3. Trade and Investment Promotion by the Netherlands

To stimulate Dutch foreign direct investment and pro-poor economic growth in Bangladesh (and other developing countries and emerging markets) a financing instrument called PSOM has been introduced by the Netherlands government. This instrument has been introduced in Bangladesh on 7 March 2005 [for more information, see the press statement [Web link Bellow] PSOM supports private sector development by promoting cooperation between Bangladeshi and Dutch companies on the basis of partnership. Financial support up to 60% (maximum of EUR 825,000) is provided to initiatives of private companies from the Netherlands and Bangladesh in setting up jointly innovative projects, making use of international and local know-how, goods and services, which is environmentally friendly and has development spin-off effects. On the website of the EVD, who is responsible for administering PSOM, the eligibility criteria, procedures and status of PSOM in Bangladesh can be found (www.evd.nl/psom/). Currently two PSOM projects are running while three projects are in the pipeline.

• PSOM PRESS STATEMENT

• PSOM Article

• PSOM FAQ

• PSOM Sector Notes

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

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 bekker@evd.nl)

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

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.

---

[*]For Mozambique and Uganda the programme has been partially untied on an experimental basis. This means that for these two countries any company from a DAC-I country may act as the applicant (instead of the Dutch company).

Agro Update 2006

A Sketch of the AGRO Sector in Bangladesh

Updated July 2006

Agricultural Sector: Bangladesh has an agrarian economy (23% share of GDP) with most of its population still heavily dependent on the agricultural sector in terms of its substantial contribution to the gross domestic product (GDP) and employment. Agro sector has always remained in the focus but recently Bangladesh Government and the business community has jointly emphasized the need to promote this sector without which emancipation of poverty and achievement of pro-poor growth cannot be attained. Agriculture in Bangladesh is mainly categorized into Crop & Vegetables, Fishery, Livestock & Poultry, and Forestry. This sector is the source of production for domestic consumption and source of raw-materials for processing/manufacturing for the local market and export. It is a vital source of foreign exchange earning. 

Basic Economic Indicators:

• Share in GDP: 22.8 %

• Growth rate of agriculture is 2.7 (p) %

• Employment Share: 60% of labor force

• Foreign Exchange Earnings from Agro-Processing Sub-sector: US$ 52 million

• Agro Processing Sub-Sector Growth Rate: 10 – 15%

Agriculture Share in GDP and Sectoral GDP Growth Rate in 2004

(Source:National Accounts Statistics, Bangladesh Bureau of Statistics (BBS), July 2004, p = provisional

            Annual Report, Bangladesh Bank, 2003-04

Bangladesh Agro Processors Association (BAPA) 2005

This sector has the potential to foster economic growth in the near to medium term by commercialization and expansion of economic activities associated with this sector as it is a vital source of raw materials and can still claim to have productive agricultural land. Despite natural calamities, like flood, the agriculture sector as a whole has performed well in Bangladesh during the last few decades. Domestic as well as international market potential, development and value addition in agriculture have created favorable prospects for agribusiness development in the country. Agro-climatic conditions are suitable for production of a wide variety of crops, livestock, fish and forest products. In addition, the large population provides a sizeable supply of low cost labor, which also favors agribusiness development.

Activities under this sector: Agri business encompasses:

• Commercial production of agricultural commodities

• Transformation of agricultural commodities into products

• Provision of inputs to the production

• The marketing and distribution of agri commodities

• Agri business is commercially oriented with organized linkages among different sectors. It excludes agro based activities that are conducted at a subsistence level. Agri business system consists of suppliers of production inputs and services, commercial producers, market intermediaries, agro-processors and other agribusiness-related entities. Agribusiness systems differ according to the commodities involved and their particular economic, political, social and physical environment.

Potential:

• Stressed in Government of Bangladesh (GOB) Policies including New Agricultural Policy, The Export Policy and the Agricultural Marketing Policy.

• It is in the GOB’s Thrust Sector List.

• Budget 2006/07 continues and reinforces focuses on this sector

Budget for Agriculture: Total budget expenditure in Budget 2006/07 is Tk 69740 crore (Tk 694.70 billion). Agriculture accounts for 7.5% of the use of budget resources.

