Foreign Investment in Guangdong: New Incentives Announced

Guangdong province, China’s manufacturing heartland, has announced new measures to attract foreign investment.

On December 1, the Guangdong provincial government issued a report delineating 10 policies to expand the province’s openness to foreign investors and foreign capital.

The measures are in support of the State Council’s Measures to Expand Opening-up and Actively Utilize Foreign Investment (Guo Fa [2017] No. 5) and the Measures to Promote Foreign Capital Growth (Guo Fa [2017] No. 39). They include policies to improve Guangdong’s business environment, promote fair competition between foreign and domestic companies, expand market access, and offer investment incentives.

The 10 measures for relaxing foreign investment:

  1. Further expand market access, including relaxing ownership limits and/or operation scope in the following industries:
    • Special vehicle manufacturing;
    • New energy vehicle manufacturing;
    • Ship design;
    • Regional aircraft and general aircraft maintenance;
    • Human resources service agencies;
    • International maritime transport companies;
    • Railway passenger transport companies;
    • Construction and operation of gas stations;
    • Internet service and call centers;
    • Performance brokerages;
    • Brokerage, banking, securities, futures, and life insurance companies;
    • Law firms jointly owned by Hong Kong/Macau investors and domestic investors; and
    • Hong Kong/Macau airlines will be treated as special domestic airlines.
  2. Increase the use of financial incentives for foreign investment for the 2017-2022 period, including:
    • For new projects worth more than US$50 million, replenishment projects worth more than US$30 million, and for multinational or regional headquarters worth at least US$10 million, the provincial government will give financial bonuses worth no less than two percent of the year’s actual investment amount, capped at RMB 100 million (US$15.1 million).
    • For Fortune 500 companies and leading global companies with actual investments (new projects or replenishment projects) in manufacturing worth over US$100 million in one year, and newly established IAB (new generation of information, automatic equipment, and bio-pharmaceuticals) and NEM (new energy, new material) projects with actual investments of no less than US$30 million in one year, the provincial government will provide financial support on a case-by-case basis.
    • For multinational or regional headquarters that contribute over RMB 10 million (US$1.5 million) to provincial revenue, 30 percent of the contributions will be awarded to the company in a lump sum payment, capped at RMB 10 million (US$1.5 million).
    • Local governments can provide other financial incentives based on provincial incentive standards.
  3. Strengthen the use of land security, including land-use incentives for Fortune 500 companies, regional headquarters, and advanced factories.
  4. Support innovation and research & development (R&D), including financial support for foreign R&D institutions and encourage participation in the development of public service platforms.
  5. Increase financial support, particularly for Fortune 500 companies, global industry leaders, and cross-border mergers and acquisitions.
  6. Strengthen personnel support, including incentives and visa conveniences for high-level foreign talent.
  7. Strengthen the protection of intellectual property rights, including by accelerating the construction of the China (Guangdong) Intellectual Property Protection Center.
  8. Enhance the level of investment and trade facilitation, including the full implementation of the Negative List and access to national treatment.
  9. Optimize the environment for attracting foreign investment in key parks, including implementation of administrative streamlining in eligible development zones and other supportive policies.
  10. Improve the use of foreign investment guarantee mechanisms, including setting up a coordinated mechanism to coordinate and solve the key problems that prevent investment in Guangdong.

The measures represent a step forward in boosting Guangdong’s competitiveness in attracting foreign investment. Although Guangdong is China’s richest province by GDP, and already one of the most open to foreign investment, rising labor and land costs have seen many businesses relocate their manufacturing operations to lower cost alternatives, such as Western China, Vietnam, and India.

Some areas in Guangdong have been successful in upgrading their local economies beyond low-value manufacturing. Most notably, Shenzhen has emerged as a hub for innovation and high-tech startups, and also boasts a robust financial sector.

Guangzhou has also had success in moving up the value chain, by producing higher-end goods like automobiles and high-tech products, while surrounding cities like Foshanhave also benefited from regional integration and high-tech manufacturing.

The new measures reflect Guangdong’s continued desire to attract high quality capital-heavy investments; many of the policies specifically state a preference for Fortune 500 companies or recognizable industry leaders.

Stephen O’Regan, Senior International Business Advisory Associate at Dezan Shira & Associates in Guangzhou said, “These new regulations certainly show a more open approach by the Guangdong government towards foreign investment, particularly in trying to attract high level talent. However, many smaller companies still find it difficult to incorporate in China; the country is lowering entry barriers only for already strong enterprises.”

According to O’Regan, “The new policies show a step in the right direction, but overseas SMEs may still find it difficult to enter the south China market without more government support”. In this environment, local expertise proves valuable.

O’Regan noted that SMEs can still benefit from some of the new measures both directly and indirectly, as well as other regional incentives. He explained, “Many of Guangdong’s cities offer incentives and subsidies that foreign SMEs find attractive. The Guangdong government is ultimately paving the way for more foreign SME investment by making it easier to access incentives.”

 

Alexander Chipman Koty contributes to Editorial and Research operations for Asia Briefing in China.

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

China’s Pollution Crackdown: How Severe is the expected Macro-Economic Impact?

China is undergoing an environmental paradigm shift, transitioning from the world’s top polluter to global leader in the fight against climate change. In recent months, China has dramatically strengthened the enforcement of its environmental regulations as it pursues its goal of promoting ‘ecological civilization’, and has inspected and fined countless businesses in the process.

Many areas in China suffer from severe levels of pollution, and the central government under the leadership of President Xi Jinping has initiated several crackdowns on heavily polluting industries that are non-compliant with current environmental regulations. These measures have affected business as usual in various sectors and have had rippling effects throughout the economy.

Measures taken by the government

The Ministry of Environmental Protection (MOEP) and the environmental bureau have adopted an intolerant stance against businesses flouting environmental laws over the last year, which is expected to cut air pollution levels in northern cities. Although predominantly targeting air pollution, the authorities are also stringently curbing other types of pollution, including water and soil pollution, in addition to scrutinizing waste management systems across the country.

It is important to note that although environmental laws have not been substantially altered recently, the enforcement of pre-existing laws has been tremendously increased. As enforcement of environmental laws has been historically lax in China, this sudden change in government policy has rattled the industry and made polluting businesses cautious.

