Global capital flows witness a tremendous surge
Monday, 13 August 2007
Md. Salimuddin FCA, FCMA, MBA concluding his two part article
THE world has seen a tremendous increase in global capital flows during the last several decades. The surge in investment flows has been largely due to the fact that many countries now recognise that foreign capital is beneficial for the development of the countries. Recent study conducted by Mckinsey (2002) on foreign investment over several industries in four developing countries (China, India, Mexico and Brazil) revealed that not a single investment project had negative impacts on the country's economies. An increasing number of countries in the developing world are more open to foreign investment, and the question now is not whether to allow foreign capital into the country but rather how to attract that capital. Concerned people in the developing world now think that having investment-welcoming policies and providing tax rebates and other incentives are essential so as to bring foreign investors to the market for faster development.
The movement of FDI among the countries of the world is not uniform due to changing nature of FDI supply, the paradigmatic shift in development thinking, the globalisation of product and services, the changing international environment and the like. In such a context, it is important to analyse the global inflow and outflow of FDI in order to judge the movement of global FDI flows by region and selected countries from 2000 to 2005.
A study by the UNCTAD (World Investment Report 2006) covering the period from 2000 to 2005 shorts that global FDI inflows were at the highest -- at $1409.6 billion in 2000 followed by 916.3 billion in 2005, $ 832.2 billion in 2001, $ 710.8 billion in 2004, $617.7 billion in 2002 and $ 557.9 billion in 2003. On the other hand, during the same period, global FDI outflows was found at the highest level in 2004 -- at of $ 813.1 billion followed by $ 778.7 billion in 2005, $ 764.2 billion in 2001, $ 561.1 billion in 2003, $ 539.5 billion in 2002 and $ 244.5 billion in 2000. It has also been observed that there was no definite increasing or decreasing trend during 2000 to 2005 in both global FDI inflows and outflows. But during 2002 to 2005, the global FDI inflows were found to show an increasing trend whereas during 2002 to 2004, the global FDI outflows showed an increasing trend. Inflows of foreign direct investment (FDI) were substantial in 2005. They rose by 29% in 2005 to reach $ 916 billion over 2004 having already increased by 27% in 2004 over 2003. Inward FDI grew in all the main sub regions, in some to unprecedented levels, and in 126 out of the 200 economies covered by the UNCTAD.
Nevertheless, world inflows remained far below the 2000 peak of $1.4 trillion. Similar to trends in the late 1990s, the recent upsurge in FDI reflects a greater level of cross-border mergers and acquisitions (M&As), especially among developed countries. It also reflects higher growth rates in some developed countries as well as strong economic performance in many developing and transition economies. Inflows to developed countries in 2005 amounted to $542 billion, an increase of 37% over 2004, while to developing countries they rose to the highest level ever recorded-$334 billion. In percentage terms, the share of developed countries increased somewhat, to 59% of global inward FDI. The share of developing countries was 36% and that of South-East Europe and the Commonwealth of Independent States (CIS) was about 4.0.
According to UNCTAD (2006), the United Kingdom saw its inward FDI surge by $108 billion to reach a total of $ 165 billion, making it the largest recipient in 2005. Despite a decline in the level of inward FDI, the United States was the second largest recipient. Among developing economies, the list of the largest recipients compared with previous years reminded stable, with China and Hong Kong (China) at the top, followed by Singapore, Mexico and Brazil. Regionally, the 25-member European Union (EU) was the favourite destination, with inflows of $422 billion, or almost half of the world total. South, East and South-East Asia received $ 165 billion, or about a fifth of that total, with the East Asian sub region accounting for about three quarters of the regional share. North America came next with $133 billion, and South and Central America followed with $65 billion. West Asia experienced the highest inward FDI growth rate, of 85% amounting to $34 billion. Africa received $31 billion, the largest ever FDI inflow to that region.
Global FDI outflows amounted to $779 billion (a different figure compared to the estimated for inflows FDI which may have occurred due to differences in data reporting and collecting methods of countries). Developed countries remain the leading sources of such outflows. In 2005, the Netherlands reported outflows of $119 billion, followed by France and the United Kingdom. However, there were significant increases in outward investment by developing economies, led by Hong Kong (China) with $33 billion (UNCTAD, 2006). Indeed, the role of developing and transition economies as sources of FDI is increasing.
