Bangladesh is facing a lethargic growth in terms of FDI owing to the fact that it has poor governance, inadequate supply of energy and security, coupled with deficiency in infrastructure, corruption and political uncertainty. The FDI grew only by 5.11 per cent in fiscal year 2017-18 to $2.58 billion from last year’s $2.45 billion – ranking 177 out of 190 countries in World Bank’s Ease of Doing Business Index this year (2017-18), which is the lowest ranking for a country in the South Asian region.
Vietnam, China, India and Cambodia all have FDI to GDP ratios exceeding 2 percent, while Bangladesh has a FDI to GDP ratio of less than 1 per cent. Previously the FDI share in GDP in the country was merely 0.8 per cent against the LDC average of 3.3 per cent. Experts blame poor infrastructure and a substandard business environment to be the prime stumbling blocks for Bangladesh both domestic and foreign investment.
The Central Bank calculates the FDI in three categories – equity, reinvestment of earnings and intra-company loan. In FY ’17, the equity capital or new investment fell by 39 per cent to $615 million which is a warning sign for the country as it is a pivotal element among the three categories. Reinvestment earnings remained unchanged at $1253.44 million, stipulating the fact that the existing foreign companies are not using their profit in the country but repatriating them abroad. In contrary, the intra-company loans showed positive signs as it increased by 3.65 times last year to $712 million. The power sector in Bangladesh saw the highest inflow of FDI in FY ’17-’18 with $589 million, followed by textile at $459 million and banking at $321 million. The countries with the highest inflow of FDI in Bangladesh for FY ’17 are China, UK, Hong Kong, US, Singapore, Norway and South Korea.
Policy areas such as improving the quality of bureaucracy and governance would help ensure stability and efficiency in the productivity side. Moreover, improvement of port services, law and order situation and infrastructure would make a significant impact in helping the country ensure an encouraging investment climate. With a strong GDP driving the country forward, Bangladesh is well on its way to become the 28th largest economy by 2030 in terms of GDP ranking on PPP basis, however, the government must take steps to ensure the smooth running of foreign and domestic companies.