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Bangladesh sees record growth in FDI, trend likely to continue

  • Published at 02:48 pm June 14th, 2019
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A UN trade report says FDI inflows to Bangladesh have risen to a record level of $3.6 billion

Bangladesh has registered a record level of growth in foreign direct investment (FDI)—while investment inflows to South Asia increased by a modest 3.5% in 2018—according to a United Nations (UN) trade report.

The United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2019 was released last Wednesday.

The report says FDI flows to Bangladesh rose by 68% to a record level of $3.6 billion.

“This was driven by significant investments in power generation and in labour-intensive industries such as ready-made garments; as well as the $1.5 billion acquisition of United Dhaka Tobacco by Japan Tobacco,” it says.

FDI to India—which has historically accounted for 70% to 80% of inflows to South Asia—increased by 6% to $42 billion. Investment was strong in manufacturing, communication, and financial services – the top three industry recipients.

Pakistan, the fourth largest recipient of FDI in the sub-region, registered a 27% decrease in investment to $2.4 billion.

“The prospects for FDI flows to the region in 2019 are moderately optimistic, thanks to a favourable economic outlook and ongoing efforts to improve the investment climate in several major economies,” said James Zhan, director of UNCTAD’s division on investment and enterprise.

In Bangladesh, the gains were mostly the result of a $1.5 billion mergers and acquisitions (M&A) deal in tobacco, and new investments in power generation. Also, reinvested earnings in the country—mainly by multi-national enterprises (MNEs)—in banking, textiles, and wearing apparel, more than tripled to $1.3 billion.

The report notes explosive growth in the use of special economic zones (SEZs) as key policy instruments for the attraction of investment for industrial development. More than 1,000 have been developed worldwide in the last five years, and by UNCTAD’s count at least 500 more are in the pipeline. India, Bangladesh, and Pakistan—together—have more than 200 zones in the pipeline.

As an instrument to support structural transformation, these zones are designed to attract specific industries—such as manufacturing, natural resource processing, or technology-intensive industries and services— to support countries’ structural transformation.

However, the report also cautions against costly failures in SEZs for developing economies like Bangladesh. 

One of the big challenges, according to the report, is the new industrial revolution, which could erode the importance of low labour costs, the traditional competitive edge of most SEZs.“SEZs will need to anticipate trends in their targeted industries and adapt,” it says.

Economists and policymakers have lauded Bangladesh’s impressive economic growth and projected graduation from a least developed country to a developing country by 2024.

However, they have also suggested improvements to its business environment and reforms in investment laws and regulations to maintain the current growth trajectory.

The World Bank’s Doing Business report for 2019 lists Bangladesh as 176th out of 190 countries for ease of doing business. 

International bodies—including the United States—have repeatedly urged Bangladesh to continue progress on labour rights and work place safety in line with International Labour Organization standards.