Ground realities need to change for attracting FDI
Thursday, 1 November 2007
Shahiduzzaman Khan
Almost half of the foreign investment proposals registered with the Board of Investment (BoI) each year are turning out to be redundant. Local experts have blamed the government's poor negotiating skills and political factors for the failure to capitalise on potential projects. According to the Bangladesh Bank statistics, foreign direct investment (FDI) registration for FY06 was $1.34 billion for 130 projects while the actual investment was only $ 679 million.
Although on paper the existing investment and trade related policies of the government and the incentive package for foreign investors are attractive and macro-economic indicators are favourable, the flow of FDI to the country remains much below the amount registered. This is because of the mismatch between the written policies of the government and the realities on the ground at the implementation stage, the disturbing political and law and order situation, the absence of good governance, graft at various tiers and the inadequate infrastructure.
The government needs to review the current FDI policy to attract more investment in basic industries such as steel and infrastructure. For Bangladesh to catch up with rest of the world, and to achieve its millennium development objectives by 2015, the inflow of foreign direct investment (FDI) in larger volumes is critical due to the dearth of necessary domestic resources and technology.
Around half a dozen multi-billion-dollar FDI proposals in infrastructure, power, oil, gas and manufacturing sectors remain pending for years due to procedural complexities, policy indecisions on the part of the government and bureaucratic tangles. The government is neither giving approval to these proposals nor refusing them, leaving the investors still guessing about the fate of the same. This is also creating a wrong impression about the country and its investment prospects. These investment proposals include Indian conglomerate Tata's $3.0 billion, the United Arab Emirates-based Abu Dhabi Group's $2.0 billion, the UK-based Global Oil and Energy Ltd.'s $2.9 billion, Malaysian Azimat Corporation's $900 million, and Contech Ltd.'s $900 million.
The proposal of Tata has been kept pending for long though a great deal of time by both the government of Bangladesh and the Indian business conglomerate has earlier been spent on sorting out issues and matters relating to it. A number of other large FDI proposals are in hybernation due to government indecision and policy complications. The FDI declined by 16.5 percent during July-March in 2006-07 fiscal year with net FDI of $385 million against $505 million during the same period of the previous fiscal year.
Surprisingly, a high-powered government delegation recently visited Canada and Europe in search of foreign investment while some multi-billion-dollar investment proposals are now pending -- some of those for years. Is the government not aware about such proposals? The decisions on pending proposals are necessary for attracting new investments.
A number of foreign investors who had put forward their FDI proposals to the relevant authorities are reported to have abandoned the same after getting frustrated over the government's indecision, lengthy procedures and complicated policies regarding such investment in power, gas and oil sectors. Even some foreign companies participated in the tender but did not succeed in winning the deal at the final stage. A guideline was earlier proposed for development of private sector infrastructure projects. But it is so complicated that a company has to cross five to seven stages before getting the official approval.
Country's industrial policy is not transparent and effective on many counts. This one major reason for delaying investment proposals. The foreign investors do not know where to go and how long it will take for materialising their proposals. 'One stop service' is a must for foreign investment. The investors require approval of the ministries concerned even after registering their proposals with the BoI. This often frustrates the foreign investors. The most recent victim of such delay is the Youngone Corporation that had to wait for long 11 years to get the operational licence for its Korean Export Processing Zone (KEPZ).
In this backdrop, British High Commissioner Anwar Choudhury painted a gloomy picture about foreign investment flow to Bangladesh. Addressing a luncheon meeting of the foreign investors' chamber this week, he said the overseas investments are now at a standstill as pent-up decisions continue to mount. The investors are now unclear about the future. They are losing patience and as such, going elsewhere.
What is needed at this stage, he said, is a clear strategy and action to increase business confidence. Indeed, country's political transformation, as has been underlined by the British High Commission (HC), has to be underpinned by business and investment.
Foreign investment is not a charity. An investor will come to a foreign country only if he expects a rate of return higher than that he or she could get in his own country. The calculation of a foreign investor includes a variety of risks -- systemic, industry-specific, and political and exchange rate risks.
Reviewing the situation in the country's trouble-ridden power and energy sector, the British HC has pointed out the possibility of the ongoing crisis worsening further unless the government takes prompt decision on the proposed investment offers from foreign investors. A bad image, as also noted by the High Commissioner, has already affected the readymade garment (RMG) industry though it is the topmost earning source of Bangladesh's foreign exchange.
The United Kingdom (UK) is one of the largest investors in Bangladesh with $4.0 billion investment and more $2.0 billion investment proposals are in the pipeline. In due course and over the coming months, more and more UK companies are expected to visit Bangladesh to do business and form relationship with their Bangladesh counterparts, but the perception of Bangladesh remains here a barrier.
It is important to note here that the present caretaker government is otherwise pro-active on institutional and policy issues relating to strategic action on everything. But trade and investment are suffering from an unforeseen and paradoxical consequence. In this context, there is hardly any two opinions about the need for having continuity of policies, speedier decision-making without manipulation, consistent energy supply, reduction of hidden costs and improvement of overall business confidence to help spur both local and foreign investment activities.