Tk. 5802 crore constitutes in:

Ministry of agriculture – Tk 3149 crore (42% higher than revised FY 2005/06)

Ministry of Fisheries and Livestock Tk. 578 crore (36% higher than revised FY 2005/06)

Ministry of Environment and Forest Tk. 242 crore

Ministry of Land Tk 371 crore

Ministry of Water Resources Tk 1466 crore (22% higher than revised FY 2005/06)

Government Policy & Incentives:

• In Budget 2006/07 once again it was mentioned that with the increase of budgetary allocation for expansion and development of agriculture and agro-based industries, the Government is also increasing the quantum of agricultural credit and subsidies.

• Agricultural subsidy of Tk 1200 crore is allocated in FY2006/07.

• Tk. 244 crore for agricultural research is allocated in FY2006/07

• Tk. 6000 crore target for agricultural credit distribution in FY2006/07. Up to March 2006 the total agricultural credit disbursed stands to Tk 4000 crore.

• For the development of agro-product processing and software industries, allocation for Equity Development fund has been raised to Tk 200 crore from TK. 100 in previous year.

• To build agro-based farm and industries, an allocation of Tk. 150 crore has been made under the Agro-based Industries Assistance Program in this budget (raised from Tk. 100 crore from previous).

• Tk. 50 crore has been allocated in FY 2006/07 to create a fund called Fund for Assistance to Small Farmers Affected by Natural Disasters.

• Agro based industry enjoys tax holiday. Any investment in this sector will enjoy similar tax amnesty.

• Government provides 30% cash incentive on export of ago-based industrial products through Export Processing Zones (EPZs) (decision taken on 5 Sept 04) at the Prime Minister’s Office. Earlier this incentive was available to export of the agro-based industrial products outside the EPZs. It is expected that Foreign Investors would be encouraged to set up joint ventures with Bangladeshi companies. Such interest has been already received from Sri Lanka.

• Prime Minister on 23 Nov 2003 has declared that a special EPZ will be set up at Ishwardi for a agri-processing industries.

• Government has reduced the rate of interest against bank loan for investment in agriculture from 14% to 10%

• Bangladesh Bank has opened an opportunity for Equity & Entrepreneur Fund mostly for establishing agricultural products processing industries.

• Duty rebate facility for export of agricultural products has been announced

• Electricity charges for agro-processing enterprises has been reduced.

• Investment Promotion Campaign Abroad: The Executive Chairman of Bangladesh Export Processing Zones Authority (BEPZA) undertook aggressive investment promotional campaign in Sri Lanka and Malaysia to attract more investment in the agro based sector, both in backward & forward linkage sectors.

Economic and Business Factors:

• This sector unfolds lot of scope for growth potential for foreign investment. The growth of Agri-business will accelerate employment and income of the rural population and stimulate farm and non-farm activities such as production, agro-processing, marketing, and business services. The potentials seem to be promising because of prevailing comparative advantages in the production of a range of agricultural commodities, and growing demand for high quality products in the rapidly expanding local and international markets.

• The fragmented small land holdings of rural areas provide good opportunity through contract farming to raise income via business development through value addition. For steady growth of agribusiness, strong linkages (value chain linkage) between farmers, traders, processors, and service providers are key essential elements. These linkages require specific strategies and an enabling environment. With the growing urbanization, with growing urban middle class the need for value added diversified food products, which meet the requirements of the urban population are increasing. Opportunity lies in packaged food for easier preparation, higher food quality, and longer storability. In major cities, the emergence of modern agricultural food distribution systems, including superstores/markets and stop-and-shop outlets, has started in recent years indicating higher demand for such commodities. Obviously, the local products have to face tough competition vis-à-vis the imported products.

• Agribusiness has achieved limited success in a few areas, including poultry, shrimp, fruits, dairy products, vegetables, wheat and bakery products, medicinal plants, animal feed, flowers and orchids. Other commodities and products including rice, tea, sugar, jute and tobacco have been part of the commercial system of production, but have not shown yet the required dynamism for agribusiness. The largest agricultural sub-sector namely rice is still mainly dominated by a large number of farmers producing for household food security or producing for a small marketable surplus. One example is the aromatic rice. PRAN, a local company is producing aromatic rice. However, scope remains to improve the milling, packaging and distribution capacity.

