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Dhaka Tribune

MCCI: FDI rising but investors wary of making investments

Rising food import target may hamper existing domestic food procurement

Update : 06 Dec 2022, 08:36 PM

Despite an increase in FDI during the first quarter (July–September) of the current fiscal year (FY23), foreign investors are still wary of making investments in Bangladesh for a number of reasons, including the country's underdeveloped infrastructure, lack of energy, inconsistent policy, scarcity of industrial land, and the non-transparency and uneven application of laws and regulations.

However, given the current status of the global economy, which includes the dollar crisis, there is no other way to draw in foreign investment to boost local industrial production so these constraints must be addressed as soon as possible. 

On the other hand, due to the government's food import policy, it has been hinted that the amount of food procurement from internal sources of the country may decrease in the current fiscal year.

These findings are projected in a recently published July-September or Quarterly (Q1) on the FY23 review by the Metropolitan Chamber of Commerce and Industry (MCCI) Dhaka called the “Economic Situation in Bangladesh”.

Regarding foreign direct investment (FDI), the report said that the net FDI in the first three months of the current fiscal year (July-September of FY23) increased by 21.87% to $457 million from $375 million in the corresponding period of the previous fiscal year (July-September of FY22), according to the Bangladesh Bank's balance of payments data. 

On the other hand, the gross inflow of FDI during July-September of FY23 also increased year-on-year by 27.78% to $1,159 million from $907 million. 

But MCCI's observation was that the FDI inflow in Bangladesh is low compared to that in many countries at a similar level of development. 

Bangladesh's low labour costs are generally believed to be attractive to foreign investors, yet they hesitate to make fresh investments in the country because of the country's underdeveloped infrastructure, and such other impediments as the shortage of energy and weak transmission infrastructure, lack of consistency in policy and regulatory frameworks, scarcity of industrial land, corruption, and non-transparent and uneven application of rules and regulations. 

“The government needs to address these impediments to attract more FDI to the country in order to ensure the country's economic recovery from the coronavirus pandemic,” it also added.

Food import, procurement, distribution

At the end of September 2022, the public food grains stock was estimated at 1.69 tons, out of which 1.54 tons was rice and 0.15 tons was wheat. 

Data shows that, during Q1 of FY23, the government imported 0.51 ton of food grains (public and private), which is 41% lower than the same period of Q1 of FY22. 

Among this, the private sector imported 0.14 ton (entire volume) of rice and 0.33 ton of wheat and the public sector imported 0.04 ton of wheat. 

The government has reduced rice import duties considering rice price stabilization and increasing national availability. 

For FY23, the budgeted importation of food grains in the public sector has been fixed for 0.70 ton, of which rice is 0.20 ton and wheat is 0.50 ton. 

On the other hand, during the first quarter of the current fiscal year (July-September of FY23), 0.69 tons of rice was procured. 

According to the food budget of FY23, the target of public food grains procurement has been set at 2.44 tons, of which 2.29 tons is rice and 0.15 tons is wheat. 

MCCIs report said that the government intends to import more food grains to increase the supply in the market. 

Since the government has increased the amount of import, internal procurement may be reduced from the existing procurement target.

However, in FY23 the internal rice procurement budget is 13.40% higher compared to the budget of the previous fiscal year (FY22). 

During FY22, actual rice procurement from internal sources by the public sector was 2.02 tons. 

Public procurement from the boro 2022 season started on April 28 and continued up to August 31 and the government procured 1.16 ton of Boro rice (parboiled and a tap) and 0.27 ton of boro paddy, equivalent to 1.35 ton boro rice (in total).

However, the government has expanded the Open Market Sale (OMS) program considering price stability. 

According to the MCCI report, during July-September of FY23, total public food distribution was 0.61 ton, of which rice was 0.56 ton and wheat was 0.05 ton. 

According to the food budget of FY23, the target of public food grain distribution under the Public Food Distribution System (PFDS) has been set at 3.10 ton, of which 2.37 ton is rice and 0.73 ton is wheat.

The macro-economy of Bangladesh is currently under stress, according to MCCI's concluding statement, as a result of the high US dollar exchange rate, import payments, a negative current account balance, a weaker remittance inflow, and a smaller foreign exchange reserve.

The government must take action to stabilize foreign exchange reserves, control inflation, improve revenue production, maintain the supply of electricity and gas for economic activity, and expand social safety net programs in order to relieve the burden.

There have been some signs of the economy's revival during the reviewed quarter (Q1 of FY23).

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