In 2016, the government began conducting a series of investigations in heavy industries, and as a result, several non-compliant and illegal steel mills, coal mines, aluminum smelters, and other manufacturing units were shut down. To date, it is estimated that more than 80,000 factories have been shut down across the country by the anti-pollution drive. Other establishments caught infringing environmental regulations have been ordered to clean up their operations within a short time frame or risk closure by the inspection squad.

Penalties have been levied on around 40 percent of factories across the country as environmental inspectors have been dispatched to more than 30 regions in recent months. Inspectors have reportedly imposed hefty fines totaling over RMB 870 million (US$132.2 million) to date, and in some cases criminal liability on employers who are facing jail time for violating environmental regulations. Further, additional inspectors have been deployed to act as watchdogs and ensure that local inspectors are fulfilling their duties.

In addition, municipal authorities have filed a large number of environmental pollution cases in the past year. Beijing municipality alone has filed close to 13,000 cases against non-compliant polluters.

Rippling impact on business and economy

The sectors most severely impacted by the anti-pollution drive have been textiles, energy, heavy metals, coal and gas, mining, cement, paper, automobile, and consumer goods. The impact is also expected to shock international supply chains due to disruption in exports from China.

Inflation has spiked as firms cope with increasing costs of compliance with environmental regulations and adapt to clean energy. Increased production costs will ultimately have to be shouldered by the consumer, and the middle class will be particularly vulnerable to inflationary trends in consumer goods and electricity.

Financial and social stability has also been disrupted as more than 60,000 jobs have been lost as a result of factory shutdowns. Employers who are unable to repay debts have left their factories closed and unproductive.

In many manufacturing sectors, small-scale firms are closing down, as they are unable to compete with larger rivals due to financial incapacity to adapt to clean energy. As a result, the firms that manage to survive and adapt to the new environmental regulations and successfully switch to clean energy will significantly benefit in the medium run as they gain the market share previously held by smaller firms.

The shutting down of small and medium scale firms has also resulted in greater consolidation among surviving firms in many industries like iron and steel, resulting in a steep increase in global prices.

The business impact of the anti-pollution drive has been particularly harsh in the north as well as Beijing-Tianjin-Hebei region. It is expected that these measures may reduce GDP growth by up to two percent in the short run due to disruption in manufacturing and supply chains across industries coupled with increased costs of compliance and technological upgrading.

However, experts opine that the anti-pollution drive will have minimal macro-economic impact in the long run and, if successful, will have huge health benefits for the country’s 1.4 billion citizens. Pollution and related health and safety issues are consistently among the top concerns of Chinese people, and addressing these issues would also boost China’s international reputation as an authority in green technology and climate change leadership.

 

Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

Why Iraq’s Prime Minister Needs To Win The War on Graft Before Reconstruction Begins

Having put Islamic State to the sword, Iraq’s premier Haider al-Abadi has now set his sights on a new challenge – curbing the country’s endemic corruption, a struggle that must be won if his ambitious plans to revive regions devastated in the war against the insurgents are to be achieved.

The government has estimated that it needs $100 billion in reconstruction funds over the next ten years to restore Sunni cities and regions that bore the brunt of the conflict. Abadi is widely respected across Iraq’s highly sectarian political landscape, but in order to win the support of Sunni voters in elections next year he will need to demonstrate substantial progress on pledges to rebuild their heartlands.

The international community appears ready in principle to back Abadi’s rebuilding efforts though the scale of its support will likely be predicated on whether the country has the systems in place to ensure that funds are used effectively. So far, about half a billion dollars of assistance has been pledged. A donors’ conference in Kuwait early in 2018 is expected to secure more finance – however, Iraqi hopes of a Marshall Plan-like settlement for their country currently seem unrealistic.

While there is no shortage of goodwill towards Iraq, with world and regional powers acutely aware of the need to stabilise the country to avert an IS resurgence and stave off Iranian influence, there are real concerns that funds will be misspent or lost to corruption, as they were following the toppling of Saddam Hussein. A 2013 US government audit of its financing of Iraqi reconstruction over the previous decade, which came in at around $60 billion, found that nearly 15 per cent of  money had been wasted, with American military oversight of projects sharply criticised.

Iraqi leaders will be conscious that donors’ concerns over the distribution of funds may limit contributions, which is why they aim to supplement the latter with private investment. Already, Britain has earmarked $12 billion in loans available to UK companies engaged in Iraqi infrastructure projects. Baghdad is hoping that investment is directed towards public/private partnerships and the nascent small-to-medium-sized business sector, which could play a critical role in helping Iraq diversify its oil-dependent economy.

In the wake of IS’s defeat, Abadi launched what he described as a war on corruption. This has resonated strongly with many fellow Shia leaders – notably the hugely influential Muqtada al-Sadr – and Sunni politicians, whose constituencies want an end to a scourge that has blighted the country. The premier has been under pressure to act for some time. Last year Sadr supporters twice stormed the heavily fortified Green Zone, which houses government buildings and embassies, in protest over perceived government foot-dragging.  But fraud is so endemic that Abadi may struggle to make any headway. Some critics suggest that his combative pledges are little more than rhetoric aimed at boosting his electoral prospects or just a ploy to neuter political rivals.

Yet there are tangible signs that Iraq is committed to tackling fraud. In August a court jailed 26 high-ranking officials for up to 15 years after they were convicted of corruption. They included former ministers of defence, electricity and agriculture. It was a ground-breaking development as political interference in the judiciary has undermined efforts to prosecute and convict those suspected of graft.

The likes of the IMF will probably be looking for concrete state sector reforms which, even if Abadi is minded to introduce them, would meet considerable political resistance, possibly even from his own ruling Dawa Party. Cutting civil service jobs and salaries would undermine a deep-seated system of cronyism and patronage. It enables many parties to fund themselves and keep their constituencies onside – the former from kickbacks and the awarding of contracts to party-affiliated companies, the latter through the provision of public sector posts, which often furnish the incumbent with significant money-making opportunities.

Little wonder then that Abadi has warned that his battle against corruption may be more difficult than the one against IS. It might also explain why he is encouraging more private sector involvement in Iraq’s reconstruction, although overseas investors, like international lenders and foreign governments, will want to be reassured that they will not be channelling money into black holes.

So far, Abadi has been saying and doing the right things, albeit without really addressing government rent-seeking. Among headline anti-corruption measures, the courts will issue warrants against those who have allegedly smuggled money out of the country while contracts for past projects or investments that have failed will come under scrutiny. Sadr has been setting the pace by expelling dozens of people suspected of graft from his political movement.

