Why is foreign direct investment so low in Bangladesh and how to increase it?

Bangladesh’s FDI inflow rate is only around 1% of GDP, one of the lowest in Asia.

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Bangladesh’s FDI inflow rate is only around 1% of GDP, one of the lowest in Asia.

Despite steady economic growth in the country over the past decade, foreign direct investment (FDI) has been relatively low in Bangladesh compared to its regional peers. Compared to USD 2.9 billion in FDI inflows to Bangladesh in 2019, FDI inflows amounted to USD 141.2 billion in China, USD 50.6 billion in India, USD 23.9 billion in Indonesia and USD 16.1 billion in Vietnam. Bangladesh’s FDI inflow rate is only around 1% of GDP, one of the lowest in Asia. While even during the pandemic (2020), FDI flows to developing countries in Asia increased by 4% to reach $ 535 billion, according to figures from the United Nations Conference on Trade and Development (UNCTAD), Bangladesh was unable to achieve expected FDI. In 2020, foreign investors invested around USD 17 billion in Vietnam, USD 64 billion in India, around USD 18.58 billion in Indonesia, while Bangladesh received USD 2.56 billion and of this amount, USD 1.6 billion USD represented profits reinvested by already existing foreign companies. in the countryside.

Bangladesh government agencies often claim that they are sincere and very eager to promote investment. They adopted various liberal policies and implemented a number of policy reforms and incentives designed to promote a competitive climate for FDI, and also carried out various promotional activities such as investment summits, investment tours. presentation, etc. to promote investment. However, the government’s demands often do not reflect the reality on the ground. A foreign investor usually rates a country based on its ease of doing business and its general economic climate. Although Bangladesh has moved up eight notches in the World Bank’s 2020 Ease of Doing Business ranking to 168 out of 190 countries, there are still significant bottlenecks in doing business. For example, the transfer of title to property in Bangladesh takes an average of 271 days, almost six times longer than the global average of 47 days. It takes an average of 1,442 days to resolve a trade dispute through a local first instance court, almost three times the average of 590 days in high-income OECD economies. According to the World Bank, to connect to electricity in Bangladesh, a new business needs 150.2 days, while in Vietnam it takes 31 days, in Singapore 30 days, in Malaysia 24 days and in neighboring India. 55 days. Existing foreign investors often complain about bureaucratic tangles in Bangladesh hampering business operations and obtaining various licenses. Then there are hidden procedural, policy, legal and infrastructure costs that weigh heavily on the cost of doing business.

There are allegations that some investors have returned home after finding long waits and hassles to overcome too many hurdles. Industry experts say disincentives that discourage foreign investors include time-consuming bureaucracy, poor socio-economic and physical infrastructure, unreliable energy supply, corruption, lack of good governance, low productivity of the economy. labor, underdeveloped money and capital markets, high operating costs. company, complicated tax system, frequent changes in policies on import duties for raw materials, machinery and equipment, delays in decision making, etc.

According to the World Economic Forum’s 2019 Global Competitiveness Index (GCI), Bangladesh’s position slipped two notches to 105th place among 141 countries surveyed. According to the report, the country’s competitiveness declined in 10 of the 12 pillars, where a significant deterioration in ranks was observed in macroeconomic stability, labor market, ICT adoption and infrastructure. Besides poor infrastructure, scarcity of land, acute shortage of electricity and gas for new industries, finding the right people and getting them to work productively are the biggest problems in Bangladesh today. We have made remarkable progress in expanding primary education, in particular by increasing the number of students and reducing gender disparities. But our education system and our programs do not serve the goals of human development. There is a lack of communication and collaboration between government, academia and industry, and as such, we are not producing quality or skilled people for modern industry. To cover the shortage, a good number of foreign professionals and technicians were imported from neighboring countries to lead industries such as clothing, textiles, home shopping, telecommunications, information technology, poultry, etc.

Investment (foreign and domestic) is a key determinant of economic growth and development. It is also seen as a driver of job creation. Although Bangladesh has experienced exceptional economic growth in recent years, it has failed to create adequate jobs for the millions of young Bangladeshis who join the workforce every year. Currently, about two-thirds of our total population is of working age. About 2 million people enter the labor market each year. Providing employment opportunities to such a large population is quite a difficult task for the government as well as for the local private sector. Therefore, the government must continue to create more investment opportunities for foreign investors in sectors such as electricity, clothing, pharmaceuticals, textiles, agricultural processing, manufacturing, infrastructure, including including roads, highways, overflights, water treatment plants, hospitals, electricity, etc., which will create more jobs and promote sustainable economic growth. In recent times, the government has taken various measures to attract FDI to the country, but it seems that these are not enough to gain investor confidence, as Bangladesh is sorely lacking in two of the most widely used global indicators: ease. of Doing Business (EDB) of the World Bank. Group and the Global Competitiveness Index (GCI) of the World Economic Forum.

It should be noted that when investors intend to come to a country, the level of convenience of doing business in the host country plays a crucial role in making investment decisions. They assess the clarity of existing policies, the reliability of government officials and compliance with rules and regulations, examine the rate of return on their investment and whether they will be able to repatriate their profits or funds, and most importantly, whether they there is sufficient security. for their investments. Therefore, if Bangladesh is to strengthen its position in the global market and as a major destination for FDI, there is an urgent need to focus on policies to remove the above-mentioned disincentives which are responsible for the high cost of foreign exchange. ‘investment. If implemented successfully, the country will not only become a lucrative investment destination, but it will also help improve our ranking of the ease of doing business, an important indicator for FDI decisions by foreign investors. .

Abu Afsarul Haider is an entrepreneur. He studied economics and business administration at Illinois State University, USA.

Email: [email protected]

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