Over the past few decades, the geography of FDI has undergone some major shifts. Inward and outward FDI stock in developed economies occupied the dominant share at the period ended in 1980,1990,2000, and 2005, and the same dominant position was witnessed in case of FDI inflow and outflow in developed economies during the period from 1978-80 to 2003-2005. The share of outward FDI stock position in developed economies was at the highest compared to inward FDI stock position at the period ended in 1980, 1990, 2000, and 2005. On the other hand, the share of inward FDI stock position is recorded higher compared to outward FDI stock position was developing economies at the period ended in 1980, 1990, 2000, and 2005. A similar position as regard FDI inflow and outflow both in developed and developing economies was observed during the period from 1978-80 to 2003-05. In this connection it may be noted that the UNCTAD (2006) reported over the past few decades the share of the Triad (the EU, Japan and the United States) in total world inward FDI flows and stocks has fluctuated at around 60-70%. However, within the Triad, there has been a marked shift towards the EU. The share of the EU in FDI inflows into the Triad was 75% in 2003-2005, compared to 62% in 1978-1980. The EU-which now also includes eight economies formerly classified under Central and Eastern Europe-today accounts for almost half of global inward and outward flows and stocks. The rise of the EU in outward FDI flows and stocks was even more pronounced.
Conversely, the importance of the United States in both inward and outward FDI flows and stocks declined since, the beginning of the 1980s for outward FDI and the beginning of the 1990s for inward FDI. Japan, which had emerged as an important source of FDI in the 1980s, declined considerably in importance as an outward investor over the past 15 years, but gained somewhat as a recipient. However, it remains marginal as a host country.
Developing countries have gained in importance as recipients of FDI in terms of both inward inflows and stocks. Their share in total world inflows rose from an average of 20% in 1978-1980 to an average of 35% in 2003-2005, though the performance of the different regional groups was uneven. The share of African countries gradually, fell, from 10% of total inflows to developing countries in 1978-1980 to around 5.0% in 1998-2000, but in the past few years it recovered. The share of Asia and Oceania, particularly South, East and South-Asia, increased rapidly - driven partly by flows to China which appeared on the FDI scene only in the late 1970s -until the end of the 1990s and then slowed down somewhat in the early 2000s. Latin America and the Caribbean region has experienced a noticeable decline from its dominant position of the 1970s and early 1980s.
Theories supporting FDI in emerging economies argue that recipient countries need to fulfil some basic preconditions in order to create more conducive business environment. FDI is more than merely moving capital across borders; it has certain advantages to both the host country and the investor. Investment decisions by foreign firms are mainly influenced by firm specific advantage and location specific advantages. Host countries' macro-economic policy, tax regime, regulatory practices are critical determinants for attracting FDI in general and for emerging economies in particular.
In this context, it is imperative to review the FDI situation in developing and least developed countries with special reference to FDI flows in these countries. Global FDI flows grew substantially in 2005 over those in 2003. Inward FDI flows to developing countries rose by another 22% to $ 334 billion in 2005 over those in 2004, following a 57% growth in 2004 over 2003. On the other hand, inward FDI flows to developed economies rose to $542 billion in 2005 from the amount of $ 396 billion in 2004.
The geographical composition of FDI from developing and transition economies has changed over time, the most notable long-term development being the steady growth of developing Asia as a source of FDI. Its share in the total stock of FDI from developing and transition economies stood at 23% in 1980, rising to 46% by 1990 and to 62% in 2005. Conversely, the share of Latin America and the Caribbean in outward FDI fell from 67% in 1980 to 25% in 2005. A sizeable share of FDI originates from offshore financial centre. The British virgin Islands is by far the largest such source, with an outward FDI stock in 2005 estimated at almost $ 123 billion. However, it is worth mentioning that from a statistical point of view, trans-shipping FDI via offshore financial centres makes it difficult to estimate the real rise of outward FDI from specific economies and by specific companies. In some years, flows from these centres have been particularly large (UNCTAD, 2006).
