Press Statement

Bangladesh and the Netherlands agree on new investment programme

In Asia, Africa and Latin America new markets are expanding rapidly. These emerging markets provide promising opportunities for businesses to expand their investments and trade relations. Trade and investments stimulate economic growth, generate employment and enable the local population to improve its standard of living.

Foreign direct investments (FDI) from Netherlands companies into Bangladesh are still at a low level. The Netherlands share in total imports to Bangladesh is 0,38%. The Netherlands Government intends to increase investment and to support private sector development. To this end the Programme for Cooperation with emerging markets (PSOM) has been introduced into Bangladesh.

A Memorandum of Understanding regarding PSOM was signed on 7 March 2005 between Mr. Md. Ismail Zabihullah, Secretary Economic Relations Division of the Ministry of Finance and Mr. Kees Beemsterboer, Ambassador of the Netherlands. PSOM aims at supporting private sector development by promoting cooperation between the business sectors in Bangladesh and the Netherlands on the basis of equal partnership and mutual benefit with a focus on private investments.

Financial support up to 60% is provided to initiatives of private companies of the Netherlands and Bangladesh in setting up joint innovative pilot projects in specific sectors, making use of international and local know how, goods and services. PSOM projects should meet the following criteria:

• Improve the position of the poor by creating extra employment and income.

• Offer genuine prospects for further investment (visible spin off) or else offer a

• sustainable trade relationship with a Bangladeshi company.

• Have a pilot character that enables replication or follow-up investments.

• Include the transfer of knowledge from one company to another and reflect a combination of technical assistance, training, market research and installation of equipment (hardware).

• Be tailored to local circumstances and skill levels.

• Preferably have a positive impact on the environment and on the position of women.

• Not be feasible without PSOM financing due to high risks.
  
  Although priority is given to the development of projects in the sectors of Agriculture & Agro-business and Information and Communication Technology, good project proposals for other sectors will also be considered. The average PSOM contribution is Euro 500.000.
  
  The Netherlands Foreign Trade Agency (EVD) will invite at least once a year (consortia of) companies to submit proposals. Every consortium will contain at least one Dutch and one Bangladesh partner. The Dutch partner will make the application to the EVD. Projects are selected on the basis of an open tender procedure. EVD will announce tenders on its website:
  www.evd.nl

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PSOM Article

PSOM a new Dutch joint venture for Private Sector Development in Bangladesh

PSOM Program for Cooperation with Emerging Markets was signed with ERD the Netherlands on 7 March 2005. PSOM aims at supporting private sector development by promoting cooperation between the business sectors in Bangladesh and the Netherlands on the basis of equal partnership and mutual benefit with a focus on private investments.

Royal Netherlands Embassy in association with DBCCI successfully held a workshop for PSOM with participation from BOI, ERD and other relevant representatives of different ministries and the business community in 2005. Wim Bekker, the project officer for Bangladesh from EVD, Ministry of Economic Affairs in the Netherlands presented the key note paper. He met with all interested companies on a one-to-one basis later on.

The Dutch already has a trade deficit and a small amount of Foreign Direct Investment (FDI) in Bangladesh. The Netherlands has a trade deficit to the amount of 202 and ranks only 17^th in the country list of FDI in 2004 with an investment worth $ 4.4 million only. Therefore, Bangladesh should try to improve its overall image to attract FDI. A good trend is seen by large investment proposals by India, USA, UAE, China, France, UK and many other countries. It is expected that this PSOM should encourage Dutch companies to take advantage of this fund to invest in Bangladesh.

Two proposals had been submitted in the August tender in 2005. One project on fabric dye has been approved and ongoing. The next tender date was March 2006 and it was on plastic bags which has been recently approved. It is expected that a lot more proposals may be submitted next time as awareness grows about this available subsidized fund among the business community of Bangladesh. Since Bangladesh is an LDC, the joint Dutch Bangladesh project is entitled to obtain 60% financial support from PSOM. However, one must take note that the Bangladeshi company has to have a Dutch counterpart and the proposal has to be submitted in the Netherlands by the Dutch company. The project will go through strict screening by EVD and later by an External Commission for approval.

The project has the following selection criteria: 

• Improve the position of the poor by creating extra employment and income.

• Offer genuine prospects for further investment (visible spin off) or else offer a sustainable trade relationship with a Bangladeshi company.

• Have a pilot character that enables replication or follow-up investments.

• Include the transfer of knowledge from one company to another and reflect a combination of technical assistance, training, market research and installation of equipment (hardware).

• Be tailored to local circumstances and skill levels.

• Preferably have a positive impact on the environment and on the position of women.

• Not be feasible without PSOM financing due to high risks.

