangladesh and other countries it deems important, namely India, the United States, Middle Eastern countries, European Union and China. The relations of Bangladesh with those countries and regions have changed dramatically depending on the international politics after Bangladesh’s independence and the fluctuating economic relations which were closely linked to its politics. In contrast, Japan has consistently maintained stable friendly relations with the country and actively committed to Bangladesh’s efforts in development ever since Japan’s approval of its independence at an early stage, despite of all changes in Bangladeshi domestic politics and diplomatic stance. This Japan’s basic stance will be applied continuously in the future Japan-Bangladesh relations.

Standing on the above-mentioned basic stance, Japan considers the Japan-Bangladesh relations nowadays is of vital importance in the following three aspects, in view of the changes in the international community as the end of the Cold War, globalization, promotion of economic partnerships, and growing interest in development issues, Bangladesh’s role against this background and socioeconomic changes taking place in Bangladesh and Japan.

In a word, from the beginning of Bangladesh, Japan helped Bangladesh and after a few years it showed its willingness to invest in Bangladesh.

Key Japanese investment in Bangladesh

Confidence among the Japanese investors doing business in Bangladesh has improved remarkably as they think the country is a lucrative destination for their investment, according to a new survey by Japan External Trade Organization (Jetro). In particular, the 2018 diffusion indices of Bangladesh, India, Sri Lanka, and Pakistan, plus Vietnam and Laos, exceeded 50 points, indicating a remarkable improvement of business confidence, the survey said. Among reasons for the improvement “increased sales in local markets” ranked first, followed by “improvement of productivity” and “increased sales due to expansion of exports”.

The survey ran on the business condition of Japanese companies in 20 countries and regions in Northeast Asia, Southeast Asia, Southwest Asia, and Oceania from October to November 2017. The questionnaire included operating profit forecast, future business plan, management matters, the rising cost of production and services, procurement of raw materials and parts, export and import, efforts at local market development, and wages. “The survey result has the reflection in reality as I have been noticing an influx of Japanese investors in Bangladesh over the last six months,” said Tareq Rafi Bhuiyan, secretary-general of the Japan Bangladesh Chamber of Commerce and Industry (JBCCI). Japanese investors are looking for an alternative destination, pulling back their investment from China for the Japanese government’s “China Plus One” policy, adopted in 2008.

Moreover, Japanese investors see Bangladesh as a good destination for production and sales of goods for having a strong consumer base with rising income, said Bhuiyan. He also said, nearly 50 Japanese companies inquired to the JBCCI, apart from Jetro, over the last six months on the business potential in Bangladesh. Japanese businesses are interested in investing in textile and garment and consumer goods. Another reason for the high turnout of Japanese investors is the implementation of some mega infrastructure projects involving Japanese experts, he said. Japan has been providing Bangladesh with nearly $2 billion in soft loans every year since fiscal 2012-13. In a report published on December 8, Japanese financial newspaper Nikkei Asian Review said Tokyo reached an understanding with Dhaka to build highways and other structures in Bangladesh under an exclusive arrangement.

Under the Matarbari Ultra Super Critical Coal-Fired Power Project, two 600MW power plants will be built to generate 7,865GWh of electricity per year by 2026, said Japan’s Foreign Minister Taro Kono in an interview of The Daily Star in November last year. The Dhaka Mass Rapid Transit Development Project will establish an urban rail network aiming to eliminate traffic congestion by providing transportation to over 570,000 people every day by 2024. Japanese corporations took the contracts for both projects and are using high-quality technology, Kono said. Bangladeshi garment manufacturers have been enjoying zero-duty benefits on apparel exports to Japan even in cases where the raw materials have been imported.

The number of Japanese companies operating in Bangladesh has more than tripled since 2008, reaching 253 as of May 2017, according to Jetro. Availing the zero-duty benefit, Bangladesh’s apparel export to Japan has been increasing rapidly, making it the largest export destination in Asia. Export of garment products to the far-eastern nation, whose apparel market is worth about $40 billion a year, raked in $744.47 million last fiscal year, according to data from the Export Promotion Bureau.

