Problems and prospects of investment in Bangladesh

Like most other developing and least developed countries, Bangladesh considers Foreign Direct Investment (FDI) as an important resource for development. In order to attract more and more FDI, the country undertook a massive liberalization of its investment programme. The Board of Investment (BoI) was established in 1989 by the Investment Board Act to encourage investment in private sector, to identify the hindrance of investment and provide necessary facilities and assistance in the establishment of industries. The wide range of services BoI provides includes investment promotion and facilitation covering support, suggestion and aftercare support to the investors. The prime vision of BoI is to promote domestic and foreign investment as well to enhance international competitiveness of Bangladesh and contribute to overall socio-economic development of Bangladesh. Nevertheless, Bangladesh faces the major challenge of accelerating investment, especially in the private sector to achieve World Bank’s (WB) projected Gross Domestic Product (GDP) growth of 6.7 percent in the current fiscal 2015-2016. The political stability remains another challenge for maintaining macro-economic stability that is vital for achieving higher growth rate.

Presently, investment is much below the target of 35 per cent of GDP that is required for achieving 7 per cent growth as is expected. To increase competitiveness and to spur growth political stability, removing the fear of uncertainty in future, avoiding policy reversal and cost of doing business must be brought down substantially. The local and foreign investors usually consider two things before going for investment in any country. Firstly, there must be political stability and secondly, adequate availability of reasonably priced utilities and infrastructural facilities available. The cost of fund should be less than what it is now due to higher interest rate. The businesses want adequate infrastructural facilities in addition to single digit interest on bank loans to cut cost of business. The supply of gas and electricity remain vital for investment. The latest information suggests that about 2000 factories are waiting to get the electricity connection. The energy ministry cannot give the definite time for gas and electricity connection. The cost of credit is rising due to delay in making the factories operational. Consequently, the banks are facing problem of bad loans as the investors cannot start business due to non-availability of electricity. The banks are sitting with idle surplus liquidity as the demand for credit for investment is shrinking; though the demand for bank credit for trading purposes has been rising. 

The import of capital machinery is stated to be higher at 30 per cent. But in reality the machinery that is scheduled to arrive in the country is not coming. Part of the money is laundered out of the country through over invoicing. Such corruptions and corruptions in other areas should be eradicated to enhance investment. But the encouraging thing is that the export has been showing steady growth and the trend is quite encouraging. The foreign exchange reserve is more than US$27 billion and the inflation is within manageable limit. The remittance earning is also satisfactory and showing little increase.

Remittance earning could be more had the government could send skilled and trained workers abroad. The overseas employment ministry needs be more active in encouraging vocational training so that the country could earn more than the present US$15 billion remittance. Another grey area in the economy is that over 200 thousand foreign workers are working in Bangladesh and about US$5 billion are taken out of the country by them. They are all skilled hands employed mostly in the RMG sector. These technical people could be trained in Bangladesh and the foreign workers could be discouraged and avoided to prevent outflow of foreign currencies.

To knock down poverty Bangladesh needs to create adequate jobs for its unemployed people and accelerate growth. Over 2 million labour forces join the Bangladesh job market every year. Our people will continue to remain unemployed if the jobs are taken by the foreigners. To avoid this requires promotion of technical education and skill development programmes at various level within the country. The economists suggest that the government should not go for too many mega projects like developing 100 special economic zones and flyovers. Such mega projects in fact may not be productive and may not contribute to the raising of investment at the desired level. Rather big electricity generation and gas acquiring projects should be developed.

Presently, except the Bagerhat coal fired electricity project, works in other big projects are slow. The mobilisation of domestic resources as well as encouraging FDI should be augmented. Besides, the law and order situation along with country’s politics should be stable so that the foreign and local investors feel safe with their investment. Though the WB’s projection is quite encouraging, but the achievement of this target depends on several factors. The most important is ensuring socio-political stability and practicing democracy in all spheres of national life. A national consensus should be forged to show the world that Bangladesh is truly stable and truly democratic. If these political conditions and the macro-economic stability can be maintained, the WB's projection may be achieved.

