Al Amin :
Renowned American economist and Nobel laureate Robert Lucas once asserted that attracting foreign capital requires more than just cheap labor and raw materials; a country needs a conducive investment environment and reliable financial policies.
This insight has proven particularly relevant for Bangladesh, as evidenced by the latest UNCTAD report.
The United Nations Conference on Trade and Development’s (UNCTAD) “World Investment Report 2024” reveals that Bangladesh’s efforts to attract Foreign Direct Investment (FDI) have remained largely stagnant.
For the past six years, FDI inflows have hovered between $2.5 billion and $3.5 billion annually.
In 2018, Bangladesh saw a significant surge in FDI, jumping from $2.15 billion to a record $3.61 billion, marking a 67.89% increase. However, this momentum was not sustained in subsequent years.
Despite hitting the record high in 2018, FDI flows fell to $2.87 billion in 2019 and further to $2.56 billion in 2020, reflecting decreases of 20.45% and 10.79%, respectively.
There was a modest recovery in 2021 with $2.89 billion and in 2022 with $3.48 billion, marking increases of 12.95% and 20.17%, respectively, making 2022 the second-highest year for FDI inflows in Bangladesh’s history.
However, this trend did not continue, as FDI dropped to $3.004 billion in 2023, despite being the third instance of surpassing $3 billion.
Bangladesh’s FDI inflows remain low compared to other Least Developed Countries (LDCs).
Last year, Cambodia led the LDCs with $3.959 billion in FDI, followed by Ethiopia with $3.263 billion. Bangladesh’s third-place finish in FDI inflows among LDCs is a cause for concern given the competition.
Dr. Zahid Hossain, former chief economist at the World Bank’s Dhaka office, highlights several barriers deterring foreign investors.
He points out that the primary concern for any foreign investor is the security of their capital. Investors seek assurance that they can freely manage and repatriate their profits.
In Bangladesh, foreign investors face several obstacles, including mandatory partnerships with local firms and unwritten bureaucratic hurdles.
Moreover, challenges such as land availability, skilled labor, and infrastructure further complicate the investment climate.
The eighth five-year plan included numerous policy measures to attract FDI, such as maintaining controlled inflation through sound macroeconomic management and establishing a competitive and stable exchange rate.
However, rising inflation since mid-last fiscal year and fluctuating exchange rates have undermined these efforts. Additionally, initiatives to increase private sector credit growth and reduce business costs have not been effectively implemented.
Dr. Hossain stresses that planning alone is insufficient without effective implementation.
The lack of follow-through on initiatives detailed in the plan is a significant barrier to increasing FDI.
He also notes that the downturn in investment is not surprising given the national election cycle but emphasizes that prolonged stagnation in FDI inflows is detrimental to an emerging economy like Bangladesh.