Overall exports to Japan had declined 5.6 percent to $1.01 billion in fiscal 2016-17. Japan is the only destination in Asia where Bangladesh’s overall exports crossed the $1 billion mark in each of the previous two years. In the first six months of the current fiscal year, Bangladesh exported garment items worth $363.231 million to Japan. Bangladesh accounts for 2.3 percent of Japan’s annual garment import, growing by around 20-30 percent every year, according to Japan Textiles Importers Association.

JETRO (Japan External Trade Organization) Dhaka

JETRO Dhaka is the official investment and trade promotion organization of the government of Japan under the Ministry of Economy Trade and Industry (METI). It is a non-profit organization. JETRO head office was established in 1958 & it inaugurated its overseas office in Bangladesh in 1973. Since then JETRO Dhaka is dedicated to promoting mutually beneficial trade and investment between Japan and Bangladesh.

JETRO has more than 70 offices in the world. As part of JETRO’s overseas office network, JETRO Dhaka works in full coordination with its Head Quarters in Japan to fulfill all the desired tasks entrusted to it from time to time. JETRO Dhaka looks after the interest of all Japanese companies that exist in Bangladesh and all Bangladeshi companies that are doing business with Japan. A number of local and foreign companies operating from Bangladesh are making use of JETRO Dhaka as their source of vital information on Japan in order to open up their business relationship with Japan or to upgrade their existing business relations.

Our activities in Bangladesh are specially designed to assist potential Bangladeshi entrepreneurs (mostly those of SMEs) to export to Japan as well as to promote industrial & technical co-operation and to attract Japanese Investment in Bangladesh. We have identified sectors like readymade garments, textile, dyeing, ceramic, information technology, handicraft, energy-saving, and human resource development as the priority areas of cooperation.

JETRO Dhaka maintains an excellent relationships with Governments and the Chambers of Commerce Industry in Bangladesh. It coordinates and overseas, participation of Bangladesh in a number of programs organized by JETRO Head Quarters from time to time. We send potential Bangladeshi to trade fairs and investment fairs every year in Japan besides dispatching experts to Bangladesh. JETRO in Bangladesh also conducts technical seminars and training programs.

Bangladesh-Japan Bilateral Trade Statistics

Year Export Import Trade ratio
2008-2009 1399.88

(202.60)

69857.70

(1015.37)

1:5.01
2009-2010 24251.74

(330.56)

72450.40

(1042.3)

1:3.15
2010-2011 30527.3

(434.12)

91880.11

(1306.6)

1:3.01
2011-2012 47501.9

(600.53)

115241

(1455.9)

1:2.24
2012-2013 59960.78

(750.26)

93459

(1168.7)

1:1.56
2013-2014 67000.469

(862.07)

100369.9

(1292.92)

1:1.49

 

 

[Here, Value in million Taka, (Value in Million US$) ]

Major Export Items in 2013-14 (In million US $):  Woven Garments (318.921), Knitwear (253.348), Home Textile (30.094), Agricultural-Product (0.95), Frozen Food (19.277), Leather & Leather Product (39.944), Footwear (115.78), Raw Jute (0.321), Jute Goods (5.784), Bicycle (0.001), Others (77.655).

Major Import Item in 2013-14 (In million US $):  Iron and steel (29.8); Ships, boats and floating structures (26.5); Vehicles other than railway or tramway rolling – stock, and parts and accessories thereof. (16.5); Nuclear reactors, boilers, machinery, and mechanical appliances; parts thereof (10.4); Copper and articles thereof (2.1); Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments, and apparatus; parts and accessories thereof (1.8); Plastics and articles thereof (1.3); Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles. (1.2); Rubber and articles thereof (0.7); Paper and paperboard; articles of paper pulp, of paper or of paperboard. (0.2); Cotton (all types), cotton yarn/thread and cotton fabrics (0.1); Man-made staple fibers (0.1); others (9.3).

Impediments of our trade relation:

  1. Legal Constraints: The first and the foremost problems in foreign exchange operations arise due to legal constraints. Since foreign trade indicates the exchange of goods and services between two countries and each country has its own laws, rules, and regulations, which are different from other countries, so problems arise in foreign exchange operations.For example, an exporter of Bangladesh receives an L/C from the importer of England in which the goods will be shipped in American ship and delivered in China. In this case, according to which country’s law the dispute, if arise, will be settled, is a problem.