Added to these Bangladesh needs to further improve infrastructure facilities and ease “administrative rules” to attract more FDI. Bangladesh also needs to grow its size of the development ‘pie’ further to enter an advanced society maintaining ‘social stability’. First of all, Bangladesh will have to make the size of its ‘pie’ bigger. ‘Grow the pie’ is an expression used in macroeconomics to refer to the assertion that growing the economy of a nation as a whole creates more availability of wealth and work opportunities than does redistribution of wealth. Bangladesh needs to start its economic development very vigorously before it becomes too late. Many of the foreigners are convinced about the bright future in Bangladesh society. Its population is very healthy, hardworking and majority of them are young. That is an advantage and asset for the country. What is needed is adequate vocational training for them. It needs to invest more in youths to enter an advanced economy and society. In order to do that socio-political stability is the most important thing and in a very stable society, one can achieve everything.

Many of the foreigners often say that their government will continue to cooperate with Bangladesh government and its people for further development of Bangladesh. Experts said the Information and Communications Technology (ICT) will be a crucial factor for economic growth and development in Bangladesh. They said now Bangladesh has to turn its eyesight on service sector through information and communications technology. Korea is one of the leading countries in this sector. Experts say foreigners are very much interested to cooperate with Bangladesh in this area. On trade gap between Bangladesh and most of the other global countries is worth mentioning that Bangladesh’s products are not that much diversified. Bangladesh needs to encourage investment in diverse sectors of its economy instead of relying on the RMG sector alone. To bridge the trade gap with other world countries Bangladesh needs to invite more foreign companies in new areas like ICT and then Bangladesh can re-export those products to other countries.     

Bangladesh offers generous opportunities for private investment under its liberalised Industrial Policy and export-oriented, private sector-led growth strategy. All but four sectors, i.e. (i) arms and ammunition and other defense equipment and machinery, (ii) forest plantation and mechanised extraction within the bounds of reserved forests, (iii) production of nuclear energy, and (iv) security printing and mining, are open for private investment in Bangladesh. The FDI strengthens ties with developed countries that may yield cost advantages in the form of advanced technology transfers and resulting positive externalities.

These reasons also increase the effort of Bangladesh in trying to make the country an attractive destination for FDI which in itself has several advantages. The result has validated a reinforced incentive to educate and train the population to make Bangladesh’s labour force more competitive through higher national education expenditure.

As a result, potential investors from local and foreign countries have grown substantially in sectors like manufacturing, telecommunication, energy and gas sectors in addition to other sectors or sub-sectors being very promising for potential private investment.  

The FDI is capital provided by foreign investor, either directly or through other related enterprises, where the foreign investor is directly involved in the management of the enterprise. When a country has a situation of low cost of production and stable political situation that country is generally the best choice for FDI. Until the 1980s, most developing countries viewed FDI with great weariness as it has also some bad sides because it exploits the cheap labour of our country. Popular belief was that we have a huge amount of active and strong manpower. That’s why they come to our country in the name of FDI but in return they actually exploit us. Besides, they use our natural resources recklessly. So, our natural resources like gas and other things are going to be exhausted. They earn a lot of profit every year and take away to their country but they do not reinvest it in our country. Another most important thing is influencing power in government decision. Since they are giant companies, they have a powerful influential capacity in government decision. So there is a possibility of losing the sovereignty of the country.

Actually, disadvantage is a matter of fact. If there is proper government control over the company, it becomes advantages most of the times. In recent years, however FDI restrictions have been significantly reduced. Most countries offer incentives to attract FDI, such as tax concessions, tax holidays, accelerated depreciation on plants and machinery, export subsidies and import entitlements etc. As a developing country, Bangladesh needs FDI for its ongoing development process. So, special zones have been set up and lucrative incentive packages have been provided to attract FDI. Export from any country give up a boost in any country for which it can meet up its import expenses.