Although priority is given to the development of projects in the sectors of Agriculture & Agro-business and Information and Communication Technology, good project proposals for other sectors will also be considered.

Financial Aspects:

• Maximum project duration is 2 years, max. budget EUR 825,000;

• Approximately EUR 2 million for Bangladesh per year;

• Maximum total project costs are approximately EUR 825,000 (60% PSOM + 40% companies);

• PSOM contribution is 60% (max EUR 495,000) and own contribution of project partners is 40% (max EUR 310,000)

Company specific information requirements:

• Mature project idea creating employment & income in Bangladesh;

• Two companies; one Dutch; one Bengali, each partner providing

• 2 annual reports

• Good financial position partners

How to get started:

• Conceptualize Project idea/search partner through Chambers/websites/contacts (Suggestion:www.sterenbergsalinas.nl,www.sunsia.com,www.advanceconsulting.nl, www.cbi.nl Consultants such as KPMG, Ernst & Young).

• Consult PSOM website (Download: Tender Instructions / General Brochure);

• Download / fill out / send: Intake Form;

• Consult EVD the Netherlands (one can directly contact Wim Bekker at [email protected])

Given the above information, all that is needed to be done is GET DOWN TO BUSINESS WITH NO TIME TO WASTE.

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PSOM FAQ

Programme for Co-operation with Emerging Markets (PSOM)

Frequently Asked Questions

Background

The Minister for Development Co-operation of the Netherlands has initiated PSOM in order to alleviate

poverty through co-operation between Dutch businesses and businesses in the PSOM countries* with a focus on private investments. A total of EUR 51 million is yearly available for new commitments to PSOM projects.

Key-aspects

	Financial support (50-60% of the initial investment costs is paid in the from of a grant) is provided to joint initiatives of at least a Dutch company (lead-company) and a company in the PSOM country in setting up joint innovative pilot-projects, making use of international and local know-how, goods and services. Companies from other countries may join the consortium.
	It is expected that successful try-outs will be continued on a commercial basis and/or duplicated by the private sector.
	The business projects are expected to contribute to poverty alleviation. Projects creating substantial local employment, transferring knowledge, making extensive use of local SMEs in the supply chain, operating in geographically disadvantaged regions, generating income for a substantial group of beneficiaries and/or contributing in other ways substantially to poverty alleviation will receive priority in the selection process. Projects however have to be at all times sound business proposals that lead to a sustainable business relation.

Implementation

The Programme shall - on behalf of the Government of the Kingdom of the Netherlands- be executed by the Dutch Government Agency EVD, in consultation with the Royal Netherlands Embassies and local authorities.

EVD is responsible for the accurate implementation of PSOM. 

A PSOM pilot project must:

	be initiated by a private company from the Netherlands [*](applicant), together with a company from the PSOM country (recipient);
	be innovative for the PSOM country (new product, new production method);
	contain large commercial and/or financial risks which make it unlikely that the project will be initiated without PSOM's involvement;
	have pro poor effects (employment creation, positive income effects etc.);
	consist of a combination of technical assistance and hardware;
	not exceed a maximum budget of EUR 1,500,000 (or EUR 800,000 for LCD's);
	be finalized within two years;
	lead to commercial follow up investments.

Procedure

The EVD will invite twice a year in March and August (consortia of) companies to submit proposals for projects. The Dutch company in the consortium will make the application to the EVD and serve as the contact point with the EVD. The proposals must be based on the tender instructions which are available on the PSOM website www.evd.nl/psom. Also on this website there is information available on information meetings, workshops and there is a description of a number of successful PSOM projects. After appraisal all companies that were successful will be awarded a result-based PSOM-contract. During the appraisal process EVD will consult the  Netherlands Embassies in the PSOM countries and visit both the Dutch and local project partner.

Frequently asked questions

Eligibility

Q: Can starting companies apply for PSOM?

A: All companies applying for PSOM should prove their financial capacity to finance the own contribution of 40-50%. This must be supported by audited financial reports of the last two years. Starting companies normally cannot fulfill this requirement and are then not eligible for PSOM.  Starting companies are recommended to look for a financially strong business partner, which becomes the lead investor.

Q: Can starting companies be the recipient of a PSOM project?

A: Yes, but recipient companies should be duly registered in the PSOM country and have substantial activities.

Q: Can the local partner be a 100% subsidiary company of the Dutch company?

A: Yes, but the PSOM programme prefers a local partner company with clear roots in the PSOM country.  For PSOM projects in China, the recipient must be a 100% Chinese company.

Q: Who decides which countries are eligible for PSOM?

