How to attract more FDI

At a recent roundtable discussion organised by the Board of Investment (BoI) in the city, country's businesses and investment analysts singled out the absence of a specific investment policy and poor infrastructure facilities, especially those related to land and primary energy, as major impediments to boosting foreign direct investment (FDI) inflow in Bangladesh.

Calling for government attention to such shortcomings, they stressed the necessity of bringing all the services for promoting foreign investment under one umbrella to ensure hassle-free investment atmosphere in the country. At present, getting permission of any foreign investment-related project is very cumbersome. Investors need to move several ministries and government departments to obtain permission or licences before making their investments.

Dwelling on the reform of the country's FDI strategy, many analysts suggested that the government should be more strict in regulating FDI. Foreign investors came to Bangladesh and went back after making profits as our investment strategy is highly biased towards FDI. Time has now come to consider how much the country will get by providing them with so many facilities.

In fact, Bangladesh does not have a specific investment policy like industry and import policies to remove the policy gaps. Analysts say foreign investment would flow to the country if BoI could assure the investors about two things -- land and primary energy like power and gas.

There are vast amounts of government land which remain abandoned for long. The Privatisation Commission took a number of measures to use those, but could not achieve anything significant because some inter-ministerial problems surfaced all on a sudden.

There is no denying that the FDI inflow into the country has been increasing for the last several years. It marked a 45 per cent growth in the financial year of 2013 - it stood at US$ 1.73 billion against US$ 1.19 billion registered in FY '12. According to BoI data, the United Kingdom (UK) topped the list of FDI inflow in Bangladesh followed by Malaysia, Singapore, South Korea and USA in 2013.

Yet it's a fact that such inflow of FDI is not up to the mark. The country is yet to become a favourable destination for FDI. The inward FDI flow to Bangladesh is lower than other countries having the same status of the least developed countries (LDCs). Analysts stressed the need for removal of security concerns, further liberalisation of trade-related policies and resolution of the problem of political uncertainty with a view to attracting more FDIs for sustainable growth of the Bangladesh economy.

Despite having provision for full repatriation of profit and liquidated investment, liberal fiscal incentives and other benefits, rational treatment at post-establishment phase, protection of foreign investment under the bilateral investment treaties with 29 countries and the extension of the facility to avoid double taxation under the double taxation treaty with 28 countries, why the much-sought-after FDI is not coming to Bangladesh in a big way remains a big question.

Availability of huge, easily trainable and competitive workforce in Bangladesh, its relative political stability and its recent positive global ratings should have otherwise attracted more FDIs. Since the mid-1990s, the FDI flow started to rise mainly in energy and power and readymade garments (RMG) sectors. In 2000s, the main surge in FDIs was witnessed in telecommunications, banking and lately in RMG and textile sectors. There is a big difference between the projects registered for FDI and those which finally go into operation. Over half of the foreign investment proposals registered with the BoI each year do not materialise at all.

The poor follow-up negotiations on the part of the authorities concerned, lack of coordination among all relevant agencies, etc., are to blame for such a situation. Although the inflow of FDI is meagre, yet the outflow of funds has increased for repatriation of profits by the multinational companies operating in Bangladesh. The fund outflow is increasing consistently driven by repatriation of oil, gas and power companies' earnings.

The trends show the FDI inflow has been shifting to the services sectors from manufacturing while the inflow declined in telecoms, power, gas and petroleum although it increased in textiles and apparels, banking and food. Weak infrastructure is not the only obstacle to attracting FDI; other factors are also responsible for the low-level of such FDI inflow to the country.

The FDI inflow is important for a country because it creates jobs and helps reduce poverty and facilitate transfer of technology. Bangladesh has otherwise been identified as being among the next frontier (pre-emerging) markets on Goldman Sachs's list of 'next 11 countries'. However, from the regional context, Bangladesh has done better compared to other South Asian countries like India and Pakistan. But, in absolute terms, the amount of FDI that flowed to India and Pakistan is colossal. What is true about Bangladesh is that the soaring land prices and hassles in land acquisition impact adversely the inflow of foreign investment and the expansion of local businesses as well.

The land issue has made the country's development challenges more critical as Bangladesh faces two other major ones - upgrading its infrastructure and ensuring the availability of a large but skilled workforce. In order to attract more FDI, Bangladesh needs to tackle several growth-related factors like poor governance, large-scale tax-evasion, extremely high population density and the associated scarcity of land and natural resources.

 Issues like unskilled and semi-skilled labour force and the country's vulnerability to natural disasters need also to be properly considered. Indeed, Bangladesh needs to overcome infrastructure-related bottlenecks, especially gas and electricity crisis, in attracting investments to its industrial sector. There is a need for a policy shift to promote 'less gas-consuming' industries, encourage investment in infrastructure and give focus on the service sector.

The government has to make a pro-investment policy and pursue clear, consistent and transparent rules. It needs to make concerted efforts to improve infrastructural facilities and ensure supply of energy and power to the industrial units. This is the best way to attract more FDI for promoting the goals of sustainable economic development of the country.

szkhan@dhaka.net