Almost half of the foreign investment proposals registered with the Board of Investment (BoI) each year are turning out to be redundant. Local experts have blamed the government's poor negotiating skills and political factors for the failure to capitalise on potential projects. According to the Bangladesh Bank statistics, foreign direct investment (FDI) registration for FY06 was $1.34 billion for 130 projects while the actual investment was only $ 679 million.
Although on paper the existing investment and trade related policies of the government and the incentive package for foreign investors are attractive and macro-economic indicators are favourable, the flow of FDI to the country remains much below the amount registered. This is because of the mismatch between the written policies of the government and the realities on the ground at the implementation stage, the disturbing political and law and order situation, the absence of good governance, graft at various tiers and the inadequate infrastructure.
The government needs to review the current FDI policy to attract more investment in basic industries such as steel and infrastructure. For Bangladesh to catch up with rest of the world, and to achieve its millennium development objectives by 2015, the inflow of foreign direct investment (FDI) in larger volumes is critical due to the dearth of necessary domestic resources and technology.
Around half a dozen multi-billion-dollar FDI proposals in infrastructure, power, oil, gas and manufacturing sectors remain pending for years due to procedural complexities, policy indecisions on the part of the government and bureaucratic tangles. The government is neither giving approval to these proposals nor refusing them, leaving the investors still guessing about the fate of the same. This is also creating a wrong impression about the country and its investment prospects. These investment proposals include Indian conglomerate Tata's $3.0 billion, the United Arab Emirates-based Abu Dhabi Group's $2.0 billion, the UK-based Global Oil and Energy Ltd.'s $2.9 billion, Malaysian Azimat Corporation's $900 million, and Contech Ltd.'s $900 million.
The proposal of Tata has been kept pending for long though a great deal of time by both the government of Bangladesh and the Indian business conglomerate has earlier been spent on sorting out issues and matters relating to it. A number of other large FDI proposals are in hybernation due to government indecision and policy complications. The FDI declined by 16.5 percent during July-March in 2006-07 fiscal year with net FDI of $385 million against $505 million during the same period of the previous fiscal year.
Surprisingly, a high-powered government delegation recently visited Canada and Europe in search of foreign investment while some multi-billion-dollar investment proposals are now pending -- some of those for years. Is the government not aware about such proposals? The decisions on pending proposals are necessary for attracting new investments.
A number of foreign investors who had put forward their FDI proposals to the relevant authorities are reported to have abandoned the same after getting frustrated over the government's indecision, lengthy procedures and complicated policies regarding such investment in power, gas and oil sectors. Even some foreign companies participated in the tender but did not succeed in winning the deal at the final stage. A guideline was earlier proposed for development of private sector infrastructure projects. But it is so complicated that a company has to cross five to seven stages before getting the official approval.
Country's industrial policy is not transparent and effective on many counts. This one major reason for delaying investment proposals. The foreign investors do not know where to go and how long it will take for materialising their proposals. 'One stop service' is a must for foreign investment. The investors require approval of the ministries concerned even after registering their proposals with the BoI. This often frustrates the foreign investors. The most recent victim of such delay is the Youngone Corporation that had to wait for long 11 years to get the operational licence for its Korean Export Processing Zone (KEPZ).
In this backdrop, British High Commissioner Anwar Choudhury painted a gloomy picture about foreign investment flow to Bangladesh. Addressing a luncheon meeting of the foreign investors' chamber this week, he said the overseas investments are now at a standstill as pent-up decisions continue to mount. The investors are now unclear about the future. They are losing patience and as such, going elsewhere.
What is needed at this stage, he said, is a clear strategy and action to increase business confidence. Indeed, country's political transformation, as has been underlined by the British High Commission (HC), has to be underpinned by business and investment.
Foreign investment is not a charity. An investor will come to a foreign country only if he expects a rate of return higher than that he or she could get in his own country. The calculation of a foreign investor includes a variety of risks -- systemic, industry-specific, and political and exchange rate risks.
Reviewing the situation in the country's trouble-ridden power and energy sector, the British HC has pointed out the possibility of the ongoing crisis worsening further unless the government takes prompt decision on the proposed investment offers from foreign investors. A bad image, as also noted by the High Commissioner, has already affected the readymade garment (RMG) industry though it is the topmost earning source of Bangladesh's foreign exchange.
The United Kingdom (UK) is one of the largest investors in Bangladesh with $4.0 billion investment and more $2.0 billion investment proposals are in the pipeline. In due course and over the coming months, more and more UK companies are expected to visit Bangladesh to do business and form relationship with their Bangladesh counterparts, but the perception of Bangladesh remains here a barrier.
It is important to note here that the present caretaker government is otherwise pro-active on institutional and policy issues relating to strategic action on everything. But trade and investment are suffering from an unforeseen and paradoxical consequence. In this context, there is hardly any two opinions about the need for having continuity of policies, speedier decision-making without manipulation, consistent energy supply, reduction of hidden costs and improvement of overall business confidence to help spur both local and foreign investment activities.