Moreover, there are a lot of advantages of FDI such as huge numbers of unemployed people are employed and their standard of living is increased due to the increase of income level of people. Their purchasing power is increased and the business cycle moves at a good speed. Other sides like roads, communication system, transportation facilities, and education are also improved at a greater speed. Competition is increased in the local market with the local companies. That’s why price of the product starts to fall. The GDP is increased due to increased production in the economy as we can use our unutilized resources by FDI. Foreign investors carry modern technology, skilled manpower and sophisticated knowledge to the host country. Many associated industries and institutions are made up to support the industry. The wheel of economy moves speedily.

Bangladesh is not self-sufficient in energy sector. There is already growing interest among international oil companies in contracts for exploration in this field. The gas sector has by now drawn large amounts of foreign investment. It has to be assumed that FDI is increasingly becoming a significant source for financing domestic investment in Bangladesh. But unlike in Sri Lanka and some other countries in the region the FDI is focused on export oriented activities in Bangladesh.

Problems that have restricted FDI potentials in Bangladesh include excessive bureaucratic interference, alleged irregularities in processing papers, lack of commitment on the part of local investors, inordinate delays in selecting projects for feasibility studies, and frequent changes in policies on import duties for raw materials, machinery and equipment. Overlapping administrative procedures and absence of a transparent system of formalities and recognized dissemination of facts often confuse not only investors proposing projects, but also staff and personnel assigned for discharging procedural responsibilities. Frequent transfers of top- and mid-level officials in various ministries, directorates and departments affect continuity and prevent timely implementation of strategic, procedural, and even routine duties. An additional problem is the lack of professional personnel, i.e., the technical, managerial and innovative skills in the country needed to efficiently handle entrepreneurial function including risk taking, planning and coordination and control.

Bangladesh has an advantage in labour costs, which can be converted into an exportable product, but the advantage has many difficulties. The factories in the country have to deal with constraints beyond their control, such as, power failures, poor communications or increased transaction costs and cumbersome procedures in customs in many government offices. However, the situation is expected to improve if the political commitment of the government to promote and protect FDI in the country can be increased and the policy environment can be changed from one that is regulatory to one that is supportive /complementary in nature and through mitigation of inter-party political conflict. Many foreign companies feel disturbed and ultimately are discouraged by disruptions in the production processes in the country because of frequent power failures, political and labour unrests, poor infrastructure support.

However, competitive strength of Bangladesh for investment is good. (i) Geographic location of the country is ideal for global trades with very convenient access to international sea and air routes. (ii) Bangladesh is endowed with abundant supply of natural gas, water and its soil is very fertile. (iii) Bangladesh has a hard working and generally intelligent population of approximately 170 million. There is an abundant supply of disciplined, easily trainable, and low-cost workforce suitable for any labour-intensive industry. (iv) Bangladesh is a liberal democracy and mostly a one race and one religion country. The population of this country irrespective of race or religion have been living in total harmony and understanding for thousands of years. (v) Although Bengali is the official language, but English is generally used as second language. Majority of even moderately educated population can read, write and speak in English. (vi) Because of low per capita income of around US$1300, present domestic consumption is not significant. However, it should always be considered that there exists a middle class with some purchasing power. As economic growth picks up, the purchasing power will also grow substantially. And in a country of 170 million people, even a small middle class may constitute a significant market. (vii) Most Bangladeshi products enjoy complete duty and quota free access to EU, Japan, Australia and most of the developed countries.

The government should come forward to take all the initiatives to make the foreigners interested about our economy and the opportunity for the investors to invest. Politicians should try to make the political situation stable so that it helps the investor to make their investing decision at ease. An economy will not improve where politics dominates the economy. To improve the condition of an economy what needs to be done is economy should dominate politics. In a developing country like Bangladesh FDI is the key to its development. Its FDI performances should be very satisfactory for its development. The FDI can influence our trade, commerce and industrial sector for quick development.  Ample socio-economic prospects are there that Bangladesh can derive from its relations with its friendly countries. All that it requires is to stress on infrastructural development and political stability which it urgently needs for substantial improvement as an incentive for further domestic investments and inflow of FDI. If Bangladesh can overcome the infrastructural bottle-necks along with political uncertainties that exist presently in the country hindering inflow of FDI, willing global nations together with domestic investors will be encouraged to do businesses here to help achieve desired level of GDP growth for its middle income status by 2021.