Scope of Interventions can be at the following levels:

• Commercialization of production through new products and commodities, such as high value crops, livestock, poultry and fisheries

• Development of forward linkages through improved services, packaging, processing, storage, transport, removal of marketing constraints and opening up of new markets

• Backward linkages through the provision of inputs (seeds, fertilizers, animal feed and agriculture machinery)

 Potential Areas for Exploring Business Opportunity:

This sector that has been emphasized in PSOM, signed Memorandum of Understanding (MOU) between Royal Netherlands Embassy (RNE) and External Resource Division (ERD), Ministry of Finance (MOF), the Government of Bangladesh (GOB) on 7 May 2005. The following areas hold business opportunities.

Crop:

Rubber Roller Rice Milling: 3% of rice milling is done by rubber roller which ensures lower breakage and also bran is gotten for oil extraction. (95% of rice milling is done by traditional means of dheki and huller which does not produce bran for oil extraction and has 35% breakage).

Processing of Potato flakes, daal (pulses) and spices.

Post harvest storage, processing and packaging of fruits and vegetables.

Production of organic fertilizer and mixed fertilizer: Only Tk. 50 lac is required for such plants. Currently chemical fertilizers like TSP (Triple Super phosphate), Urea, Nitrogen Phosphate (NP), Murete of Potash (MP) is used. However, organic fertilizer is much emphasized now. In Khulna, one such organic fertilizer plant has been set up which produces 14 tons of organic fertilizer from wastes.

Poultry:

Production of vaccines from poultry.

Dairy Feed Manufacturing using Dutch hardware/technology

Artificial insemination of breed: Currently on GOB does this and BRAC (an NGO) has the license.

Modern Slaughter House: Current slaughter houses are unhygienic and also wastes valuable raw materials like leather, hoofs, horns, etc which are raw-materials to leather and leather goods industry and also the garments industry. 

Fishery:

Processing and Freezing of Prawn in the Coastal Belt: Currently Bagerhaat, Chakaria, and Shatkhira are the prawn belt. Lot of scope remains to establish modern freezing and processing of prawn.

Quality Control Institution: Bangladesh Standard Testing Institute (BSTI) is not internationally recognized. Therefore, Bangladeshi producers/exporters need to get their certificate from Malaysia and Singapore.

Risks/Constraints:

Specific to this sector

• High incidence of land-lessness and small size firms: In terms of the commercialization of production, land resources are limited in both size and suitability. Many land-holdings are too small to consider a high degree of diversification and many areas are subject to seasonal flooding.

• Lack of access to credit: Furthermore many potential producers do not have access to the capital or credit needed to diversify their production and do not have the capacity to face the risk that investing in new crops and commodities might entail. The limited amount of credit that is available for small to medium producers tends to be lent to non-agricultural ventures that are perceived by lenders as less risky.

• Lack of market information, technology: Constraints to the development of forward linkages include undeveloped markets and inefficient marketing chains. There is little market information. Moreover, access to alternative crops and commodities and knowledge about alternative crops and commodities are limited and markets for many potential crops or commodities are undeveloped, as is the marketing chain. Middlemen reduce profit margins between the buyer and the end user and there is little access to credit for potential processors, packagers, transporters or exporters.

• Lack of Efficient Infrastructure: Infrastructure is not that developed (cold storage facility, port and air cargo facilities are inefficient) in Bangladesh. However, this problem is being addressed for exporters of agro products with the Ministry of Civil Aviation and Tourism and the Foreign Airlines in Dhaka, Bangladeshi owned private Airlines, Ministry of Commerce, Export Promotion Bureau (EPB), Bangladesh Biman and Bangladesh Fruits vegetables and Allied Products Exporters Association. The solution partly lies in lifting more vegetables and fruits of Bangladesh by the foreign Airlines to different destinations in the middle East and UK particularly, and reduction in the handling charge of equipment and storage charges etc. at ZIA for encouraging private and foreign airlines to bring more cargo planes here.

• Inadequate Quality Control Mechanism: There are a limited number of institutes for quality and grading standards. Bangladesh does not have any testing laboratory that is of international standard and as such does not have international recognition of its certification.

