FDI composition changed

With a slight decline in total inflow of foreign direct investment (FDI) last year, its composition also changed as fresh inflow of equity was reduced significantly.
Two-thirds of FDI came as reinvested earnings of existing multinational corporations in 2014 which was less than half of total FDI inflow in 2013.
Latest statistics available with the Bangladesh Bank also revealed that FDI in the form of intra-company loans declined last year significantly.
In net term, the total FDI inflow declined by 4.5 per cent to $1,526.70 million last year from $1,599.16 million in 2013.
Net inflow of FDI is the difference between its gross inflow and disinvestment during a period.
Last year, estimated value of disinvestment stood at $532.28 million against the gross inflow of $2,050.98 million making total net inflow of FDI at $1,526.70 million.
Of the total FDI, $280.31 million has come as equity capital which is around 48 per cent less than the amount of the previous year.
On the other hand, reinvested earnings stood at $988.79 million in last year, registering 44 per cent growth over the previous year.
When a multinational company reinvests certain amount of its current earnings in the existing business operation, it is termed as reinvested earnings.  
"The significant increase in reinvested earnings implies that existing foreign companies in Bangladesh have already made a good base for investment locally," said Dr Khondaker Golam Moazzem, additional research director of the Centre for Policy Dialogue (CPD).
"These companies have good knowledge about the local market and by reinvesting a portion of their current earnings, these are continuing investment with lower risk," he added while talking to the FE Saturday.
The economist was of the view that new firms were cautious on making fresh investment in Bangladesh last year mainly due to some political uncertainty.
"Although last year was quite calm and there was almost no political turmoil, new potential investors adopted a go-slow policy after observing a severe political turbulence in 2013," added Dr Moazzem.
Again in 2014, intra-company loans of the multinational corporations dropped by 28.6 per cent to $257.6 million. It is the loan made within the company from one division or subsidiary to another.   
Dr Moazzem also said that FDI in the form of increased reinvested earnings will continue in the near future and the government should provide supports to existing foreign companies.  
FDI inflow to Export Processing Zone (EPZ) category increased while inflow to non-EPZ category decreased in 2014.
Last year, total FDI inflow to EPZ stood at $402.61 million, increasing by 14.35 per cent from $352.07 million in 2013.
On the other hand, FDI inflow to non-EPZ area dropped by 9.8 per cent to $1,124 million last year from $1,247 million in 2013.
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