Foreign Direct Investment (FDI) plays an important role in the economic development of a country. It denotes the connectivity and trade relation in the global arena. Although the trend of FDI was upward in the recent past in Bangladesh, its volume is comparatively low now. Corruption, weak governance and law and order situation, gas and power crisis are mainly obstructing the flow of FDI.
Environment is very important for any kind of investment. No environment is completely favourable for investment. But in Bangladesh, the environment is conducive for FDI as there is more or less stability in the political arena, cheap and good human resources, good climate for investment, cooperation of government etc. Besides, the government is generous to appreciate the investors for any kind of investment which relates to development.
But still much-sought-after FDI is not coming to Bangladesh as was expected. Analysts say a surge in domestic investment may help Bangladesh attract more foreign investment and log faster growth. But problems in power and infrastructure and inadequate investment opportunities for small and large local investors hinder the prospect of spike in domestic investment, and FDI.
Indeed, investors in rich countries are now looking for opportunities in Asia and emerging markets for growth, as well as to shield businesses after the global financial crisis. In the past two decades, Bangladesh has been growing by 5.0 percent a year, with global investment banks and multinational institutions praising the country's future potential. The country, which seeks to become a transport and connectivity hub in South Asia, holds the potential to grow fast. But it lacks the domestic resources and investment needed to solve the power and energy deficit and infrastructure bottlenecks.
Many labour-intensive factories in China, Taiwan and Korea are relocating to Bangladesh to benefit from low labour cost. To encourage more countries to relocate their sunset industries, Bangladesh should start building the manufacturing base. There is a inflow of portfolio investment. But the country should deal with such 'speculative' investment with great caution. Inadequate domestic investment opportunities encourage investors to put their funds in stocks, which many fear are overvalued.
The problem of power shortages might be solved by plans to generate 3,000 MW by 2013. Gas production is also being enhanced. It is possible that Bangladesh could be a top investment destination as 'all the ingredients for its flourishing are there.' And for that matter, hard actions are necessary to go for ground-level works that the investors are willing to see.
However, many experts feel inflow of fresh FDI to Bangladesh will shrink further. Domestic investment for the export-oriented industry has already taken a hit from global economic crisis. However, local investment, some claim, is set to rise with the confidence boosting up among entrepreneurs, thanks to a transition to democracy.
An analyst said it is possible for Bangladesh to get $5.0 billion FDI. He identified eleven sectors in Bangladesh that deserve this investment, such as energy, infrastructure, pharmaceuticals, textiles, agriculture, healthcare, telecom, climate change, education, shipbuilding and light engineering. To attract FDI, he recommended four types of investment activities: National image building, investment generation, investor servicing and policy advocacy. Investor servicing involves assisting committed investors to analyse business opportunities, establishing a business and maintaining it. Policy advocacy encompasses initiatives aiming to improve the quality of the investment climate and identifying the views of the private sector in this area.
Other experts said the government should undertake proper plans to attract greater FDI to Bangladesh. A total of 154 foreign and local investment proposals worth Tk 42.70 billion were registered with the Board of Investment (BoI) in October, up by 23 per cent in September, 2010. Of the proposals, reports say, BoI data showed, 39 per cent proposal came from local textile entrepreneurs, reflecting the growing demand for backward linkage industry. The board's data showed a tepid response from foreign investors in October who registered only five proposals, compared to 139 by local entrepreneurs. Some 10 proposals came from joint-venture projects by local and foreign investors.
By contrast, local entrepreneurs registered highest investment proposals for setting up as many as 139 industrial units in the month. Local investors proposed to put into Tk 23.50 billion for industrial units. Local investment proposal also recorded a 19 per cent rise in October, compared to a month ago. In September, local entrepreneurs registered investment proposals for 92 industrial units, the investment of which amounted to Tk 19.71 billion.
Besides textiles, service sector accounted for 35 per cent, chemical 8.0 per cent, agro-based industries 8.0 per cent, engineering 7.0 per cent for and three per cent for other sectors. Five foreign and 10 joint-venture proposals amounted to Tk 19.15 billion in October. Foreign and joint-venture investment proposal data showed a 27 per cent increase in October against September. Sheikh Hasina, chairing a board of directors rightly identified the NRBs abroad as the key resource persons for investment.
Successive governments have repeatedly been inviting foreign entrepreneurs to take advantage of the 'most liberal investment policy.' But according to experts, liberal investment policy remain only on paper. From the airport up to registration of an investment proposal, a foreign investor has to wait months after months. 'One-stop service' which is there in the ledger book of the Board of Investment (BoI), did not work for a single day in the country.
The reality is that the BoI itself was not functioning properly. For long, the vital organisation ran without an executive chairman and did not convene board meetings. The BoI board, headed by the Prime Minister and industries minister as vice president, was scheduled to meet once every three months. Its purpose was mainly to determine vital policies to promote foreign investment in the country and exports. Such slow-going situation has apparently made the prime investment promotion and facilitation agency directionless and one of the most inefficient departments of the country.
According to a study, a staggering 83 per cent of foreign firms located in Bangladesh identified corruption as a major constraint. They also identified crime and lack of law and order as major business constraints. This negative image of Bangladesh as a corruption- and crime-riddled country is evidently taking a toll on its FDI inflow.
The study further says a higher percentage of foreign firms located in Bangladesh identified tax rates and administration, business licensing and permits, customs and trade regulations, and labour skill level as major business constraints. These perceptions are consistent with results found in the econometric model that human capital is a determinant of FDI. An educated and skilled labour force is the key to success for attracting foreign investors, it added.
Indeed, the BoI needs to overcome infrastructure bottlenecks, especially gas and electricity crisis, in attracting investments in industries. There is a need for a policy shift to promote 'less gas-consuming' industries, encourageinvestment in infrastructure, and focus on the service sector. The country needs to explore coal as an alternative source of energy and the government should endorse the Coal Policy at the earliest.