Useful Contacts for further Information

Bangladesh Agro Processors Association (BAPA)

Contact: Maj. Gen. (Retd.) Amjad Khan Chowdhury, Chief Executive,

and Mr. Mozammel Huq, Advisor

Address: Mohananda, House 39, Flat 1D, Road 11 new,

Dhanmondi R/A

Dhaka 1209

Ph: 8156353/0175098909

Fax: 880 2 9110055

Email: mohananda_pro@yahoo.com

Board of Investment (BOI)

Address: Prime Minister’s Office, Government of Bangladesh,

Jiban Bima Tower, (19 flr), 10 Dilkusha C/A, Dhaka 1000

Bangladesh

Ph: 880-2-9561430-1

Fax: 880-2-9562312

Website: www.boibd.org

Bangladesh Export Processing Zones Association (BEPZA)

BEPZA Complex

House No 19/D, Road 6, Dhanmondi, Dhaka 1205

Ph: 88-2-9670530, 8650058, PABX 8650059

Fax 880-2-6850060

Website: www.epzbangladesh.org.bd

Export Promotion Bureau (EPB)

1 Kawran Bazar,

Dhaka 1215

Tel PABX: 880-2-9144821

Fax 8802-9119531

Website: www.epbbd.com

Bangladesh Poultry Industrial Association

Address: 115/120 Adamjee Court, Ground Flr.

Motijheel, Dhaka 1000

Ph: 880-2-9555403, 956413

Fax: 880-2-716

Royal Netherlands Embassy

Contact person: Riffat Zaman, PhD,

Advisor, Economic & Commercial Affairs

House 49, Road 90, Gulshan 2

Dhaka, Bangladesh

Tel: (880-2) 882-2715/8

Fax: (880-2) 882-3326

Email: dha-ea@minbuza.nl

Update Telecom 2006

A Sketch of the Telecommunication Sector in Bangladesh,

Updated July 2006

Telecom Sector Organizational set up: The telephone sector was strictly under Bangladesh Telephone and Telegraph Board (BTTB) mainly operating in the field of landline connections.

Currently there are six cell phone operators and 15 private land phone operators.

The first private operator licenses was issued in 1989 to a company operating as a monopoly till 1997 when telecom market was opened up to three 15 year GSM mobile license operators.

These are namely Citycell, Aktel, and Grameen Phone. Later on joined in Sheba telecom, which sold out to Orascom operating as Banglalink.

WorldTel Ltd. was the lone license holder to provide land phone in Dhaka and were supposed to start operation in March 2006. However, Bangladesh Telecom Regulatory Corporation (BTRC) cancelled its exclusive right terming it anti-competitive and volatile of the Bangladesh Telecommunication Act 2001. WorldTel went to court. The Appellate Division of the Supreme Court on August 23, 2005 dismissed WorldTel’s petition for retaining its four-year co-exclusive right with BTTB to provide land phone in Dhaka. This paved the way for private companies to compete for land phone license. There are now fifteen private companies which obtained license for land phone operation.

Very recently Teletalk is providing mobile phone service under BTTB. Warid Telecom International of Dhabi Group is likely to start operation this year, 2006.

Teledensity: 0.6% landline phone and 10% mobile phone connection with 12 million covered by cell phone.

Chronology of Events:

Services Available:

1. Fixed Phone Service: Fixed phone or PSTN is provided by BTTB. There are four types of telephone exchanges operating: digital, analogue, central battery (CB), and magneto with the transformation of these to digital in near future. BTTB operated through four satellites in Betbunia, Mohakhali, Sylhet, and Kaliapur-Gazipur. Currently there are 15 private companies which received license for land phone operation. List in Annex.

2. Cellular Mobile Telephone Service: Three are currently four private operators: PBTL, Grameen Phone (GP), Telekom Malaysia (Aktel), and Sheba Telecom (Banglalink), Teletalk, Warid telecom. PTBL initially used AMPS and CDMA system to provide service while the other three operators are using GSM system. Among these GP has the most coverage. Details of cell phone companies are provided separately. 

3. Nation Wide Dialing (NWD): BTTB provided this service all over the country through different transmission links and TAX (Transit Automatic Exchange) and Sub-tax system. More modern and sophisticated systems with extended capacity like SDH Optical Fiber, SDH Microwave and PDH Microwave System have replaced older versions. Currently there are 16 TAX and Sub-TAX and 3 TAX cum Local Switch (TLS) are providing NWD service. Private mobile operators are establishing their own transmission network. GP has taken lease from Railway Optical Fiber System to establish transmission network through- out the country. It also leases out to other operators.

