Foreign Direct Investment (FDI) Rises, But Lower Than Expected

 Foreign Direct Investment (FDI) Rises, But Lower Than Expected

Official figures showed that foreign direct investment in Bangladesh rose 13 percent year-on-year to $2.89 billion last year, a positive development for an economy long looking to increase the flow of external funds to accelerate its growth.  Given the country’s potential and business volume, the FDI inflows have been significantly lower than what was expected. Strict regulations, bureaucratic complexities, inadequate infrastructures, and lack of one-stop service have become significant challenges to lifting the volume of FDIs.

New investment, or equity capital, was at a higher level last year than in 2020, which economists have described as a good development for the country’s investment sector. According to data from the Bangladesh Bank, FDI in equity capital rose 35 percent to $1.13 billion. Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue, said the inflow of equity capital had not been favorable for long. However, it finally rebounded last year. The inflow of equity capital means foreign companies brought fresh funds to the country.

Two other segments of FDI have reinvested earnings and inter-company loans. Significantly, foreign investors had reinvested their earnings generated in Bangladesh, but the trend reversed last year. The reinvestment of earnings stood at $1.562 billion last year compared to $1.566 billion a year prior. Inter-company loans increased to $194 million, up 25 percent yearly. During the Seventh Five-Year Plan period, covering the fiscal years of 2015-16 to 2019-20, the government aimed to attract $32 billion in foreign direct investment. But the country managed less than $10 billion.

Zahid Hussain, a former lead economist of the World Bank’s Dhaka office, said the Bangladesh Bank should liberalize its foreign exchange regime further so that businesses could repatriate funds smoothly. He also added that the central bank should provide policy support to them in a way that helps them settle foreign transactions in Bangladesh without any hassles.

The economist called for ensuring a one-stop service as many investors struggled to get the initiative’s benefits. Mamun Rashid, an investment analyst, says, “Bangladesh has a strong wish to attract foreign investment, but there are some barriers that discourage foreign entities. The country’s protectionism attitude is one of the major roadblocks to drawing the attention of foreign entrepreneurs.”The average protection rate, which includes different levies and taxes imposed by a government, is 27 percent in Bangladesh. On the other hand, the protection rate is 1-1.5 percent in the developed nations, 4-4.5 percent in the developing countries of Asia, and 9 percent in China and India, he said.

“This means foreign businesses have to face more expenses than the local ones. Therefore, we should create a level-playing field for foreign investors, or else they will not choose the country as their investment destination,” Rashid also said.

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