THE decline of foreign direct investment to a decade’s low in the 2023–24 financial year raises concern and warrants the attention of authorities. The foreign direct investment declined by 8.80 per cent to $1.47 billion from $1.6 billion in the 2023 financial year, as the Bangladesh Bank says. The figure was $3.44 billion in the 2022 financial year. The FDI flow to Bangladesh has, in fact, been lower than most of its South Asian neighbours. Bangladesh’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. This shows the weakness in overall management in attracting foreign direct investment. Negative credit rating, dollar shortage, political uncertainty, the devaluation of the taka, import restrictions, bureaucratic tangles and corruption are blamed for the plight of FDI flow. Bangladesh could, moreover, not retain its earlier foreign direct investment as old investors were pulling investments back or repatriating profits, as the UNCTAD’s World Investment Report 2023 shows. The UNCTAD report also identifies Bangladesh as the non-investment-grade country for the least developed countries. Such identification, believed to make FDI inflow difficult, has been made because of the demotion in sovereign credit rating.
The United States-based international credit rating agency Moody’s Investors Service, for example, downgraded Bangladesh’s long-term ratings to B1 from Ba3 in May 2023. The rating agency said that Bangladesh had heightened external vulnerability, persistent liquidity risks and institutional weaknesses and a poor rating in the ease of doing business. Bangladesh’s ranking in the ease of doing business, crucial for potential foreign investors, is the 168th among 190 economies. Such a poor rating has eroded foreign investor’s confidence and resulted in low FDI flow. The decline in foreign direct investment flow has, meanwhile, forced the country to rely largely on income from exports, remittances and loans from multilateral and bilateral lenders to maintain the balance of payment that has been under pressure since 2022. The interim government, which assumed office after the fall of the Awami League regime, now faces an uphill task to win back investor’s confidence and push up the FDI flow. The Investment Development Authority is reported to be soon taking some steps to boost investor’s confidence. Among the steps are captive power options for foreign direct investors and a new investment advisory board to guide the FDI strategy. It is also likely to propose steps to streamline goods transport, enhance transparency and reduce bureaucratic tangles.
Bangladesh has been attracting foreign direct investment since the economic reform in 1995, but the country lags way behind its neighbours. Against the target of a 3 per cent FDI-GDP ratio, foreign direct investment has stayed at less than 1 per cent. The government, therefore, needs to address the issues and ensure a business-friendly atmosphere to attract more foreign direct investment. It should also try to channel the investments to labour-intensive sectors to avoid jobless growth.