Bangladeshi entrepreneurs may be allowed to make equity investment aboard up to 25 per cent of their net annual income from exports, officials said.
However, they will have to take prior permission from the government for the purpose, according to the draft 'Capital Account Transactions (Overseas Equity Investment) Guidelines 2018', prepared by the Bangladesh Bank.
The central bank crafted the guidelines in line with a decision taken by the cabinet committee on economic affairs amid plea from a good number of Bangladeshi entrepreneurs for allowing them to make overseas investments.
The sub-section 6 of the section 4 of the Foreign Exchange Regulation Act, 1947 empowered Bangladesh Bank to specify, in consultation with the government, the classes of permissible capital account transaction.
Besides, the section 5 of the act accords power to the Bangladesh Bank to give general or special authorisation to effect payments abroad in connection with foreign exchange transactions.
The guidelines said that the entrepreneur who wants to make overseas investments has to be an exporter with adequate balance in its Exporters' Retention Quota (ERQ) account.
The entrepreneur needs to be financially-sound according to audited accounts of his or her company in the past five years.
The applicant should have clean track record of repatriation of export proceeds within the period, payment of import obligations having no bill of entry unmatched, including local payment against back to back letters of credit (LCs).
The entrepreneurs also have clean record in loan repayment in the financial system and having no unresolved restructured large loan, and tax payment.
The overseas investment proposal for business activity abroad shall ordinarily be of similar nature of the entrepreneurs' business engagement in the home country.
The equity investment proposals should be economically-viable and have the potential for future earnings of foreign exchange coupled with other advantages to the country including raising exports from Bangladesh and employment opportunities for Bangladeshi nationals.
According to the draft guidelines, the entrepreneurs may be allowed to make investment in countries where there are no restrictions on Bangladeshi nationals to work and repatriate their income to Bangladesh.
The countries with which Bangladesh has dual taxation avoidance agreement, and where investment from Bangladesh and the repatriation of capital including capital gain, dividend, and other admissible earnings including technical know-how fees, royalty, consultancy fees, commission or other entitlements are allowed.
However, equity investment by Bangladeshi entrepreneurs would not be allowed in the countries, where sanctions have been imposed by the United Nations, European Union, Office of Foreign Asset Control (OFAC), and the countries which are not compatible with Financial Action Task Force (FATF) requirements.
Entrepreneurs' also would not be made equity investment in the countries with which Bangladesh has no diplomatic relations, the guidelines said.
According to the guidelines, an inter-ministerial proposal evaluation committee will scrutinise the investment proposals and send those the government high-ups for consideration along with a report on the current position and near-term outlook of balance of payment (BoP).
The approval for new outward investments will be "disfavoured in situations of widening BoP deficits and declining foreign exchange reserves," the guidelines noted.
It said any misuse of the fund would be treated as an offence of money laundering under the Money Laundering and Prevention Act. In such cases, the owner, the directors and the beneficiary owners of the company shall be liable to punitive action under the law.
The guidelines have been prepared at a time when the government allowed in October local industrial conglomerate Akij Group to send US$20 million to acquire a Malaysian company after the cabinet committee on economic affairs decided, in principle, to allow equity investments abroad by Bangladeshi nationals.
Apparel maker Ha-Meem Group and automobile assembler Nitol-Niloy Group also sought permission for making equity investments abroad. But both proposals have not received the government's green signal yet.
Former president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) Abdul Matlub Ahmad had earlier told the FE that there is an urgent need for allowing overseas investment abroad since many entrepreneurs have already attained such capacity.
He, however, suggested the government should not allow the equity investment abroad on a "wholesale basis". Rather, he called for ensuring proper monitoring of return from those investments.
While talking to the FE earlier, executive director of the Policy Research Institute of Bangladesh Dr Ahsan H Mansur also advocated for allowing equity investment abroad.
He, however, said the government should tag conditions like employment generation for Bangladeshi nationals with permission to invest overseas.
He suggested that reporting mechanism for equity investments should be well to keep track on the capital.
syful-islam@outlook.com