Pros and cons of foreign direct investment

Habibullah N Karim Bangladesh has not had much luck when it comes to foreign direct investment (FDI). The average inflow per annum in the last five years has been below one billion US dollars which is dismal compared to other Asian economies. Our economic targets of above 8.0 per cent growth rates within the current five-year plan requires increasing the rate of investments from its current level of 24 per cent of gross domestic product (GDP) to 34 per cent Many economic observers believe that such massive uptick in investments can only be possible with rapid influx of FDI. However, all our calls for alluring FDI with ever more aggressive incentives and tax-breaks seemed to have fallen on deaf ears. The rapid growth of FDI even in tiny Cambodia puts our efforts to shame. While we are struggling to make incremental improvements in our ease-of-doing-business rankings and finding it hard to put a shine to our attractiveness as an investment destination under the dark clouds of political bickering hanging in the air, we must not overlook the great strides in large-scale mobilization of local investments seen in recent years. Hundreds of millions of US dollar worth of investments in the power generation sector have been made by local entrepreneurs of late. Local investments of such size have not been seen in the past. Of course, the lure of making a quick buck from the rental power plants was an irresistible magnet for investment in that area but more mature long-term combined-cycle power plants have also been invested in. When the financing alternatives for the Padma bridge was being considered early in the tenure of the present government, raising funds from the capital market was also a credible option. The fact that the capital market is still standing on its feet, even though many believe scamsters siphoned off nearly Tk 300 billion (30,000 crore) from the market late last year, is a strong testament to the great depth of funding power acquired by the capital market over the years. With export growth, industrial growth and migrant workers' remittance growth in double digits, there is a steady resurgence of the middle-class and saving rate. We need to encourage these sources of new funds in the form of increased savings or retained company earnings to drive investments and to ensure that these funds are put to productive use, instead of being thrown into the informal economy through purchase of lands or apartments the cost of which are never fully declared. Growth in local investments and the buying power of the middle-class will surely catch the attention of global investors who will then look for investment opportunities on their own without much prodding from anyone. In fact that's the kind of situation we should aim for, as only then we can pick and choose which FDI is good for us and which aren't necessary. Allowing massive influx of FDI without any suitability checks was the major cause of the catastrophic economic deflations in many South East Asian countries in the late nineties. With Bangladesh's current account convertibility of foreign currency still regimented, such a scenario is not likely to play out here but then again the lack of ready convertibility may be one of the detractors of FDI at present. We did, however, see such foot-loose money coming in and going out quickly during the stock market debacle of 1996. In South East Asia today, nations are much more cautious about FDI and only welcome such investments where they lack know-how or technology. Even there they encourage joint ventures with local corporations. The country's investment promotion agency, the Board of Investment (BOI) must rethink its strategy and promote local investments more vigorously and hold road shows in different cities in the country to encourage large scale national projects to be undertaken by local promoters. Only a happy bunch of local investors will entice non-locals to the country. One significant source of FDI can be from non-resident-Bangladeshis (NRBs) who are most certainly to be influenced easily by the investment outlook, portrayed by the locals. In turn the NRB investors will bring purely foreign investments through lateral inductions and word-of-mouth good vibes about investing in this green corner of our blue planet. For an eye-opening discussion on FDI and the lessons from South East Asia with Dr. Jomo Sundaram, the assistant secretary general of the United Nations for economic affairs and Mr. Anis Ud Dowla, chairman ACI Group and former president of the Metropolitan Chamber of Commerce of Industry (MCCI), the readers can watch today's (Sunday, 9th) episode of Orthonitir Chaka on Boishakhi TV at 5:30pm (repeated at night at 12:30am). The readers can also watch the programme online on BDeshTV.com on Thursday and afterwards. The Financial Express is the media partner and American International University of Bangladesh (AIUB) is the technical collaboration partner of Orhonitir Chaka. Habibullah N Karim is an IT entrepreneur, policy activist and the anchor of Orthonitir Chaka. He can be reached at email: hnkarim@gmail.com.