A: The Ministry of Foreign Affairs decides. The list is based on the DGIS partner countries plus a few emerging markets countries. No new non-partner countries are added

Q: Why are only Mozambique and Uganda open for lead-investors from other countries?

A: The partial untying of PSOM in these two countries is an experiment. There are currently no plans to expand this experiment.

Q: Can foreign companies outside the Netherlands and the PSOM country be involved as partners in the consortium of PSOM projects?

A. Yes they can be project partners, however, they can be not the applicant or recipient.

Q: Can the own contribution be paid for by one of the project partners, not being the recipient or applicant?

A: The project partners must show their commitment to the project by contributing financially to the project. In case of difficulty in financing the own contribution another project partner can contribute partially.

Q: Can a project consist of more technical assistance than hardware?

A: The type of project defines the balance between technical assistance and hardware.

Q: Can a company apply twice for PSOM?

A: In principle this is possible. The projects should have different activities. The applicant must be able to manage both projects and must be financially strong enough to make multiple follow-up investments. Companies that have applied for PSOM can also be project partners in other projects.

Q: Are there rules for the division of shares between joint venture partners?

A: Ideally the division should be on a balanced basis (around 50-50). However sometimes the recipient is unable to cover half of the own contribution. In these cases a different division of shares may be proposed, but each partner must be seen to contribute substantially.

Procedures

Q: Can companies from PSOM countries apply directly for PSOM to the EVD?

A: No, PSOM proposals are submitted by the lead company (applicant) to the EVD. The lead company must be registered in the Netherlands. Only for companies interested to start a PSOM project in Mozambique and/or Uganda the lead company can be another foreign company from a DAC-I country.  PSOM promotes foreign investment, so the lead company is always a foreign company.

Q: Are there organizations that can help a local company find a partner from the Netherlands?

A: Local companies could consult the Netherlands Embassies for assistance. They can also search for a (trade-) partner on the website of CBI www.cbi.nl. EVD can provide lists of consultants and intermediary organizations that specialize in match making.

Q: What role can research institutes, universities and NGO's play within PSOM?

A: They can not play the role of applicant or recipient, but they can very well play a role as a project partner providing training or services within the project. 

Q: How is the selection of the proposals carried out?

A: The selection is done by EVD. The proposal is firstly checked on completeness and then judged according to set criteria. These criteria are listed in the tender instructions (www.evd.nl/psom). Subsequently EVD's ranking is presented to an external board. Here the outcome of the appraisal is decided upon. During the appraisal process EVD will normally visit the applicant and the recipient. In most cases external experts are also involved in the appraisal process.

Q: Is PSOM a subsidy?

A: No, PSOM operates through a tender procedure whereby successful bidders get a contract with the EVD. The annual budget is limited and only the best proposals are offered a contract.

Q: How do projects compete?

A: Depending on the MoU for the PSOM country concerned, either the first two or the first four projects that score the highest number of points (and at least above the minimum required points) are awarded a contract. Should more projects for a PSOM country qualify, then the proposals with the highest points worldwide are awarded a contract depending on the funds available.

Q: How often a tender is held and where do I find information on the tender process?

A: Twice a year there will be a call for proposals. The information on the exact dates for submission and the tender instructions are available through the website www.evd.nl/psom.

Q: How are the different criteria weighed in the selection process?

A: There are a number of criteria on which a project proposal is evaluated; strategic interest

project plan, financial aspects and capability, additionality and development effects. See www.evd.nl/psom for the tender instructions.

Implementation

Q: Does the hardware that is being purchased in the PSOM project have to come from the Netherlands?

A: No, it can be bought wherever the companies get best value for money, but the environmental standards of the equipment must meet European safety and emission standards.

Q: Who becomes the owner of all PSOM (hardware) investments?

A: The recipient in the PSOM country becomes the owner. Normally a Joint Venture will be set up and becomes the recipient and  owner of these hardware investments. For China different rules apply. The Chinese business partner(s) will be the benificiary of the hardware part financed through the programme (for details see the PSOM MoU with China).

Q: Can second hand goods be purchased under a PSOM project?

A: Yes, on the condition that reasonable guarantee conditions apply and that the price is checked on it's market conformity.

Q: What is market conformity?

A: The price of hardware with a value > EUR 25,000, that is purchased under a PSOM contract, should be validated by an independent validation organisation (SGS, Veritas etc.), on its market conformity. The request to purchase hardware must be accompanied by a market conformity document stating that the price is fair and reasonable.

Q: What is a result based contract?

A: A PSOM contract is based on the results that are defined by the applicant in the project proposal and agreed in the contract. Once a result has been achieved, EVD will make a payment as per the contract. When a result is not achieved EVD will not reimburse the costs.