Need to remove impediments to overseas investment

Recent World Investment Report said foreign direct investment (FDI) in Bangladesh declined by 4.50 per cent in 2014 despite the fact that the South Asian countries collectively managed to attain a 16 per cent higher FDI during the same period.
The report stated that the FDI inflow in Bangladesh declined to $1,527 million in 2014 from that of $1,599 million in 2013. Fresh equity investment last year declined sharply to $280.31 million compared with that of $541.06 million in the previous year. Besides, intra-company loan also declined to $257.60 million in 2014 from that of $360.99 million in the previous year. Reinvestment of earnings by foreign investors, however, increased by 41 per cent to $988.80 million from that of $697.77 million in the previous year, the report showed.
Now the question is: why has FDI to Bangladesh fallen? Foreign investors in different international fora blamed insufficient infrastructure, bureaucratic hurdles and irregularities for not attracting increased FDI.
The country does not have a specific investment policy like industry and import policies to remove the policy gaps. Yet, analysts say foreign investment would flow into the country in a big way if the Board of Investment (BoI) could assure the investors of two things -- land and primary energy like power and gas.
There are huge government lands which remain abandoned in many places for long. The Privatisation Commission (PC) took a number of measures to use those, but could not achieve anything significant because some inter-ministerial problems surfaced all on a sudden.
Bangladesh offers full repatriation of profit and liquidated investment, liberal fiscal incentives and other benefits, national treatment at post-establishment phase, protection of foreign investment under the bilateral investment treaty with 29 countries and the extension of the facility to avoid double taxation under the double taxation treaty with 28 countries. Yet the much-sought-after FDI is not coming to Bangladesh.
Availability of huge, easily trainable and competitive workforce in Bangladesh, its relative political stability and recent positive global ratings should have otherwise attracted more FDIs. Since the mid-1990s, the FDI flow started to rise mainly in energy and power and readymade garments (RMG) sector. In 2000s, the main surge in FDIs was witnessed in telecommunications, banking and lately in RMG and textile sectors.
There is a lot of difference between the projects registered for FDI and those which go into operation finally. Over half of the foreign investment proposals registered with the Board of Investment (BoI) each year does not materialise at all. Poor follow-up negotiations on the part of the authorities concerned, lack of coordination among all relevant agencies etc., are to blame for such a situation.
Although the inflow of FDI is meagre, yet the outflow of funds has increased due to repatriation of profits by the multinational companies operating in Bangladesh.
The FDI inflow is important for a country because it creates jobs and helps reduce poverty and facilitates transfer of technology. Bangladesh has otherwise been identified as being among the next frontier (pre-emerging) markets on Goldman Sachs's list of 'next 11 countries.
The land issue has made the country's development challenges more critical as Bangladesh faces two other major ones: upgrading its infrastructure and ensuring the availability of a large but skilled workforce. Issues like unskilled and semi-skilled labour force and the country's vulnerability to natural disasters need also to be properly addressed.
The country needs to overcome infrastructure-related bottlenecks, especially gas and electricity crisis, in attracting investments to its industrial sector. There is a need for a policy shift to promote 'less gas-consuming' industries, encourage investment in infrastructure and give focus on the service sector.
In order to attract more FDI, the country needs to tackle several growth-related factors like poor governance, large-scale tax evasion, extreme population density and the associated scarcity of land and natural resources. Issues like unskilled, semi-skilled labour force and the country's vulnerability to natural disasters need also to be addressed properly.
Studies show Bangladesh has the potential to attract $5.0 billion in FDI a year. The country could have become one of the fastest growing FDI-recipient countries in South Asia if it could undertake investment-friendly policies and made all necessary facilities available.
Investors in the developed countries are now looking for opportunities in Asia and emerging markets for growth, as well as to shield businesses after the global recession. Bangladesh can take this opportunity by showing a steady growth rate. The country can also become a transport and connectivity hub in South Asia. It has the potential to grow fast, but it lacks the domestic resources and adequate investment needed to solve the power and energy deficit and infrastructural bottlenecks.
On its part, the government should go for a number of reform measures targeting public sector enterprises and organisations with a view to improving their operational efficiency and competitive practices. The proposed merger of BoI and the PC into a single agency is, no doubt, a wise decision of the government. It is expected to transform the agency into an effective investment promotion institution.
However, the government should, first of all, establish rule of law in the country replacing the state of insecurity. Once this is done, it is possible that Bangladesh could be a top investment destination as the ingredients for its flourishing are there.
And for that matter, the government needs to take decisive actions to remove the impediments to investment that will give confidence to the prospective foreign investors.           
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