There is no better gauge of an investment climate than the willingness of foreign investors to risk their own capital. By that yardstick, Bangladesh has long fallen short. Grand promises, smart investment summits and promotional campaigns have all been tried so far, but they have changed almost nothing. Foreign direct investment simply refuses to take off. During the first 10 months of the fiscal year that has just ended, net FDI amounted to only about US$ 1.14 billion, almost 20 per cent lower than in the corresponding period a year earlier, and that preceding year had also registered a sharp decline from the year before. When investment keeps moving in the wrong direction year after year, it stops being a passing phase and becomes the norm. For much of the past five years, net FDI in the country has stayed stuck at 0.3 per cent of national gross domestic product and placed beside the performance of Bangladesh's closest competitors, this looks genuinely alarming. For perspective, Vietnam regularly pulls in foreign investment equivalent to between 4.0 and 6.0 per cent of its GDP while Cambodia reaches up to an astonishing 13 per cent. These are the countries Bangladesh is supposed to be competing with, and the gulf in performance leaves little doubt about who is winning that contest.
At this moment, global competition for capital is fiercer than ever. Every country is chasing these dollars because investment creates jobs and keeps the economic wheels turning, so it is not surprising that Bangladesh has also engaged in a charm offensive to lure foreign investors in. The present government has identified foreign investment as one of the central pillars of its medium-term economic strategy and has set an ambitious target of raising foreign direct investment to around 2.7 per cent of gross domestic product by 2031. The ambition is understandable, even necessary, but given how weak the base already is, it is hard to see a credible path to that summit.
Among the reasons for that gap, the bureaucratic ordeal of securing basic licences and permits comes up most often. Depending on the industry, a manufacturing company must obtain between 20 and 27 separate approvals before a single project can begin operations. Even for a domestic company, the process can take anywhere from one to three years. For foreign investors, the experience is often even more frustrating. Without familiarity with the local bureaucratic culture or the informal channels that often determine how quickly files move, the wait can stretch indefinitely with no certainty about when, or even whether, the approvals will arrive.
The government's recent pledge to simplify these procedures is a vital step forward. If implemented, a single window for licensing within seven days, visa processing for foreign investors within 10 days and company registration within 48 hours would be a dramatic break from the painfully slow process of the past. For a system where investors have grown used to indefinite waits, definite timelines carry real weight. Even more significant is the proposed idea that applications left pending past the deadline will be automatically deemed approved. This would introduce a new layer of institutional accountability, making it far more difficult for bureaucrats to sit on paperwork indefinitely.
It is, however, worth remembering that bureaucratic reform is far easier to promise than to enforce. Time and again, top officials have proved courteous and receptive when investors raise concerns directly with them, yet that willingness rarely filters down to the implementing agencies and field offices where old habits continue to prevail. Investors ultimately decide not on commitments announced at high level meetings but on what happens in those everyday dealings with the bureaucracy. The red tape and harassment at those agencies and field offices have to end, then, before the investment climate can genuinely improve. That is precisely why the government must ensure that every department, every agency and even the lowest level employee embraces the same pro-business mindset as the country's leadership. Otherwise, the reform agenda will remain little more than words on paper.
Even the most carefully designed reforms mean little unless investors see them working on the ground, since no one risks millions of dollars on policy announcements or polished presentations alone. Everyone knows promotional material is designed to look perfect. What new investors trust instead is confirmation from companies that have already been operating in the country. When existing investors are satisfied, they expand their operations and that success naturally attracts fresh investment from others. Right now, most businesses are stuck in survival mode or actively looking for an exit, which is hardly the signal that attracts anyone else in.
Foreign investment cannot be separated from the decisions of domestic investors either, who have been just as reluctant to commit their funds. They know this market better than anyone outside it ever will, and if they are holding back, it is hard to argue that someone from abroad should feel more confident. Part of that reluctance stems from the high cost of financing. Commercial bank lending rates today have climbed to between 12 and 15 per cent for corporate loans and working capital. Borrowing at these rates requires an exceptionally high profit margin just to service the debt before a business can see any actual profit. Many industries simply cannot generate returns large enough to justify such expensive credit, so investment from them has stalled altogether. Investment decisions are driven by expected returns rather than optimism and unless domestic manufacturing can overcome high interest rates, regulatory bottlenecks and the same ground level hurdles that existing investors already contend with, businesses will continue to avoid taking on unnecessary risks.
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