Bangladesh is ranked third after China and Australia for posing challenges to ensure the rule of law for foreign investors, according to a new report.
The US-based international law firm, Hogan Lovells, and The Economist Intelligence Unit conducted a survey towards the end of last year among 301 senior decision-makers of companies with at least $1bn global annual revenue.
The survey released recently seeks to relate between the rule of law and Foreign Direct Investment (FDI).
It found that the existence of a strong rule of law was identified as the third most important factor in selecting the location of FDI.
Respondents cited corruption (both public and private) as the main factor, followed by political and social instability and risks to the physical security for their investment decision making.
On the other hand, the low cost of doing business, access to natural resources or raw materials and access to innovation or R&D in the host country were ranked as the least important factors.
Of the respondents, 7% cited the rule of law as a significant issue in Bangladesh. The survey placed China in first spot as 11% of respondents described it as the country where the rule of law was a concern.
Some 8% of the respondents said Australia is the second country that poses the rule of law.
Commenting on the report, former Foreign Investors’ Chamber of Commerce and Industry (FICCI) President Syed Ershad Ahmed told the Dhaka Tribune non-coordination among the government agencies has basically made the legal issue complex in the country.
He said getting permission for any foreign investment-related project is very cumbersome as investors need to rush to several ministries and departments for permission.
“Bangladesh needs to address the issues in quickest possible time to attract FDI for faster economic growth.”
According to the UNCTAD report, the country attracted $1.53bn in FDI in 2014, a fall of over 4.8% from $1.6bn in 2013.
FDI still constituted a low share of more than 1% of GDP, which is considered to be much lower than in other countries, such as Myanmar, Laos, Cambodia and Vietnam.
According to the survey, 57% of Western European investors made FDI in Western Europe while 68% of Asian investors made the investment in Asia.
Respondents represented companies operating in a variety of industry sectors, including financial services (19%), information industries and telecommunications (16%), energy and natural resources (15%) and healthcare, pharmaceuticals and biotechnologies (15%).
The report showed that the strength of the rule of law was the third major consideration of companies when making decisions about when to invest, along with “ease of doing business” and “a stable political environment”.
A strong rule of law is either “essential” or “very important” to investment decision-making, some 88% of the respondents.
The report noted that more than $1tn in FDI flows across borders worldwide every year. Understanding the factors that influence companies’ choices is the key to capturing that capital.
The report used a broad definition of the “rule of law”, including the clarity, certainty and predictability of laws as well as certain elements of justice within the country’s legislature.