The emergence of these new sources of FDI may be of particular relevance to low-income host countries. TNCs from developing and transition economies have become important investors in many LDCs. Developing countries with the highest dependence on FDI from developing and transition economies include China, Kyrgyzstan, Paraguay and Thailand, and LDCs such as Bangladesh, Ethiopia, the Lao People's Democratic Republic, Myanmar and the United Republic of Tanzania.
Indeed, FDI from developing countries accounts for well over 40% of the total inward FDI of a number of LDCs. For example, in Africa, South Africa is a particularly important source of FDI; it accounts for more than 50% of all FDI inflows into Botswana, the Democratic Republic of the Congo, Lesotho, Malawi and Switzerland. Moreover, the level of FDI from developing and transition economies to many LDCs may well be understated in official FDI data, as a significant proportion of such investment goes to their informal sector, which is not included in government statistics (UNCTAD, 2006). Using the UNCTAD indices, countries in the world can be divided into the following four categories for the purpose of comparing inward FDI performance and potential. Front runners (countries with high FDI potential and performance); above potential (countries with low FDI potential but strong FDI performance; below potential (countries with high FDI potential but low performance and under performance (countries with both low FDI potential and performance).
The inward FDI performance and potential, in terms of individual countries -- developed, developing economies -- reveal that there are some surprises for the first and last groups. While the first group included many developed countries and newly industrialising economies in 2004 based on average from 2002 to 2004. Countries such as Denmark, France and Switzerland were categorised as below potential. The last group, consisting mainly of poor and low income developing economies, including LDCs and countries affected by economic or political crises.
One of the most remarkable trends in the world economy over the past two decades has been its increasing global economic integration and growing internationalisation, reflected in terms of the rising share of international trade and FDI. The issue of FDI has been receiving phenomenal attention from many national governments. In recent years policy makers and multilateral organisations have increasingly emphasised the importance of a sound investment climate for promoting economic growth in developing countries. Foreign investment has played a key role in the industrial development of many countries throughout the world. It is not, however, a magic wand that will eliminate the problems of poverty and underdeveloped in a single stroke.
As countries strive to attract foreign investors, they should have realistic expectations about what foreign investment can do for them. FDI inflows generate jobs through expanded activities, indirectly increase competition within domestic markets and facilitate the transfer of improved technology and management technologies, the investors benefit by penetrating a market, gaining access to raw materials, diversifying business activity, better rationalising production processes and overcoming some exporting drawback like trade barriers and transport costs.
Realising the strategic benefits of FDI, the economy of Bangladesh has been gradually drawing the attention of foreign private investors since it opened up in the early 1990s. In terms of economic conditions, over the past decades, particularly during the 1990s, the economic growth in Bangladesh registered remarkable progress. The average growth rate of GDP was around 5.0 per cent in this decade now it is about 6.0 per cent. Implementation of a wide array of reforms during the early 1990s made it possible to achieve this higher rate of growth. In such a context, FDI is an important determinant of the economic growth and development of Bangladesh. The government of Bangladesh has been taking efforts since the early eighties to attract FDI for speedy industrialisation and to bridge the gap of capital, technology and management skills of the country. Trade and investment policies have been considerably rationalised and a host of incentive measures have been introduced.
However, the investment plans in Bangladesh do not have appropriate built in mechanism for the progressive development of foreign investment. In this context, it is imperative to examine the FDI inflows and foreign investment proposal registered with Board of Investment (BOI).
FDI, according to available official figures, was drastically reduced to US$ 52 million in 2002 from US$ 280 million in 2000 and again increased to US$ 1000 million in 2006 from $ 268 in 2003, in Bangladesh. There has not been any accelerating growth pattern about FDI inflows to Bangladesh. The position can be better explained through the analysis of foreign investment proposal registered with the Board of Investment (BOI) for the last few years.
