Japanese investment in BD: Pros and cons

Japanese Ambassador His Excellency Masayuki Inonyue had done two notable things since December 29th elections. He arranged a telephone conversation between Prime Minister Sheikh Hasina and the Japanese Prime Minister Mr. Taro Aso that should lead to positive developments in bilateral cooperation. Then in a seminar on export diversification he told his audience of businessmen that following the transition to democracy that will inspire Japanese investors, this is “very right time“ to attract Japanese investment, an advice if followed professionally could have dramatic impact on Bangladesh's economic development.

My four-year long tenure in Japan as Ambassador till April 2006 exposed me to many wonderful things about the country that has practically no natural resources. Japan was devastated following the Second World War. Yet, with great leadership and dedication of her people, Japan has become the second largest economy in the world. Japan's economic prowess is also another aspect that would strike anyone with awe and wonder. Unlike other developed nations, Japan has built up huge cash reserves both in the private and public sectors. These reserves have gone to China, Malaysia, Indonesia, and Vietnam as FDI, turning these countries from economic obscurity to economic prosperity.

During a farewell lunch hosted by the head of Japan's External Trade Organization (JETRO) I was told that Japan's investments in China had become saturated and unstable due to Sino-Japanese tension and Japanese companies were seeking newer pastures for relocating part of their investments within the concept of China plus one. He said in that context Bangladesh figured in the consideration of many Japanese investors for her strategic location in the mouth of the Bay of Bengal as a bridge between South and Southeast Asia. In my discussions with Japanese business chambers during my tenure, I could sense a clear interest among many of them in looking at Bangladesh as a serious investment destination. In fact, during the visit of Prime Minister Khaldea Zia to Japan in June 2005, there was an overflow of participants at her seminar on investment opportunities in Bangladesh that was held at the Keiderenan, the apex chamber of big businesses of Japan.

Japanese investment in Bangladesh has been negligible despite interest among Japanese investors. Japan ranked a lowly tenth among investing countries in 2006 with US $ 22.7 million in investment. During the era of elected Governments till 1/11, Bangladesh has talked a lot about the country being a great investment destination that was not matched at the delivery level. The last BNP Government had projected the Board of Investment as a one-stop investment body that would take care of all the needs of an investor. The Japanese Ambassador at that time addressed a letter that was leaked to the press that highlighted that the BoI was just another layer in the bureaucratic red tape that made investment more difficult and cumbersome. He cited corruption and red tapism as major obstacles that were dissuading Japanese investors. In a meeting of Japan Bangladesh Committee for Commercial and Economic Cooperation (JBCCEC) held in Tokyo in June 2000, political instability, red tapism and power problem were identified as the main obstacles for Japanese investment although the leader of the Japanese side at the meeting acknowledged Bangladesh's potentials. He had said: “"Bangladesh's labor is cheaper from security perspective, it enjoys very good position, and it has no ethnic problem and war like Sri Lanka.”

Bangladesh has never truly understood the importance of Japanese investment, definitely not in the way Malaysia has. When Mahathir Mohammad became the Prime Minister, he saw his neighbour Japan with too much cash reserves to invest. He took charge and adjusted his country's investment laws to suit the needs of Japanese investors and investment from Japan followed like water seeks its own level when obstacles are removed. Of course Malaysia simultaneously extended the infrastructure support needed for foreign investment, of which uninterrupted power supply is absolutely indispensible. At present times, it is not that just the Japanese investors in China are interested to relocate part of their Chinese investments in another destination. In Japan too, investors are looking for new investment destinations as the Japanese Ambassador has clearly hinted. When Mr. Koizumi was the Prime Minister, his favourite priority was to privatize the postal service so that the US$ 3 trillion lying idle there could be invested. That money will also come in the market for investment. There is enough cash in Japan waiting for foreign investment opportunities despite the economic meltdown in US that has pushed Japan into recession.

