We're Live Bangla Wednesday, March 22, 2023

Bangladesh: Now is the time to take FDI seriously

In Three Days, An International Investment Summit Will Be Virtually Held. But There Remains Much Work To Be Done To Truly Change The Ground Reality Of The Country’s FDI Inflow

It is important to pay heed to the state of our infrastructure because it can influence FDI. Good news is, the country’s ports, roads and highways are slowly improving. Photo: Mumit M


For many years, Bangladesh has been taking initiatives to attract Foreign Direct Investment (FDI). One of the more recent initiatives was the setting up of Bangladesh Investment Development Authority (BIDA) five years ago, so that the agency can exclusively work to bring FDI to Bangladesh. 

However, this initiative is yet to bear fruit. While our neighbouring countries India and Vietnam's FDI is more or less 10 to 15 percent of the GDP, Bangladesh's FDI is still between 1 to 1.5 percent of the GDP.  

Bangladesh Investment Development Authority's executive chairman Sirazul Islam is also dissatisfied with the country's FDI inflow. He believes, in terms of the economy size and growth rate, the FDI is very low. He said it is less than one percent. 

"In our 8th Five-Year Plan and in the Perspective Plan, it is shown that it [FDI figure] would be around 3 percent. We cannot even achieve one percent. There is no scope of saying that the figure is satisfactory. It is not at all satisfactory," said Sirazul Islam. 

The pandemic is one of the reasons for low inflow of FDI in Bangladesh for the last two years. What is happening now is that those who have already invested in the country are expanding their business. 

"In the last fiscal year, you will see that 63.25 percent of FDI is reinvestment earnings. That is, they [foreign investors] invested the profit they made in Bangladesh. And only 32 percent is FDI equity or fresh investment," said Islam, adding that it will be hard for Bangladesh to attract FDI until the pandemic goes away.

Secondly, Bangladesh will have to brand itself as a country with scope and potential of investment. "We have to let them [foreign investors] know that they will make profit here. We will have to let entrepreneurs know. We are working on it.  

And for this reason, we are going to organise the summit. One of the main objectives is to attract FDI," said Islam. 

In terms of the country's infrastructure, which generally influences foreign investment, BIDA's executive chairman said, "Our infrastructure was not good. But, the infrastructure has improved a lot. We did not have a deep sea port, our deep sea port is being set up, our third terminal is being built, our roads and highways are expanding."  

"We had an electricity crisis. We no longer have the electricity problem," he added, "Regulatory barriers exist all around the world, but Bangladesh has more regulatory problems than most countries. For instance, high taxation. But we are working on that. We are trying to reform the regulatory policies."  
Zahid Hussain, former lead economist at World Bank, Bangladesh said in the 1990s Bangladesh had seen huge inflow of FDI for natural resources like gas exploitation. 

The economist also stressed on the fact that now we have a huge opportunity for natural resources exploitation FDI for the country's Blue Economy. Following the verdict of the international maritime boundary, Bangladesh's area under the sea has expanded. 

And, according to the economist, we ought to explore oil, gas and other minerals. There is no doubt that there is something under the sea. But it is paramount that the location of the natural resources is identified. 

"We will need infrastructure to find oil, gas and minerals from the Bay of Bengal. We need technology, money and management to do so. The local company does not have the capacity. The verdict came six years back, but BAPEX [Bangladesh Petroleum Exploration and Production Company Limited] could not do much," said Hussain.  

India and Myanmar have already started investing in the Bay of Bengal. 

And consequently, we are not getting the natural resources mining FDI, as opposed to the neighbouring countries. There is no policy framework to attain the natural resources in the Blue Economy for foreign investment. The state-own agency BAPEX does not have the capacity. 

"If there is no reliable policy, then who will come to invest? Investment in the Bay of Bengal is risky. The investing company never knows if they will find any resources at all," said Hussain.  

The second category is the market-seeking FDI, foreign companies will come to invest in Bangladesh to gain access into the market. For instance, foreign banks like Standard Chartered Bank and HSBC. They have come to tap into our market. Many manufacturing companies such as electronics and e-commerce companies, as well as startups, have been investing in Bangladesh due to market-seeking FDI.  

But there is a problem. Our market is limited. For instance, if you compare it with India, which has a huge economy worth more than three trillion dollars, we are smaller in scale with an economy worth $400 billion. Thus, the country's scope of securing market-seeking FDI is limited.

There is a third category of FDI, it is called efficiency-seeking FDI. In this category, foreign companies come to invest to lower the production cost. These companies sell the product in the markets around the world. Securing this particular category of FDI can lead to a huge inflow of FDI. 

"We have two pillars that can be used for efficiency-seeking FDI in Bangladesh. One is our demographic pillar. We have lots of young people who can be used. We have a trainable labour force. We have that potential," explained Hussain.  

The second one is our geographical advantage. We have airways, waterways and landways and because of it, there is a huge scope of capturing big markets. Big markets mean India, Thailand and China. Foreign companies can produce quality products in Bangladesh and sell in those markets.

"We have the potential. But we will have to have the capacity of the infrastructure like highways, sea ports, airports. We will need a skilled labour force," added Hussain. 

"While we have taken a lot of steps to ease the regulatory policies, these are not enough. We have made laws for One Stop Service but these are not working well. People can apply online. But still people need to physically go to the agency office. This is why the one stop service is not that effective," said Hussain.

Zahid Hussain said that there is another barrier that results in the ineffectiveness of the One Stop Service. And that is corruption. 

"Different government agencies do not want the One Stop Service to go smoothly because they will lose their value. When people will not go to them, then how will they earn money fast? The government will have to be strict to handle these corruptions," said Hussain.   

Foreign companies have options. They have many countries to invest in. So it is crucial that the country puts in the effort to become a viable option for FDI among its competitors.