• Tuesday, Apr 07, 2020
  • Last Update : 07:17 pm

High hope comes crashing down

  • Published at 12:22 am February 19th, 2020

FDI inflows fall by 15.57% in 2019

The hope was high, almost touching the sky, when in 2019 Bangladesh moved eight notches up on the ease of doing business index.

Everybody expected that foreign direct investment (FDI), especially those shifting from China, would pour in because of the congenial atmosphere here.  

The rising FDI trend, an 19.47% rise to $1.7 billion, in the first half of the year also tallied well with the high hope.  

But, to utter dismay, the situation was just the reverse at the end of year, with the country witnessing a slump in receiving FDI despite improved infrastructure and apparent political calm.

According to Bangladesh Bank (BB) provisional data, Bangladesh last year received $3.05 billion in FDIs, down by $562 million or 15.57% comparing to $3.61 billion in 2018, when the growth was 68%.

Why this fall

Economists, government officials as well as businesspeople blame this decline on slower global economic recovery, policy deficiency and readiness to welcome foreign investors here.   

“FDI inflows can be up or down as it depends on investors and the global economic status.  Rise also depends on the big blow of investment in a certain sector,” Sirajul Islam, executive chairman of Bangladesh Investment Development Authority (BIDA), told Dhaka Tribune.  

Sharp rise in FDI in 2018 was a sudden rise because of a big investment by a Japanese company and Chinese investment in Dhaka Stock Exchange (DSE), which was not a regular phenomenon, Sirajul noted. 

In 2018, Japan Tobacco invested $1.47 billion to buy United Dhaka Tobacco, a venture of Akij Group, while two Chinese stock exchanges invested Tk947 crore buying 25% of DSE share.    

Businesspeople also blame slower economic recovery and deficiency in policy and infrastructure.  

“The amount of FDI is small considering the size of our economy and the GDP. As per the seventh five-year plan of the government, FDI is supposed to be 3% of GDP and it should be about $9 billion. But we are far behind that,” former DCCI president Abul Kasem Khan told Dhaka Tribune.   

For this, he blames slower growth in the last quarter of the year caused by the slower recovery of global economy.

Kasem also finds policy faulty, which imposes higher taxes putting pressures on businesspeople in keeping the doing business cost reasonable.  

As regards infrastructure, he thinks Bangladesh failed to reap benefits of investment relocation from China because of inadequate infrastructure. 

Lack of readiness to attract foreign investment is another reason.  

“To take the inflow of FDI to a sustained level, Bangladesh needs to reach a certain level readiness in terms of infrastructure and business climate,” former World Bank lead economist in Dhaka office Zahid Hussain told Dhaka Tribune.

"We are now failing to meet the target. If there was diversified industrial base in the country, it could be met," he added.  

Policy unpredictability a barrier

In the recent time, there was tussle between the government and the telecommunication companies, which give a bad signal to potential investors. 

“Regulatory predictability is a key indicator for attracting investment. The recent dispute over the audit claim with telephone companies gave the global investors a bad impression," Centre for Policy Dialogue (CPD) Distinguished Fellow Mustafizur Rahman told Dhaka Tribune.

How to achieve target  

Bangladesh needs to gear up its domestic investment to give a message to the global investors that business is happening here in suitable climate, experts say.  

“To lure foreign investors, the government has first to make the special economic zones (SEZs) ready," said Rahman. 

If the government could complete the projects within the deadline, FDI inflow would increase as targeted, observed Rahman. 

"There is progress in hard infrastructure, though not enough. To make the business process quicker, the government has to concentrate on soft infrastructure such as efficiency of port and other services to ensure smother delivery," said the economist.

The government has taken initiatives to establish 100 special economic zones (SEZs) by 2030.