Rumee Ali is an eminent banker and also the Chief Executive of Bangladesh International Arbitration Centre (BIAC). He was a deputy governor at the Bank of Bangladesh, which is the Bangladeshi Central Bank. Rumee has over two decades of banking and regulatory experience and is considered an authority in Bangladesh’s financial and banking circles.
Kroll Senior Director Probal DasGupta, was in Dhaka recently, and he spoke with Rumee Ali about his views on the local business environment and the opportunities and challenges that lie ahead for foreign firms investing in the local market.
How has the investment climate changed in past 12-18 months, after the 2014 elections?
Bangladesh has experienced relative peace in the last 12 months. This stabilization has helped the government focus more on issues such as infrastructure, in particular roads, power, etc., and other more important economic issues in the country. The government has also made progress toward developing basic infrastructure and has fast-tracked key projects such as the Dhaka–Chittagong expressway. There has been an increase in both public and private investment in the country over the last 12 months.
Why would an investor choose Bangladesh over other emerging markets in Asia, like Myanmar and Sri lanka?
Bangladesh has a thriving middle class, which is 20 percent of the population. By 2020, a middle class of 30 million is expected to have a per capita income in excess of $5,000, which is a huge draw for global companies. Urban families in Bangladesh have more disposable income, seeing as they receive foreign remittances from the large Bangladeshi diaspora. There is a large, growing internal market with a high potential for retail and consumer goods. The government has planned 10 large economic zones of 150 acres each with special facilities for investors to tide over infrastructure and legal issues of setting up and operating businesses.
Bangladesh fares poorly on corruption. How does that impact growth prospects?
Many years ago, while addressing a gathering of bankers in London, I had told them that Bangladesh has done well despite the political system being in disarray at that time. Over the years, the situation has improved further. We don’t have damages due to floods anymore. Politically, we are stable. The corruption rankings should also get better. In other words, we have been growing consistently at an annual rate of 5 percent despite corruption, but we need to do more. Corruption remains a great challenge. The risks in Bangladesh are similar to any emerging economy, and so investors will have to do their “homework” when they arrive. They would need to be better prepared and informed.
What homework will investing firms need to do before they conduct business in Bangladesh?
There is a great need for prospective investors to understand the country better, know about the impact of political developments upon business prospects, conduct necessary due diligence on the local partners and vendors, and be well-informed before entering the country. Companies need to carry out their due diligence before they come here. Investors should discuss with professional consulting firms such as Kroll and understand their local partners and the local conditions better.
How can Foreign institutional investor (FII) flows translate into longer term foreign direct investment (FDI) flows in emerging markets such as Bangladesh?
This is a capacity challenge, where even if one were to convert FII into FDI, one would need to still address the issue of capacity. Therefore, to convert FII into FDI, a strong banking sector, good capital markets, and the right infrastructure would be needed. Companies should try and understand the kinds of sectors with a capacity for large-scale investment. A case in point is the four-lane Dhaka-Chittagong highway that is being built. Another way of encouraging investments is by enhancing communication infrastructure. The government has been encouraging PPP (public private partnerships) in some of these sectors that require large-scale investments. The planned Special Economic Zones (SEZs) also hold out hope for large-scale investments.
Money laundering has been a talking point in Bangladesh, especially in the context of recent heists. Will local banks be ready to ramp up anti-money laundering (AML) systems?
There has been a great deal of impetus provided by the regulator to introduce global compliance standards in Bangladeshi banks, though a lot more needs to be done. When I was the deputy governor, many of the local banks did not have the core automation systems to detect instances of money laundering. Now, though the core automation systems have been developed, gaps remain in detection and governance. With an automated system in place, the detection and reporting processes can be improved. One specific area that needs work is the organization structure that is able to report detection.
Bangladesh still has restrictions on outward capital remittances. Should investors be concerned?
Bangladesh, being a developing economy, is concerned about the stability of its currency, and it is one of the key reasons for imposing capital controls. Restrictions on capital movement are not uncommon, and even countries such as India and Malaysia have capital controls to some extent. As the economy becomes more resilient, these barriers will hopefully be automatically removed.