Robust FDI inflow still a distant dream

Shahiduzzaman Khan Despite liberal investment policies, abundant workforce and cheap labour, the inflow of foreign direct investment (FDI) to Bangladesh remains still quite low. The country is yet to become a favourable destination for FDI. The inward FDI flow in Bangladesh is lower than other countries having the same status of the least developed countries (LDCs). At a seminar held at the Jahangirnagar University at Savar this week, economists and trade experts expressed their concern over the state of lower FDI flow to Bangladesh. They stressed the need for removal of security concerns, further liberalisation of trade-related policies and resolution of the problem of political uncertainty with a view to attracting more FDIs for sustainable growth of the Bangladesh economy. Country's total inward stock of FDI until 2010 was only US$6.1 billion accounting for only 6.1 per cent of its gross domestic product (GDP) and representing mere 0.03 per cent of total global stock of FDI worth US$19.1 trillion. Although Bangladesh is in a leading position among the LDCs, the country's FDI flow is only 3.5 per cent of the total FDI inflow to the LDCs. India which is, of course, a large emerging economy, attracted $24 billion last year alone. Despite having provision for 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, why the much-sought-after FDI is not coming to Bangladesh in a big way remains a big question. Availability of huge, easily trainable and competitive workforce in Bangladesh, its relative political stability and its 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 were witnessed in telecommunications, banking and lately in RMG and textile sectors. There is a big difference between the projects registered for FDI and those which finally go into operation. Over half of the foreign investment proposals registered with the BoI each year do not materialise at all. The 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. The inflow of FDI has fallen, but the outflow of funds has increased for repatriation of profits by the multinational companies operating in Bangladesh. The fund outflow is increasing consistently driven by repatriation of oil, gas and power companies' earnings, in contrast to the declining FDI inflow. In fact, net FDI inflow turned negative in 2009. The trends show the FDI inflow has been shifting to the services sectors from manufacturing while the inflow declined in telecoms, power, gas and petroleum although it increased in textiles and apparels, banking and food in 2009. Weak infrastructure is not the only obstacle to attracting FDI; other factors are also responsible for the low-level of such FDI inflow to the country. The FDI inflow is important for a country because it creates jobs and helps reduce poverty and facilitate 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'. Despite this, Bangladesh, according to the World Investment Report 2011 of the United Nations Conference on Trade and Development (UNCTAD) released in July this year, was placed at 114 in 2010 in the world investment scenario. Last year, it took the 120th position. The country improved its position in the ranking among 141 countries in terms of global inflow of FDIs by attracting $913.32 million in 2010, according to the report. The report said the index of FDIs in Bangladesh have moved six notches up from what the same were in 2009. But if the FDI figure of 2008 at $ 1.086 billion is compared with those of 2009 at $ 700.16 million and 2010 at $ 913. 32 million, the negative trend in FDI inflow becomes obvious. However, the comparisons between 2009 and 2010 undeniably demonstrate that the FDI curve has made some positive gains. Given the dichotomy, it would then be wiser to look at the growth trends from a more critical perspective. From the regional context, the WIR report shows that Bangladesh has done comparatively better compared to other South Asian countries like India and Pakistan. But, in absolute terms, the amount of FDI that flowed into Pakistan in 2010 was about $ 2.02 billion. And it was lower than the 2009's figure at about $ 2.39 billion. On the other hand, the same for India was $24.64 billion and $34.61 billion respectively. Soaring land prices and hassles in land acquisition impact adversely the inflow of foreign investment and the expansion of local businesses as well. 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. In order to attract more FDIs, Bangladesh needs to tackle several growth-related factors like poor governance, large scale tax-evasion, extremely high population density and the associated scarcity of land and natural resources. Issues like unskilled and semi-skilled labour force and the country's vulnerability to natural disasters need also to be properly considered. Indeed, Bangladesh 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. The government has to pursue clear, consistent and transparent rules and pro-investment policy. It needs to make concerted efforts to improve the condition about infrastructural facilities and the supply of energy and power to the industrial units to attract more FDIs for promoting the goals of sustainable development of the country's economy. szkhan@dhaka.net