Japanese ODA Loan

Ex-Ante Evaluation
1. Name of the ProjectCountry: People’s Republic of Bangladesh
Project: Foreign Direct Investment Promotion Project
Loan Agreement: December 13, 2015
Loan Amount: 15,825 million Yen
Borrower: The Government of the People’s Republic of Bangladesh
2. Background and Necessity of the Project(1) Current State and Issues of Private Sector Development in Bangladesh
The People’s Republic of Bangladesh (hereinafter referred to as “Bangladesh”) has
maintained a high growth rate of over 6% per annum in recent years, driven by the influx ofEuropean, North American, and Japanese apparel manufactures as well as the inflow ofmoney sent by Bangladeshis working abroad (accounting for approx. 10% of the GDP). The
country is expected to maintain steady growth going forward. In particular, with theadvantage of low labor cost compared to China and other countries, Bangladesh’s sewing
industry has grown, accounting for 80% of the country’s exports. Nevertheless, the industry
has brought few economic benefits to Bangladesh other than the increase in the earnings ofsewing workers. It is because it has maintained its role as a manufacturer of outsourced,
low-priced clothing for Western markets and therefore remained susceptible to economic
conditions in these export markets. Another problem is that it is highly depending on theimport of raw materials. Moreover, it has had only a small ripple effect in other relevantindustries, leaving local industries undeveloped. As a result, the economic structure ofBangladesh has remained fragile, exposed to intense international competition with low-wagecountries. In order to break away from this fragile economic structure and promote further
economic development, Bangladesh needs to create higher added value for sewn products,
nurture export-oriented manufacturing industries with a competitive edge, and eventually
diversify its industrial structure. To this end, it is essential to expand investment, preferably
foreign investment accompanied by the transfer of technology.
Nevertheless, the amount of foreign direct investment in Bangladesh has remained low,
only at 1.1% of the GDP (as of 2013). On a stock basis, it is still low, at 6.1% of the GDP,
compared to the South Asian average of 10.9%, and the Southeast Asian average of 44.1% (allfigures presented as of 2013). Therefore, it is urgent for Bangladesh to attract foreign direct
investment. However, its poor investment environment, such as the limited access tofinancing opportunities for companies operating in the country, the lack of basic infrastructure,and the complicated administrative procedures, is discouraging foreign companies to expand
into Bangladesh.
In order to address these circumstances, it is critical to improve the investment
environment by expanding medium- and long-term financing for foreign firms and developinginfrastructure. It is also essential to simplify the complicated administrative procedures so thatlarge-scale infrastructure, such as industrial parks, can be developed so as to attract foreign
direct investment. These efforts can facilitate the implementation of public-private partnership(PPP) projects, which can also contribute to the strategy of Japan to promote the export ofinfrastructure systems.
(2) Development Policies for Private Sector Development in Bangladesh and the Priority ofthe Project
As the most important national development strategy of Bangladesh, the Sixth Five Year
Plan (from FY2011-2012 to FY2015-2016) identifies the following as priority issues:
diversifying manufacturing industries and strengthening export-oriented industries.
Meanwhile, the National Industrial Policy 2010 puts an emphasis on the private sector-led
development of domestic industries, among others. This Project is in line with these plans andpolicies of Bangladesh.
(3) Japan and JICA’s Policy and Operations for Private Sector Development
The JICA Country Analysis Paper for Bangladesh (issued in April 2013) indicates that
“JICA will place the most emphasis on support for the improvement of the investment
environment, including the development of special economic zones, to contribute to theeconomic development of Bangladesh and the further promotion of economic exchanges
between Japan and Bangladesh.” Meanwhile, the Country Assistance Program for Bangladesh(issued in June 2012) also identifies “accelerating inclusive economic growth towards
becoming a middle income country” as a priority area. Thus, this Project is consistent with thepolicy and analysis of the Japanese Government and JICA. Moreover, the promotion of PPP
projects can contribute to Japan’s Growth Strategy, which aims to promote the export ofinfrastructure systems. Recent major cooperation projects implemented in this sector are listedbelow.
- Loan assistance: Financial Sector Project for the Development of Small and Medium-sizedEnterprises (approved in FY 2011)- Technical cooperation: Dispatch of Investment Climate Improvement Advisors (from 2012
to 2014 and from 2014 to 2016) and Industrial Policy Advisor (from 2013 to 2015)(4) Other Donor’s Activity
The World Bank is supporting the development of the legal system for special economic
zones and the establishment of high-tech parks (IT industrial parks). The Asian Development
Bank is supporting small and medium business finance and PPP projects to develop industrialparks.

