Reduced FDI flows
Friday, 26 September 2008
Foreign direct investment (FDI) is coveted by the developing countries like Bangladesh for understandable reasons; their investments from domestic sources are found to be insufficient to meet their needs of high economic growth, to create enough jobs and incomes for their people and to help alleviate poverty. Investment operations on high gears is extremely important for Bangladesh to keep all its major economic indicators favourable. Investments at a desirable level means that government will earn more revenues, exports and imports will rise, the balance of payments (bop) can be steadied, the supply of goods and services can increase to meet demands, etc. There are limitations on public sector investments in Bangladesh. In the first place, government should not be in business. Furthermore, governmental resources are otherwise spread thin on so many priorities, many of which are not directly productive like spending on law and order and social safety nets for the poor. Thus, private sector investment is of very vital significance for the Bangladesh. Since the sinews of the local private sector are still not so strong, foreign investments are looked upon as a very important source to meet investment needs.
Against this backdrop, it comes as a disconcerting news that the FDI flow into Bangladesh that has been otherwise showing slow but steady uptrends in the present decade has declined by some 16 per cent in 2007 over that of the previous year. This has happened in the context of an 18 per cent increase in relative FDI inflows to its South Asian neighbouring countries. This suggests that the overseas investors are not showing any sustained interest in Bangladesh as an investment location. Furthermore, they are attracted more to the neighbouring South Asian countries than to Bangladesh which has not been able so far to attract much of any interest by the foreign private investors. For an economy that must aspire to grow well above 6.0 per cent or in the neighbourhood of 8.0 per cent annually to meet the UN's millennium development goals (MDGs) to make substantial dents in its poverty situation and create more economic opportunities for its vast population, this has otherwise been an unpropitious situation.
The slowdown in the FDI flow in 2007 may have been caused by multiple reasons. The government should take stock of the situation and identify the main factors discouraging foreign investments. Any such assessment would surely point to the fact of seriously deteriorated energy supply as one of the main disincentives. Foreign investors not only must have assurances of good energy supply at present, they also need to be assured that the energy availability, if not satisfactory now, will be reasonable by the time they aim to go into operation. But they are not getting even this minimum assurance, looking at government's activities in augmenting energy supply in the short and medium terms, not to speak of the longer term. Thus, the government must gird up its loins and go all out to improve the supply of energy. Doing of this can be the best stimulus for FDIs and even local investments under the present conditions.
It must also be noted here that political stability is a big factor in inducing major investments from the external source. Confidence among potential foreign investors about stable post-election political environment on a sustainable basis will be, thus, quite important for the foreign investors before they decide about locating their potential investments in Bangladesh. Besides, there has to be an improvement in the foreign investors' perception of Bangladesh in relation to law and order. That will be firmly there, when such investors, actual or potential, get the right signals. Here, again, the rising workers' resentments, particularly in the country's export-oriented readymade garments (RMG) sector for various reasons, provide some unwelcome signs. The related concerns should effectively be addressed. Foreign investments are also drawn from knowing and believing that governmental authorities remain engaged in maintaining the optimum performance of key infrastructures such as ports and roads and that greater infrastructure building to facilitate investment is on the cards.
Against this backdrop, it comes as a disconcerting news that the FDI flow into Bangladesh that has been otherwise showing slow but steady uptrends in the present decade has declined by some 16 per cent in 2007 over that of the previous year. This has happened in the context of an 18 per cent increase in relative FDI inflows to its South Asian neighbouring countries. This suggests that the overseas investors are not showing any sustained interest in Bangladesh as an investment location. Furthermore, they are attracted more to the neighbouring South Asian countries than to Bangladesh which has not been able so far to attract much of any interest by the foreign private investors. For an economy that must aspire to grow well above 6.0 per cent or in the neighbourhood of 8.0 per cent annually to meet the UN's millennium development goals (MDGs) to make substantial dents in its poverty situation and create more economic opportunities for its vast population, this has otherwise been an unpropitious situation.
The slowdown in the FDI flow in 2007 may have been caused by multiple reasons. The government should take stock of the situation and identify the main factors discouraging foreign investments. Any such assessment would surely point to the fact of seriously deteriorated energy supply as one of the main disincentives. Foreign investors not only must have assurances of good energy supply at present, they also need to be assured that the energy availability, if not satisfactory now, will be reasonable by the time they aim to go into operation. But they are not getting even this minimum assurance, looking at government's activities in augmenting energy supply in the short and medium terms, not to speak of the longer term. Thus, the government must gird up its loins and go all out to improve the supply of energy. Doing of this can be the best stimulus for FDIs and even local investments under the present conditions.
It must also be noted here that political stability is a big factor in inducing major investments from the external source. Confidence among potential foreign investors about stable post-election political environment on a sustainable basis will be, thus, quite important for the foreign investors before they decide about locating their potential investments in Bangladesh. Besides, there has to be an improvement in the foreign investors' perception of Bangladesh in relation to law and order. That will be firmly there, when such investors, actual or potential, get the right signals. Here, again, the rising workers' resentments, particularly in the country's export-oriented readymade garments (RMG) sector for various reasons, provide some unwelcome signs. The related concerns should effectively be addressed. Foreign investments are also drawn from knowing and believing that governmental authorities remain engaged in maintaining the optimum performance of key infrastructures such as ports and roads and that greater infrastructure building to facilitate investment is on the cards.