The government's decision to allow local companies to invest abroad is a time-befitting one notwithstanding the conditions attached to it. The move would fulfil a long-standing demand from the businesses. Not that the local firms are alien to such investment. At least, 16 firms have so far invested nearly US$60 million in some countries taking special permission from the government. In its latest move, the Ministry of Finance has issued guidelines for companies interested in investing abroad. The central bank on Thursday sent the guidelines to the foreign currency dealer banks asking the latter to help businesses concerned.
The government, it is apparent, wants to maintain a cautious approach while allowing equity investment abroad. It has done rightly so. Under the guidelines, there is no wholesale permission to make investments abroad. The firms that are engaged in export business will be allowed to invest a maximum of 20 per cent of their annual average income from exports for the last five years or a sum equivalent to 25 per cent of their net asset as mentioned in their last audited financial report. Besides, for being eligible, a firm will have to maintain a healthy balance in its export retention quota (ERQ) accounts where exporters may keep a portion of their export proceeds.
The annual outflow of some amount of foreign currency for making productive equity investment or opening subsidiaries abroad should not be a big deal when an enormous volume of funds allegedly goes out of the country through illegal channels, including trade misinvoicing. True, the government could not stop the illegal transfer of funds abroad up to the desired extent. But the government cannot open a formal channel that unscrupulous people could abuse for transferring funds abroad. Nor it can allow an investment opportunity that would not accrue any benefit for the country.
It will be, thus, important for the central bank to monitor where the money goes and how it is used. Preference needs to be given to investment in the countries that enjoy trade preferences under the World Trade Organisation (WTO) rules. The relevant guidelines also prohibit investment in countries that are facing sanctions from the UN, the European Union and the US, or countries identified as destinations for illegal transactions.
Before allowing equity investments abroad, the central bank needs to see whether firms concerned have the required expertise in industries in which they want to make investments. These firms are expected to do better and earn profit up to the desired level. Another issue that deserves the attention of the businesses is the creation of employment opportunities for Bangladeshi workers and managers in their countries of operations. Many countries exercise restrictions on the employment of foreigners. But the selection of the right investments might help the authorities there to ease the restrictions. In sum, it will be important for both the government and the entrepreneurs to reap the maximum benefit from their investments abroad, no matter how small they are.