The BOI tigures showed that 754 projects with total foreign investment of Tk. 510.02 billion were registered with it during last seven years from 199-2002 to 2005-2006, indicating the compound growth rate of 13 per cent per for that period. However, there is a big gap between the FDI proposals and actual FDI implementation in Bangladesh. This raises many questions relating to institutional bottlenecks and lack of subsequent monitoring and follow-up by the government agencies. In this connection, it may be mentioned that there are so many deficiencies in the policy framework for attracting and retaining FDI inflows. Various flaws in the rules, regulation relevant to FDI also exist in Bangladesh. Among the problems relating to FDI flows to Bangladesh, corruption arising out of government officials and political leaders in power is considered a major one. Some foreign investors from time to time alleged that one-stop service introduced by BOI was turned into a full-stop service. For this reason, it is recently observed that a good number of FDI proposals have not been finalised.
In this regard, it is very important to identify the sources of FDI from around the world.
Ninety seven per cent of FDI proposals in Bangladesh were refered to have come from developing countries and only three per cent of the proposals, from the developed economies. Among the developed and developing regions, Europe and Asian countries have shown more interest to invest in Bangladesh. From the analysis of FDI inflows and foreign investment proposals registered with BOI, Bangladesh as a host country yet to be successful in creating domestic policy settings and factors, hospitable to the facilitation of business. It can be said that both government ineffectiveness in controlling corruption, improving political stability and establishing rule of law and its failure to create physical and policy infrastructure as the most influential determinant distracted the attention of foreign investors from choosing Bangladesh as a host nation. It has been argued by all concerned circles since long that Bangladesh is a country that has great promising investment potentials. Its natural endowments, vast human resources and geographical location make Bangladesh a good choice for investment in various sectors. The country has adequate resources in agricultural, mineral, marine and forest in particular. Since long, Bangladesh is poised for a breakthrough in economic development and has been looking forward to foreign investment to accelerate its pace of industrial growth. In order to develop its industrial sector, the government has otherwise encouraged, at least in terms of policy goals, all investment, technical and marketing know-how and entrepreneurial capabilities and experiences. But still Bangladesh is not well-positioned to attract foreign investors from developed countries in particular and from other countries in the world in general.
This is the concluding section of an abridged version of a two-part article by the writer who is an Associate Professor, Department of Accounting & Information Systems, University of Chittagong
THE world has seen a tremendous increase in global capital flows during the last several decades. The surge in investment flows has been largely due to the fact that many countries now recognise that foreign capital is beneficial for the development of the countries. Recent study conducted by Mckinsey (2002) on foreign investment over several industries in four developing countries (China, India, Mexico and Brazil) revealed that not a single investment project had negative impacts on the country's economies. An increasing number of countries in the developing world are more open to foreign investment, and the question now is not whether to allow foreign capital into the country but rather how to attract that capital. Concerned people in the developing world now think that having investment-welcoming policies and providing tax rebates and other incentives are essential so as to bring foreign investors to the market for faster development.
The movement of FDI among the countries of the world is not uniform due to changing nature of FDI supply, the paradigmatic shift in development thinking, the globalisation of product and services, the changing international environment and the like. In such a context, it is important to analyse the global inflow and outflow of FDI in order to judge the movement of global FDI flows by region and selected countries from 2000 to 2005.
A study by the UNCTAD (World Investment Report 2006) covering the period from 2000 to 2005 shorts that global FDI inflows were at the highest -- at $1409.6 billion in 2000 followed by 916.3 billion in 2005, $ 832.2 billion in 2001, $ 710.8 billion in 2004, $617.7 billion in 2002 and $ 557.9 billion in 2003. On the other hand, during the same period, global FDI outflows was found at the highest level in 2004 -- at of $ 813.1 billion followed by $ 778.7 billion in 2005, $ 764.2 billion in 2001, $ 561.1 billion in 2003, $ 539.5 billion in 2002 and $ 244.5 billion in 2000. It has also been observed that there was no definite increasing or decreasing trend during 2000 to 2005 in both global FDI inflows and outflows. But during 2002 to 2005, the global FDI inflows were found to show an increasing trend whereas during 2002 to 2004, the global FDI outflows showed an increasing trend. Inflows of foreign direct investment (FDI) were substantial in 2005. They rose by 29% in 2005 to reach $ 916 billion over 2004 having already increased by 27% in 2004 over 2003. Inward FDI grew in all the main sub regions, in some to unprecedented levels, and in 126 out of the 200 economies covered by the UNCTAD.
