Bangladesh needs a smarter outbound investment policy for post-LDC era

Bangladesh’s graduation from the least developed country (LDC) category reflects major economic progress but will also bring tougher competition, reduced tariff preferences and greater pressure to join global value chains. Future growth cannot rely only on domestic production and exports; Bangladeshi firms must also expand abroad. Through subsidiaries, regional offices and joint ventures, they can access markets, technology, brands and supply chains.

Experiences from India, China, Singapore, Malaysia and Vietnam show that regulated outbound investment can strengthen the domestic economy. Bangladesh has begun this process through legal reforms, Bangladesh Bank guidelines and the 2022 Outbound Investment Guidelines.

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Yet the system remains restrictive, approval-based and slow. Each investment generally requires separate approval, while foreign-exchange limits and strict eligibility conditions often fail to match the speed of international business.

Bangladesh Bank’s caution is understandable. The regulator must consider foreign-exchange reserves, dollar-market pressures, import costs and global uncertainty. It must also prevent illicit capital flight and ensure accountability. But excessive control can undermine the international competitiveness of legitimate domestic firms.

This is especially important for companies in IT, software, pharmaceuticals, engineering, healthcare, light engineering, fintech and professional services. In many foreign markets, they cannot bid for public or private projects without a locally incorporated entity. Delays in approval can therefore mean the loss of immediate business opportunities.

The challenge will become sharper after LDC graduation. As trade preferences decline and competition increases, many Bangladeshi companies will need foreign subsidiaries, regional offices or joint ventures to retain and expand their markets. Outbound investment is no longer only a foreign-exchange management issue; it is part of Bangladesh’s post-LDC economic strategy.

Under the present framework, prior approval from Bangladesh Bank is mandatory, while the Foreign Exchange Regulation Act, Companies Act, Income Tax Act and relevant BIDA policies may also apply. These safeguards serve legitimate purposes, but their practical application has several structural weaknesses.

Current limits, linked to 20 percent of paid-up capital or average export earnings, can prevent even financially sound companies from acting quickly. The framework also gives insufficient weight to future earning potential, technical capacity and the characteristics of knowledge- and service-based businesses.

The lengthy pre-approval process can cause firms to miss time-sensitive opportunities. Complicated application procedures and uncertainty over profit repatriation during foreign-exchange stress further discourage investment. As a result, some entrepreneurs operate through foreign partners or third countries. Bangladesh then loses potential foreign-exchange earnings, tax revenue and international corporate presence.

International experience shows that effective regulation and a business-friendly investment regime can coexist. Capital liberalisation should be gradual, risk-based and supported by strong supervision. India’s 2022 overseas investment framework combines an automatic route for eligible transactions with special approval for strategic investments.

China’s “Go Global” strategy promoted international expansion while maintaining state oversight. Singapore supported outbound investment through trade diplomacy, tax measures and institutional assistance, while Malaysia linked it with industrial and export policy. Even Vietnam gradually allowed firms to invest abroad despite foreign-exchange constraints.

Bangladesh cannot copy these models directly because of limited reserves and import dependence, but rigid controls are unsustainable. It needs a balanced framework that protects foreign-exchange stability while enabling credible businesses to compete internationally.

In the current reality, the most effective approach for Bangladesh could be to formulate a risk-based and step-by-step liberalised foreign investment policy. On the one hand, the stability of foreign exchange and the security of the financial sector must be ensured; on the other hand, domestic entrepreneurs must be given the necessary policy freedom to compete in the international market.

That is, the type of control has to be changed; instead of an approval-based system, a monitoring-based structure has to be developed. In order to formulate and implement an effective foreign investment policy for domestic companies, the following suggestions may be taken into consideration:

First, an automatic approval system can be introduced within certain financial limits. Institutions that pay regular taxes, file audited financial reports, have a legitimate source of foreign exchange earnings and are free from debt default may be given the opportunity to invest in foreign affiliates or make limited investments through the prescribed process instead of obtaining separate prior approval.

However, in the case of large-scale investments, sensitive sectors or high-risk countries, Bangladesh Bank’s prior approval may remain intact. This will reduce regulatory risk on the one hand and speed up business decision-making on the other.

Second, the entire process should be placed on an integrated digital platform. Applications, verification, approval, foreign-exchange release and post-investment reporting could be handled through one system connecting Bangladesh Bank, Bangladesh Investment Development Authority, the National Board of Revenue, the Registrar of Joint Stock Companies and authorised dealer banks.

This would reduce delays and improve transparency. Also, applications qualifying for the automatic route could be processed within seven working days, ordinary applications within 30 working days, and complex cases within a separately defined period.

Third, priority could be given to sectors with strong potential for foreign-exchange earnings, technology transfer and higher value addition, including IT, software, pharmaceuticals, healthcare, engineering, agri-tech, education, fintech, renewable energy and professional consultancy.

Fourth, outbound investment policy should be linked more closely with economic diplomacy. Bangladeshi missions abroad can provide market information, commercial support and assistance on investment protection and bilateral cooperation.

Fifth, post-investment supervision must be strengthened. Regular financial reporting, disclosure of foreign-exchange earnings, profit-repatriation records and independent audits should be mandatory. Technology-based, risk-sensitive surveillance can support legitimate investment while reducing the danger of capital flight.

Seventh, tax rules must be clearer and aligned with international practice. Businesses need guidance on foreign income, the use of double-taxation avoidance agreements and the treatment of repatriated profits.

Finally, the capacity of public institutions must improve. Officials of Bangladesh Bank, BIDA and authorised banks need training in international investment, corporate finance, cross-border taxation and risk analysis. Regular dialogue between policymakers, trade bodies, exporters and professional associations is equally important.

Outbound investment should not automatically be viewed as capital leaving the country. When a Bangladeshi company expands abroad, it can create markets for goods and services produced at home, earn foreign exchange, acquire technology and management skills, and strengthen Bangladesh’s position in the global economy. The objective should therefore be a trust-based but accountable regulatory regime: less dependent on case-by-case permission and more focused on eligibility, transparency and post-investment supervision.

A timely, transparent and realistic outbound investment policy can help Bangladeshi enterprises become global competitors. It can also support foreign-exchange earnings, technology transfer, employment and industrial development.

As Bangladesh enters the post-LDC era, enabling responsible international expansion should become a central part of the country’s long-term economic strategy.

The writer is a financial sector analyst. He can be reached at faysal.aqc@gmail.com