Abadi has some time to formulate a more thoroughgoing anti-corruption strategy. His defeat of IS and retaking of the oil-rich city of Kirkuk from the Kurds has raised his stock among Iraqi Shia and Sunni communities who, for now, may feel that the jailing of officials for graft and robust pledges to tackle the latter are sufficient sign of progress. But international donors will likely want to see, at the very least, plans for substantial anti-corruption reforms as they assess how much they are prepared to commit to Iraq’s reconstruction efforts.

 

Ambrose Carey is a director at Alaco, a London-based business intelligence consultancy. He has particular experience in the Middle East, and has been involved in some of the most high profile asset-tracing cases of the past few decades.

5 Reasons Russia’s Banking System Is Heading For Trouble

Russia’s recent bailout of two major banks will cost the country billions of rubles. But the future of the Russian banking system, and its impact on the nation’s economy, is still uncertain.

Russia is finally emerging from a serious recession, with growth predicted for 2018. However, the recent rescue of B&N Bank and Otkritie Bank highlighted serious problems in Russia’s banking industry – problems that have not gone away following the bailouts, and could endanger the economic recovery if it doesn’t progress quickly enough.

A tale of two banks

Bank Otkritie FC, Russia’s biggest private lender in term of assets, started seeing huge cash outflows in June 2017. Then, in August, came a sudden ratings drop by Fitch.

“Otkritie, B&N Bank, Prosuyazbank and Credit Bank of Moscow are among the banks that have been subject to Russian media speculation in recent weeks, regarding the liquidity position of some and the potential knock-on effect on others.”

Fitch Ratings report, 18 August

The day before, Moody’s had placed Otkritie on review for a possible downgrade, citing increased financing of assets held by its parent company Otkritie Holdings, and volatility of customer deposits.

“Since mid-2017 and following the recent regulatory changes regarding the placement of non-state pension funds’ and state budget deposits, BOFC has experienced a significant outflow of customer deposits.”

Moody’s report, 17 August

It wasn’t long before the Central Bank of Russia (CBR) was forced to intervene. In late August, it became the biggest owner of Otkritie with a 75 percent stake, worth approximately US$51 billion. The strategy was to assuage depositors’ fears of losing their deposits, and stabilise the Russian banking system.

The takeover hurt Otkritie’s shareholders. Their ownership in the bank was reduced to a maximum of 25 percent, with the risk of seeing their investment wiped out completely. CBR deputy chairman Vasily Pozdyshev indicated that the bailout and Otkritie’s recapitalization would cost between US$4.34 billion (250 billion rubles) and US$6.96 billion (400 billion rubles), though the final tally could be higher. This bailout far surpassed the CBR’s rescue of the Bank of Moscow in 2011, which totaled 395 billion rubles. But another disaster was soon to follow.

Three weeks after the Otkritie bailout, B&N Bank, also known as Binbank and Russia’s 12th largest bank by assets, sought help from the CBR. Customers reportedly withdrew approximately 56 billion rubles from B&N in September 2017. Affiliated lender Rost Bank and other banks were rumoured to also require emergency financing from the CBR’s Fund for the Consolidation of the Banking Sector.

The five reasons behind Russia’s banking system troubles

1. Rapid expansion

Otkritie and B&N both had a propensity for rapid expansion through acquisitions. Otkritie was permitted to grow at a very fast pace by purchasing Russian banking competitors such as Nomos, bailing out Rosneft Bank in 2014, while diversifying into non-bank companies. B&N had ambitiously expanded its operations after 2010 by acquiring smaller institutions such as Moskomprivatbank, SKA-Bank, and others, prior to making its biggest acquisition in 2016 by merging with MDM Bank, a large Russian lender. However, it turns out that the banks that B&N acquired had financial problems more serious than previously reported. B&N’s assets expanded fivefold in less than four years while also obtaining funds from the state in order to salvage smaller banks. As it turned out, Otkritie and B&N purchased big financial headaches that later came back to haunt them – and other Russian banks may be in similar situations.

2. International sanctions

US and EU sanctions over Ukraine probably did more economic damage than President Vladimir Putin is willing to admit – and Russia’s banking sector has not been immune. B&N’s situation was aggravated by the residual effects of an economic slowdown partly caused by the sanctions, and the rise of bad debt during the previous three years. Moreover, a key provision of the sanctions prevents Russian banks from raising financial capital on Wall Street. This prevents American investment firms and commercial banks from buying equity stakes or making long-term financing deals, and restricts Russian banks access to foreign capital. For example, Vnesheconombank (VEB)’s access to foreign capital was cut off due to the sanctions and looking at in foreign currency debt totaling US$16 billion. A bailout of VEB could cost the Russian government at least US$18 billion or 1.3 trillion rubles.

3. Sharp decline in oil prices

Under Putin, Russia has effectively become a petrostate, heavily dependent on oil as a source of revenue for the government. The higher the price of oil, the more rubles the Russian government can deposit into state and private banks resulting in a greater influx of financial capital. However, the price of oil has dropped in recent years as the market has become awash in oil due to increased uses of clean energy. This has lowered the amount of funds the Russian government can put into the nation’s banks and, therefore, hurt their cash flows. Compounding the problem is that Russian banks made loans to the nation’s oil companies under the assumption that oil prices will rise.

4. Ruble devaluation

The Russian ruble has lost value in recent years leading to a lack of liquidity for the nation’s banks. In an attempt to stabilize the ruble exchange rate, the Bank of Russia raised interest rates to 17 percent from 10.5 percent.  But this move was not enough and the ruble devalued further. The combination of a depreciating ruble and rising inflation has made it more difficult for large, and especially small Russian banks, to remain liquid. As many Russian banks rely on cash as their main asset, the ruble’s depreciation causes them to lose value and have to acquire more funds. This means increased borrowing at possibly higher rates or seeking government bailouts so they can stay solvent.