At a time when foreign aid from Bangladesh's development partners is declining, FDI is the most attractive alternative. Bangladesh's huge population, added to points already noted like good human resources and geographical location are extremely favourable incentives for attracting Japanese FDI. An added incentive could be the future prospect of South Asia under SAARC and BMSTEC becoming free trading zones that would attract any FDI to Bangladesh like the pin to the magnet for then one would also be speaking of a market of nearly 2 billion people. In this context, Japan should be the number one priority country with which to pursue the country's economic diplomacy. When the chief of Toyota visited Russia under President Putin, the latter spent a lot of time with the former to impress Toyota to set up a plant in Russia. That is the sort of wooing that would be required to bring Japanese investment to Bangladesh.

The democratic elections in Bangladesh have set the stage to bring Japanese FDI. However, there has to be major changes in mindset and infrastructure development to achieve the desired result. In an age of transparency, slogans will not get Bangladesh anywhere. It is time to make BoI the one stop investment institution by action and not words so that Japanese investors given permission for electricity, gas and telephone connections do not have to go to the utility companies for their permission as well. When all these are done so that there is no gap between what is said and what the investor receives, it will be the turn of the Prime Minister to give acquiring FDI investment from Japan the same leadership that Mahathir Mohammed gave in Malaysia when he acquired Japanese investment for his country. The Prime Minister could do so by undertaking an official visit to Japan and meeting the Japanese Prime Minister, political leaders, businessmen and investors. Bangladesh could seriously consider setting up an exclusive Japanese Economic Zone that the Prime Minister could announce during this trip. The bottom line is Japanese FDI could transform Bangladesh in a major way in the quickest possible time.

This Government has not started on the wrong foot with Japan as the last BNP Government had. The BNP Government had unilaterally cancelled the DAP 11 Agreement with Japan on assuming office that had infuriated them and relations were put on a limbo till the project was reactivated a year and half later. It was a very insensitive decision because Japan provides to Bangladesh assistance totaling around US$ 300 million a year that is more than double of what the US provides, and additionally Japan has unquestioned FDI potentials. Bangladesh's development partners who contribute far less act as pay masters. It is ”very right time” to make serious efforts to attract Japanese investment by letting Japanese businessmen and investors know that Bangladesh is willing to do its part to attract Japanese FDI. In this context, the Foreign Ministry must start the process immediately to arrange an official visit of the Prime Minister to Japan for attracting Japanese investment. Prime Minister Aso is disposed favourably towards Bangladesh and may not last long as Japanese elections are due later this year and elections may be called even earlier. To get maximum mileage in terms of furthering economic diplomacy with FDI as a major target, the visit should be arranged during Mr. Aso's watch.

Indian FM's Visit: What Came of It

Published in The Daily Star, February 21, 2009

THE Indian Foreign Minister's day long visit to Dhaka on February 9th ended with more questions than having answered any. The media hype before the visit about possible agreement on transit and joint task force to combat terrorism created a great deal of interest in many quarters. While land transit is an old issue, the joint task force is a new one floated by Sheikh Hasina soon after becoming the Prime Minister that the BNP interpreted as an attempt to allow Indian security and intelligence presence inside Bangladesh. In the end, neither agreement was signed although from press interview given by Mr. Pranab Mukherjee, it was clear that on task force on terrorism, India did not have much interest.

Land transit and terrorism in fact figured significantly in Mr. Mukherjee, formal talks with his counterpart Dr. Dipu Moni and in his meetings with other Bangladesh leaders. These are issues of interest to India. Bangladesh's major concerns, namely sharing of water of the common rivers; maritime boundary and land boundary demarcation were touched and allowed to pass. The visit took place during the dry season of the Ganges flow with India also building a barrage at Tippaihmukh.

The visit resulted in the signing of two agreements. One was on Investment Promotion and Protection and the other the Trade Agreement. The first is a standard one that Bangladesh has signed with a number of countries. It is a reflection of the nature of relationship between the two countries that this agreement was not signed before. The Trade Agreement was merely renewal of an agreement that was last renewed in 1980 and initially signed during the government of Bangabandhu Sheikh Mujibur Rahman.

