Weak regulatory framework a major obstacle to FDI

Dhaka,  Tue,  22 August 2017
Published : 16 May 2017, 00:20:57
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Weak regulatory framework a major obstacle to FDI

EU envoy describes move to allow four members of a family on bank board a 'troubling signal'
FE Report


European Union Delegation head Pierrie Mayaudon termed Bangladesh's legal move allowing four members of a single family to be directors of a commercial bank a "troubling signal" to global investors.

"The cabinet has recently approved a draft amendment bill that would allow local banks to have four members from the same family as directors against the two earlier. I think this is globally passive and a direct troubling signal for the investors," he said Monday at a luncheon meeting of the Metropolitan Chamber of Commerce and Industry (MCCI) in Dhaka.

Mr Mayaudon, Ambassador and Head of the EU Delegation in Bangladesh, noted that they had seen very little improvement in regulatory adaptation rather troubling signals were sent like allowing up to 4 members of the same family (instead of 2) to be on the board of a bank.

The trade body organised its second quarterly luncheon meeting at its chamber building with its President Ms Nihad Kabir in the chair, where wider issues of trade and business regimes as well as politics and governance came up for discussion.

Bangladesh's cabinet recently endorsed an amendment to the Banking Companies Act 1991 that allows four members of a single family to be a bank's directors, which generated criticisms.

Usually the commercial banks in Bangladesh have 8 to 20 directors on a single board.

The EU envoy identified three cardinal challenges facing Bangladesh's development recipe: social compliance, good governance, and technological breakthrough.

Mr Mayaudon observed there were some regulatory reforms in Bangladesh which were on paper-and all looked fine.

"Regulatory frameworks speak in favour of ……..encourage foreign direct investment (FDI). But we know reality. The FDI is not coming to Bangladesh in a significant manner or not in a comparable manner what happening to the neighbouring countries," he told his business audience.

"And part of the explanation for that definitely comes from the regulatory framework itself that are complex and some are obsolete. We are still waiting and hoping the companies draft act which will be finalised anytime soon. We hope the law that is expected to go to the parliament will be simplified for the foreign as well as for the local companies," he added.

About politics and security, the EU Delegation head said: "For the foreign investors the global political and security scenario is of the highest importance. So, no doubt that we diplomats and the businesspeople from Europe will scrutinise with highest degree of attention what is going to happen in terms of social development in this country."

In this context, the European diplomat cited the discussion between the government and religious group Hefazat-e-Islam.

"Also, obviously, prominently will come to our attention what will happen in the next general election between 2018 and beginning of 2019. Obviously, a different scenario happened in 2013 and 2014 for the last election. I think that was collective expectation," he said.

Mr Mayaudon said the July 01 incident in Bangladesh had enormous importance for not only expatriates but also for the companies visiting this country who were compelled to adjust with the dimension.

On the compliance issue, he said Bangladesh has made fantastic progress on child-labour issues. But when the consumers will buy products, then they will see the level of social compliances in Bangladesh.

"I definitely know Bangladesh is sincere on attracting European investment in your country. The issue of compliance with UN labour convention is not negotiable. No European investors will come to invest in Bangladesh, especially in SEZs and the EPZs, until and unless they have the highest possible degree of attitudes that's the legal environment is totally aligned with the international standards set by the United Nations."

He noted that from the last EU-Bangladesh business dialogue, they had already some encouraging signals that the reforms are made in order to make the economic governance of the country more investment-friendly. "But still we have to face challenges," he said.

The EU Delegation chief suggested improving the status in the World Bank's annual Ease of Doing Business Report which will help to achieve double-digit growth by 2021.

On workplace safety, he said labour issues in Bangladesh, in all dimensions, reflected by the Sustainability Compact, but primarily Labour Rights and Work Safety…will be scrutinized this week during the annual Compact review, to be held on May 18.

"Whereas significant progress has been reached on the work safety, labour rights are still in question," he remarked.

The ambassador said the EU and Bangladesh had already started discussing the next step which is GSP (Generalised System of Preferences) Plus, offering Middle Income Country (MIC) an access regime to the EU market which is almost as favourable as the GSP/EBA.

However, conditions apply. And those include proper implementation of 27 UN core conventions on Human Rights, Labour Rights, Governance and Environment.

About the labour rights, he said: "Last December strike in Ashulia that resulted in over 20 plus labour leaders being incarcerated has triggered lot of emotion in the West. It comes in the broader context at the last year (June 2016) International Labour Conference, where Bangladesh being subject to a "special paragraph" by that addressed 4 issues."

The four issues he mentioned are: Bangladesh Labour Act is still not fully compliant with UN core conventions, drafted EPZ law is not fully compliant with UN conventions, and difficulty to establish trade unions and harassment of the trade union leaders.

Mr Mayaudon said: "This is needed to attract EU investors in EPZ, SEZ of Bangladesh. They will not invest in zones where labour norms are not fully consistent with UN conventions."  

On technological breakthrough, the EU Delegation chief underlined transition from labour-intensive economy to an economic model that will include a larger part of technological input.

"This is already visible in the RMG industry where state-of-the-art machinery is in operation. The local companies should work more to improve upon their production capacity applying technology," he told the business meet.

Speaking on the occasion, MCCI President Ms Nihad Kabir requested the Ambassador and EU Delegation Head to facilitate expansion of Bangladesh's market in EU countries.

She said Bangladeshi businessmen wanted to work with the EU to improve their capacity for upgrading trade and business.

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