FDI and Bangladesh
After 1990 some FDI came in to Bangladesh. At that time some major attractive sectors for FDI were oil, gas and power. Besides some more FDI took place in cotton, chemical industries and textile industries. USA, Malaysia and UK were the top most countries to do FDI in Bangladesh. But the inflow of FDI is below expectation in comparison with other neighboring developing nations like China, Vietnam, Hong Kong etc.
Offer of Bangladesh for encouraging FDI
Bangladesh offers the most liberal FDI regime in South Asia. These include: tax holiday for five to seven years, income tax exemption for 15 years for the experts of foreign enterprise, protection from double taxation, exemption from duty for importing machinery and spare parts for 100 percent export-oriented units, full repatriation of profit and dividend by the foreign companies, eligibility for full working capital loans from local banks on banker-client relationship, option for foreign firms or joint venture not to sell there shares through public issues and protection from expropriation by the state under Foreign Investment Promotion and Protection Act.
Determinant of FDI in Bangladesh
Determinant of FDI in Bangladesh can be grouped into two categories. One is resource-oriented and second one is market-oriented.
Resource-oriented determinant includes availability of raw materials, low cost skilled/ unskilled labors, technology created or innovation created assets or physical infrastructure.
Market-oriented determinant includes market size and marketability of the field products for which FDI is sought. Projects that depend on a resource ( e.g. oil, gas and mineral processing projects) often have to compete for capital funds with similar projects proposed elsewhere to investors.
Other factors such as liberal industrial policy reforms, liberalizations of policy related to FDI, investment treaties with other countries for promotion and protection of investment, incentive packages etc are also regarded as the determinant of FDI in Bangladesh.
FDI situation in Bangladesh
According to an UNCTAD report, FDI to Bangladesh averaged $ 7 million annually from 1990-96 but increased to an annual average of $ 196 million from 1997-2000, primarily due to foreign investment in energy sector. In 2001, however, new FDI dropped 72% ( to $ 78 million) from the previous year. In 2002 new FDI again dropped to $ 52 million. But in 2003 FDI jumped to $ 120 million.
Bangladesh most often has sent trade delegation in foreign countries to explore the trade opportunities as well as highlight opportunities for investing in Bangladesh. In this connection, number of foreign business delegations have visited Bangladesh to explore trade and investment opportunities, including from India, France, Turkey, Malaysia, Taiwan China and Korea.
Prospect of FDI in Bangladesh
Bangladesh as a destination of large scale inward FDI depends on the terms and conditions that Bangladesh has right now. Infrastructure plays the vital role in this connection. But with the current infrastructure Bangladesh is not that potential for inward FDI. If the infrastructure can be improved then the scenario may be changed completely with some prospect for FDI in Bangladesh .
The most important prospect for FDI in Bangladesh is the availability of cheap labor.
Textile & garments sectors have very good potentiality for FDI. But nowadays it is thought that China is getting much more orders than Bangladesh. But the truth is that buyers do not rely on only one seller. So Bangladesh will have the potentiality in Textile & garments sectors for that reason.
Bangladesh has a big market of 150 million people. Per capita income is increasing and so as to the standard of their lifestyle. People were used to have only one dress but nowadays they tend to have more than one. Not only that rapid growth of garments has widen the employment opportunity for women. Previously where they used to use coal for cleaning teeth, now they use tooth paste. They tend to use cosmetics, sandals and so on. Besides they are sending their children to school. And they are also becoming conscious of having family planning. All these lead to improved lifestyle. So the market is ever increasing.
In India 30 coror people are middle aged who need 30 corore washing machine, 30 corore woven, 30 corore toaster. In Bangladesh the population is about 15 corore. So if per capita income of one corore people increases then it would be a huge market.
Bangladesh has a great prospect of FDI in power sector, gas sector and energy sector. These sectors are very highly capital incentive industries which have great demand. But locally there is no such company to meet this demand up. Not even the government has that capacity. Besides tariff is low in gas & power sector. So that’s why these sectors are very much potential in regard to FDI.
