Honda boost for
Bangladesh By Syed Tashfin
Chowdhury
DHAKA - Japanese auto and
motorcycle giant Honda and the Bangladesh
government are set to conclude a two-year-long
effort to establish a manufacturing plant in the
South Asian country that could ease open the door
to wider and increasingly diversified Japanese
investment there.
An initial pact to set
up a 700 million takas (US$8.6 million) joint
venture to create a motorcycle assembly plant near
Dhaka is likely to be signed within two weeks,
according to Bangladesh industries ministry
sources and Japan External Trade Organization
(JETRO) officials in the city. State-controlled
Bangladesh Steel and Engineering Corp will own 30%
of the
venture and Honda 70%.
Increasing numbers of Japanese companies
are interested in setting up in Bangladesh as
business costs rise elsewhere in Asia. Their focus
until recently was largely the garments sector,
the backbone of Bangladesh's export business. It
is hoped that the Honda deal could be a vote of
confidence in the country's ability and
willingness to expand to other forms of
manufacturing.
"The Honda investment is
important for Bangladesh because diversification
and value addition to Bangladesh industries is
essential at this point," Takashi Suzuki, JETRO
representative in Bangladesh, told Asia Times
Online. Consumers might also benefit. Suzuki said
Honda's foray into Bangladesh will lead to
improved services and products from Walton, the
only local motorcycle manufacturer, due to
increased competition.
"Japanese
investment in Bangladesh has increased
substantially during the past four years [but],
from 2008 till 2010, investors were mostly
interested in the local readymade garments
sector,' he said. "This changed from 2010 as now
there are more queries at the JETRO Bangladesh
office regarding the non-garments sector. This
trend proves that Japanese investors want to look
at other sectors besides garments in Bangladesh."
Japanese companies, like many other
international businesses operating in China, are
being driven by rising costs there to establish
factories elsewhere - a move sometimes referred to
as "China plus one".
The JETRO Bangladesh
office last year received 1,200 guests from Japan
who wanted to evaluate investment opportunities in
Bangladesh, "That is the same number that the
JETRO New York office received," he said.
Suzuki said investment from Japan happens
in two ways.
"First would be as a
manufacturing destination with the end products
exported back to Japan for consumption there. The
second method is when the products manufactured
are sold to the domestic markets. Japanese
investors, like Honda, are now interested on this
second method as Bangladesh has a huge population
that can be a formidable market," he said.
Even so, numerous barriers stand in their
way to getting new plants up and running -
including outright protectionism, problems with
land acquisition, and outdated rules and
regulations related to trade and investment.
Suzuki said Japanese investors were keen
to invest in Bangladesh's readymade garments and
insurance sectors, "but associations lobbied the
government against letting foreign investors enter
these sectors".
Bangladeshi government
officials also had to be brought up to speed on
global industrial changes and practices, while the
Board of Investment "should be empowered to
channel in more foreign investment".
Suzuki pointed to Cambodia as an example
to follow - the number of Japanese factories there
doubled to 100 last year. "This is because
although Cambodia has a population of nearly 30
million [less than one fifth Bangladesh's 161
million], their industrial policies are more open,
and they have around 22 export processing zones
(EPZ)," he said. Bangladesh has only eight EPZs.
Moves towards free trade between the 10
countries of the Association of Southeast Asian
Nations also "makes Cambodia an attractive
destination for Japanese investment after China
and Vietnam, where labor costs are on the rise,"
said Suzuki.
A Japanese business
delegation last month expressed interest in
establishing a Japan-Bangladesh Friendship
Economic Zone outside Dhaka to boost trade between
the two countries.
"Such zones will be
helpful for both Bangladesh and Japan. But land
acquisition and prices of land is a major problem
to the initiation of such projects in Bangladesh,"
said Suzuki, who is also the secretary general of
the Japan Commerce and Industry Association in
Dhaka.
A proposed billion-dollar metro
rail project that the Japan International
Cooperation Agency was aiding Bangladesh to build
to ease traffic congestion in Dhaka is in limbo
due to land acquisition complications.
Bangladesh officials, in contrast, are
happy at the progress of their talks with Honda.
"We are very excited about this
investment, the negotiations for which were
initiated almost two years ago," a senior ministry
official told Asia Times Online. said. "We are
waiting on the green light from the government
now. The pact may be signed within the next two
weeks."
While the initial joint venture
investment is limited, a full-scale motorcycle
manufacturing plant could be developed within five
years, according to the draft memorandum of
understanding likely to be signed before October.
Honda has been reported to consider setting up an
assembly plant in a country when 50,000
motorcycles are sold annually. Total annual sales
in Bangladesh of the various available motorcycle
brands, most from India and China, are more than
200,000.
The motorcycles in the first
stage will be built with components shipped from
elsewhere in South Asian, including India and
Pakistan. Honda has set up two plants in India and
two in Pakistan after selling its 26% stake in
Hero-Honda, a joint venture that catered to the
South Asia region.
A garment factory at
Maona of Gazipur, in the Dhaka outskirts, has been
rented for the primary operations of the venture
and land for a permanent plant is being sought.
Japanese investment in Bangladesh since
the country's independence in 1971 till February
2011 stands at only $1.21 billion through nearly
200 investment projects, according to data from
Bangladesh's Board of Investment. Investment
proposals from Japan actually dropped to $10.4
million in the fiscal year to June 2011 from
$16.88 million in the previous 12 months, after
surging from $4.06 million in the 2008-2009 fiscal
year.
Syed Tashfin Chowdhury is
the Editor of Xtra, the weekend magazine of New
Age, in Bangladesh.
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