Attracting higher FDI still a ways off

In order to narrow or meet the investment gap and more so, to abide by employment generation obligations, every country needs foreign direct investment (FDI).
FDI along with technology transfer ensures the migration of global best practices.
Along with the existing macroeconomic crisis and resulting foreign exchange shortage, recent violence centring the quota reform movement, a subsequent five-day internet blackout and countrywide curfews have naturally shaken foreign investors’ confidence in Bangladesh.
Not only should this be addressed with immediate effect, it comes with the need for a clear or semi-clear roadmap for the country’s transition to democracy.
Global investors put a lot of focus on political and economic stability as well as potential growth prospects in their destination of choice.
My long association with facilitating large FDI in the country tells that all large investors, who get into any emerging countries, base their decision on some common indicators of investment attractiveness.
This includes the scope for returns on investments, availability of unencumbered land, policy continuity, logical foreign exchange and interest rates, guaranteed repatriation of income — be it principal, profit or dividends — and volume of skilled manpower in investment destinations.
According to various media reports, Bangladesh needs to attract FDI equal to 1.66 percent of its annual GDP to become an advanced economy by 2041. But in 2022, the country’s FDI inflow amounted to just 0.75 percent of its GDP.
Bangladesh Bank data shows that net FDI inflow fell to $3 billion in 2023, down by some 14 percent year-on-year.
Against this backdrop, the investors’ confidence crisis caused by recent events becomes even more concerning. Whether we like it or not, people are yet to get clarity on what is happening in Bangladesh and how far the impacts may reach.
Investors already had a number of issues with Bangladesh in this regard.
Problems like corruption, bureaucracy, anti-competitive government procurement practices, contract and intellectual property right violations, weak judicial system, and inconsistent policy shifts were all previously identified as barriers to Bangladesh attracting higher FDI.
And the recent issues and backlash did little to help the country’s image, with several international rights organisations and foreign countries having identified a number of human rights violations during the government’s brutal crackdown on protesters in July and August.
The modern nature of business is such that all business activities around worldwide have become tremendously dependent on internet usage. So, the five-day internet blackout had a massive impact on all local businesses and showed how easily the country can be disconnected from the world. Although the country has since slowly recovered in regards to online and physical connectivity, the local businesses’ delayed return to full operations amid recent turmoil in industrial belts forced some off-takers to shift a few of their orders to other countries.
Some factories had to go for costly air shipments to make up for the production delay and meet lead times. Besides, the uncertainty that many businesses and investors faced during the internet outage has made them particularly antsy, with many foreign investors raising questions about Bangladesh’s political stability.
And even though the interim government remains confident about the country’s ability to attract FDI, we believe there is a lot that can and should be done to regain investors’ trust. First, the interim government must urgently restore their confidence by cracking down on disturbing elements and reinstating normalcy by lowering tensions within society at large.
It also needs to take all the necessary steps to ensure a positive business environment that is conducive to attracting investment, and that can largely mitigate the losses businesses suffered.
There should be no more confusing statements on the country’s liquidity and foreign exchange levels from the central bank. Also, pending bills should be paid at the earliest convenience or the contracts extended mutually.
But amid all these challenges, there is hope. Bangladesh as a country has a long history of bouncing back from crisis and remains an attractive destination for its growing consumer spending.
However, the country needs strong leadership and coordinated efforts now more than ever.
The author is chairman of Financial Excellence Ltd