FDI is booming in service sector in Bangladesh because it is easy to take away profit from service sector. So there is gap in manufacturing sector. So a huge scope for FDI exists in manufacturing sector. China got very handsome FDI in their manufacturing sector.
Hospitality sector in Bangladesh may also be regarded as of another attractive prospect for FDI. Because we see peoples’ per capita income is increasing and as a result demand is creating for luxury apart from necessity only.
BPO (Business Process Outsourcing) can be a potential sector for FDI in Bangladesh.
In China 90% overseas Chinese bring remittance and invest them in their own country. But in case of Bangladesh though it has received $3.81 billion in the first eight month of the fiscal year 2006-2007, making 27.23 per cent growth than the same period of the last year, they don’t tend to invest those money rather they are more interested in purchasing land and building. So gap is always there for investment in the country whereas demand is increasing.
Foreign companies generally consider Bangladesh as fairly open and liberal to foreign investment and FDI.
Location advantage – ideal geographical location of the country for international business and very convenient sea and air access internationally foster the path for FDI.
Due to low cost of living the total cost of business in the country is fairly competitive in the global standard which is regarded as the one of the prospects for inward FDI in the country.
Bangladeshi products get the benefit from the duty free and quota free access to most developed countries (EU, Japan, USA, Australia etc) due to Generalize System of Preference (GSP). So foreign firm may also find this facility as the prospect for FDI in Bangladesh.
Problems of FDI in Bangladesh
The country has a bureaucratic system which is too much complicated and not compatible with an investment environment. The implementation of FDI generally is prolonged due to this inefficient and dishonest bureaucratic system.
Interrelated administrative barriers are also there that result in weak policy formulation and implementation, competitive drawbacks, poor quality of skills are also creating problem for inward FDI.
Ineffective institution and below standard governance dampen prospective FDI in Bangladesh.
Political turmoil and unrest situation between political parties pollute the environment for FDI.
Whatever FDI Bangladesh has, technology sharing is not happening in that way. So the real benefit of FDI is yet to hit the country.
Overall infrastructure of Bangladesh is too much below standard like roads and highways, transportation etc. Malaysia as a country, had improved their infrastructure first. They didn’t go for finding FDI rather FDI found and came by themselves just because of strong infrastructure.
Corruption is the most vital problem in Bangladesh in regard to FDI. It has become as an informal taxation. For business enterprise corruption works as tax or lubrication cost. Our society and culture have corrupted by sick politics. Besides due to corruption expenditure increases and apparently price also increases.
Black money exists everywhere in the world. In other countries this black money is subject to reinvestment whereas in our country it is not. Rather this money goes to another country.
Government control and management has been extremely ineffective and inefficient. The country is suffering from inefficiency of state-owned entities in telecommunication, energy, ports, aviation, railways, and banking and many other sectors. This inefficient sectors cost largely for FDI in the country.
The politically influenced government agencies are functioning as regulatory bodies without any operational autonomy. So an effective and rapid response towards providing the necessary services to investors is apparently absent in Bangladesh.
Bangladesh faces a system loss often probing with the lowest per capita power consumption and network coverage of electrification. This creates immense discouragement for investment in the power intensive industries.
Inefficient cargo handling causes high business cost. This happens because of the ill motive of labor union as well as sick politics.
Bangladesh provides various favorable investment facilities and incentives under liberalized industrial policy. Bodies like the Export Processing Zones are there to promote export orientation and privatization based growth strategy. However, in reality, none of these favorable policies and strategies are implemented, thus discouraging foreign investors.
The BOI (Board of Investment) of Bangladesh has a One Stop Service cell to serve and assist with various investment facilities, mostly FDI. But, materializing the service in reality is still beyond imagination.
Prolonged legal suit in Bangladesh put the investors into a great dilemma about whether to put their capital in this country or not.
Administrative coordination problem results in high business cost and hassle for investors.
Inefficient and corrupt custom system are also the hindrance for FDI in Bangladesh.
Besides all those problems some other problems are also there like poor leadership quality, ignorant labor force, disorganized capital market that damage the national image of the country to the investors.
There are numerous number of problems for inward FDI in Bangladesh. But still the country could be proved as a fantastic destination for inward Foreign Direct Investment by removing some of these problems.
