Factories leaving China: Can Bangladesh seize the opportunity?

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While Vietnam, India, Indonesia – and some other countries – are racing to get their share of the pie from the probable exodus of factories from China, Bangladesh does not seem particularly active to get its share. Japan, the US and Europe have announced they will relocate their factories from China to reduce their dependence on a single country. Japan has already allocated $2.2 billion to help its manufacturers shift production units out of China. Korean companies are also planning to move out of China. Bangladesh is on lockdown and most government officials in the country are on long holidays – of one-and-a-half months – as part of the government’s efforts to prevent the spread of Covid-19. They are slipping behind an existing stockpile of work that includes reforms to company and bankruptcy laws as well as overall doing business activities, which are vital to attract investments from overseas.  So far, two investment promotion agencies – the Bangladesh Economic Zones Authority (Beza) and Bangladesh Investment Development Authority – have kept their activities limited to writing letters to the government mentioning the present situation, including challenges to getting foreign investments for post Covid-19. However, Vietnam and India have started talking to many Japanese and US firms that want to move out of China. The Indian government, in April, reached out to more than 1,000 US companies and reportedly offered them incentives to move to India from China. India, the third largest Asian economy has also earmarked land for businesses that will invest and relocate to India. Paban Chowdhury, executive chairman of Beza, said shocks to consumer demand and the economic impact of supply chain disruptions will affect investment prospects around the globe, amid the pandemic, and the ripple effect could cause a major setback to efforts of governments to attract foreign investments needed to achieve the Sustainable Development Goals. “To be a relocation destination we should come up with some solid offers,” he told The Business Standard, recently. However, before that, Chowdhury said bureaucracy must change its entire mindset in a bid to facilitate businesses instead of just regulate them.  Beza is working on building 100 economic zones in the country. Of which, three zones have been dedicated to three nations – Japan, India and China – so that their manufacturing companies can easily set up production units in Bangladesh. “A dedicated zone to host Japanese investors is being constructed. This can be an opportune moment for us. We need to design some exclusive incentives packages for Japanese 100% export-oriented investors,” said Chowdhury. Beza has recently sent a set of proposals to the prime minister’s office requesting it to consider the recommendations to attract foreign investment after the Covid-19 pandemic. The proposals include: extending tax waiver, allowing duty-free import of machinery – even used, providing bond facilities, and speeding up services. The Beza boss said they currently offer investors in export zones a tax holiday of 10 years. In these 10 years, investors receive a 100 percent tax exemption for three years.  For the rest of the period the waiver starts diminishing gradually.  “We can now think of a new package where this three year period of full exemption can be extended,” said Chowdhury. For example: Beza proposed a tax holiday of seven years for industries that invest a minimum $100 million and the facility could be extended to 10 years for a $200 million investment. Sirazul Islam, executive chairman of BIDA, is also aware that the investment scenario will completely change in the post Covid-19 pandemic and every country will have to take special efforts to draw the attention of foreign investors. “We are working on making package proposals for foreign investors. However, we can just make recommendations,” Islam said. He said he is in talks with two Japanese agencies – the Japan International Cooperation Agency and Japan External Trade Organization – and discussed investment opportunities in Bangladesh.  An unprecedented shutdown amid the pandemic has badly impacted the global economy. The situation will slow Beza’s ambition to bring in billions of dollars-worth of investments in its Mirsarai economic zone. As of February, Beza got investment proposals worth $20.50 billion from 151 local and foreign businesses. Of the amount, about $3 billion has already been invested in different special economic zones. About $5.78 billion will come from foreign investors including: China, South Korea, Japan, India, Singapore, the UK, Australia, Malaysia, and the US. Mamun Rashid, managing partner of PwC Bangladesh, said, “We have failed to take advantage of the US-China trade war.” “We have got the second chance. Can we avail that?” he asked.

What is India doing?

India has earmarked lands, equivalent to two Luxemburg, for foreign companies intended to shift factories out of China.  Last month India reached out to more than 1,000 companies, including medical devices giant Abbott Laboratories, in the US and through overseas missions to offer incentives for manufacturers seeking to move out of China. India has also targeted some US and Japanese companies which are engaged in medical equipment, food processing, textiles, leather and auto parts. India has also moved to reform land, labour and taxes in a bid to lure foreign companies. The country’s trade ministry has sought detailed feedback from US companies on changes needed to make the country’s tax and labour laws more favorable to companies.

What is Vietnam doing?

Vietnam, which is already known as China plus one manufacturing, is in the top of the list of factory relocation from China. The country’s proximity to China and presence of global companies has made it a big choice for the probable relocation of factories from China. Also, Vietnam’s success in containing Covid-19 is one of the best in the world and it has helped them earn the trust of foreign investors. Yet, the country is doing everything – from offering space to incentives and tax cuts – to bring foreign companies in Vietnam. Nguyễn Đình Cung, member of the Prime Minister’s Economic Advisory Group, recently said the government would set up a special working group to negotiate directly with foreign groups to move investment to Vietnam after the pandemic. The working group would help local and foreign companies know each other’s demands. Vietnam has also planned to simplify administrative procedures, including investment and business procedures, to attract high quality foreign investment.

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