Developing countries like Bangladesh has to depend mostly on export, remittance and foreign direct investment (FDI). Foreign investment plays a vital role in gross domestic product (GDP). Investment increases the flow of money and accelerates growth and development. But the country is in deficit of new investment, although there is idle money lying in the banks which indicates a situation of less money circulation or less flow of money and thus less investment. In Bangladesh, each indicator of financial development is sliding down and the negative effect will create an ascendance in reserve.
Most economists attribute sluggish investment to political instability. The fickleness in international relations is directly related with the ups and downs of foreign investment. It is easily predictable that the current political unrest is responsible for such investment debacle.
For Bangladesh continuing flow of foreign investment is the biggest challenge at present. Also keeping stable the interest on bank loan, bond issue and remittance stream are challenging. Most of the developed countries are experiencing tardy growth in their economies. In addition, middle east countries also going through political hazards. This resembles the challenge for a developing country which needs to depend mostly on foreign aid and investment. To maintain growth, Bangladesh needs immediate steps to increase FDI. And to encourage the investors, interest rate on loan should be brought down to single digit.
Our economy was in a stable condition and progress was satisfactory in spite of the ongoing global economic downturn for the last few years. Bangladesh has been recognised internationally as a rising economic power, but it lags behind in many sectors. Political violence impedes the pace of development of the economy. After a peaceful year of 2014, 2015 began with violent politics as the two main parties are at loggerheads.
After an increase for three consecutive years, FDI dwindled last year. Temporary estimates of Bangladesh Bank (BB) show FDI amounted to $1530 millions in 2014, whereas it was $1600 millions in 2013. FDI declined by 4.25 per cent. According to BB statistics, half of the total foreign investment came as a reinvestment to the multinational companies last year. 25.0 per cent investment came in the form of inter-company loans and only 25 per cent of it came as new investments.
Local and foreign entrepreneurs have lost interest to invest in the country due to the political upheaval and uncertainty. According to the Board of Investment (BoI) data, only one foreign direct investor got registered for investment in January this year which amounts to Tk.500 million compared to an average monthly registration of Tk.25000 millions last year. Even local investors are apprehensive of the current political situation and consequently investment may slump further. Such apprehension have sent a bad signal to foreign investors who were once interested to invest in Bangladesh.
BoI data shows foreign investments worth $3000 million. According to the BoI, the real FDI was $1640 million (Tk.130,000 million) in 2014. In the year, the re-investment, however, was $700 million (Tk.55000 million). BoI saw a moderate growth in FDI situation in 2014, although FDI in 2014 was not diversified. A total of 30 firms - foreign, local and joint venture - were registered with BoI in January this year. But of them, foreign firm was only one.
In the month of December last year, total investment of Tk 30,000 million was registered. In January this year the figure dropped to Tk.10,000 million. In 2013, total volume of investment registered was $2,621million but real investment was $1,599 million.
The Industries Minister said that inflow of FDI into Bangladesh rose to a record high of US$1.6 billion in 2014 which is expected to cross US$2 billion in 2015. On the other hand, the cost of imports in the first five months (July to November) of the current fiscal year compared to the corresponding period of last year has increased. Abnormal rate of increase in imports of machinery of zero duty is observed. At the same time, imports of readymade garments (RMG) sector capital goods increased by several thousand percent, while the growth in RMG exports was very low in last five months.
Research organisation Centre for Policy Dialogue (CPD) says, there was no investment at all and on the contrary, a huge amount of money was smuggled out of the country which is higher than our total foreign aid converted into local currency. CPD worries if the smuggled money is coming back to the country in the form of foreign investment and aid.
Although the cost of business is low and workforce is cheap in Bangladesh, facilities from procuring land to obtaining electricity and gas connections, remain cumbersome due to bureaucratic tangles.
Most of the FDI in South Asia flows towards India. In last three years, about 90.0 per cent of total FDI in this region went to India and only 3.0 to 3.5 percent came to Bangladesh. On the other hand, 85 per cent of the FDI stock (reserve) of South Asia is in possession of India.
Furthermore, lack of investment-friendly policy is another major bottleneck towards investment followed by bureaucratic complications, political instability and energy crisis. The investors are hesitant because of any visible government initiative in these areas. There was no noticeable foreign investment in any sector, except telecommunication in last year. The government has failed to provide the much needed support to attract foreign investment resulting in an investment crisis.
Frequent change in policies is another hurdle for foreign investment and an investment-friendly policy framework has to be evolved to attract them. Although many internationally renowned companies have expressed interest to invest in Bangladesh, they are moving away due to inadequate policy support. Samsung (a Korean company) had shown interest to build a factory in Bangladesh nearly 4 years ago. They asked for 2000 acres of land in the export processing zone but did not get it. Huge foreign investments were lost in this way.
Bangladesh is left with no other choice but to attract more FDI and boost exports to ensure steady economic growth. It is the government who should come forward and motivate the potential investors to invest in our country. National Board of Revenue (NBR) and Board of Investment (BoI) should work together to tackle the ongoing crisis. And Political leaders should try and make the situation stable so that the investors feel encouraged to invest in our country.
Sadiq Zafrullah is a student of Economics, University of Dhaka.
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