The two Foreign Ministers held a joint press conference but did not reveal anything of substance that would give a thrust to move relations ahead. Mr. Pranab Mukherjee took a philosophical view of things, suggesting that sincerity and commitment are more important than creating a new framework because one such is there already in the SAARC framework while skirting Sheikh Hasina's proposal for a South Asia task force to combat terrorism. The Bangladesh Foreign Minister was caught off guard when an Indian journalist asked her about her reaction to the perception that Bangladesh is being used by Pakistan as a buffer state to launch terrorist acts upon India. Her response or the lack of it disappointed the Bangladeshi journalists covering the press conference and drew brickbats from the BNP.

Mr. Mukherjee called on Prime Minister Sheikh Hasina at her official residence. Bilateral issues were discussed at this meeting. A different spin was given by the press secretary of the Prime Minister to the latter's proposal for a South Asian task force to combat terrorism that was discussed at the meeting. The press secretary said that the Indian Foreign Minister reacted favourably to the proposal that contradicted what Mr. Mukharjee said at his press conference. Sheikh Hasina's proposal on the task force on terrorism had created a very favourable impact in India and had drawn very positive response from the Indian Home Minister Mr. Chidambaram and the veteran BJP leader Mr. LK Advani because they believed that this task force would be bilateral that would give India a handle to deal with their perception that terrorists are using Bangladesh as a sanctuary with assistance from Pakistan's ISI. As the Indians became aware closer to Mr. Mukherjee's visit that Sheikh Hasina meant a regional approach to the problem, they shifted away from their initial positive reaction and Mr. Mukherjee reflected this shift when he responded half-heartedly to the proposal.

During his meetings outside the official talks, Bangladesh government officials communicated to the Indian Foreign Minister a list of six or seven outstanding problems that India needs to resolve first for Bangladesh to be flexible on the land transit issue. The list he was given verbally included resolving the water sharing issues; maritime boundary; demarcating the land boundary; solving the Talpatty and the Muhurir Char issues; and free access of Bangladesh goods to India without any negative list. The officials candidly told Mr. Mukherjee that unless India resolved these issues, the land transit request would be difficult to fulfill.

The visit helped Bangladesh to bring out the land transit into open forum for rational discussion. The issue on land transit is now being focused by the Bangladesh trade bodies with more rationale on whether to accede to the Indian request or not. These bodies are privately suggesting that, with the other trade issues remaining unresolved, it would be suicidal for Bangladesh to let India use land transit to provide the Seven Sisters with goods from the mainland at cheaper prices; that would destroy industries in Bangladesh that are using this natural advantage to meet the needs of these provinces. The Bangladesh beverage company Pran is figuring prominently in their arguments. These bodies favour two alternatives on the transit issue. First, that India should come up with an economic plan to convince Bangladesh that her territory would not be used for economic development of Seven Sisters leaving her out alone. In other words, these bodies think that there is not much meaning or money for Bangladesh to be just a toll collector. Transit should be a part of an economic plan for benefitting Bangladesh together with the Seven Sisters. Till the Indians come out with such a plan, the best that Bangladesh could consider giving India is transshipment where only those goods would be allowed to pass through Bangladesh in which she does not have comparative advantage.

Of late Indians are trying to project issues of interest, to them as economic, where Bangladesh will gain by relenting. It is hardly the case. Whether relations go forward or not is entirely dependent on political will as Mr. Mukherjee himself made partly clear when he emphasized on sincerity and commitment to solve the issue of terrorism. It was good to see that Bangladesh is getting close to the point where she can call a spade a spade. The list that was given by the Bangladesh officials that India must resolve before she gets land transit points to the fact that for the first time Bangladesh is taking a stand that makes sense. This notwithstanding though, Bangladesh should have come up strongly on the water sharing issue. The Farakka Dam on the Ganges has all the forebodings of turning north Bangladesh into a desert and an environmental hazard. The proposed barrage at Tippaihmukh that will dry up the flow of Surma and Kushiara will turn northeastern Bangladesh into the same thing. Bangladesh should have raised strong concerns on this issue of critical national interest. There are still too many Ministers talking on critical foreign affairs issues with a visible lack of coordination. In fact, the Commerce Minister and the State Minister for Foreign Affairs contradicted each other in the media on the land transit issue. The gesture that Bangladesh made to receive Mr. Mukharji at the VVIP terminal that is reserved for visiting Head of State/Government in view of the Indian FM's current status in New Delhi has been a welcome departure from protocol that showed maturity. The failure of Mr. Mukherjee to meet with Khaleda Zia because of “time constraint” did not fit to India's democratic image and left behind a few raised eyebrows.