5. High number of bankruptcies

As if Russia does not have enough financial headaches, the country has seen a wave of bankruptcies among banks in recent years. Adding to these closings is the increased amount of non-performing loans (NPLs). For example, NPLs went from 6 percent in all of 2013 to 9.2 percent in the first quarter of 2016. The higher the number of NPLs, the greater the chance of bankruptcies among Russia’s financial institutions. Officially, these NPLs make up about 10% of all loans. However, the International Monetary Fund (IMF) estimates the true level of bad loans could be closer to 13.5%. Either way, many Russian banks are facing financial catastrophe. In order to stem the tide of these bankruptcies, between January 2014 and mid-2016, the CBR revoked 214 bank licenses and placed 28 banks into open bank resolution, using public moneys totaling 1.1 percent of Russia’s GDP.

Persistent risks

“The bailout was good for investors, probably bad for the system. They prevented the Lehman effect in the Russian banking system and created a too-big-to-fail mentality.  How many other banks in Russia with the same sort of problems will need a bailout soon?”

Dmitri Barinov, Portfolio Investor, to Bloomberg News

In September there seemed to be a glimmer of hope when Fitch revised upwards the outlooks of 23 Russian banks. Tellingly however, this was off the back of a sovereign outlook upgrade, meaning that it wasn’t the strength of the sector that prompted the change, but the allegedly improved ability of the state to bail them out if required.

Even that capability is in question. Russia is probably in worse financial and economic shape than its policymakers and leaders are willing to admit. It’s well known but worth repeating, that Russia has become too dependent on oil at a time of sustained low oil prices. Oil was supposed to be Russia’s source of financial capital that it could put into its banks and always provide them with the cash flow they needed in good and bad economic times.

But now Russia is walking a financial tightrope that could impact the nation’s banking system for years to come. Unless Russia makes a strong economic recovery in the near future, its banking sector could see more hard times that the CRB will not have the power or resources to bring under control.

 

Arthur Guarino is an assistant professor in the Finance and Economics Department at Rutgers University Business School. Article as originally appears at: https://globalriskinsights.com/2017/12/russia-banking-system-risks/

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

WTO Condemns Brazil Industrial Policy: Brazilian Government Discusses New Subsidies Rules

According to the WTO, Brazil’s industrial programs are inconsistent with the international agreements signed by the country, in addition to providing prohibited subsidies.

Brazil’s industrial policy in check

The European Union’s (DS472) and Japan’s (DS497) disputes against Brazil’s industrial policy benefits are close to a conclusion. After almost four years since the beginning of the processes, the World Trade Organization (WTO) Dispute Settlement Body released the Panel’s report of the cases this past August, and argued that seven Brazilian programs that sought to promote technological innovation and boost exports do not comply with the Organization’s rules.

One of the main complaints was against the tax exemption granted to automotive companies that produced a percentage of their products locally. This would represent a disguised subsidy and distort international competition.

The Panel concluded that Brazil should withdraw all illegal subsidies within 90 days of the final text’s approval. On September 29th, the Brazilian government appealed to the WTO report on both cases. If the panel’s report is confirmed and Brazilian government does not comply with the WTO’s recommendation, parties could retaliate against the country. This could have direct impacts on companies doing business in Brazil.

The future of Brazilian industrial policy

The Brazilian government must now reassess its industrial policy during one of the country’s worst political and economic crises. For two years in a row, Brazil’s GDP has contracted by more than 3%. This in turn has helped drive the unemployment rate of to 13.7%. This economic contraction complicates Brazil’s ability to comply with the WTO’s requirements.

On the one hand, industrial policies have the objective of promoting innovation and productivity. On the other, policies aimed at alleviating the economic crisis should reduce government spending and increase public revenues.

The government will have to think of alternatives to tax breaks to spur industrial development, all with minimum intervention. The new policy will have to follow a more functional development policy, simplifying taxes and reducing the cost of doing business in Brazil, while supporting innovation and creating a proper environment for companies to invest in this kind of activity.

This is no easy task, especially given Brazil’s unstable economy and political scene. This task is further complicated by the lack of attention that the private sector has paid the WTO ruling thus far – even though it will need to be a major partner in drafting legislation, the public sector has largely remained uninterested in the rulings.

The Brazilian government’s ability to carry out these policy changes is further hampered by its entanglement in several ongoing corruption scandals. The government has spent the last 5 months focusing on defending President Michel Temer against two charges on corruption presented by the Attorney’s General Office. Temer’s refusal to resign has had a high cost for the country, and postponed the approval of highly important proposals for a faster economic recovery.

Now, for the next following months, the government will have to articulate to approve several unpopular measures, such as the pension reform, the postponement of salary readjustment for civil servants, and the end of benefits for several sectors. Additionally, the constant corruption scandals revealed by several plea bargains under negotiation by top politicians arrested and the upcoming 2018 presidential elections. Temer’s cabinet will continue to be affected by scandals, and changes might affect the continuity of the undergoing policies.

Starting in around April 2018, the runup to the October 2018 general elections, will further complicate the government’s agenda and make difficult to approve any proposal. It is important to note that any ministers that intend to run for the elections will have to leave their positions.

If the Minister of Development, Industry, and Trade, decides to run for instance, the ministry might be left without a clear leadership until 2019. Something that would reduce political influence in the draft of the new policy, however, without someone ahead of the ministry, the final decision over the policy would be postponed.

A new policy might take longer than expected

Brazil’s appeal of the WTO’s ruling will postpone the final decision against the programs at least 2018. Brazil might also benefit from the number of processes currently under analysis at the WTO and their constant delays – the WTO already broke all deadlines for the final report on the Brazilian cases.

The Trump administration’s recent attempt to block the appointment of new member to the Appellate Body exacerbates the likelihood of further delays. The Appellate Body is already operating with five members instead the normal seven, and will be down to four in December.

If the block continues and no new members are appointed, the delays might increase even more. This delay would allow Brazil to maintain the current policies while the appeal is processed, and would provide the government with more time to work on a long-term and sustainable industrial policy.

Amid major reformscorruption scandals, and elections, the industrial policy reformulation might not have the attention it needs to comply with the demands of the WTO. There is a high chance that any changes will have to be postponed to the next administration.

This exposes Brazil to a medium term risk of retaliatory sanctions from other countries. It is important to note, however, that this retaliation is not an immediate action and it has to be submitted to the WTO and takes a while to be settled. Without the possibility of counting on the government to focus on the discussion, the private sector and the civil society will have to participate actively in the draft of the new programs to promote innovation and productivity in the country.

