Despite six months passing under the interim government, the business environment in Bangladesh has not improved, with both domestic and foreign investors waiting for political uncertainty to subside before making new investments.
Until a stable political government is in place, investors remain hesitant, especially foreign investors.
Additionally, new value-added tax (VAT) impositions and inconsistencies in government policies have created further challenges for businesses.
Data analysis from the government shows that there has been no significant new domestic investment in the private sector, while foreign direct investment (FDI) has dropped significantly.
According to the Economic Relations Division (ERD) of the Ministry of Finance, Bangladesh's loan commitments from development partners decreased by 67.11% in the first half of the current fiscal year (July-December).
During this period, Bangladesh secured $2.29 billion in commitments from development partners, compared to $6.98 billion during the same period last fiscal year.
Furthermore, fund disbursements in the first six months of this fiscal year were 13% lower than in the previous year.
ERD data shows that development partners disbursed $3.53 billion to Bangladesh during this period, compared to $4.06 billion in the same period last year.
Bangladesh Bank data indicates that FDI in the July-September quarter of the 2024-25 fiscal year fell by 71%. FDI during this period dropped to $104.33 million, from $360.5 million in the same quarter of 2023-24.
Among foreign investors, the United Kingdom made the highest investments in Bangladesh during July-September 2024, followed by South Korea and China.
Meanwhile, the Bangladesh Investment Development Authority (BIDA) has reported that there is a lack of promotional efforts to encourage structural investments in domestic industries.
Rising costs, economic pressures
The garment sector, one of Bangladesh's key industries, has seen a 50% increase in production costs, while bank interest rates have surged to 14-15%, further straining industrial factories.
Additionally, a proposed increase in gas prices is expected to raise costs even further for the apparel and textile sectors.
Business leaders say gas supply shortages have reduced production in many industrial areas, particularly in Gazipur, Mymensingh, Narayanganj and Savar, by around 50-60%.
Investors adopting wait-and-see approach
Amid these economic difficulties, foreign investment has declined.
Analysts say investors, both domestic and foreign, are in a wait-and-see mode, closely watching the direction of political developments.
Economists warn that if political and economic uncertainty is not resolved soon, Bangladesh may lose significant foreign investment opportunities, harming long-term economic goals and growth.
While there have been repeated calls from economists over the past few years to boost FDI, investor confidence has been eroding for the last two to three years.
Moreover, instability during the July-September period has further weakened investor trust.
Expert opinions
Al Mamun Mridha, secretary general of the Bangladesh-China Chamber of Commerce and Industry, said the primary reason for the decline in foreign investment was political instability.
Besides, high interest rates and inadequate gas supply in industrial areas have worsened the situation, he added.
Prof Selim Raihan, executive director of the South Asian Network on Economic Modeling (Sanem), told this correspondent that macroeconomic stability was essential for improving foreign investment.
He remarked that the current environment was not favourable for investment due to policy uncertainty and economic instability.
EPZ investments decline
Maj Gen Abul Kalam Mohammad Ziaur Rahman, executive chairman of the Bangladesh Export Processing Zones Authority (BEPZA), told the media on Monday that investment in export processing zones (EPZs) had decreased by almost 22% in the past six months due to global and domestic challenges.
Despite these challenges, the agency signed 28 new investment agreements in 2024, with proposed investments totalling $568.5 million, said BEPZA Member Md Ashraful Kabir.
