Economists blame the pandemic and poor ease of doing business
Foreign Direct Investment (FDI) inflows to Bangladesh fell by 11% last year amid a global decline, the United Nations Conference on Trade and Development (UNCTAD) said on Monday.
This took FDI in the country to $2.56 billion in 2020 from $2.87 billion in 2019.
“The global flow of FDI has decreased due to the disruptions of the pandemic. But the flow of FDI will largely depend on how we improve the ease of doing business, competitiveness, support mechanisms, infrastructure and ports,” said Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD).
He added that special economic zones, one-stop-service for investors, and infrastructure development would facilitate FDI, only if those are properly developed and implemented.
“Incentives entailing corporate tax cuts, tax holidays, and others will be attractive only then,” he further said.
In response to UNCTAD’s statement of Bangladesh being a “low investment commitment” nation, the professor said: “If we were not interested, why did we seek $30 billion worth of investment in the 7th five-year-plan?”
According to him, UNCTAD’s statement can be interpreted to be a comparison with Vietnam that has been developing FDI attracting factors at a faster rate than Bangladesh.
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According to the World Investment Report (WIR) 2021 of UNCTAD, FDI also fell in other South Asian economies that rely on export-oriented garment manufacturing.
As of April 2020, the country’s garment manufacturers and exporters association estimated that more than $3 billion worth of exports had been canceled or suspended.
The WIR 2021 also mentioned that foreign investment inflows in Bangladesh are shifting away from large non-renewable energy and finance projects towards fintech, the pharmaceutical industry, liquefied natural gas plants and agribusiness, which the government is actively promoting.
The prospects of FDI in least developed countries (LDCs) remain subdued in the immediate future and inflows are expected to remain sluggish over the next few years, the report further said.
No new foreign investment came in last year owing to the global Covid-19 pandemic and the overall private investment was not good in that year, Zahid Hussain, former lead economist of the World Bank Dhaka office, told Dhaka Tribune in May.
“It would not be realistic to expect good investment in the country this year as the second wave of the pandemic has already hit the country's businesses and economy,” he added.
The economist said that the foreign investors would not be confident about investing if Bangladesh fails to manage the ongoing coronavirus situation properly or vaccinate 100% of its people.
"The investment structure and existing rules and regulations should be simplified at this moment so that foreign investors do not lose their confidence in the upcoming days," Hussain further said.
According to the central bank data, equity investment rose 4.8% to $842.29 million, while reinvestment increased by 6.73% to $1,566.12 million last year.
However, intra-company loans fell 74.26% to $155.17 million, the Bangladesh Bank data said.
During the October to December quarter of last year, the country received $827.86 million in FDI, which was 14.97% higher than the same quarter of the previous year.
Global FDI scenario
FDI declined by 35% globally to $998.91 billion in the last year from $1,530.28 billion in 2019 due to the pandemic.
However, FDI flows to developing countries in Asia increased by 4% to $535 billion in 2020, reflecting resilience amid global FDI contraction.
FDI in South Asia rose by 20% to $71 billion, driven mainly by a 27% rise in FDI in India to $64 billion.
In India, robust investment in ICT and construction bolstered FDI inflows. Cross-border M&As surged 83% to $27 billion, with major deals involving ICT, health, infrastructure, and energy.
According to James Zhan, UNCTAD’s director of investment and enterprise, FDI to and from the developing Asia region remained resilient in 2020 despite the pandemic, recording FDI growth, accounting for more than half of global inward and outward FDI flows.
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Meanwhile, South-East Asia recorded a 25% FDI contraction to $136 billion.
Lockdown measures, successive waves of Covid-19 infection, supply chain disruption, falling corporate earnings, economic uncertainties, and delayed investment plans were key reasons for the contraction.
In Thailand, FDI sank to -$6 billion, driven by the divestment of Tesco (United Kingdom) to a Thai investor group for $10 billion. In Malaysia, FDI fell by 55% to $3 billion. FDI in Cambodia was flat at $3.6 billion thanks to inflows in finance. In Myanmar, FDI dropped 34% to $1.8 billion.
According to UNCTAD, the immediate challenge is to minimize the number of “lost” years in terms of progress toward SDG goals.