Do we need FDI in Bangladesh?

thinking loud
Do we need FDI in Bangladesh?

Mamun Rashid  published  12.04.24  FE

Many of the readers may be remembering the big `row' between the then Board of Investment (BOI) boss and an economist from a policy research organisation over the volume of foreign direct investment inflow in Bangladesh in 2006. The debate ended up with serious `below the belt' (dirty, unfair) hitting by both the parties- the BOI chief taking the economist to the dock, more undesirably, with three senior and respected citizens of the country, while the economist tried his best to undermine the social and family standing of the BOI boss, including adding some `communal repression' colour to this, since he was from minority community. The entire episode, `for reasons not explained in public' got three embassies involved into it, ending up with nobody less than the US ambassador playing the emissary role to reconcile and putting an end to the this 'mud slinging'.

Despite all debates, successive governments pretending to be very investment-friendly and Bangladesh claiming to have one of the best foreign direct investment guideline in the world, the FDI in Bangladesh always has remained at the sub-optimal level for a long time. I remember having said in a television interview, even if the economist mentioned above was put in-charge of the investment facilitation entity, things would not have changed much. FDI in Bangladesh with an exception in one year never crossed USD 1.0 billion mark and mostly hovered around USD 600 million.

Yes, Bangladesh needs large investments, in the growth sectors, for raising the per capita income and creating more jobs to graduate it into a mid-level economy putting its LDC (least developed country) legacy behind. At the same time, many of the policy planners will tell you- large investment does not mean FDI. We have large business houses in the country and they are capable of driving large investments, therefore we should engage them, not the foreign entities. If at all, FDI should only be allowed in the `labor intensive' sectors. But again, they would raise their eye brows, if the profitable foreign or global entities are remitting their `dividends' to their host countries. There of course may be a feeble or not so strong voices, who would tell you-`we need foreign investment for `technology transfer' or `success transfer', where they may occasionally bring the arguments of encouraging FDI to address the pressure on `balance of payments' (BOP) too. Which means FDI in Bangladesh is always been taken with a `pinch of salt'.  (Doubt, caution)

Latest studies by various international agencies do tell you, Bangladesh could well be a very large, if not largest exporter of readymade garments, household textiles, information technology, pharmaceuticals, silk products, finished leather goods and jute. But there has been no substantial FDI in these sectors. Our RMG tycoons are still resisting FDI in their `comfort zone'. However, many of us know, this is not the case in other competing countries. At the same time, we can't exploit the `entire opportunity space' available in these sectors without tying up with the biggies.

Various seminars, talk shows or even studies did point fingers at - corruption, weak governance, poor law and order, gas and power crisis as the main causes behind the low FDI inflow. Some has added non-availability of large or required industrial plots, trouble associated with land registration, non-availability of technical experts to the laundry list. (A long and often tedious list  of items)

Some analysts would say a surge in domestic investment may help Bangladesh attract more foreign investment and be on faster growth trajectory ( path). But problems in power and infrastructure, inadequate investment opportunities for small and large local investors hinder domestic investment, and also FDI.

Added to these, what we get to see is- from the airport up to registration of an investment proposal, a foreign investor has to wait months after months. 'One-stop service' which is there in the BOI charter did not work for a single day in the country. Though, BOI was meant to be an 'one-stop' service provider, it was never allowed to work in that manner. It could never decide on its own, not to talk about addressing its own organizational hindrances. BOI boss's voice was always ignored by tycoon agencies like land registration, power distribution, telecom regulatory commission or even Bangladesh Bank, despite the fact that telecom and financial sector kept on attracting most of the investments or reinvestments in recent times.

According to a study, 83 per cent of foreign firms located in Bangladesh identified corruption as a major constraint. They also identified crime, and poor law and order as major business constraints. This to a great extent deemed to have dented Bangladesh's image as a prospective investment destination. The study further says, a higher percentage of foreign firms located in Bangladesh identified tax rates and administration, business licensing and permits, customs and trade regulations, and labour skill level as major `holding back' causes.

Bangladesh is yet to adopt national coal policy which is deemed to be crucial for attracting FDI. More explorations of hydrocarbon, in offshore and onshore blocks, are considered vital for meeting large energy demand. Power and gas supply situation has not improved to its desired level as well. Though Goldman Sachs of this world may tell you, even in these constrained areas, FDI may help you to come up the curve.

Problems that have restricted FDI flows into the country also included excessive bureaucratic interference, alleged irregularities in processing papers, lack of commitment on the part of local investors, 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 often confuse not only investors proposing projects, but also staff and personnel assigned for discharging procedural responsibilities. Some would also loudly tell you about unpredictability about policy changes or lack of policy continuity too with the changes of the government.

Having said all these, I would also try to draw my readers and policy analyst's attention to countries like Nigeria or Indonesia, where apparent corruption, infra-structural bottlenecks, power shortage or even required manpower shortage could not stop FDI to flow into those countries. Rather these helped the countries to attract FDI into the hungry streams and move on.

Question may arise- are we missing anything here? Yes- these countries could let rest of the world know, how serious they are about FDI and how committed they are towards foreign investors. They could prove- there is policy continuity, despite change in the governments, their courts are more busy in settling investment or business issues, not the political ones and anyone, who is allowed to invest in those countries are never asked any questions while withdrawing or remitting dividends against profit made. And most importantly their policy planners have resolved `inside out' (thoroughly) that private sector, foreign or local is going to be the engine of growth and governments will not try to compete with them even in their wildest dreams.

 (Mamun Rashid is a banker and economic analyst.

(E-mail: mrashid1961@gmail.com)