 

Juliano Griebeler is an analyst at Global Risk Insights. As originally appears at: https://globalriskinsights.com/2017/12/wto-condemns-brazil-industrial-policy-brazilian-government-discusses-new-subsidies-rules-amidst-worst-economic-political-crises/

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

Precarious Nepalese Reconstruction Efforts Could Be Bolstered By New China-Leaning Government

Two and a half years after Nepal`s worst earthquake in over 80 years, the scars it left are still evident across the country. In the Kathmandu Valley, home to about 20% of the population, piles of rubble and roofless buildings are a common sight. Many temples in the centre of Kathmandu, Patan and Bhaktapur have been damaged beyond recognition. While scaffolds have been erected around some of the larger temples, smaller ones are propped up by wooden beams.  The most seriously damaged are little more than piles of bricks and tiles, and are cordoned off.

Nepal`s infrastructure was also severely hit, and while the country`s communications network was restored soon after the earthquake, there are now tangles of telephone and electricity cables along many streets.  Operations to restore transport networks are ongoing, yet a high proportion of Nepal`s roads remain heavily potholed.

Despite over $4 billion of international aid pledges since the 7.8 magnitude earthquake in April 2015, reports suggest that less than 10% of the worst-affected citizens have begun to rebuild their homes. In Kathmandu, earthquake victims beg on the streets for food and water. The government’s decision in March to bulldoze a relief camp in the capital, where nearly 2,000 survivors lived, has not helped the situation.  While officials claimed the action was taken to encourage people to return to their villages and start rebuilding them, the financing for reconstruction does not appear to be forthcoming.

I spoke to a number of locals whose properties were damaged, and it was evident that very little has reached those most in need. These people told me that they lay most of the blame at the feet of the government, accusing the National Reconstruction Authority of failing to deliver promised funds to worst-hit areas in the aftermath of the quake.

The authorities’ apparent failure to disburse funding is widely attributed to a combination of political instability and inefficient aid delivery mechanisms – although some I spoke to suspect that corruption may have been a factor.  That perception is not surprising given that Nepal is ranked as the third most corrupt country in South Asia by Transparency International. Some wonder whether graft is also eroding public finances. But local NGO and media sources told me that while only 50% of this year’s budget had been deployed to date, they understood the underspend would be carried over into 2018. They thought little of it would be pocketed by dishonest Nepalese officials.

As a result of the authorities’ poor record on aid delivery – which officials blame on bureaucratic hurdles – many NGOs and foreign governments, in particular Beijing, have taken on reconstruction responsibilities themselves. Not only has China sought to assist with the post-earthquake recovery, it is furthering its strategic interests too, notably building a railway line between its restive autonomous region of Tibet and Nepal.  The project, part of China`s ‘One Belt One Road’ policy to improve Eurasian transport infrastructure, will boost Nepal`s ability to trade with the Asian giant when completed in 2020.

Along with Nepal, China has also invested significantly in Pakistani infrastructure, and this month Chinese President Xi Jinping indicated that discussions to form an economic corridor between China and Myanmar are at an advanced stage following the visit of Myanmar`s State Counsellor Aung San Suu Kyi.  New Delhi sees growing Chinese influence in Nepal as a threat to the Indian economy and worries that Beijing will exploit Nepal’s 1,088 mile border with India to export Chinese products to the latter.

While Nepal has strengthened its ties with China, its relationship with India, which still holds a monopoly over the Nepalese market, has deteriorated significantly in recent years.  Kathmandu blames New Delhi for a five-month blockade of the Indo-Nepal border between September 2015 and February 2016. The minority Madhesi community in the south of Nepal – closely related to the Indian population across the frontier –  disrupted traffic in protest over a new constitution, which they claimed disadvantaged them. Their actions caused severe shortages of oil and cooking gas.

The geopolitical battle for influence over Nepal cast a long shadow over last week’s final round of voting in elections to the national parliament and new provincial assemblies.  The Left Alliance, comprising former Maoist rebels and moderate communists, looks to have triumphed in the December 7 vote, and is now poised to form the next government and control most of the regional administrations. The outcome favours China, and could have significant implications for Nepal’s recovery. With friendly authorities in place in Kathmandu, Beijing might step up investment in infrastructure projects.

The Left Alliance appears to want to distance itself further from India as Nepal seeks to reduce its reliance on its southern neighbour. The coalition`s manifesto includes plans to terminate the India-Nepal Peace and Friendship Treaty, a bilateral agreement allowing the free movement of people and goods between the two countries. However, Nepal does not aim completely to cut its ties with India: a new trade deal is expected to replace the treaty if it is abolished.

For those worst hit by the earthquake, the possible geopolitical implications of the poll are of little concern. Their immediate needs are more basic. They hope that with the Left Alliance in power, there will be a renewed focus on reconstruction efforts across the country.

 

Freddie Kleiner is an analyst at Alaco, a London-based business intelligence consultancy.

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

India And Hong Kong Finalize Double Tax Avoidance Agreement After Years Of Negotiation

India and the Hong Kong Special Administrative Region (HKSAR) of China recently entered into a double tax avoidance agreement (DTAA). After years of negotiation, the bilateral DTAA was approved on November 10, 2017.

When it comes into force, the India-Hong Kong DTAA will hold important tax implications for international businesses operating in both countries. The agreement will also benefit trading companies that do not have a permanent presence in India but service to an India-based entity.

What is DTAA?

Non-resident Indians (NRIs) and foreign nationals doing business in India make profits in India as well as in other countries of operation. Such businesses often have to pay tax twice on the same source of earned income or profit in India.

As a general principle, international businesses in other countries are taxed on their territorial income, which is the income generated within the territory of that country. India, on the other hand, imposes a corporate income tax on the worldwide income of business enterprises that have a permanent presence in India. As a result, India-based multinational companies deriving income from other countries face double taxation on their earned income.

A DTAA creates a fair and certain tax environment for business activities carried out between two countries. It prevents international businesses from paying tax in the country where the income or profits are generated. Or, in some cases, it allows the country to deduct tax at source, and offers businesses a foreign tax credit to reflect that the tax has already been paid.

The methodology for double taxation avoidance, however, varies from country to country.

India’s DTAA with Hong Kong

India has over 86 DTAAs in force with various countries, which provide tax relief on transactions carried out between India and those countries. Each DTAA specifies the agreed rates of tax and the jurisdiction on the specified types of income involved.