    2. Geographical Location: From the geographical viewpoint, Bangladesh is not located in such a place to trade vigorously. We have encompassed India from three sides. And India enjoys a strong industrial base compared to us. Due to the economy of scale India can produce the same quality products at a cheaper price.
    So this is a problem in foreign exchange operations.

    3. Limited Skilled Manpower: Performing the foreign exchange activities is a very tough job because it involves proper communication with the client, various banks of the country as well as abroad. A single error may cost thousands of dollars. In Bangladesh, there is limited skilled manpower, who can understand and handle foreign exchange dealings well.

    4. Limited Export Base: Bangladesh has a very limited export base. It does not have a sufficient supply of raw materials needed to use in the production process. If Bangladesh has the local raw materials, it would be able to use them in the production process. But unfortunately, the country has to import the raw materials required in various production processes. As a result, production cost increases, and consumers has to spend more to avail that particular product.

    5. Lack of Stable Policy: Policy and structure are an integral part of any kind of operation. It will suggest to us how to perform the operation. But if the policy continues to change frequently it is not easy to plan and perform also. With the changes of Government new policies are formed, which is very difficult to cope with. It is hard for business organizations and businessmen to settle themselves. They are always deviated from the old track and have to run after the new track. This is another problem of our country.

    6. Political Instability: Another major problem to conducting foreign exchange business is the political instability of a country, as political stability is essential for smooth foreign exchange operations.

    7. Problems in UCPDC Guidelines: According to Article  4 of the Uniform Customs and Practices for Documentary Credit (UCPDC), all parties concerned with L/C must deal with documents, not with goods. This may cause problems, as the bank must have to make payment after the presentation of necessary documents, whether or not the goods are delivered to the importer.

    8. Absence of Policy, Rules, and Regulations of Foreign Exchange Operations as per Islamic Shariah: There is no international Policy, Rules, and Regulations of Islamic Banking Regarding Foreign Exchange Operations, so the Islami Banks has to face problems in foreign exchange operations.

    9. Absence of Islami Money Market: There is no Islami money market in Bangladesh as well as in the world to deal with Foreign Exchange Operations.

    10. Other Problem: Whenever an importer comes to the bank to issue an L/C in his favor, he has to deposit a certain amount, known as the L/C margin. After receiving the export documents from the exporter the importer pays the rest amount. But up to this time, this L/C margin amount is kept by the bank without giving any return to the importer, so it is a loss for the client. He could invest this money anywhere else and could earn some return. The importer adds this loss with his production cost so the product price goes up that has to be borne by the ultimate customers.

Recommendation for more effective trade relations

To build a better trade relation with Japan, we should emphasize some sectors. Those sectors are shown below through bullet points:

  1. Better political stability is needed. Otherwise, investors of Japan, as well as others, will lose their attention to investing in Bangladesh.
  2. Favorable govt. the policy is needed to accelerate the practice of foreign trade.
  3. Need proper incentives for new investors (tax holiday, security issue, etc.)
  4. Provision of reward to most investors’ country with a lot of facilities.
  5. should follow a free-market economy by considering domestic investors.
  6. Selecting an investor’s country not on the basis of political relations but considering the economic benefits of that particular country.
  7. Promulgate investment facilities of our country around the world to prove why we are more potential.
  8. Ensuring all kinds of security(we know, 1 July 2016 Dhaka attacked by Islamist militants)

Conclusion

In my view, industrial diversification is one of the top priorities that Bangladesh needs to work out for achieving the goals of “Vision 2021”, which is to become a mid-income country by that year. In view of the remarkable economic success of China, foreign investment should play the leading role to diversify Bangladesh’s economy. Wider regional development, including developing infrastructure for industrial growth and improving investment environment to attract foreign businesses has already been mentioned as very important. At the same time, we need to keep in mind that our highest priority in economic assistance is always on areas of enhancing social development, which is, contributing to the improvement of lives and livelihood of people. In the future, Bangladesh should maintain such trade relations with Japan to become an economically strong country.

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