Bangladesh failing to attract FDI

Despite offering lucrative incentives and protection to investors, Bangladesh has constantly been failing to attract foreign direct investment (FDI), which is putting pressure on the country's foreign exchange reserve and balance of payments (BoP).

Though South Asia as a region receives a good amount of FDI every year, Bangladesh does not, which analysts attribute to the country's poor infrastructure and political uncertainty.

South Asia received FDI worth US$42.5 billion in 20T09, but Bangladesh, a $110 billion economy, never received $1 billion worth of FDI.

“Even Pakistan with its extremist-infested conditions and seriously embattled political situation is seen attracting a much bigger amount of FDI than Bangladesh,” said the Metropolitan Chamber of Commerce and Industry (MCCI) in its economic review for January-March of 2011-12.

The inflow of FDI was $804 million in fiscal 2004-05, which came down to $743 million in 2005-06, $793 million in 2006-07 and $748 million in 2007-08.

The situation improved in the following year attracting $961 million, the highest inflow in the country's history. Majority of the FDI was in oil and gas and telecommunication sectors.

The FDI inflow during July-January of the current fiscal year was only $425 million and if the trend continues, the amount would not exceed $850 million by the year end.

Bangladesh's failure to attract FDI despite offering lucrative incentives like repatriation of profits and tax waiver has become a curious case to analysts.

According to the World Bank's "doing business report", Bangladesh ranks ahead of China, India and Vietnam in terms of protecting the interests of foreign investors.

“Political uncertainty is the biggest bottleneck,” said Monzur Hossain, senior research fellow of Bangladesh Institute of Development Studies (BIDS).

Hossain said the country has a huge potential for attracting FDI in the manufacturing sector as many developing countries, including China and India, are facing higher production costs.

According to the BIDS fellow, Bangladesh is missing out on the chance.

“Business confidence and market access are the two other major barriers,” he said.

FDI has a positive impact on economic growth and plays a role in the BoP. But this year's FDI inflow is of grave concern to the economy and the government, which is struggling to maintain a healthy reserve and BoP for the outgoing fiscal year that ends on June 30.

To maintain BoP stability, the government has allowed some of the country's private companies to seek funds from the international market. The government has also set up a committee to find ways to float sovereign bonds in the international markets.

The MCCI identified lack of action by the country's missions abroad in projecting investment-drawing potential, weak infrastructures and political instability as the major reasons for poor inflow of FDI.