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.