The foreign direct investment flow to the country in FY23–24 dropped to a decade low amid negative credit rating, dollar shortage, political uncertainty, inefficient bureaucracy and corruption, said economists.
They also said that the interim government that assumed power after the fall of the Awami League regime on August 5 was facing an uphill task to win the investors’ confidence and push up the FDI flow ahead of the country’s graduation from the least developed countries’ bloc in 2026.
Economists expect more dynamism from the agencies concerned in the current transition period to reverse the FDI flow which has been historically low compared with other peer countries.
The trend forces the country to rely mainly on income from exports, remittances and loans from multilateral and bilateral lenders for maintaining the balance of payment that has been under pressure since 2022 for shortage of dollars, pulling down its credit rating by the global rating agencies, including Moody’s.   Â
As the country’s exports will face higher duties and overseas loans will be costly after the graduation, Institute for Inclusive Finance and Development executive director MK Mujeri said that the country needed higher flow of FDI.  Â
‘FDI should be the key to the smooth graduation process,’ said the economist, lamenting that the FDI flow had been on a falling trend since FY22–23. Â
The FDI, however, in FY23–24 fell by 8.80 per cent to $1.47 billion from $1.6 billion in FY22–23 and $3.44 billion in FY21–22, according to Bangladesh Bank.
The FDI flow in FY23–24 has been the lowest in the past decade.
In FY13–14, the country received $1.48 billion, according to the central bank.
High inflation, deepening dollar shortages, devaluation of local currency, import restrictions and heightening political tension before the latest general election on January 7, widely criticised for fielding ‘dummy candidates’ and boycotted by most of the opposition political parties, have been blamed for the decade-low FDI flow, said M Masrur Reaz, chief executive officer of the Policy Exchange Bangladesh.
With the recent regime change, expectations were running high that the investment-related problems, including chronic corruption and a lack of suitable business climate, would be solved, he said. Â
The interim government has appointed Ashik Chowdhury as the new executive chairman of the Bangladesh Investment Development Authority and the Bangladesh Export Zones Authority, two key entities responsible for attracting and dealing with the foreign direct investment.
Acknowledging Bangladesh’s tiny share of Asia’s $620 billion in FDI, he outlined a roadmap focusing on enhancing the ease of doing business and tackling corruption.
Bangladesh’s ranking in ease of doing business is 168th among 190 economies, a crucial factor for potential foreign investors.
The Bangladesh Investment Development Authority executive chairman said that the country ranked 149th in the Corruption Perception Index in 2023, indicating significant challenges to investor confidence.
The organisation adopted a two-pronged approach targeting quick wins and long-term structural changes, he said.
Foreign Investors’ Chamber of Commerce and Industry president Zaved Akhtar hoped that the long-standing demands of foreign investors would be resolved under new leadership at the The Bangladesh Investment Development Authority.
Ease of doing business, consistency in policy, simplification of taxation, better coordination among government agencies, and improving logistics are among the demands by the foreign investors. The problems have long been undermining the country’s prospect of foreign direct investment.
Zaved Akhtar said that the country’s average FDI flow was around 0.4 per cent of its gross domestic product compared with that of 1.5 per cent in India and 1.2 per cent in Sri Lanka.
In 2023, the world saw a fall in the overall FDI flow.
That year the FDI in South Asia fell by 37 per cent, while the global FDI fell by 2 per cent to $1.3 trillion due to an economic slowdown and rising geopolitical tension, according to the World Investment Report 2024.
In 2023, the FDI to India drastically fell to $28.1 billion from $49.3 billion in 2022. The same year, Sri Lanka received US$724 million in net FDI and Pakistan $1.82 billion.
In 2023, the FDI in percentage of GDP stood highest 0.8 per cent in Sri Lanka followed by India at 0.79 per cent, Pakistan at 0.53 per cent, Bangladesh at 0.31 per cent and Nepal at 0.18 per cent.        Â
The FDI flow in the country’s South Asian neighbours exposed the weakness in overall management in attracting the FDI in Bangladesh, Zaved Akhtar said.
Economists said that confidence among the businesses for fresh investment was low as law and order situation under the interim government had yet to stabilise.
Besides, the growing shortage of power and energy was worrying, said Masrur Reaz, and added that the efficiency of ports was also questionable despite the availability of cheap labour. Â
Officials at the Bangladesh Investment Development Authority said that they were likely to announce a number of steps soon to boost the investors’ confidence.
Proposals for captive power options for foreign direct investors and a new investment advisory board to guide the FDI strategy are major ones among these measures.
The introduction of a National Single Window for port billing by early 2025 and the rollout of an Authorised Economic Operator system in January 2025 to streamline goods transport are also very important.
To enhance transparency and reduce bureaucratic red tape, the BIDA will highlight the government’s anti-corruption measures focusing on digital processes.
Bangladesh has made efforts to attract more FDI since initiating economic reforms in 1995.
It took Bangladesh about 16 years to cross the $1 billion mark in FY2011–12, with FDI crossing the $2 billion threshold in FY15–16.
The FDI flow reached $3.89 billion in FY18–19 after recording $2.45 billion in FY16–17 and $2.58 in FY17–18.Â
The FDI flow somewhat dropped to $2.37 billion in FY19–20, and then recorded $2.51 billion in FY20–21. It surged again to $3.44 billion in 2022.
