Bangladesh and its unfulfilled potential for attracting FDI

Is Bangladesh only desirable as an RMG export nation? This question presents a debate. As expected for a country at this stage of development, Bangladesh is still primarily focused on manufacturing and secondary industries. When discussions about business ties with other countries arise, the first sector that comes to mind is RMG exports. Competing at the global level in RMG is an achievement, but Bangladesh has much more to offer than just low-cost garment manufacturing. However, there is concern that the country has pigeonholed itself into an all-eggs-in-one-basket situation. In a competitive world, the country must diversify its foreign direct investment (FDI) by expanding into new products, as relying on a single industry is not sustainable.
FDI in Bangladesh: What is missing?
One topic that often goes underexplored is Bangladesh's potential as a destination for FDI. "Any investment is a good investment" - is that really the case? While most people would generally disagree, when it comes to FDI inflows into Bangladesh, the consensus tends to be favourable. While it is true that the country benefits from the inflow of foreign currency, FDI also results in long-term capital outflows. Others argue that the job creation benefits outweigh the drawbacks of profit repatriation. FDI is not inherently negative; it brings many advantages to the host country. However, there are caveats that need to be addressed to ensure that these investments truly benefit Bangladesh.
From 2013 to 2022, Bangladesh saw a steady increase in FDI inflows, with a significant spike in the fiscal year 2018-2019. Although there was a drop in the following year due to the Covid-19 pandemic, the trend quickly reversed. Major foreign projects receiving FDI have largely been in power, energy, and infrastructure. Textiles, clothing, and food have also accounted for a large portion of inflows over the years, with textiles and clothing seeing steady growth, while food-related inflows fluctuated. This is in line with observations from the Asian Development Bank (ADB), which highlights that the type of infrastructure a country invests in depends on its development stage. Bangladesh, being in the medium-to-lower range, fits this pattern.
Increased employment in RMG and other labour-intensive sectors in Bangladesh demonstrates the positive relationship between FDI and job opportunities. The countries with the highest FDI stocks in Bangladesh include the United States, the United Kingdom, and Singapore, which have maintained stable positions over the years. However, South Korea, the Netherlands, and China have been increasing their investments in Bangladesh.
These trends indicate that Bangladesh is steadily becoming a more attractive investment destination. But what type of investment should the country seek? While many secondary industry-level investments that hire unskilled labour have already been made, Bangladesh should focus on attracting more tertiary-level industries. With an educational system that produces skilled, high-earning workers, Bangladesh has the potential to combat brain drain. One way to achieve this, besides improving domestic career prospects, is by increasing the availability of high-earning jobs. Moreover, FDI brings with it valuable knowledge, particularly in terms of technology, which Bangladesh has yet to fully harness.
Potential paths to take
To achieve sustainable development, Bangladesh should aim to acquire investments that offer economic, social, and environmental benefits. Many countries have failed to fully capitalise on FDI inflows because they did not take the necessary steps to ensure these investments contribute to long-term growth. Although Bangladesh has not yet seen significant results from its increased FDI inflows, taking the right measures can surely lead to a positive outcome.
Investing in and retaining skilled labour
According to UNESCO, education is the foundation of sustainability. For Bangladesh, it is critical to produce internationally competitive labour to transition from being known for "cheap labour" to "skilled, competitive labour." This requires an education system that equips students with the skills needed for high-paying, high-skilled jobs. While the country shows positive trends in education, it still lacks sufficient capacity to meet domestic demand, whether in schools, colleges, or professional institutions. Industry-specific professional training institutions are particularly valuable. For example, professional caretaking training could provide opportunities for workers in the caregiving sector, improving their skills and increasing their employability. Such programmes can help meet the demand for qualified caretakers for children and the elderly, addressing the challenges faced by working parents. Other sectors for professional training could include medical equipment handling, home business management, and freelancing. Investing in education in these areas would create a more skilled labour force, capable of driving the country's development.
Building a technological edge
One issue with much of the FDI directed at infrastructure and power is the lack of significant investment in information and communication technology (ICT). This is especially crucial as Bangladesh is gradually approaching the level of a middle-income country, yet its technological potential remains underdeveloped. Technology-based companies, particularly those offering advanced or unavailable technologies, could greatly benefit the country. These investments could accelerate the country's technological growth and improve its overall development.
SOS: Our environment needs saving
As manufacturing rises and cost-cutting becomes a priority to remain competitive, the challenge of maintaining environmental sustainability grows. While many domestic NGOs are working to protect Bangladesh's environment, there is a distinct lack of private sector involvement in creating or implementing solutions. Encouraging foreign companies that can assist local businesses in adopting sustainable practices, such as "going green" or supporting conservation efforts, could provide valuable knowledge transfer. Their experience in addressing environmental issues in other countries would allow them to approach Bangladesh's unique challenges from a fresh perspective. Moreover, institutions that provide tailored solutions for environmental sustainability can help local companies meet environmental protection legislation and compete globally by adhering to international standards.
Where to go from here?
The future of Bangladesh holds immense untapped potential. To ensure that the country does not miss the opportunity to improve economically, socially, and environmentally, it must plan ahead. If navigated properly, the global market can provide Bangladesh with significant benefits, including job creation, industry development, human capital enhancement, and knowledge transfer. FDI in Bangladesh should be viewed beyond its immediate monetary value, considering its long-term impact on the country's overall development. By doing so, Bangladesh may one day fulfil its potential as a middle-income country with sustainable, inclusive growth.

Dr Shanawez Hossain is an Associate Professorat the Global Studies and Governance (GSG) department at Independent University, Bangladesh (IUB); He can be reached at: [email protected] and Saiqua Tabassum is a Research Assistant and Student at Business Administration, IUB. She can be reached
at: [email protected]