4. International Dialing Service (ISD): BTTB is the only operator, which provides this service through two international trunk exchanges (ITX), by Intermediate Data Rate System. BTTB will hold monopoly over ITX till 2010. Bangladesh has been linked to global network through submarine cable SEA ME WE–4. Even though international voice service is provided by BTTB alone, since 1998 it has been opened up to the private operators through data service VSAT.

5. Telex Service: The sole provider of this service is BTTB and this is losing its market to fax and internet service.

6. Paging Service: In 1989 a private operator has obtained a license to provide this service which has almost been wiped out with the introduction of cellular mobile service.

7. Radio Trunk Service: BTL got the license to provide this service in 1989. However, it is being almost wiped out for inefficient technical quality and service.

8. Data Service: BTTB provides this service locally and internationally. But some private operators are being given license for point two data circuit for corporate users inside the country.

9. Internet Service Provider (ISP): 168 companies have been issues license in the private sector to provide internet service through using BTTB telephone lines and international connection through VSAT. BTTB started internet service since 1999.

10. Pay-phone service: It is in operation since 1994 though BTTB. There are 1550 card phone booths in the country but the quality of the magnetic cards are sometimes not up to the standard. BTTB launched pre-paid land phone card in mid July 2006.

Bangladesh Telecom Regulatory Commission: The BTRC, a licensing and regulatory body set up under the provision of Bangladesh Telecom Act 2001, came into effective operation in 2002. From the start, BTRC had a job on its hand to impose its authority on a sector long dominated by BTTB, both as regulator and sole operator.

BTRC has made regulatory interventions as and when appropriate. Mobile phone users and operators were charged for calls made from a mobile phone to a BTTB fixed line; but the BTTB subscriber was not similarly charged for calls made from BTTB to mobile. BTRC introduced new legislation enabling all operators to deal with each other on terms of parity. The private operators are currently renegotiating their original inter connectivity agreements with BTTB. The issuance of fixed-line licenses to new operators goes to BTRC’s credit.

Tele-density: Tele-density in Bangladesh is very low. The country's telecommunications services are inadequate.  Bangladesh devotes a mere 0.7% of its GDP to the telecom sector as compared to the regional average of about 2.0%.  The government-run telephone service has approximately 9 telephone lines for every 1,000 people, giving it one of the lowest penetration rates in the world.  However, this rate is improving fast with the introduction of private sector involvement.  Approximately, a little over 900,000 telephone landlines are located in Dhaka, a city of over 12 million people.  Bangladesh's call completion rate remains under 50% and its landline network barely supports modern telecom accessories such as call waiting, call forwarding, and voice mail.

Tele-density of cellular phones has been growing and with 12 million mobile phone clients’ cellular tele-density is now 10% and landline density is 0.6%. The demand for fixed phones in the capital is estimated to be around 10 lakh while the registered demand with the state-run BTTB is about two lacks only. BTTB does not have the infrastructure to meet the growing demand for land phones. Therefore, land phone operation has been opened for private operators to provide service through competitive bidding in the Central Zone – Dhaka Multi Exchange Area – consisting of Dhaka city, Zinzira, Savar, Narayanganj, Gazipur and Tongi. This area comprises of 60% demand of the country’s fixed phones.

Comparative status in South Asia:

India’s low rates owe much to its strong growth of mobile phone services. Mobile phone calls cost US$ 0.03-0.04 per minute in India against US$ 0.084 per minute in Pakistan, US$ 0.11 per minute in Sri Lanka and over US$ 0.014 in Maldives. In Nepal and Bangladesh mobile phone calls cost US$ 0.065 per minute.

Mobile phone tariff in India is one of the lowest in the world and around 50% cheaper than tariffs in neighboring countries such as Sri Lanka, Pakistan and Bangladesh, according to Telecom Regulatory Authority of India (Trai). The tax of handset is $25 per set. Duty on imported handset is substantially higher than neighboring countries except Myanmar.