The India-Hong Kong DTAA offers similar provisions. The DTAA will give protection against double taxation to over 1,500 Indian companies and businesses that have a presence in Hong Kong as well as to Hong Kong-based companies providing services in India. It will provide clarity to businesses regarding tax rates and tax jurisdictions, as they will now be taxed in only one of the signatory countries. This will allow investors to be more confident about their investment decisions.

Aside from tax relief, there are several other benefits that the India-Hong Kong DTAA will offer to the concerned businesses. These include:

  • Lower withholding tax (tax deducted at source or TDS) rates, which can be as high as 40 percent in the absence of a DTAA;
  • Lower dividend distribution tax (DDT), which is an additional tax levied on foreign investors besides the corporate income tax; and
  • In certain circumstances, credits for taxes paid on the double-taxed income that can be encashed at a later date.

Other details regarding the DTAA are yet to be announced.

Chris Devonshire-Elllis of Dezan Shira & Associates comments: “Hong Kong has a very well established Indian diaspora that has been there for decades and has much wealth and business influence within the territory. It is a very positive sign that the DTAA has been agreed as businesses in both India and Hong Kong have finally been given better financial incentives work together and increase trade and prosperity in both their respective areas”.

 

Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

Investment Incentives in Vietnam’s Central Highlands Region

The Central Highlands have long been a strategic economic, political location in the history of Vietnam. Sharing borders with Laos and Cambodia, this region is one of the most important location for the economic development of Vietnam in the next few years.

A region full of potential

The Central Highlands, or the Western Highlands, is located in the West and South West of Vietnam. The region contains five provinces: Lâm Đồng, Daklak, Dak Nông, Gia lai and Kon Tum. These provinces are expected to show high potential for development in renewable energy, agricultural and tourism in the coming years.

According to the Minister of Public Security’s speech in the fourth conference on investment promotion in Central Highlands total investment capital has reached VND 266 trillion in 2015 with an annual growth rate of 11.3 percent between 2011 and 2015. To date, there have been 140 FDI projects worth US$772.5 million in the Central Highlands. This number is expected to grow significantly in the next few years, especially as the government is trying to improve the region’s infrastructure and paying more attention to renewable projects in its long-term plan of development.

Tourism and agriculture are two important sectors that appeared very promising to foreign investors, especially investors from Korean, Japan, and China. However, Central Highlands are not being fully explored, thus, bringing more opportunities for future investors to enter the race.

Opportunities for renewable energy projects

The Central Highlands is a prominent location for solar potential maps in Vietnam. According to Vietnamese authorities, the total hours of sun in Central Highlands varies from 2000 to 2600 hours per year. Korean Solar power investors in this area are upbeat on the prospects for the region and have published findings indicating a direct solar radiation generation of 5 kWh per square meter. With this in mind, Vietnam’s Central Highlands is an ideal place to develop a solar power plant.

In addition, the region’s wind power capacity could reach 2000MW, which is even more than the second largest hydro power plant of Vietnam in Hoa Binh.

Realizing the favorable conditions for developing renewable energy of this region, Central Highland provinces have issued a number of preferential mechanisms and policies as well as simplified administrative procedures, to attract investors. Daklak is topping the list with 4 projects worth US$3.3 billion from AES Corporation, Vietnam’s Xuan Thien Limited Company, South Korea’s Solar Park Limited and Vietnam’s Long Thanh Infrastructure Development and Investment Company.

Promising land for coffee, tea, and pepper

In addition to its advantages in solar and wind power, the region is also getting more and more popular as a promising land for FDI projects in agriculture. Central Highlands cover an area of 5.46 million ha, in which 2 million ha are used for developing agricultural. Besides, the region contains 74.25 percent of the red basalt soil of Vietnam, making it an ideal place for large-scale production specialized in coffee, pepper, tea, cashew, cassava, rubber.

Realizing the growth potential of this sector, investors from Korea and Japan have launched several projects with advanced agricultural techniques to maximize production in the region. New policies and tax incentives are also available to encourage and attract investments. Although climate changes may appear to be a threat, agriculture will continue to grow and strengthen its position as an important sector of Central Highland’s provinces.

Top destinations for tourism

Dalat, Kon-Tum and Gia Lai are famous destinations for eco-friendly and historical tourism. Cool weather, beautiful natural sight-seeing, historical museums and also the variety of food specialties are the reasons why more and more tourist chose these destinations for a get-away on the weekend. In 2016, Dalat city of Lam Dong province welcomed 5.4 million visitors, an increase of 6 percent compared to 2015. On top of this, the number of international visitors reached 270,000 people with most travelers coming from South Korea, China, Thailand and the United States.

The city also has been ranked by The New York Times as one of top 52 tourist destination in the world. Although the region’s tourism industry used to suffer from the past because of poor infrastructure and facilities, the situation is getting better recently thanks to investments from government also foreign investors. New tourist products with better services are now provided, making the region even more attractive to tourist. Besides, many investments in hotels, amusement park, restaurants are about to kick off in the near future, helping these provinces to fully exploit tourism potential of this region.

Conclusion

The Central Highlands contributes 9 percent of Vietnam’s GDP. Ignoring all the advantages it has developed in its economy, the region still remains poor compared to others. Foreign investment is limited in both quantity and quality. However, with new incentives and support from the government, the investment’s environment of Central Highlands becomes more and more attractive.

Beside many investment incentives such as corporate income tax exemption, land use rental reduction, import tax exemption, etc., FDI projects can benefit from province-specific investment support. For example, investment project in high-tech applied agricultural business can receive support from Kon Tum province for the development of greenhouses and net houses with a support level of VND 50,000 per square.

Each province in the region have different types of support and incentives to attract foreign direct investment, thus to maintain the sustainable growth of the region. In the future, Central Highlands will continue to consolidate its position as an important region in the economic development of the whole country.

 

Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

Preview: Vietnam’s New 2018-2023 FDI Strategy Shifts From Low-Cost Labor To High-Tech Industry

Vietnam’s Ministry of Planning and Investment, with the assistance of the World Bank, is currently drafting a new FDI strategy for 2018-2023 focusing on priority sectors and quality of investments, rather than quantity. The new draft aims to increase foreign investment in high-tech industries, rather than labor-intensive sectors. Manufacturing, services, agriculture, and travel are the four major sectors in focus in the draft.