India is soon going to have general elections. Mr. Pranab Mukherjee therefore did not come to Dhaka expecting any breakthrough and the hype generated in Bangladesh was created by the media here. This notwithstanding, the visit proved one thing though; that even the AL Government that has been installed with such a huge majority will not move ahead so easily on the Indian requests till India makes the first moves. If anything, the visit has underscored the point that Bangladesh-India relations are faltering on politics not economics. On India's part, she is still not willing to change her mindset that all problems with Bangladesh must be resolved bilaterally. It is time she looked for a regional or sub-regional approach, particularly on water sharing and terrorism issues.

Bangladesh at Crossroads as Democracy Returns

Will the Long-Awaited Development Materialize?

A major event occurred on December 29, in Bangladesh, the third largest Muslim state in the world with a population of 150 million: Over 86% of 80 million eligible voters elected the Awami League led by Sheikh Hasina to power, ending two years of a military-backed emergency rule.

In many senses, it was a watershed election in a developing country, but was largely ignored by the international press because there was no "breaking story" of violence here.

Bangladesh is known for its poverty and frequent natural disasters that visit the country on a regular basis. It is hardly given the credit for the spirit of its people for fighting to overcome poverty and natural disasters.

In 1988, when Bangladesh faced one of the worst floods ever known in human history, foreign aid workers and journalists were astounded by the resilience of the Bangladeshi people. A lot of this resilience and fighting spirit is derived from their faith in Islam as a "complete code of life" for 88% of Bangladeshis.

Back to Democracy?

There were speculations abroad that democracy would not return; that there would by violence and disorder in Bangladesh during the period of the military-backed rule since January 11, 2007.

Before the emergency, Bangladesh had an unfortunate tryst with widespread violence and corruption where the two main parties, the Bangladesh Nationalist Party (BNP), the party in power before the military backed government, and the Awami League (AL), contributed to bringing Bangladesh close to a failed state with mindless corruption that earned Bangladesh Transparency International’s dubious title of the most corrupt country in the world and anarchy in the streets.

The people thus welcomed emergency quietly. But the military, taking advantage of abrogation of the constitution, indulged in excesses while pursuing the drive against corruption under which the two former Prime Ministers, Sheikh Hasina and Begum Khaleda Zia, both women, were incarcerated with a large number of politicians, businessmen and bureaucrats.

Although the military backed government had just the constitutional responsibility to create a level playing ground for free and fair elections, it indulged in extra-constitutional roles such as attempting to break the two main stream political parties to create a "king’s party" to which to hand-over power that failed eventually.

Their excesses led to spiraling of prices of essential commodities that affected the people very harshly, a predicament further aggravated by an unfavorable international market from where the government had to import essential commodities such as rice, edible oil, etc.

The military-backed government did one commendable thing for returning democracy to Bangladesh. They carried out efficiently the task of registration of 80 million voters and issued them photo identity cards. International pressure and people’s impatience with the military-backed government led to the general elections in Bangladesh. The BNP that bore the brunt of pressure of the authorities in their anti-corruption drive was in disarray.

In the BNP, those who tried to curtail the powers of the party chief while she was in jail were denied nominations for the parliamentary elections. The AL, in which also senior party leaders tried to curtail their party chief’s powers, took these so-called reformists on board and went to elections united.

In addition, the AL that had 14 parties as allies from the 2001 elections, with all these parties in name only, also formed an alliance with the Jatiya Party of former President Ershad that had won 7.6% of total votes cast in 2001. As a result, the AL triumphed in a manner that was unbelievable, winning 233 seats alone and 262 seats with its allies.