Government of Bangladesh (GOB) took some good initiatives in this budget of FY2006/07. It reduced tax on SIM (Subscriber identity module) card or cell phone connection from Tk 900 to Tk. 800. Customs duty on imported telephone sets, both mobile and fixed phones, has been cut to Tk. 200 per set from Tk 300. This year’s budget allocation is Tk. 1574 for this sector, which is 10% higher than last year’s.

Cell Phone Service:

The cell phone is working very well here. Bangladesh is an attractive market for mobile phone services due to its large population of around 140 million but still the mobile phone penetration rate here is very low, 4%. The potential of adding new subscribers in Bangladesh is enormous. It is estimated that the number of mobile phone subscribers in Bangladesh will reach around 15 million by the end of 2007 (10%). There will be scope to tap the untapped market!

Present Scenario of Mobile Phone Sector in Bangladesh

As of June 2006

PBTL: Bangladesh Telecom Limited (BTL) was awarded a license to operate cellular, paging and other wireless communication networks. In April 1990, BTL and Hutchison Telecommunication (Bangladesh) Limited created a joint venture in the name of Hutchison Bangladesh Telecom Limited (HBTL). It began operation in 1993 using AMPS technology. Interestingly it was the first cellular operation in South Asia. However, it charged a price of TK.1 lakh per package which was for purely profit motivated and not within the reach of general mass. In December 1993, Morshed Khan (foreign Minister) acquired 50% share of HBTL and named it PBTL launching cellular products with the brand name CityCell Digital.  This is the only operator using CDMA technology.

However, it has lost its market to GP and then AKTel. It dropped its package by 95% to be competitive. It adopted advanced customer service and choice of budget friendly packages. CityCell was the first to introduce IDD and NWD for prepaid subscribers. It covers 54 districts. It is trying to compete in the market and has been exploring possibility for investment from Signtel.

Grameen Phone: The countries leading mobile cellular operator started operation in 1997. It was Iqbal Quadir, a Wharton MBA, who in 1994 conceptualized the mobile-phone company called GP with the help of micro-credit pioneer Dr. Yunus of Grameen Bank. Quadir convinced Norway’s state-backed telecom company, Telenor, to take a 51% stake in GP. Later, with Japan’s Marubeni Corporation on board and $65 million in loans from aid agencies.

The international shareholder, Telenor AS owns 62% of the shares of GP, brings technological and business management expertise. The local shareholder is Grameen Telecom, which owns 38% of the shares of GrameenPhone, and is a not-for-profit company which works in close collaboration with Grameen Bank. It understands the economic needs of the rural population, in particular the women from the poorest households, and provides a presence throughout Bangladesh.

At present (As of 30 June 2006) it has 8.5 million subscribers across the country having 62.01% market share in the mobile sector and 91% population under its network by the end of this year.

It was the first Mobile Operator offered International Roaming service to its valued subscriber and also the pioneer of introducing prepaid service in this arena.

GP reaches the remote rural area by its internationally acclaimed Village Phone Program. It is an initiative, which provides telephone services in remote rural areas where no such facilities existed before. Village payphone is one of the important products through which GrameenPhone is empowering the poor village women. There are now more than 206,000 village phones in 55,000 villages. Grameen Telecom is a non-profit organization and a sister concern of Grameen Bank. Grameen Telecom with the help of Grameen Bank administers Village Phone services to the villagers, trains the operators as well as handles all service-related issues. As of February 2006, Grameen Bank covers 62,089 villages through its 1,161 branches.

AKTel: Telecom Malaysia International Bangladesh (TMIB), a joint venture between Telekom Malaysia Berhad and A. K. Khan & Co. Ltd, was established in 1996 launching its services in 1997 with the brand name Aktel.  Since its commencement, AKTel soon became the second biggest operator and claims to have the widest International Roaming service in the market connecting 170 countries. It was first mobile operator to connect Tetulia to Teknaf the North and South Pole of Bangladesh and to provide seamless coverage along the Dhaka Chittagong highway. With a strong network, coupled with first Intelligent Network (IN) Prepaid Platform, Aktel is geared to provide a wide range of products and services. With TMIB/Aktel of Malaysia’s investment of $200 million, Aktel has invested $ 308 million between 1997 to 2005 and paid Tk. 8.500 million (8.5 billion) to the Government on different heads including fees, taxes and VAT. The company has a plan of investing $237 million during 2006 for expanding its network. It has signed a $200 million equipment deal with Huawei of China to upgrade its network to the GPRS system, which will support much higher data transfer rates other than voice, multi-media messaging (MMS) and faster mobile internet service.