(5) Necessity of the Project

The Government of Bangladesh has identified the diversification of manufacturingindustries and the strengthening of export-oriented industries as important issues. While
Bangladesh is promoting the private sector-led development of domestic industries by using
foreign direct investment, a key to industrial development of the country is to provide short-,
medium- and long-term finance in local currencies for Japanese and other foreign companies
as well as develop infrastructure required by these firms. This Project aims to improve theinvestment environment in Bangladesh by improving access to financing opportunities andpromoting PPP projects to develop infrastructure including industrial parks. Thus, this Projectis consistent with the priority assistance policy of the Government of Japan and JICA.
Therefore, it is highly necessary and relevant to implement this Project.
3. Project Description(1) Project Objective
By financing and implementing development projects in Bangladesh, such as thedevelopment of special economic zones for Japanese companies, this Project aims to solve theproblems that impede investment, such as the limited access to financing opportunities, thelack of infrastructure, and complicated bureaucratic procedures, to promote foreign direct
investment, thereby contributing to the economic development of the country.
(2) Project Site/Target Area
Throughout Bangladesh(3) Project Components
1) Two-step loan to finance Japanese and other foreign companies for their short-,
medium-, and long-term capital investment and operations
2) Equity-back finance for the Government of Bangladesh to promote PPP projects
undertaken by the Government in cooperation with Japanese companies to develop
large-scale infrastructure for attracting foreign businesses (e.g., industrial parks inspecial economic zones)
3) Development of basic infrastructure that can directly benefit foreign companies
operating in Bangladesh, such as access roads and electricity and gas infrastructure in
their operating sites* Through the three components mentioned above, this Project will involve theGovernments of Japan and Bangladesh, which is expected to streamline complicatedbureaucratic procedures.
4) Consulting services: assistance for the selection of participating financial institutions
and the monitoring of the progress of the Project(4) Estimated Project Cost (Loan Amount)
23,349 million Yen (Loan Amount: 15,825 million Yen)

(5) ScheduleThis Project is planned to run from December 2015 to April 2025 (113 months in total).
Project completion is defined as the completion of the disbursement of the two-step loans (inApril 2025).
(6) Project Implementation Structure1) Borrower: The Government of the People’s Republic of Bangladesh
2) Guarantor: N/A
3) Executing Agency:
i. Two-step loan
[Executing agency] Bank and Financial Institutions Division, Ministry of Finance(hereinafter referred to as “BFID”)[Operating agency] Bangladesh Bank (hereinafter referred to as “BB”)
ii. Equity back finance[Executing agency] Financial Division, Ministry of Finance (hereinafter referred toas “FD”)[Operating agency] Bangladesh Infrastructure Financial Fund Ltd. (hereinafterreferred to as “BIFFL”)
iii. Infrastructure development[Executing agency] Prime Minister’s Office (hereinafter referred to as “PMO”)[Operating agency] Bangladesh Economic Zones Authority (hereinafter referred to as“BEZA”)
4) Operation and Maintenance System:
The operating agencies (BB, BIFFL, and BEZA) are responsible for the operation ofthis Project. While BEZA is responsible for budgeting and implementing the maintenanceof relevant infrastructure, technical aspects will be handled by agencies to construct theinfrastructure (e.g., the Roads and Highways Department of the Ministry of Road
Transport and Bridges (hereinafter referred to as “RHD”)), the Local Government
Engineering Department of the Ministry of Local Government Rural Development andCooperatives (hereinafter referred to as “LGED”), and Power Grid Company ofBangladesh Limited (hereinafter referred to as “PGCB”).
(7) Environmental and Social Consideration/Poverty Reduction/Social Development
1) Environmental and Social Consideration① Category: FI② Reason for Categorization:
This Project is classified as Category FI, according to the JICA Guidelines forEnvironmental and Social Considerations (published in April 2010), because its
sub-projects cannot be specified prior to JICA’s approval of funding and because thosesub-projects are expected to have a potential impact on the environment.
③ Other/Monitoring:
In this Project, the three operating agencies responsible for respective projectcomponents are to classify their respective sub-projects according to the laws andregulations of Bangladesh and the JICA Guidelines for Environmental and SocialConsiderations (published in April 2010) and take necessary measures depending on thecategory while receiving support from consultants hired through the Project. None ofthe sub-projects will fall under the Category A.
https://www.jica.go.jp/english/our_work/social_environmental/id/asia/south/bangladesh/c8h0vm000090rzis-att/c8h0vm0000czwl89.pdf2) Promotion of Poverty Reduction
None in particular.
3) Promotion of Social Development (e.g. Gender Perspective, Measure for Infectious
Diseases Including HIV/AIDS, Participatory Development, Consideration for theHandicapped etc.):This Project is not classified as a gender project since it is hardly possible to takespecific actions that can contribute to gender equality.
(8) Collaboration with Other Donors
The World Bank has been implementing the Private Sector Development Support (PSDS)
Project since August 2011, when BEZA was established, to assist the organization indeveloping special economic zones (The PSDS Project is planned to run from August 2011 toJune 2016, financing 120 million USD). Through the PSDS Project, pre-feasibility studies
have been conducted for five potential special economic zones, which are also to be evaluatedas candidates for this Project.
(9) Other Important issues
None in particular.