After 1990 some FDI came in to Bangladesh. At that time some major attractive sectors for FDI were oil, gas and power. Besides some more FDI took place in cotton, chemical industries and textile industries. USA, Malaysia and UK were the top most countries to do FDI in Bangladesh. But the inflow of FDI is below expectation in comparison with other neighboring developing nations like China, Vietnam, Hong Kong etc.
Offer of Bangladesh for encouraging FDI
Bangladesh offers the most liberal FDI regime in South Asia. These include: tax holiday for five to seven years, income tax exemption for 15 years for the experts of foreign enterprise, protection from double taxation, exemption from duty for importing machinery and spare parts for 100 percent export-oriented units, full repatriation of profit and dividend by the foreign companies, eligibility for full working capital loans from local banks on banker-client relationship, option for foreign firms or joint venture not to sell there shares through public issues and protection from expropriation by the state under Foreign Investment Promotion and Protection Act.
Determinant of FDI in Bangladesh
Determinant of FDI in Bangladesh can be grouped into two categories. One is resource-oriented and second one is market-oriented.
Resource-oriented determinant includes availability of raw materials, low cost skilled/ unskilled labors, technology created or innovation created assets or physical infrastructure.
Market-oriented determinant includes market size and marketability of the field products for which FDI is sought. Projects that depend on a resource ( e.g. oil, gas and mineral processing projects) often have to compete for capital funds with similar projects proposed elsewhere to investors.
Other factors such as liberal industrial policy reforms, liberalizations of policy related to FDI, investment treaties with other countries for promotion and protection of investment, incentive packages etc are also regarded as the determinant of FDI in Bangladesh.
FDI situation in Bangladesh
According to an UNCTAD report, FDI to Bangladesh averaged $ 7 million annually from 1990-96 but increased to an annual average of $ 196 million from 1997-2000, primarily due to foreign investment in energy sector. In 2001, however, new FDI dropped 72% ( to $ 78 million) from the previous year. In 2002 new FDI again dropped to $ 52 million. But in 2003 FDI jumped to $ 120 million.
Bangladesh most often has sent trade delegation in foreign countries to explore the trade opportunities as well as highlight opportunities for investing in Bangladesh. In this connection, number of foreign business delegations have visited Bangladesh to explore trade and investment opportunities, including from India, France, Turkey, Malaysia, Taiwan China and Korea.
Prospect of FDI in Bangladesh
Bangladesh as a destination of large scale inward FDI depends on the terms and conditions that Bangladesh has right now. Infrastructure plays the vital role in this connection. But with the current infrastructure Bangladesh is not that potential for inward FDI. If the infrastructure can be improved then the scenario may be changed completely with some prospect for FDI in Bangladesh .
The most important prospect for FDI in Bangladesh is the availability of cheap labor.
Textile & garments sectors have very good potentiality for FDI. But nowadays it is thought that China is getting much more orders than Bangladesh. But the truth is that buyers do not rely on only one seller. So Bangladesh will have the potentiality in Textile & garments sectors for that reason.
Bangladesh has a big market of 150 million people. Per capita income is increasing and so as to the standard of their lifestyle. People were used to have only one dress but nowadays they tend to have more than one. Not only that rapid growth of garments has widen the employment opportunity for women. Previously where they used to use coal for cleaning teeth, now they use tooth paste. They tend to use cosmetics, sandals and so on. Besides they are sending their children to school. And they are also becoming conscious of having family planning. All these lead to improved lifestyle. So the market is ever increasing.
In India 30 coror people are middle aged who need 30 corore washing machine, 30 corore woven, 30 corore toaster. In Bangladesh the population is about 15 corore. So if per capita income of one corore people increases then it would be a huge market.
Bangladesh has a great prospect of FDI in power sector, gas sector and energy sector. These sectors are very highly capital incentive industries which have great demand. But locally there is no such company to meet this demand up. Not even the government has that capacity. Besides tariff is low in gas & power sector. So that’s why these sectors are very much potential in regard to FDI.
FDI is booming in service sector in Bangladesh because it is easy to take away profit from service sector. So there is gap in manufacturing sector. So a huge scope for FDI exists in manufacturing sector. China got very handsome FDI in their manufacturing sector.