Banglalink: Egyptian Telecom Orascom acquired 100% Sheba telecom, a joint venture of Malaysia and Bangladesh, in October 2004. Sheba had launched its operation in 1997 but had poor performance. Orascom paid a price of $60 million including $ 10 million in settling outstanding loans to SCB, Dhaka. It inherited 1% market. However, it took an aggressive approach to invest $250 million towards accelerated network deployment and launched new prepaid packages in nine cities. It plans to extend network coverage from 9 to 61 districts by the end of 2005, using up–to–date telecom communications soured from Siemens and Huawei. Its target is to make a difference by providing affordable and reliable connectivity solution. It has steered extreme competition in the market by offering Tk. 3,800 mobile-to –mobile package. Its mission is to reduce the total cost of buying and using mobile phones. Banglalink currently operates a GSM network and provides a range of prepaid and postpaid voice, data, messaging and value-added services. It spread its network in record speed and covered all of the 61 districts, 425 thanas.

Teletalk:  Government decided to start up a state-owned mobile company to provide cheaper affordable cell service to people and to check excess profit by the private operators. However, the inception of this company has undergone a much-debated political process on the transparency issues of BTTB. However, it has started operation with an investment of TK. 2500 crores. Teletalk created huge buzz in the sector with its free incoming facility from fixed-line phones of Bangladesh Telegraph and Telephone Board (BTTB).

The Post and Telecom Ministry discloses that the government plans to sell a total of one million cell phone connection in the country in phases. In the first phase, 250,000 connections will be provided to the users, of which 50,000 are being distributed initially. The minister confirmed that a policy decision has been taken to open up Voice Internet Protocol (VOIP). The decision will be implemented after studying the operational processes followed in the neighboring countries of India Pakistan and Sri Lanka.

Warid Telecom International Ltd. Its initial plan is to acquire over 14 million customers in four phases by December 2007. First, it will launch services in 26 districts with an aim to net 2.8 million subscribers by October 2006. In the second phase ending in January 2007 its plan is to expand the service coverage to 22 more districts, targeting 3.1 million fresh customers. In the third phase, 13 more districts will come under its net-work by March 2007 with an aim to enlarge its subscriber base by 3.35 million. Warid will cover the rest of the country in the fourth and last step ending din December 2007 during which it expects to add 5 million new clients. Given the political uncertainties of the election period, it has the challenge to decide to install microwave links for rapid deployment of local and country wide transmission net works. It has stipulated a few critical tasks like site acquisitions for base stations and energizing these installations as the suppliers’ responsibility. It is recruiting employees and has taken an office site in Gulshan 2.

Equipment Suppliers: The major equipment suppliers are: Alcatel, Ericsson AB, HUWAEI, ZTE Corporation.

Recent events: SEA-ME-WE 4 has been inaugurated in May 2006 to connect Bangladesh to the superhighway. It is the fourth cable of a series of cables connecting the continents over almost 20000 km. The cable has the design capacity of 1.28 tera bytes per second (tbps). It connects the country with undersea fiber-optic cable passing from Singapore through Malaysia, Thailand, Bangladesh, India, Sri Lanka, Pakistan and a number of Middle – Eastern countries to finally land in France.

Now the country will have a 10-digabyte data –transfer capacity per second. 68 times higher than the current speed. It will facilitate high-speed data and voice transfer and also increase the number of international communications circuits that will ultimately lead to enhancement of revenue for the government.

Huge foreign exchange through leasing out the unutilized capacity of the submarine cable.

It creates the opportunity to introduce broadband data transfer and call centre services at a very significantly cheap rate.

There will be scope for software could be made at low cost for export while e-governance, e-commerce and tele-medicine series could be easily introduced at cheaper costs. Video conferencing will enable better services for the above as well.

BTTB launched prepaid cards of Tk 500. Tk 200 for land phones on 17 July 2006. ISD and economy ISD (E-ISD) calls can be made from BTTB’s phones across the country by dialing 010201 while NWD calls only from Dhaka multi-exchange area.

