Bangladesh Business Snapshot - Bureaucratic Corruption & Political Risk
(International Politics - Risk & Threat)
Bangladesh continues to face significant challenges as one of the poorest countries in the world not helped by due endemic corruption, weak rule of law and limited bureaucratic transparency. The business environment has left a country struggling to attract foreign investment. Bangladesh has been at or near the bottom of numerous accountability, transparency and corruption indices for several years now. Encouragingly, the country’s 2007-2008 military backed government implemented a programme of widespread institutional reform and, in an unprecedented move, set out to tackle the country’s high level of corruption, resulting in the conviction of corrupt businessmen, political figures and high ranking officials.
Nevertheless, corruption continues to be widespread at virtually all administrative levels. The vast majority of companies expect to pay bribes - foreign companies even more - to local officials in order to do business . Although recent political and economic developments have been encouraging, pervasive corruption, patronage and the misallocation of resources have prevented the country from making a more significant developmental leap especially in terms of foreign investment.
Corruption remains a serious impediment to efficient business operations in Bangladesh, as emphasized by the US Department of State. This perception is supported by a recent World Economic Forum Global Competitiveness Report, according to which corruption and inefficient governmental bureaucracy are among the greatest constraints on foreign companies operating in Bangladesh. The country performs poorly across all institutional indicators covered by the report.
Licences and Tenders
Companies often complain that Ministries require unnecessary licences and permits. In addition, it is generally both expensive and difficult to obtain access to public utilities. Furthermore, companies are often faced with irregularities in the provision of utilities and in the settlement of accounts. These utilities include electricity, water and telephone connections. To circumvent these irregularities, some companies have unauthorized connection facilities in their establishments and therefore pay bribes to prevent being reported to the authorities. Property rights are legally safeguarded, but problems remain in practice. Solicitation of bribes is widespread in the buying, selling and surveying of land. Registries of property are inadequate and unreliable, which can cause problems when transferring ownership of land and property. Parties avoid registering various land and property related issues because of high stamp duties and other charges.
Reports of corruption in the awarding of public and private contracts are frequent. Collusion between political leaders and bureaucrats in contracting and tendering occurs in order to favour a particular bidder. According to the World Bank, graft in public purchasing is estimated at more than USD3 billion per year. A salutary example of getting caught is that of Arafat Rahman the son of the former Prime Minister Khaleda Zia who was charged in 2009 of money laundering by the Anti-Corruption Commission. He allegedly received payment of USD 180,000 in connection with public projects awarded by the Bangladesh government to Siemens AG. Anecdotal stories state he was brought up on charges not as a result of fearless judicial oversight but rather he had not paid off others involved in the contract process.
Tax and the Law
Tax procedures are bureaucratic and slow and while tax laws are complex, the authorities have extensive power in assessing levels of taxation. This makes this particular sector susceptible to corruption. Tax laws are not always enforced uniformly and without discrimination and any attempt to appeal through the legal system is cumbersome and time consuming.
Foreign companies should also be aware that lawsuits and commercial disputes are often delayed. Disputing parties are subsequently encouraged to pay “speed money” in order to expedite the handling of cases. The lack of effective judicial or alternative dispute resolution mechanisms impedes the enforcement of contracts and it is common (and recommended) to include an arbitration clause in all commercial contracts as Bangladesh is a member of the International Centre for the Settlement of Investment Disputes (ICSID) and a signatory and contracting state of the New York Convention 1958
Customs
Many companies consider that customs to be among the most corrupt institutions in the country, Similarly a recent Global Integrity report pointed out that customs and excise laws are not always enforced uniformly or without discrimination. Public officials have considerable discretionary power in estimating the value of goods and are able to delay clearance procedures, which leaves room for corruption. Complaints of petty corruption, such as the need to make unofficial payments to obtain customs clearance are commonplace.
Companies should be aware that the Chittagong Port, which handles 85% of the country’s total imports is considered to be one of the most inefficient and corrupt ports in Asia according to Transparency International Bangladesh. According to the report, corruption there has become institutionalized in the offices of the port where bribes or facilitation payments are expected if a task or procedure needs to be completed. In order to submit or amend mandatory import and export documents, bribes are paid in virtually all transactions. The paying of bribes at numerous locations in order to anchor a ship in the port was not unusual. The report goes on to state that bribery takes place outside the port by reaching an understanding through agents. The pilots of the port take BDT10,000 as tips for anchoring a ship and then for taking it to an outer anchorage. In case of overdrafting of ships, the rate can rise to more than BDT100,000
The above is but a brief overview. As in all cases where businesses are looking to expand into foreign markets, full research and due diligence is encouraged before taking a decision.
Useful Information Network
1. Transparency International Bangladesh @info(at)ti-bangladesh.org (NGO local chapter)
2. Bangladesh Enterprise Institute (BEI) a non-profit/political research centre
@bei(at)ti- bol-online.com
3. ICC Bangladesh @iccb(at)bdmail.net/infor(at)icc-bd.org Chamber of Commerce and Business
Confederation
This is a very brief snapshot, a full in-depth country profile is available upon request