Sectors in focus

The four major sectors in focus are:

  • Manufacturing – It includes high-grade metals, minerals, chemicals, electronic components, plastics and high-tech;
  • Services – Includes MRO (maintenance, repair, and overhaul) along with logistics;
  • Agriculture – Includes innovative agricultural products i.e. high-value products such as rice, coffee, seafood and;
  • Travel – High-value tourism services

Investment priority

The draft prioritizes FDI investments on a short-term and medium-term basis. In the short-term, industries with limited opportunities for competition will be prioritized.

Industries include:

  • Manufacturing/Production – Automotive and transport equipment OEMs and suppliers;

In the long-term, the emphasis is on sectors that focus on skills development, including:

  • Manufacturing – Manufacturing of pharmaceuticals and medical equipment;
  • Services – Services include education and health services, financial services, and financial technology (Fintech);
  • Information technology and intellectual services

The draft also includes recommendations about the further removal of entry-barriers and optimizing incentives for foreign investors such that their effect on the economy is maximized.

FDI in 2017

In the first 11 months of 2017, the total FDI capital including newly registered, additional funds and share purchase value reached US$ 33.09 billion, a year-on-year increase of 82.8 percent. FDI disbursed is expected to reach US$ 16 billion, an increase of 11.9 percent over the same period last year.

The processing and manufacturing sector received the highest capital at US$ 14.95 billion, accounting for 45.2 percent of the total. Electricity production and distribution and real estate attracted US$ 8.37 billion and US$ 2.5 billion respectively.

Japan was the leading investor amongst 112 investing countries, accounting for 27 percent of the total FDI at US$ 8.94 billion, followed by Korea and Singapore with a total registered capital of US$ 8.18 billion and US$ 4.69 billion.

Ho Chi Minh attracted the highest FDI with a total registered capital of US$ 5.68 billion, accounting for 17.2 percent of the total investment capital. Bac Ninh followed at US$ 3.28 billion, while Thanh Hoa province ranked third with a total registered capital of US$ 3.16 billion.

Need to do more

Going forward, Vietnam has to ensure that it moves away from a low labor cost economy to one focusing on technology and skilled labor. The government has to do more than just attract investments into high-value added activities. Vietnam should also focus on diversifying FDI sources, enabling domestic firms, and increasing investments in infrastructure.

Majority of the foreign investments in Vietnam are from Korea, Japan, and Singapore. Rather than been over-dependent on Asian countries, Vietnam has to promote itself further and increase investments from the EU, US, and other countries outside Asia-Pacific. With the EU-Vietnam FTA and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Vietnam has an opportunity to increase investments from countries outside Asia.

Foreign firms in Vietnam are offered huge tax and other incentives such as exemptions or reductions in corporate income tax, import duties, and VAT. However, domestic firms that already lack the capital and technology of foreign firms are not provided any of those incentives, further hampering their growth. The government has to find a fine balance between providing incentives to domestic and foreign firms to improve competitiveness. To increase linkages, the government can incentivize foreign firms engaged with local firms, if it wants FDI to have a long and positive effect on the economy.

One key sector not mentioned in the draft is infrastructure. As the country progress and investments increase, infrastructure will play a crucial role in the economic development. Infrastructure projects, which are in dire need of funds in Vietnam cannot be fulfilled by the domestic sector and would require foreign capital. The government has to prioritize infrastructure projects and incentivize foreign investments to reduce the increasing gap between the current and needed investment levels. Infrastructure projects such as roads, railways, power grids, ports, and industrial parks should be a priority for the government going forward.

Once the draft is finalized by the Ministry of Planning and Investment, we will have further clarity regarding the scope of their strategy.

 

Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

China’s Electric Vehicle Battery Producers Need To Overcome These Hurdles To Supersede Global Giants

The electric vehicle (EV) industry is just one priority area of the country’s ‘Made in China 2025’ industrial strategy, which aims to transform China from a low-end manufacturer to a high-end one. Yet, the government’s goals for the industry are staggering: its target is to have five million electric vehicles on its roads by 2020, up from one million today.

The battery industry’s success is closely tied to the EV industry’s success – a battery currently accounts for up to half an EV’s cost of production. Given the close relationship of the EV industry and battery industry, the government has picked domestic champions that it is promoting to lead the way in China’s domination of the global battery industry.

Fierce global competition in this industry is already under way as producers vie for their share of the what is predicted to be a US$25 billion global industry by 2020.

The competitive landscape

In previous decades, Japanese and South Korean producers, such as Japan’s Panasonic and South Korea’s LG Chem, dominated the battery industry. Panasonic is still the world’s largest supplier of EV batteries globally; it is currently building the so-called Gigafactory in Nevada, US, with US-based EV producer Tesla.

However, Chinese champions Build Your Dreams (BYD) and Contemporary Amperex Technology Co. Limited (CATL) have nearly caught up and are now two of the world’s top-five lithium battery makers. BYD, which is based in Shenzhen, is also a big player in the EV industry and is able to take advantage of the benefits of this vertical integration.

CATL, based in Ningde, is China’s fastest growing battery producer and had the capacity to produce 7.6 gigawatt hours (GWh) of batteries in 2016. Due to China’s big push, it is predicted that CATL will surpass Tesla’s ‘Gigafactory’ by 2020. Tesla has a target to produce at a capacity of 35 GWh by 2020, compared to 50 GWh for CATL and 12 GWh for BYD.

Other Chinese producers are also competitive. Lishen, based in Tianjin, has a target to produce 20 GWh by 2020. As well as expanding production domestically, CATL is also expanding its production abroad so that it is strategically located to do more business with foreign EV producers.

With large capital investments by battery producers, global battery production capacity has more than doubled to 125 GWh over the last three years. Analysts predict this figure to double again to over 250 GWh by 2020.

As Chinese battery producers, including CATL, BYD, and Lishen, continue their rise, and battery production shifts from Japan and South Korea to China, analysts expect China to go from currently producing 55 percent of global lithium batteries to 65 percent by 2021. It is quite clear that China recognizes the opportunities in the rapidly growing battery industry and does not plan to miss out on these opportunities.

Challenges for the domestic industry

While the battery industry has strong growth potential, it faces a number of challenges. Solutions and technologies to overcome these challenges will need to be developed if the industry is to be sustainable both in China and globally – this is a space where foreign manufacturers, suppliers, and consultants can collaborate.