Potential Areas for Exploring Business Opportunity:

This sector that has been emphasized in PSOM, signed Memorandum of Understanding (MOU) between Royal Netherlands Embassy (RNE) and External Resource Division (ERD), Ministry of Finance (MOF), the Government of Bangladesh (GOB) on 7 May 2005. The following areas hold business opportunities.

Telecommunication has been one of the fastest growing sectors in Bangladesh. Many local and international companies are taking advantage by tapping the emerging market here. Bangladeshi mobile users spend 300 minutes of talk-time on an average per month, the highest in South East Asia. So the scope for further growth is immense.

Telecom is an industry, which requires millions and billion dollars of investments. Therefore, it may not be appropriate for PSOM financing, the amount of which is small, up to €825,000.

However, Telecom Specialists of IIFC (who are former BTTB and BTRC personnel) had identified two areas which could be undertaken with a small amount of investment. Due to inadequate interconnection facilities for mobile phones, only about 10% of mobile phones can actually call a landline. A National Interconnection Exchange would solve this problem.

Several Internet service providers, featuring electronic mail and World Wide Web services, now exist in Bangladesh.  Bandwidth, however, is very expensive since the country does not have an Internet Exchange Point and is not yet connected to a submarine fiber-optics cable system. Thus, NIX – National Internet Exchange is the second area which could be undertaken with a small investment.

Useful Contacts

Post and Telecommunication Ministry

Minister, Mr. Aminul Haque

BTTB (Bangladesh Telephone and Telegraph Board)

Telecommunication Bhaban

37/2, Eskaton Garden

Dhaka-1000

Tel: 8311500/8312525/8314200/8312300/8314060/8314570/8314230

Fax: 880 2 8322661-4

BTRC (Bangladesh Telecom Regulatory Commission) 

Name: Mr. Rustam Ali, Director, Administration      

Address: House 10, Rd. 135,

Gulshan 1, Dhaka 1212

Ph: 9893920Tel:9893917-19

Fax: 880 2 9890029

Bangla Phone

Name: Mr. Muhmmad Jamil

Designation: Business Development Advisor

Address: Road 23/A, House 3, Gulshan 1, Dhaka

Phone: 880-2-9860352

E-mail: info@banglaphone.net; bphone@dhaka.net

Tele-Talk - BTTB

House 101, Road 13A, Block C, Banani

Tel: 9885600/9888536

Fax: 880 2 9888535

Grameen Phone

Address: Road 113/A, Plot 19/20

Building 5, 6th Floor

Gulshan 2

Tel: 9882990

Fax: 880 2 9882970

Website: www.grameenphone.com

AKTel

Address: TM International
BRAC Centre (9th Floor)
75 Mohakhali, CA
Dhaka 1212
Tel: 9887149-53/9885467-8
Fax: 880 2 9885464

City Cell Pacific Bangladesh Telecom Ltd (PBTL)

Address: 4th Floor, Pacific Centre

14 Mohakhali, CA

Dhaka-1212

Tel: 8822186/8822187/8825281/8825283

Fax: 880 2 8823575

www.citycell.com

Banglalink     

Address: Land View, Level 13,

Commercial Centre

28 Gulshan North C/A

Dhaka 1212

Ph: 880-2-8821256/8811976/8812037

Fax: 8827265

Website: www.banglalinkgsm.com

Warid Telecom International LLC

168 Gulshan Avenue

Gulshan 2, Dhaka 1212

Phone: 880-2-8834551, 8834552,

Fax: 8802-9863247

Board of Investment (BOI)

Address: Prime Minister’s Office, Government of Bangladesh,

Jiban Bima Tower, (19 flr), 10 Dilkusha C/A, Dhaka 1000

Bangladesh

Ph: 880-2-9561430-1

Fax: 880-2-9562312

Website: www.boibd.org

Infrastructure Investment Facilitation Centre (IIFC)

IDB Bhaban (6^th flr), Sheer-e-Bangla Nagar

Agargaon, Dhaka 1207

Tel: 880-2-8121470, 9133577, 9133455, 9133588

Fax: 880-2-812 4266,

Website: www.iifc.net

RNE (Royal Netherlands Embassy)

Riffat Zaman, Ph.D.

Advisor, Economic & Commercial Affairs

Phn: 8822715-8

Fax: 8823326

Email: dha-ea@minbuza.nl

Annex 1

List of Private Land phone operators