BANGLADESH AFFAIRS

FOREIGN DIRECT INVESTMENT (FDI) IN BANGLADESH: EXPLAINED

Foreign Direct Investment (FDI) in Bangladesh has been detailed out in this article. 

Bangladesh is one of next eleven emerging countries in the world. In the last few years, Bangladesh witnessed a constant growth in GDP. It’s the fastest growing country in Asia in terms of GDP growth rate. Bangladesh recorded the highest economic growth among a list of 26 countries in the last 10 years, according to The Spectator Index with 188% GDP Growth rate since 2009. The size of the GDP is more than $317 billion (IMF, 2019). Country’s Per Capita Income stood $1909 last year with an Inflation rate of 5.5. Additionally, Bangladesh is on the way to be graduated from LDC status soon. This will impact on country’s rating and image.

The economy depends on the export earnings from RMG sector, Inward remittance from non-resident Bangladeshi, and agricultural production.  The country has only two export products which cross $1 billion export volume: RMG and Leather & Leather Goods. Number of products in the export basket is very small. On the other hand, Bangladesh imports a lot of raw materials, electronics & consumer goods.

In the past, except for the reasonable labor facility, the country’s overall environment was not conducive to attract foreign investors. Political tumult, corruption, and unpropitious business policies are the main factors for this unsound FDI portfolio. The situation is getting better gradually. 

In the year of 2009, Bangladesh received $1 Billion as FDI. Over the years FDI amount increased. In 2014 there was a heavy political turmoil. FDI amount began to collapse. After the General Election took place and stability ensured, FDI seems to have regular inflow. Along with the FDI inflow, reserve of the foreign currency increased and it reached $30 billion threshold. As of February, 2020, the reserve of foreign currency is $32.9 billion (Ref: Click here)

Image: FDI Inflow from 2014-2018; Copyright: THE CIVIL INSIGHT

In 2018, FDI crossed $3 billion for the very first time. This is occurred due to the takeover of Akij Tobacco by Japan Tobacco Inc. JTI bought Akij’s tobacco business for $1.5 billion. (Ref:Click here )

Main features of FDI in Bangladesh

FDI inflow in Bangladesh has 3 main features

  1. Equity/Portfolio Investment
  2. Re-investment from retained earnings
  3. Intra-company borrowing

(Ref: Bangladesh Economic Review, 2019)

Top sectors for FDI

The following 5 sectors received the majority amount of the FDI in 2018.

  • Power & Energy
  • Food
  • Textile & Wearing
  • Banking
  • Telecommunication

Pharmaceuticals and Leather industry can be other two good options for attracting FDI. Infrastructural development works and light engineering may also draw the attention of foreign investors.

Scopes of FDI in Bangladesh

Bangladesh had limited scopes for FDI in the past. At present, Bangladesh has many scopes for FDI inflow.

  1. EPZ based industries
  2. Non-EPZ based industry
  3. Economic Zones
  4. Mega Projects
  5. FastTrack Projects
  6. High-tech Park and Industrial Park
  7. Public Private Partnership (PPP)

Country-wise FDI Inflow in Bangladesh (2018)

  • China- $1.03 billion
  • Netherlands- $692 million
  • UK-$371 million
  • USA-$174 million

(Ref: Click here)

Relative discussion and scenario analysis 

India is the largest recipient of FDI in south Asia. In 2018, India received $42 billion FDI. Whereas Bangladesh, Pakistan, & Sri Lanka received $3.6 billion, $2.3 billion, and $1.6 billion respectively. Myanmar managed FDI inflow of $3.5 billion in 2018

Vietnam received $15.5 billion in 2018. Vietnam is now surpassing Bangladesh in many contexts. Bangladesh is losing global market share of RMG to Vietnam. This is significantly generating adverse situation for our export earnings. Cambodia and Philippines received $3.1 billion and $6.4 billion FDI respectively in 2018. East African country Ethiopia received $3.3 billion FDI in 2018.

All the countries discussed in this section are the major competitors whom Bangladesh must face in the global trade and business.

(Data Reference: Country Profile, UNCTAD)

Initiatives for attracting FDI in Bangladesh

Bangladesh government has taken many visible steps to widen the size of FDI portfolio.

According to One Stop Services Act, 2018, Investors will get all the associated services under one roof. business registration, trade license, land acquisition, utility services like electricity, gas, & water supply, dividend transfer, fire safety certificate, environment clearance certificate, registration for VAT and Tax, VISA Processing and many more things can be done at one contact point.

Bangladesh Economic Zone Authority (BEZA) is the pioneer organization for implementing this special initiative. Any investor can go to the web portal of BEZA and get necessary information regarding OSS. Other organizations are also implementing OSS for facilitating foreign investment. The government has decided to make 100 economic zones in the country. 89 economic zones have been given approval till today. These Economic Zones will attract more investment and employment in near future.

Bangladesh Investment Development Authority (BIDA) is the key organization for facilitating investment in Bangladesh. It is responsible for investment promotion, local support, and post-establishment support to the investors.

Bangladesh Export Processing Zone Authority (BEPZA) provides congenial environment for export oriented production and manufacturing business. Currently there are 8 government owned Export Processing Zone (EPZ) in Bangladesh. It also provides support services to set up & operate a business.

Government introduced Tax exemption facility, duty free import of raw materials, and many other incentives for the investors.  

Bangladesh is participating in many international trade shows and trade expo to promote country’s products and services.

Recommendations

The government should ensure the following things to enhance FDI inflow

  • Providing hassle free business opening and operating facilities
  • Providing tax exemption and other monetary incentives
  • Marketing and country branding
  • Making trade agreement and treaty

This feature is the property of THE CIVIL INSIGHT. Copying and publishing are strictly prohibited and will be considered as property theft.

Information has been collected from newspapers and website of the relevant authorities.



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