The BNP that had won 197 seats in 2001 was routed with only 32 seats. In fact, the BNP closely beat the Jatiya party that won 30 seats. The BNP’s allies, the Islamist parties of which Jamaat e Islami was one, failed even more disastrously. In fact, BNP alliance with Jamat, whose members committed war crimes in 1971, and its indulgence in extreme corruption when in power contributed to its election trouncing.


Government in Action

The results surprised the AL for winning it so overwhelmingly; the BNP for losing it so catastrophically; and the outside world for the peaceful manner it was held. Subsequent developments were also surprising and interesting. In announcing the cabinet, Prime Minister Sheikh Hasina left out almost all her senior colleagues who were in her cabinet when the AL was in power in 1996-2001 naming women in key ministries of Home and Foreign Affairs.

In another departure, Sheikh Hasina appointed a number of Advisers with Ministerial rank and amended the Rules of Business so that she can appoint more Advisers who can also sit in cabinet meetings, making them de facto cabinet ministers. For the first time the opposition attended the opening session of parliament that augurs well for transition although immediately afterwards they abstained on seating arrangement.

The AL government has its hands full with the election promises it made. There is a "Vision 2021" to transform Bangladesh into a middle income nation. The party is committed against corruption, a popular task undertaken by the military-backed government. It has also pledged to try those who committed war crimes during Bangladesh’s war of liberation in 1971.

The economic agenda is an achievable one, for Bangladesh has both the human and natural resources needed for such an agenda. Unfortunately, Bangladesh has faltered in the past in sustainable economic development to become a middle income country because of failure of politics that has seen the army in power frequently as in January, 2007, when the military officials introduced an emergency rule and installed a civilian government of their choice while holding power behind its back after the BNP and the AL had made governance impossible.

Bangladesh is the envy of all South Asian countries with no ethnic, regional or religious divide but has squandered her natural advantage over rivalry between the two main parties that was the worst at the leadership level with Shaikh Hasina and Khaleda Zia treating each other as the nemesis of the other. Parliament was made non-functional and politics was dominated by conflict and violence. Thus the new government’s economic agenda will depend mainly on how well politics is managed for which cooperation between the government and the opposition will be crucial.

Fighting Corruption

The new government has made its intentions clear on corruption by naming ministers with clean records. This notwithstanding, people who hold public offices in Bangladesh are paid very little while exercising enormous power thus exposing them to the lures of corruption. The corruption agenda will therefore be a hard one to implement.

On trial of war criminals, the government is making preparations for setting up a Commission. The demand for the trials is one deeply entrenched in the psyche of the people, but it will extend the government’s ability to the utmost to hold it in a credible manner, because these crimes were committed nearly 4 decades ago.

The war criminals are allegedly mostly from Bangladesh’s Jamat-e-Islami party. The government therefore will have to be careful so that just war criminals are tried and not the Jamat. Islam in Bangladesh is based upon liberal traditions being influenced by Sufism and secularism and has fundamental roots in society. Even then, the religious fundamentalists whose number is not very large could whip up trouble by using the slogan that Islam is in peril that could have grassroots support unless the government is careful and sensitive.

Foreign Policy

In foreign policy, this Government is expected to seek closer cooperation with India which is in the country's geopolitical interest.

The Indian foreign minister paid a visit to Dhaka this February as an Envoy of his Prime Minister.

Two agreements were signed during the visit. The first was the Agreement on Investment Promotion and Protection, and the other was the Bilateral Trade Agreement.

Tough issues such as sharing of waters of common rivers, trade and maritime boundary from Bangladesh’s side, cross border security, and land transit from the Indian side were the main focus of discussion between the two countries.

The two countries have these issues unresolved mainly on lack of trust and political will, with Bangladesh accusing India of violating international law particularly on water sharing.Only political will on both sides can help achieve sustainable friendly relations.

Bangladesh has over 4 million people living in the Middle East whose foreign exchange earnings are crucial for the country’s economic development.

This factor, added to Bangladesh’s Islamic base and heritage, will make the need for seeking closer ties with Islamic countries a major focus of the new government’s foreign policy.

The new government was quick to condemn the recent carnage in Gaza and will continue to back the Palestinian rights.