Nevertheless, world inflows remained far below the 2000 peak of $1.4 trillion. Similar to trends in the late 1990s, the recent upsurge in FDI reflects a greater level of cross-border mergers and acquisitions (M&As), especially among developed countries. It also reflects higher growth rates in some developed countries as well as strong economic performance in many developing and transition economies. Inflows to developed countries in 2005 amounted to $542 billion, an increase of 37% over 2004, while to developing countries they rose to the highest level ever recorded-$334 billion. In percentage terms, the share of developed countries increased somewhat, to 59% of global inward FDI. The share of developing countries was 36% and that of South-East Europe and the Commonwealth of Independent States (CIS) was about 4.0.
According to UNCTAD (2006), the United Kingdom saw its inward FDI surge by $108 billion to reach a total of $ 165 billion, making it the largest recipient in 2005. Despite a decline in the level of inward FDI, the United States was the second largest recipient. Among developing economies, the list of the largest recipients compared with previous years reminded stable, with China and Hong Kong (China) at the top, followed by Singapore, Mexico and Brazil. Regionally, the 25-member European Union (EU) was the favourite destination, with inflows of $422 billion, or almost half of the world total. South, East and South-East Asia received $ 165 billion, or about a fifth of that total, with the East Asian sub region accounting for about three quarters of the regional share. North America came next with $133 billion, and South and Central America followed with $65 billion. West Asia experienced the highest inward FDI growth rate, of 85% amounting to $34 billion. Africa received $31 billion, the largest ever FDI inflow to that region.
Global FDI outflows amounted to $779 billion (a different figure compared to the estimated for inflows FDI which may have occurred due to differences in data reporting and collecting methods of countries). Developed countries remain the leading sources of such outflows. In 2005, the Netherlands reported outflows of $119 billion, followed by France and the United Kingdom. However, there were significant increases in outward investment by developing economies, led by Hong Kong (China) with $33 billion (UNCTAD, 2006). Indeed, the role of developing and transition economies as sources of FDI is increasing.
Over the past few decades, the geography of FDI has undergone some major shifts. Inward and outward FDI stock in developed economies occupied the dominant share at the period ended in 1980,1990,2000, and 2005, and the same dominant position was witnessed in case of FDI inflow and outflow in developed economies during the period from 1978-80 to 2003-2005. The share of outward FDI stock position in developed economies was at the highest compared to inward FDI stock position at the period ended in 1980, 1990, 2000, and 2005. On the other hand, the share of inward FDI stock position is recorded higher compared to outward FDI stock position was developing economies at the period ended in 1980, 1990, 2000, and 2005. A similar position as regard FDI inflow and outflow both in developed and developing economies was observed during the period from 1978-80 to 2003-05. In this connection it may be noted that the UNCTAD (2006) reported over the past few decades the share of the Triad (the EU, Japan and the United States) in total world inward FDI flows and stocks has fluctuated at around 60-70%. However, within the Triad, there has been a marked shift towards the EU. The share of the EU in FDI inflows into the Triad was 75% in 2003-2005, compared to 62% in 1978-1980. The EU-which now also includes eight economies formerly classified under Central and Eastern Europe-today accounts for almost half of global inward and outward flows and stocks. The rise of the EU in outward FDI flows and stocks was even more pronounced.
Conversely, the importance of the United States in both inward and outward FDI flows and stocks declined since, the beginning of the 1980s for outward FDI and the beginning of the 1990s for inward FDI. Japan, which had emerged as an important source of FDI in the 1980s, declined considerably in importance as an outward investor over the past 15 years, but gained somewhat as a recipient. However, it remains marginal as a host country.
