Ours is a developing economy which recently stepped into being a middle-income nation. The
country underwent rapid development in the past decade, thanks to a quick rise in FDI inflow.
Now a question pops up, what is FDI?
FDI stands for Foreign Direct Investment. It is an investment in the form of a controlling
ownership in a business in one country, usually a developed nation, by an entity based in another
country. In simpler terms, when a foreign company or even a government organization invests in
any certain sector of another country, then it is called FDI or Foreign Direct Investment.
Now why is FDI important and how does it work?
FDI plays a major role in the expansion of developing economies, for instance Bangladesh.
Because it results in technological transfer among the two countries, creates employment
opportunities & ensures better efficiency.
The major FDI recipient sectors in Bangladesh are energy and power, textile, food,
banking, service, telecommunication, information and communication technology, trading,
engineering, and a few others. Till today, energy and power are the highest recipient
among all, which is ultimately helping the economy to grow, and the governmentis getting
revenue from the FDI financed companies located inside and outside of the economic zones.
China, Japan, The United States of America (USA) are some among the top investing
nations.
The FDI sector skyrocketed to a whopping $2bn back in 2018 when Japan Tobacco invested
$1.47bn to acquire United Dhaka Tobacco, a venture of Akij Group, while two Chinese
stock exchanges invested Tk. 9.47 billion for buying a 25% stake of the Dhaka Stock
Exchange (DSE). However, after an increasing trend till 2018, the inflow dropped in
2019. As per latest GLOBAL FDI Report, FDI fell in the world and Bangladesh is no
exception -- the inflow to Bangladesh saw a sharp decline by 56% to $1.6 billion in 2019,
according to a report of the United Nations Conference on Trade and Development
(UNCTAD).
The Dhaka Metro Rail Project, which is 75% funded by the Government of Japan, is an example
of FDI. Due to this project, the Japan International Cooperation Agency (JICA) is providing us
with technical cooperation and experts in the related field. This has created a huge job
opportunity and the project is being taken care of in the best possible way with high-end
technologies.
This was an example of FDI on infrastructure. But we need this in other sectors as well, for
instance the leather industry. This untapped industry has a huge potential which if used properly,
will fuel our economic development rapidly. An FDI-driven leather industry and an
entrepreneur-based leather industry is likely to have a gulf of difference because of substantial
benefits i.e., technology, expertise, job opportunity, expansion of trade and even FOREX
reserveto satisfy trade deficit- such has been the case of Vietnam & Bangladesh. Vietnam
emerged as a
major shoe exporter to the EU and the US because manufacturers from Taipei, China and South
Korea became their new intermediaries and helped them to establish production capabilities and
attract FDIs. The knowledge transfer that yielded from both sides here aided factories to quickly
develop new models. Following this pathway, Bangladesh can also attract foreign investors to
expand trade and attract global manufacturers and importers.
Now, why would investors come towards Bangladesh? Let’s have a look at some strongholds of
our country which might attract foreign investors:
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Good macroeconomic stability characterized by a high growth rate of 7.1% in 2017
(Business France, 2018) and a satisfactory level of public debt
An open and diverse economy
A very low-cost workforce
A strategic geographic position as a gateway to countries in the Asia-Pacific region
A strategic and competitive position in the value chain of the global economy
An economic and legislative environment globally favorable to business
Let’s have a look at the drawbacks of our system which limits FDI’s into our economy:
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A business environment complicated by the country's weak infrastructure, burdensome
bureaucracy, rampant corruption, lack of transparency and the slow pace of the judicial
system
Exports that are not sufficiently diversified and highly dependent on the textile sector
Weakness of the financial sector
Vulnerability to natural disasters (cyclones, severe floods) that result in substantial
income losses
Now, claiming that developed nations aren’t investing into our country will be naive, but the
amount or extent of it has been much low when there is room for so much more. There are
certain factors related to the FDI situation in our country, which are to be taken care of soon
enough if we want to continue with our GDP growth. Though the government is working to
expedite the process of business registration, power and gas supply, and land acquisition,
necessary legal infrastructure and other support are of utmost importance for any foreign
business. Here, I’d like to emphasize on a few major issues which needs to be addressed
as soon as possible:
1. The government needs to change or relax several of the existing ordinances and
policies for attracting more FDI. In Vietnam, India, and other South Asian
countries, the investment patterns diverged and had continuity in overseas
investment because of their business environment and skilled workforce in
different sectors
2. At the competitive edge to continue economic progress, the government needs to
take a few measures for resolving problems in the legal infrastructure and it needs
to improve both sea and airport facilities, develop land under economic zones with
adequate utility services, and bring changes to its existing Customs Act 69 and
3.
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further amendments to Foreign Exchange Regulation (Amendment) Act, 2015.
Potenga Container Terminal (PCT) at the Chittagong seaport is believed to help
improve port efficiency significantly, but it’s failing to meet the deadline again
and again.
Automation in customs is essential at all ports in Bangladesh in bringing discipline
and speed up clearance to support healthy business growth
In a virtual discussion on “Bi-annual economic state and future stance of
Bangladesh economy: Private sector perspective” organized by the Dhaka
Chamber of Commerce and Industries (DCCI), it was mentioned that 21 types of
permissions were needed for starting a garments factory in Bangladesh, which is
very discouraging for entrepreneurs and FDI. Efforts should be taken on a priority
basis to simplify the process
Recent activities by some private hospitals created an image crisis for Bangladesh
and the government needs to investigate this issue immediately. Bold steps are
needed to ensure good governance and accountability
One of the main reasons for dropping FDI is harassment by revenue collection
agencies. Government procurement and revenue collection processes need to be
100% automated to ensure good governance. The key tools to organize funding
have been identified as increasing domestic investment and FDI. Therefore, the
foremost plan of action of Bangladesh Investment Development Authority (BIDA)is
now to find ways and means to bring a revolution to the Small and Medium Enterprises
(SMEs) while there is increased focus on attracting FDI.
It’s high time that the concerned authorities look into this matter. This is a good way to spike up
our economic development. In recent years, the government has also launched numerous
infrastructure projects: the project to build a road and rail bridge over the Padma River and the
Dhaka Metro, for example. These are into function, but there are a handful number of projects
that are still revolving around office desks. The authorities should now first fix the system and
enhance the image of our country to the outside world. If needed, adequate digital campaigns and
marketing should be done so that the foreign investors have a positive view of our country, and
we can rise up some places from being the 168th ranked out of the 190 economies around the
globe in terms of safe business and investments. If FDIs can really be a change-maker in our
economy, then why not gear things up for a better Bangladesh?
References:
https://www.nordeatrade.com/en/explore-new-market/bangladesh/investment
https://www.dhakatribune.com/opinion/op-ed/2020/11/22/op-ed-understanding-fdi-in-bangladesh
https://santandertrade.com/en/portal/establishoverseas/bangladesh/investing#:~:text=Investment%20%7C%20Invest
ment%20Opportunities-,FDI%20in%20Figures,a%20record%20level%20in%202018.
https://www.bb.org.bd/econdata/fdi.pdf