InvestmentNews

FDI is shrinking, need stable business friendly environment

BTJ Desk Report
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FDI is shrinking, need stable business friendly environment

Despite significant GDP growth and development of special economic zones, Bangladesh’s foreign direct investment (FDI) remains low, with net inflows falling to $3 billion in 2023, a 14% decrease from 2022. Comparatively, India and Vietnam saw much higher FDI inflows, highlighting Bangladesh’s challenges in attracting foreign investment.

Key issues include lack of connection between policymakers’ perspectives and investors’ actual problems. Policymakers believe cheap labor and easy capital repatriation suffice, but this view is outdated as technology reduces labor reliance. Other nations also offer capital repatriation and land to investors, making them more attractive.

Bangladesh’s inadequate port facilities, inconsistent energy supply, and frequent policy changes deter investors. Corruption further exacerbates these issues, with officials and local politicians often seeking bribes, creating an unpredictable and hostile business environment.

Additionally, the country’s tax policies lack consistency, with frequent changes creating instability for businesses. The stock of FDI began declining in 2022, and disinvestment rose to $965.36 million in 2023. Most FDI came from reinvested earnings by existing companies, indicating a lack of new investment.

To attract more FDI, a stable, business-friendly regulatory environment is crucial. This includes honoring dispute resolutions, ensuring consistent policy application, reducing high indirect taxes, and improving investor aftercare services. Digitalizing the National Board of Revenue and building human capital are also essential steps.

Without these reforms, Bangladesh risks missing out on significant economic benefits from increased FDI, which could support job creation and bolster foreign exchange reserves. It is crucial for the country to create a conducive environment for FDI rather than relying solely on appeals to foreign investors.

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