Developing countries have gained in importance as recipients of FDI in terms of both inward inflows and stocks. Their share in total world inflows rose from an average of 20% in 1978-1980 to an average of 35% in 2003-2005, though the performance of the different regional groups was uneven. The share of African countries gradually, fell, from 10% of total inflows to developing countries in 1978-1980 to around 5.0% in 1998-2000, but in the past few years it recovered. The share of Asia and Oceania, particularly South, East and South-Asia, increased rapidly - driven partly by flows to China which appeared on the FDI scene only in the late 1970s -until the end of the 1990s and then slowed down somewhat in the early 2000s. Latin America and the Caribbean region has experienced a noticeable decline from its dominant position of the 1970s and early 1980s.
Theories supporting FDI in emerging economies argue that recipient countries need to fulfil some basic preconditions in order to create more conducive business environment. FDI is more than merely moving capital across borders; it has certain advantages to both the host country and the investor. Investment decisions by foreign firms are mainly influenced by firm specific advantage and location specific advantages. Host countries' macro-economic policy, tax regime, regulatory practices are critical determinants for attracting FDI in general and for emerging economies in particular.
In this context, it is imperative to review the FDI situation in developing and least developed countries with special reference to FDI flows in these countries. Global FDI flows grew substantially in 2005 over those in 2003. Inward FDI flows to developing countries rose by another 22% to $ 334 billion in 2005 over those in 2004, following a 57% growth in 2004 over 2003. On the other hand, inward FDI flows to developed economies rose to $542 billion in 2005 from the amount of $ 396 billion in 2004.
The geographical composition of FDI from developing and transition economies has changed over time, the most notable long-term development being the steady growth of developing Asia as a source of FDI. Its share in the total stock of FDI from developing and transition economies stood at 23% in 1980, rising to 46% by 1990 and to 62% in 2005. Conversely, the share of Latin America and the Caribbean in outward FDI fell from 67% in 1980 to 25% in 2005. A sizeable share of FDI originates from offshore financial centre. The British virgin Islands is by far the largest such source, with an outward FDI stock in 2005 estimated at almost $ 123 billion. However, it is worth mentioning that from a statistical point of view, trans-shipping FDI via offshore financial centres makes it difficult to estimate the real rise of outward FDI from specific economies and by specific companies. In some years, flows from these centres have been particularly large (UNCTAD, 2006).
The emergence of these new sources of FDI may be of particular relevance to low-income host countries. TNCs from developing and transition economies have become important investors in many LDCs. Developing countries with the highest dependence on FDI from developing and transition economies include China, Kyrgyzstan, Paraguay and Thailand, and LDCs such as Bangladesh, Ethiopia, the Lao People's Democratic Republic, Myanmar and the United Republic of Tanzania.
Indeed, FDI from developing countries accounts for well over 40% of the total inward FDI of a number of LDCs. For example, in Africa, South Africa is a particularly important source of FDI; it accounts for more than 50% of all FDI inflows into Botswana, the Democratic Republic of the Congo, Lesotho, Malawi and Switzerland. Moreover, the level of FDI from developing and transition economies to many LDCs may well be understated in official FDI data, as a significant proportion of such investment goes to their informal sector, which is not included in government statistics (UNCTAD, 2006). Using the UNCTAD indices, countries in the world can be divided into the following four categories for the purpose of comparing inward FDI performance and potential. Front runners (countries with high FDI potential and performance); above potential (countries with low FDI potential but strong FDI performance; below potential (countries with high FDI potential but low performance and under performance (countries with both low FDI potential and performance).
The inward FDI performance and potential, in terms of individual countries -- developed, developing economies -- reveal that there are some surprises for the first and last groups. While the first group included many developed countries and newly industrialising economies in 2004 based on average from 2002 to 2004. Countries such as Denmark, France and Switzerland were categorised as below potential. The last group, consisting mainly of poor and low income developing economies, including LDCs and countries affected by economic or political crises.
One of the most remarkable trends in the world economy over the past two decades has been its increasing global economic integration and growing internationalisation, reflected in terms of the rising share of international trade and FDI. The issue of FDI has been receiving phenomenal attention from many national governments. In recent years policy makers and multilateral organisations have increasingly emphasised the importance of a sound investment climate for promoting economic growth in developing countries. Foreign investment has played a key role in the industrial development of many countries throughout the world. It is not, however, a magic wand that will eliminate the problems of poverty and underdeveloped in a single stroke.