The December elections have set Bangladesh on course for transition to democracy with great scope to economically transform into a middle income nation. However, political accommodation between the AL and the BNP will hold the key to this transition and transformation. There is now both hope and apprehension in Bangladesh.

EDITORIAL COMMENT: Indian Foreign Minister Mr. Pranab Mukherjee Visits Dhaka

The Indian Foreign Minister Mr. Pranab Mukherjee completed a one day visit on February 9th to Bangladesh as an Envoy of Prime Minister Manmohon Singh. He met Prime Minister Sheikh Hasina, held official talks with the Bangladesh Foreign Minister Dipu Moni and met a few other senior Ministers of the Bangladesh Government.

Two agreements were signed during the visit. The first was the Agreement on Investment Promotion and Protection and the other the Bilateral Trade Agreement. The first one was a new agreement and the second one was a renewal of an agreement that the two sides had signed earlier. At the official talks, the Bangladesh Foreign Minister and his the Indian counterpart went over a whole range of bilateral issues such as security, border management, strengthening connectivity ; trade and investment and water sharing issues.

No joint statement was issued after the talks. The two Foreign Ministers held separate press conferences. In his press conference, the Indian Foreign Minster did not respond positively on Sheikh Hasina’s call for a Joint task Force to Combat Terrorism. He said that political will, sincerity were more important than setting up any task force. The issue was again raised by Sheikh Hasina when the Indian FM called on her at her official residence. The Prime Minister’s Press Secretary, after the meeting, told reporters that the India FM agreed with the proposal that contradicted what Mr. Mukherjee himself told journalists earlier after his talks with Dipu Moni. In her own press conference, the Bangladesh Foreign Minister faced difficulty and tricky questions related to security and involving Pakistan. An Indian journalist queried her about Bangladesh being used by Pakistan as a “buffer state” for importing terrorists against India to which the Bangladesh Foreign Minister was unable to respond in a way to defend Bangladesh’s case that raised quite a few eyebrows from the Bangladeshi journalists present.

Prior to the visit, the Bangladesh media was full of speculation about issues such as trade and transit, both controversial where relations have remained stagnated. At least two Bangladesh ministers had contradicted on Government position on the issue of transit. The Minister for Commerce and the State Minister for Foreign Affairs were involved in contradicting each other.

The Indian Foreign Minister who arrived in a special aircraft was given protocol given to a visiting Head of State/Government as he was received in the VVIP terminal at Dhaka airport. An explanation given by the Government said that as Mr. Pranab Mukherjee is looking after some of the responsibilities of his Prime Minister, this special gesture was made to him. The Indian FM’s trip was just for a day and was very hectic. He also visited Dhaka University for a ceremony in connection with a floor being built in Dhaka University’s Arts Building with Indian assistance for the Drama Department. Mr. Mukherjee, however, could not find time to meet Begum Khaleda Zia, the leader of the Opposition.

Going by the media hype in Bangladesh, the visit of the Indian Foreign Minister was quite an anti-climax. The tough issues were glanced through without any decisions to move relations ahead. Given Indian concern on terrorism, one expected some agreement on the proposal of Sheikh Hasina on the joint task force. This did not happen. One can surmise that the Indians are not clear whether the Bangladesh Prime Minister was proposing a South Asian initiative or a bilateral one and hence the lack of interest. Given the well known Indian mindset that one has seen over the years, India is never forthcoming on any initiative on controversial issues that are multilateral, always preferring the bilateral approach. The issues of water sharing between Bangladesh and India is a case in point where India has stubbornly refused to bring Nepal into negotiations , despite the fact that with Nepal, this region could just not solve its problem of shortage of water in the dry season but also flood in the rainy season.

The Bangladesh side also showed during the visit that it has no clear sense of direction about dealing with India. The team work is just not there and there are still too many people at government level talking about the issues in a manner that just not shows a lack of professionalism but to add a cliché; here are too many cooks making the broth. In an age of globalization, foreign affairs need much more professional handling. Knowing that India is going to have an election very soon, the Foreign Ministry should not have allowed the media hype by killing all the speculations and instead should have advised the media to see the visit as a goodwill visit and nothing more. The Indians have done just that.