4. Targeted Outcomes(1) Quantitative Effects
1) Performance Indicators (Operation and Effect Indicator)
BaselineIndicator(Actual valuein FY2014)

Amount of Japanese direct investment in Bangladesh (million117

USD per year)

Target (in 2027)[Expected value twoyears after projectcompletion]
Increase from thebaseline value

Number of Japanese companies operating in Bangladesh

181(companies)

Increase from thebaseline value

To be

Increase from thebenefited from this Project (million USD per year)

determined atbaseline value

Profits of the Bangladesh companies trading with the foreign

the time of

Increase from thecompanies operating in Bangladesh and benefited from thisdisbursement

baseline value

Project (million Taka)of sub-loans

Sales of the foreign companies operating in Bangladesh andNumber of people employed by the foreign companies operating

Increase from thein Bangladesh and benefited from this Project (persons)baseline value(2) Qualitative Effects
Expansion of foreign direct investment, improvement of access to financing opportunities
for foreign companies, transfer and adaptation of excellent management know-how fromJapanese companies, development of new technology through the transfer of businessresources and the introduction of new techniques and systems, accumulation of foreign
currencies and development of export-oriented industries as a result of import substitution
industrialization, creation of job opportunities, and increasing benefits of consumers(3) Internal Rate of Return
The Internal Rate of Return was not calculated because sub-projects could not beidentified.
5. External Factors and Risk Control(1) Preconditions: None in particular.
(2) External Factors: None in particular.
6. Evaluation Results and Lessons Learned from Past Projects(1) Results of Evaluation of Similar Past Projects
The ex-post evaluation of the Small and Medium Scale Industry Promotion Program inMalaysia identified the following lesson for financial intermediary loan (two-step loan): whenseveral executing agencies (financial institutions) are involved independently, it is moreeffective to allow them to handle each case flexibly depending on the financing demand andscale of the targeted end user without establishing uniform standards for the selection ofcompanies and projects to be financed or conditions for sub-loan.
Moreover, the following lessons were drawn from the Thilawa Special Economic Zone
(SEZ) Development Project (Private Sector Investment Finance) in Myanmar: (1) in order toencourage private companies to make investment decisions, both Governments need toprovide strong support and take measures to reduce risk; and (2) in order to attract private
sector investment, it is essential to develop infrastructure in the surrounding areas.
(2) Lessons for the ProjectThis Project is designed to ensure the flexibility of loan conditions (interest rates).
Moreover, the Project is planned to include the development of relevant infrastructure andkeep pace with the discussions between the Governments of Japan and Bangladesh about tax
exemption and other incentives to encourage Japanese companies to expand into Bangladesh.
7. Plan for Future Evaluation(1) Indicators to be Used
1) Amount of Japanese direct investment in Bangladesh (million USD per year)
2) Number of Japanese companies operating in Bangladesh (companies)
3) Sales of the foreign companies operating in Bangladesh and benefited from this Project(million USD per year)
4) Profits of the Bangladesh companies trading with the foreign companies operating inBangladesh and benefited from this Project (million Taka)5) Number of people employed by the foreign companies operating in Bangladesh andbenefited from this Project (persons)(2) Timing of Next Evaluation:
Two years after the completion of the Project (ex-post evaluation)