FDI can play varying roles in each of these scenarios.
The role of FDI
In all three scenarios, but particularly in the last two, there is an important role for FDI. Some part of it may come into garments, with an average productivity higher than current levels in Bangladesh, and including, in many cases, a higher value-added product mix. The entry of FDI on a large-scale helps disseminate good practices to locally-owned enterprises, resulting in increases in productivity and product-mix improvements in the locally-owned garment industry.
A part of the FDI goes into other sectors, such as leather, light engineering, ICT and ICT-enabled services, and agro-business (pharmaceuticals remain a largely domestic owned industry). This FDI plays an important role in catalysing the transformative changes described under Scenario 3 for these industries.
A third wave of FDI goes into new industries, ie, industries that are consistent with the comparative advantages of the country but currently don’t exist in Bangladesh or are negligible. This type of FDI helps jump-start such industries and establish the Bangladesh brand in foreign markets.
A fourth wave goes into infrastructure and in the development of economic zones whose design, development, and management increasingly become a private sector activity.
What’s needed for the different scenarios to materialise
Movement along these different scenarios will require an enabling investment climate.
The volume-centric growth scenario will require particular attention to land and the environment. Lack of serviced industrial land has emerged as a major constraint to industrialisation and will become more severe as industrialisation accelerates.
The environment is suffering due to indiscriminate use of land for setting up factories and pollution associated with industrial production. Working conditions, both building safety and treatment of workers, is becoming a major issue with serious implications for social sustainability of industrial activity.
An efficient economic zone regime coupled with a modern land administration system, and greater attention to the environmental and social aspects of industrial activity is critical for the volume-centric growth pathway. Both from the environmental as well as inclusive growth points of view, there is need for greater geographic balance in future industrialisation in Bangladesh. This will also require an efficient economic zone’s regime and improved connectivity within the country.
Innovation and adoption of good practices is key to the productivity-driven growth paths. Action will be required on a number of fronts. At the macro-level, there will be a need for a good innovations system, ICT backbone infrastructure, security of property rights (so that the returns from investments in innovation and productivity improvements can be appropriated), and a regulatory governance system that ensures that new laws and regulations are conducive with the requirements of an innovation and productivity-driven economy.
At the meso and micro levels, there will be need for innovative financial products, especially early stage and risk capital, a service provider market that facilitates adoption of productivity-enhancing measures, and micro-level regulatory reforms that facilitate innovation. This growth path will also involve some industry consolidation with closure of inefficient firms. Good exit policies and management of the transitional social costs of industry restructuring will thus become important.
At the heart of all scenarios lies infrastructure investments. Going forward, the critical arena here is PPP. The government has established a policy and legal framework for PPPs, and a central office to help roll out the program. Nonetheless, two critical agendas will require greater attention. Land acquisition for infrastructure will require transparency of land ownership and efficient ways to address the social consequences of displacement.
Co-ordination within government will be required since many ministries and agencies will have a say in the approval and implementation of PPP projects. A concerted effort is needed to build awareness, commitment, and capacity in a critical mass of government officials across a range of ministries and agencies. Such efforts need to go beyond traditional training programs and should aim at building a community of government officials committed to the idea of PPPs.
The quantum jump in FDI inflows will require a revamping of the investment promotion and facilitation machinery in government. Investment promotion activities will need to become more sophisticated and targeted, underpinned by deep knowledge of sector characteristics in the country and investor motivations abroad. Investment approval processes across all relevant government offices will need to be streamlined and sophisticated feedback loops put in place to get just-in-time alerts about implementation gaps, including investor grievances.
All this will require a paradigm shift in BoI. But this will not be a task for BoI alone. In FDI facilitation, as with the PPP agenda, there is a need to train a critical mass of government officials across several ministries and agencies.
This is a challenging agenda, but an important one. Strategic thinking and sustained implementation is key. Bangladesh will need to be unique, not just in the imagination of poets, but in the actions of its government.
But investment for what? That is the key question. As we double our efforts to attract foreign investment, it is important to be clear about our strategy. How exactly will such investment flows contribute to our development goals?
