Capital flight to Dubai threatens Bangladesh's economy

In 2019, the United Arab Emirates (UAE) introduced the 'Golden Visa' system. If anyone invested 2 million dirham (equivalent to around 6 crore taka in Bangladesh currency) or deposited that amount in any bank of the emirates, they would be given an open entry visa to UAE valid for 10 years, no questions asked.

Taking this opportunity offered by the golden visa, a steadily growing number of Bangladesh's businesspersons over the past three years have been selecting Dubai as an attractive destination to transfer their capital, alongside the US, UK, Australia and Canada.

Dubai still hasn't become as popular as those countries as a place of residence for the families, but it is not very far from Bangladesh geographically, thus making the numerous facilities of the emirates attractive to the businessmen. In fact, these businessmen often find it more convenient and profitable to keep their families based in Bangladesh and then take them occasionally on trips to the UAE and invest there too, particularly in Dubai.

It must be kept in mind that, after Saudi Arabia, UAE is the second most important destination for Bangladeshi migrants. That is why 'hundi' (illegal money transfer through informal channels) businessmen are very active in sending home remittance of the expatriate workers in UAE. For long now, the hundi agents held control of the lion's share of the expatriate remittance sent back to Bangladesh from UAE. Alongside other countries, now that the golden visa has been introduced in the emirates, capital flight to UAE, Dubai in particular, has increased exponentially over the past three and a half years.

In the first three months of 2023, remittance from UAE through formal channels exceeded that from Saudi Arabia and United States. But these figures may be misleading because this recent projection of remittance may be obfuscating the steadily growing capital flight from Bangladesh to Dubai in recent years.

It must also be kept in mind that many of the hundi-wallas are part of international networks. These hundi-wallas are buying dollars from the expatriates in countries which are important destinations of Bangladeshi migrants, and then selling this to the money launderers who siphon their funds from Bangladesh to Dubai. So if the flow of remittance through formal channels from the emirates increases, this does not mean this will lower capital flight to Dubai.

The finance minister recently said that almost half the overseas remittance comes through the hundi networks. I feel that a huge part of the remittance comes through hundi because of the various benefits and conveniences. That means, if USD 21 billion in remittance comes through formal channels to the country, at least another USD 21 billion to 22 billion or ever more remittance enters in country's economy through hundi in the form of taka. That means, when sending money back home, the expatriate Bangladeshis sell their foreign currency (mostly dollars) to the hundi-wallas abroad. They, after all, get a higher rate for their dollars than declared by Bangladesh Bank. Also, they can send their money in this manner speedily and with no complications or hassles.

Another important factor is that in most cases, no one outside the family get to know that the remittance has arrived. They receive a telephone call, meet the designated person at a specific place, collect the money, and then immediately deposit it in their bank account. This is a safeguard against thieves and robbers. The strength of the hundi business is that it is reliable and trustworthy. Remittance is not lost and transactions remain confidential. That is why formal banking channels cannot compete in anyway with hundi.

The families are receiving taka equivalent to the dollars and this money has a huge contribution towards the spending and investment of the expatriates' families. Whether it comes through formal or informal channels, the remittance contributes to the country's economy and has multifarious benefits. Despite towering default loans, Bangladesh's banks are not in any dire crisis because the remittance sent in through formal channels and hundi makes up a large chunk of the deposits.

In one way, this huge volume of remittance is a significant alternative to foreign direct investment. The steadily increasing overseas remittance has a startling contribution in taking the GDP growth upwards. Many local and foreign experts have dubbed Bangladesh's laudable economic development as a paradox. Despite so much corruption, this rapid economic expansion appears to be contradictory to them. I think the positive aspect of this huge remittance has escaped them and that is why they see the matter as a paradox.

However, the 'hundi dollars' are remaining overseas, mostly being bought up by the money launderers. Unscrupulous politicians, corrupt civil servants and engineers, massive loan defaulters and billionaire businessmen and industrialists, are using these hundi dollars to gradually build up homes, businesses, establish Begumpara in Toronto and second homes in Malaysia.

The recent trend of opening up offices in Dubai is actually seen as a new dimension added to the money laundering of the businessmen. Mid-level businessmen are playing a more significant role here than the bureaucrats, politicians or readymade garment factory owners.

Dubai has become a more popular business hub than Singapore and Hong Kong to Bangladeshi businessmen. In that context I feel that capital flight to Dubai is becoming dangerous for Bangladesh's economy. Due consideration must be given to take up measures to bring a halt to this illegal capital flight to Dubai.

As these money launderers use the hundi business to siphon off their bank loans abroad, the rate of hundi dollars will always remain 7 to 8 taka higher than the rate declared by Bangladesh Bank on 18 June in accordance to the declared monetary policy. If the hundi demand structure remains strong and no stringent measures are taken to prevent it, it will not be possible to establish a uniform dollar rate in the market.

If the government wants to make a sincere effort to prevent money laundering through the hundi network, then these following measures are imperative. Firstly, the exchange houses in the country must be shut down for a few days. Most of the houses are involved in hundi trade.

Secondly, an investigation team should be send to Dubai to gather information on these businessmen and then declare the money launderers ineligible for banks loans. Thirdly, when the families of expatriates build their brick and concrete homes in the towns and villages, it must be compulsory for them to show 'foreign exchange bank statements' of receiving remittance though formal channels, to get permission for construction.

* Dr Mainul Islam is an economist and former professor of economics at Chattogram University