China top investor with $1.03 billion
Bangladesh received a record $3.61 billion last year as Foreign Direct Investment (FDI), up by 67.94% more than in 2017, thanks to various steps the government has taken to attract new investments.
While China became the leading investor in the country with $1.03 billion, the United States, traditionally the top investor, dropped to fourth with only $174 million in FDI for 2018 in Bangladesh.
The Netherlands invested the second largest amount of $692 million, and the United Kingdom was the third highest at $371 million.
Disclosing the data at a press briefing on Thursday, Bangladesh Investment Development Authority (BIDA) Executive Chairman, Kazi M Aminul Islam, also said that Bangladesh received $2.15 billion as FDI in 2017.
“It’s a record,” he said, referring to the $3.61 billion received as FDI last year.
He said the power sector alone had attracted investments worth $1.01 billion, where China contributed $834 million, followed by $730 million in the food sector, and $430 million in the textile sector.
Regarding the downtrend of US FDI in Bangladesh, Aminul said: “The US government has cut tax rates for businesses in the US, and that has encouraged them to invest in their own country.”
The government of Bangladesh over the past few years has taken various initiatives, such as policy reforms, removing infrastructural deficiencies and creating a positive business environment to encourage more investment, and that has paid off.
Trade leaders, economists, and government officials say these steps have attracted investors to park their money in Bangladesh, turning it into an economic hub in the South Asian region.
What’s behind the skyrocketing FDI?
BIDA chief Aminul said: “Factors such as sound economic growth, a young talented workforce, and the infrastructural development necessary to attract investments are visible in Bangladesh. So foreign investors have poured funds here, giving FDI a sharp rise, despite global slowdown.”
The increase in FDI is a result of policy reforms and the introduction of a one-stop service (OSS) for investors, which is already in operation. “Currently, a total of 22 services are being provided by the OSS,” he said.
The government, as part of its reforms, enacted the One-Stop Service Act 2017 to facilitate services and reduce the cost of doing business for both foreign and domestic investors.
Aminul said: “Beyond these, political stability, an expanded domestic market and a booming economy linked to global economies have played a role.”
The government has taken on mega projects such as Padma Bridge, Rooppur Nuclear Power Plant, and LNG terminals, to improve the ‘doing business’ ranking. These also worked as incentives for investors, he added.
In addition, BIDA had earlier suggested the National Board of Revenue (NBR) provide tax policy support for the manufacturing sector, which has drawn investor’ attention, said the BIDA chief.
According to BIDA data, equity investment has increased by 108.6% to $1.12 billion, which was $539 million, while reinvestment has increased by 2.32% to 1.30 billion. Clearly, investor confidence in Bangladesh has improved.
On top of that, intra-company loans have also increased for the same period by 254%, from $333.24 million to $1.18 billion.
“Foreign investors became interested and started investing because of government infrastructural projects being built to facilitate more businesses,” Centre for Policy Dialogue’s Additional Research Director, Khondaker Golam Moazzem, told Dhaka Tribune.
A big jump in FDI will also provide support to stagnant domestic investments and play an important role in overall investment, he said.
“Although, there is no remarkable development in the ease of doing business, it is on the right track. This will attract small and medium size investments,” added Moazzem.
According to the World Bank’s “Doing Business 2019: Training for Reform” report, Bangladesh stands 176th out of 190 countries, for ease of doing business. The country was 177th in the ranking the previous year.
The economist also pointed out that since the lion’s share of FDI is in the power sector, ‘ease of doing business’ is not a major factor.
Special Economic Zones luring FDI
Businesses as well as experts have said that initiatives to establish 100 Special Economic Zones (SEZs) by 2030 also gave FDI a great boost, with investors already having started production in some of the zones.
Former BGMEA president, Abdus Salam Murshedy, told Dhaka Tribune that the government’s move to offer all facilities to investors at SEZs also attracted huge investments.
Over the past year, a good number of foreign companies, such as Honda, invested in SEZs and have even started production, he said.
In November 2018, Japanese automobile giant Honda started manufacturing at Abdul Monem Economic Zone (AMEZ) in Munshiganj. The company set up a plant on 25 acres of land and invested Tk230 crore.
To retain this momentum, experts have suggested finishing the construction work and setting up of SEZs as soon as possible to maintain investor confidence.
“If the government completes the projects within the deadline, FDI inflow will continue to grow,” said Moazzem.
The economic zone in Mirsarai, named @Bangabandhu Sheikh Mujib Shilpa Nagar,” is being developed on 30,000 acres of land, stretching to Feni’s Sonagazi upazila.
This new zone is expected to create employment opportunities for 1.5 million people within the next 15 years and ensure export earnings of $15 billion.