Bangladesh and foreign investment

There is almost cut-throat competition among countries to attract foreign investment all over the world. It makes no difference whether a country is developed, developing or least developed in this respect. Every country is ready to embrace foreign investors with open arms. The foreign investors, particularly in equity investment, are choosy in selecting the countries. Their main consideration in selecting is the bottom line. The prospect of making profit is of paramount importance and trumps all others.
The foreign investors in direct equity investment look at a variety of factors before making up their minds. Political stability, infrastructure, availability of utilities, transportation, port facilities and skilled but cheap labour are the most important issues that they weigh in their minds. Out of these skilled but cheap labour takes precedence over all others. As wage increases and labour becomes dearer foreign investors shift their attention. In the race to become the favoured destination for foreign investment every country tries to present the ideal environment and this continually changes among the competing countries. The changes take place sometimes through active promotion by the government, sometimes by virtue of the vibrancy of the private sector.
In the index of labour prepared by the international organisation Varix Maplicraft, Bangladesh is one of the three countries in the world offering cheap labour. The other two countries are Vietnam and Cambodia. The organisation has drawn up the list after scrutinising labour law, social safety net, rules of employment and labour productivity of 172 countries. In its report the most costly labour are in Spain and Italy. About 25 countries of Western Europe have labour costlier than the rest of the world. High average wage, expensive lifestyle and social security make wages in these countries dearer. According to the report, backward working condition and child labour account for low wages in countries like Bangladesh. It is not very complimentary but that is the hard reality. These negative factors become positive for foreign investors while choosing the country to invest. Low cost labour is the single most important factor that places these countries in global business and supply chain for many commodities, according to the Varix report. It is not a revelation but a confirmation of what is already known.
According to a survey by Japan External Trade Organisation (JETRO) Bangladesh has climbed up in the list of countries preferred by Japanese investors. Most Japanese firms in operation in China now choose Bangladesh as the second best investment destination after India due to lower production costs. Owing to sluggish operations and struggle for expansion of business in China Japanese firms are expanding their operations mainly in Bangladesh, India, Vietnam and Thailand. On the basis of opinion by the chief executive officers (CEOs) of 10078 Japanese companies doing business in 20 countries JETRO has prepared a survey report showing Bangladesh next to India as the most attractive investment destination. India scored 78 per cent in the investment attraction index while Bangladesh scored 71.7 per cent. In this survey report it has been pointed out that due to low wages, lower cost of production and prospects of earning higher profit have made Bangladesh the destination of choice to Japanese investors who are expected to 'swarm' the country in 2015.
Many Japanese firms based in China are shifting their business to Bangladesh and/or about to do so. Some 71.7 per cent Japanese affiliated firms in China want to expand their operations in Bangladesh, with 78.2 favouring India, 66 per cent Vietnam and 60.9 per cent Thailand, according to JETRO. Bangladesh is offering the lowest worker wage levels among the competing countries in the manufacturing sector. Workers' wages in the manufacturing sector in Bangladesh is on average US$ 100 a month while Cambodia has the second lowest wages at US$ 95, according to the survey. Japanese investors think that Bangladesh has the widest room for cost cutting, according to some 84 per cent of CEOs in the survey. Compared to Japan, the cost of production in Bangladesh is less than half (48.7 per cent) while it is 77 per cent in China and 71 per cent in Vietnam. Japanese corporate heads feel that there are better trade opportunities in Bangladesh in 2015. Some 70 per cent of the CEOs surveyed are expecting profit to rise. Investment from Japan rose three times to $94.97 million in 2013 compared to the previous year, according to Bangladesh Bank.
The JETRO survey report has also come out with some negative observations. Among the countries surveyed, Bangladesh ranked the lowest in quality of employees. The average rate of workers' productivity in Bangladesh is 31.6 per cent while it is 77.5 per cent in Sri Lanka, 68.7 per cent in Pakistan, 44.4 per cent in China and 42.1 per cent in India. So, at the moment it is not so much skill but low wages that have attracted Japanese investors to Bangladesh. It is not a very satisfactory situation and we cannot gloat over it. If training could be given to improve skill and raise productivity of labour more foreign investors would be interested to invest in Bangladesh.
In contrast to the readiness of Japanese and other foreign investors to come to Bangladesh the investment environment leaves much to be desired. Inadequate infrastructure, unavailability of land, paucity of gas, water and shortage of logistics are among the common refrain of critics. Official red tape also makes the investors unhappy. A measure of administrative bottleneck is seen in the fact that since January this year only one direct foreign investment (DFI) proposal has been registered. The record was better last year. During October-December last year seven DFI proposals were registered. The record is uneven and does not show a momentum.
There is widespread apprehension that if political calm does not prevail and law and order takes firm hold, foreign investors, including Japanese, may change their minds and shift investment elsewhere. The impediments to foreign investment in Bangladesh are well known and are simmering for a long time. It is time to make a breakthrough while the expectations of foreign investors are high.
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