There is good news on the foreign investment front, something that eludes us most of the time. In a highly competitive field like this Bangladesh often fails to make the mark. Lack of infrastructures, administrative complexities and political instability stand in the way of foreign investment flowing in regularly. Its tremulous entry has not helped the saving-investment and foreign exchange gaps to shrink significantly. Gross Domestic Product (GDP) growth has thus been deprived of a strong stimulus.
The news that Bangladesh was the second favoured destination for foreign direct investment (FDI) in South Asia has dispelled doubts in the minds of economic analysts who had given up hope of seeing FDI in any significant volume any time soon. The World investment Report released recently by UNCTAD (United Nations Conference on Trade and Development) has given the lie to pessimism and scepticism assailing many inside and outside the country. The Report shows Bangladesh is placed as a second favoured investment destination in South Asia after India which got US$ 28 billion. Pakistan stood third with US$ 1.3 billion pouring in as FDI. Inflows of FDI into Bangladesh rose 24 per cent year-on-year to US$ 1.6 billion in 2013.
Of the $1.6 billion that Bangladesh received last year, $ 541 million came as equity (direct investment in industries and companies), $ 351 million as intra-company loans (debt transactions between enterprises' affiliates) and $ 697 million were reinvested earnings (investor's share of profits not distributed as profits). Taking into account the composition under different heads the net FDI amounts to $ 902 million which is still substantial.
Along with the volume the sectors where FDI finds its way is important. According to the Report, of the FDI inflows into different sectors last year telecommunications got $ 324 million mainly for the payment of 3G license fees and network expansion of the mobile phone operators.
The banking sector, especially the foreign banks, got $ 327 million to meet their statutory capital requirements under Basel II obligations, In the third category, textile and weaving got $ 422 million, power, gas and petroleum $ 99 million, food products $ 40 million, agriculture and fisheries $ 31 million and others $ 356 million. From this breakup it appears that there are certain sectors like telecommunications and banking where inflows of FDI in the near future is not likely to take place. These are mostly one-off developments that are not likely to repeat every year.
But the FDI in the remaining sectors mentioned above indicates the attractions those have to foreign investors. As those sectors expand so should FDI unless disincentives are created through tardy development of infrastructures and administrative bottlenecks. The interest shown by foreign investors in productive sectors like agriculture and fisheries, food products and textiles is encouraging as these not only contribute significantly to GDP but also creates employment more than in service sectors like telecommunications. The objective of economic growth in Bangladesh is not only to increase GDP but at the same time to generate employment for the unemployed and under-employed.
To attract more FDI, facilities and incentives should not only continue but increase as the preset level is less than the optimum. High bank interest rates and ineffective tax regime have been thwarting investment, including FDI. These need to be rationalised and straightened out. The one-stop service meant to be provided by the Board of Investment (BoI) should be more effective and visible. For this the BoI needs to be strengthened bringing all relevant agencies under its ambit. The proposed economic zones authority and the public-private partnership cell should be under its umbrella rather than functioning as separate entities.
It is rather curious to find that an 11-member committee, headed by a senior secretary, has been formed to promote Japanese investment. The committee reportedly will look into some issues relating to infrastructures and creation of other facilities for attracting more Japanese investment. The committee will also devise ways to make investment approval procedure easy, enhance bilateral economic relations and exchange of investment-related information between Bangladesh and Japan. According to report published in newspapers, the move came following an agreement signed in Tokyo recently to initiate the "Joint Bangladesh-Japan Public-Private Economic Dialogue". One would have thought that this initiative with the objective of promoting foreign investment should have devolved on the BoI. Creating parallel agencies and authorities can only undermine the role and authority of BoI. Headed by the prime minister it should be the supreme body in respect of attracting foreign investment. Its low-key presence and routine operation will not give foreign investment a greater momentum than at present.
There is good news for Bangladesh on the foreign portfolio investment also. According to recent reports, net foreign investment in Dhaka Stock Exchange's (DSE) stocks shot up 111 per cent year-on-year in fiscal 2013-2014. Overseas investors bought shares worth Tk. 40140 million and sold shares worth Tk. 14560 million taking net investment to Tk. 25580 million in the just-concluded fiscal. Foreign investment in DSE's stocks accounts for less than 2.0 per cent of total market capitalisation. There are signs of this share rising in the near future.
The remarkable thing about the rise in FDI and portfolio investment is that these have taken place in spite of political disturbance during the last quarter of fiscal 2013-2014. Solid economic fundamentals can be the only reason for the confidence of foreign investors. In the near term, political stability, solid macro-prudential management and corporate profitability hold the key to greater foreign investment in the country.
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