Despite growing demand from the EV industry, there are production capacity concerns in China’s battery industry. As producers race to increase capacity and seize upon the opportunities presented by the EV market, there are overproduction concerns with 25 KWh batteries; the low-end segment of the market.

However, at the same time, there are underproduction concerns with the 75 KWh and 100 KWh batteries – the high-end segment of the market. Premium electric vehicles, such as Tesla vehicles, require the high-end batteries. High-end battery producers in the domestic market are in a strong position because they are faced with a high demand for their batteries.

To allow electric cars to go farther on a single charge, a critical factor for batteries is their energy density. For now, China lags behind South Korean producers in terms of the capabilities and technology to provide greater energy density, according to Bernstein analysts. The frontrunners in the market are LG Chem, Samsung SDI, SK Innovation, and Panasonic, with Chinese suppliers playing catch-up, the report says.

Many observers feel Chinese producers need to develop their technology and capabilities if they are to get the full attention of EV producers, especially foreign EV producers.

Separately, as the cost of the battery makes up a significant part of the cost of an EV, it is important to reduce the cost of the battery to make the EV industry competitive compared to conventional internal combustion engine (ICE) vehicles.

Due to advances in battery efficiency gained from developments in technology, significant progress has already been made by the industry, with global battery prices falling by roughly 80 percent (from US$1,000/KWh to US$227/KWh) between 2010 and 2016. Even at US$227/KWh, a 60 KWh battery is a US$13,620 component of a car. A 60 KWh battery is the typical sized battery used in an EV.

However, further reductions in battery prices will be required and the Chinese government is aware of this. A target to halve battery costs is among national 2020 targets. Based on current projections, battery prices could fall below US$100 KWh by 2030, which will mean some EV and ICE models will have price parity. That could be the start of a ‘tipping point’ for EV sales.

Even if EV models do have price parity with ICE models, there will be other obstacles that could prevent consumers from switching from ICE vehicles to EVs. These obstacles include the lack of EV charging infrastructure, the time taken to charge a battery, and the relatively low power density of batteries.

Moreover, the existing power density of batteries is about half of what is needed to sustain driving ranges of 400 kilometers, which many consumers want. One of the Chinese government’s targets is to improve energy by two-thirds by 2020.

China’s ambitious plans for both the EV industry and the EV battery industry mean that there are opportunities in China’s EV battery industry. However, if these opportunities are to come to fruition, and the industry is to be sustainable, the industry must overcome the challenges that it faces.

For China, the development of new technologies and the ability to produce high-end batteries will be of critical importance if it is to realize its ambitions to dominate the global EV battery market. It is in these areas where China can benefit the most from foreign investment.

 

Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

Why Bangladesh Scores Low on the Buffett Indicator?

The Buffett Indicator

Warren Buffett has long championed looking at market capitalization to GDP (gross domestic product) ratio when assessing a market. For Buffett, the “single best” way to tell if stocks are too expensive is to look at the total value of all equities in the market relative to the total size of the economy. Looking at the developing markets (EEM) (FM) in particular; markets such as China (FXI), India (EPI), Brazil (EWZ), and Russia (RSX) had Buffett indicators at 65.4%, 69.2%, 42.2%, and 48.5% (market capitalization of listed domestic companies to GDP ratio), respectively as of 2016. In comparison, developed markets such as the US, UK and Australia, had market cap to GDP ratios of 147.3%, 141.2%, and 105.3%, respectively.

Rahman sees the Buffett indicator rising to 40% for Bangladesh

Bangladesh lags far behind by the standards of this indicator with a 22% market cap to GDP ratio, Majedur Rahman, Managing Director of the Dhaka Stock Exchange told Frontera during a recent conversation. “Bangladesh’s GDP is about $250 billion, whereas its market capitalization is about $52 billion. Back in 2010, the market cap to GDP ratio was 40%. So, we’re pretty far behind compared to other South Asian markets,” said Rahman. He expects the Bangladeshi government’s focus and listing interest from the corporate sector to drive this ratio up to at least 40% in 3-5 years.

 

 

The Frontera interview with Majedur Rahman, Managing Director of the Dhaka Stock Exchange was conducted by Abraham Sutherland.

What Is Required to Boost The Share of Foreign Investment in Bangladesh Capital Market?

Foreign representation at Bangladesh capital market

Cross border investment flows have rebounded well post the financial crisis. From about $1.09 million in 2009, outward FDI (foreign direct investment) flows had reached a $1.47 million in 2016, according to data from OECD. Foreign investment has now come to play a key role for any economy’s capital market. However, when it comes to Bangladesh, the share of cross border capital into its stock market still remains dismal.

In a recent conversation with Frontera, Majedur Rahman, Managing Director of the Dhaka Stock Exchange said that foreign investment currently constitutes just 5-6% of the Bangladeshi capital market on a daily turnover basis. However, this is an improved figure over the less than 1% share that foreign money commanded at the DSE prior to 2013. A good part of this growth has been witnessed over the past one year.

Further privatization would be a boon for investment

Thomas Hugger, chief executive officer and founder of Hong Kong-based Asia Frontier Capital (AFC) believes that one of the reasons why foreign stakes in the Bangladeshi capital market remain low is because they “are not allowed to participate in the local IPOs (there are lotteries and if you manage to get shares the yields are substantial as pricing is normally too cheap).” Hugger further suggested, “Bangladesh should privatize some of its state holdings to local and foreign investors.”

Room for improvement

Hugger highlighted bureaucracy and a cumbersome IPO process, as reasons for the limited interest to date amongst local companies to publicly list on the Bangladeshi market.

A Decade of change

James Bannan, Frontier Markets Fund manager at Coeli Asset Management, sees massive improvement in terms of foreign representation in the Bangladeshi capital market. “When we started investing 10 years ago, foreigners were less than 2% of the market, and there was basically no sell side coverage and there was no data on Bloomberg.  From there to where we are today has been a massive improvement,” Bannan told Frontera.

Bannan highlighted stronger governance, improved transparency, and better corporate access as the key requirements towards increasing Bangladesh’s appeal to a broader investor base.

Bangladesh also scores low on the Buffett Indicator. Part 4 of this series sheds light on this.

 

 

The Frontera interview with Majedur Rahman, Managing Director of the Dhaka Stock Exchange was conducted by Abraham Sutherland.