As countries strive to attract foreign investors, they should have realistic expectations about what foreign investment can do for them. FDI inflows generate jobs through expanded activities, indirectly increase competition within domestic markets and facilitate the transfer of improved technology and management technologies, the investors benefit by penetrating a market, gaining access to raw materials, diversifying business activity, better rationalising production processes and overcoming some exporting drawback like trade barriers and transport costs.
Realising the strategic benefits of FDI, the economy of Bangladesh has been gradually drawing the attention of foreign private investors since it opened up in the early 1990s. In terms of economic conditions, over the past decades, particularly during the 1990s, the economic growth in Bangladesh registered remarkable progress. The average growth rate of GDP was around 5.0 per cent in this decade now it is about 6.0 per cent. Implementation of a wide array of reforms during the early 1990s made it possible to achieve this higher rate of growth. In such a context, FDI is an important determinant of the economic growth and development of Bangladesh. The government of Bangladesh has been taking efforts since the early eighties to attract FDI for speedy industrialisation and to bridge the gap of capital, technology and management skills of the country. Trade and investment policies have been considerably rationalised and a host of incentive measures have been introduced.
However, the investment plans in Bangladesh do not have appropriate built in mechanism for the progressive development of foreign investment. In this context, it is imperative to examine the FDI inflows and foreign investment proposal registered with Board of Investment (BOI).
FDI, according to available official figures, was drastically reduced to US$ 52 million in 2002 from US$ 280 million in 2000 and again increased to US$ 1000 million in 2006 from $ 268 in 2003, in Bangladesh. There has not been any accelerating growth pattern about FDI inflows to Bangladesh. The position can be better explained through the analysis of foreign investment proposal registered with the Board of Investment (BOI) for the last few years.
The BOI tigures showed that 754 projects with total foreign investment of Tk. 510.02 billion were registered with it during last seven years from 199-2002 to 2005-2006, indicating the compound growth rate of 13 per cent per for that period. However, there is a big gap between the FDI proposals and actual FDI implementation in Bangladesh. This raises many questions relating to institutional bottlenecks and lack of subsequent monitoring and follow-up by the government agencies. In this connection, it may be mentioned that there are so many deficiencies in the policy framework for attracting and retaining FDI inflows. Various flaws in the rules, regulation relevant to FDI also exist in Bangladesh. Among the problems relating to FDI flows to Bangladesh, corruption arising out of government officials and political leaders in power is considered a major one. Some foreign investors from time to time alleged that one-stop service introduced by BOI was turned into a full-stop service. For this reason, it is recently observed that a good number of FDI proposals have not been finalised.
In this regard, it is very important to identify the sources of FDI from around the world.
Ninety seven per cent of FDI proposals in Bangladesh were refered to have come from developing countries and only three per cent of the proposals, from the developed economies. Among the developed and developing regions, Europe and Asian countries have shown more interest to invest in Bangladesh. From the analysis of FDI inflows and foreign investment proposals registered with BOI, Bangladesh as a host country yet to be successful in creating domestic policy settings and factors, hospitable to the facilitation of business. It can be said that both government ineffectiveness in controlling corruption, improving political stability and establishing rule of law and its failure to create physical and policy infrastructure as the most influential determinant distracted the attention of foreign investors from choosing Bangladesh as a host nation. It has been argued by all concerned circles since long that Bangladesh is a country that has great promising investment potentials. Its natural endowments, vast human resources and geographical location make Bangladesh a good choice for investment in various sectors. The country has adequate resources in agricultural, mineral, marine and forest in particular. Since long, Bangladesh is poised for a breakthrough in economic development and has been looking forward to foreign investment to accelerate its pace of industrial growth. In order to develop its industrial sector, the government has otherwise encouraged, at least in terms of policy goals, all investment, technical and marketing know-how and entrepreneurial capabilities and experiences. But still Bangladesh is not well-positioned to attract foreign investors from developed countries in particular and from other countries in the world in general.
This is the concluding section of an abridged version of a two-part article by the writer who is an Associate Professor, Department of Accounting & Information Systems, University of Chittagong