Hospitality sector in Bangladesh may also be regarded as of another attractive prospect for FDI. Because we see peoples’ per capita income is increasing and as a result demand is creating for luxury apart from necessity only.
BPO (Business Process Outsourcing) can be a potential sector for FDI in Bangladesh.
In China 90% overseas Chinese bring remittance and invest them in their own country. But in case of Bangladesh though it has received $3.81 billion in the first eight month of the fiscal year 2006-2007, making 27.23 per cent growth than the same period of the last year, they don’t tend to invest those money rather they are more interested in purchasing land and building. So gap is always there for investment in the country whereas demand is increasing.
Foreign companies generally consider Bangladesh as fairly open and liberal to foreign investment and FDI.
Location advantage – ideal geographical location of the country for international business and very convenient sea and air access internationally foster the path for FDI.
Due to low cost of living the total cost of business in the country is fairly competitive in the global standard which is regarded as the one of the prospects for inward FDI in the country.
Bangladeshi products get the benefit from the duty free and quota free access to most developed countries (EU, Japan, USA, Australia etc) due to Generalize System of Preference (GSP). So foreign firm may also find this facility as the prospect for FDI in Bangladesh.
Problems of FDI in Bangladesh
The country has a bureaucratic system which is too much complicated and not compatible with an investment environment. The implementation of FDI generally is prolonged due to this inefficient and dishonest bureaucratic system.
Interrelated administrative barriers are also there that result in weak policy formulation and implementation, competitive drawbacks, poor quality of skills are also creating problem for inward FDI.
Ineffective institution and below standard governance dampen prospective FDI in Bangladesh.
Political turmoil and unrest situation between political parties pollute the environment for FDI.
Whatever FDI Bangladesh has, technology sharing is not happening in that way. So the real benefit of FDI is yet to hit the country.
Overall infrastructure of Bangladesh is too much below standard like roads and highways, transportation etc. Malaysia as a country, had improved their infrastructure first. They didn’t go for finding FDI rather FDI found and came by themselves just because of strong infrastructure.
Corruption is the most vital problem in Bangladesh in regard to FDI. It has become as an informal taxation. For business enterprise corruption works as tax or lubrication cost. Our society and culture have corrupted by sick politics. Besides due to corruption expenditure increases and apparently price also increases.
Black money exists everywhere in the world. In other countries this black money is subject to reinvestment whereas in our country it is not. Rather this money goes to another country.
Government control and management has been extremely ineffective and inefficient. The country is suffering from inefficiency of state-owned entities in telecommunication, energy, ports, aviation, railways, and banking and many other sectors. This inefficient sectors cost largely for FDI in the country.
The politically influenced government agencies are functioning as regulatory bodies without any operational autonomy. So an effective and rapid response towards providing the necessary services to investors is apparently absent in Bangladesh.
Bangladesh faces a system loss often probing with the lowest per capita power consumption and network coverage of electrification. This creates immense discouragement for investment in the power intensive industries.
Inefficient cargo handling causes high business cost. This happens because of the ill motive of labor union as well as sick politics.
Bangladesh provides various favorable investment facilities and incentives under liberalized industrial policy. Bodies like the Export Processing Zones are there to promote export orientation and privatization based growth strategy. However, in reality, none of these favorable policies and strategies are implemented, thus discouraging foreign investors.
The BOI (Board of Investment) of Bangladesh has a One Stop Service cell to serve and assist with various investment facilities, mostly FDI. But, materializing the service in reality is still beyond imagination.
Prolonged legal suit in Bangladesh put the investors into a great dilemma about whether to put their capital in this country or not.
Administrative coordination problem results in high business cost and hassle for investors.
Inefficient and corrupt custom system are also the hindrance for FDI in Bangladesh.
Besides all those problems some other problems are also there like poor leadership quality, ignorant labor force, disorganized capital market that damage the national image of the country to the investors.
There are numerous number of problems for inward FDI in Bangladesh. But still the country could be proved as a fantastic destination for inward Foreign Direct Investment by removing some of these problems.
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