FDI edges down for first time in 7yrs
Foreign direct investment to Bangladesh dropped last fiscal year, the first decline in seven years, as a result of the pandemic-induced slowdown running a business and regulatory barriers.
Net FDI nosedived 39 per cent year-on-year to $2.37 billion last fiscal year, data from the central bank showed.
The about-face in the FDI came just a year after it surged to its highest on record, riding mainly on Japan Tobacco Inc's acquisition of Akij Group's tobacco business for $1.47 billion. In 2018-19, net FDI stood at $3.88 billion.
Although the financial meltdown caused by the coronavirus pandemic has taken a toll on the FDI flow, the complete situation shouldn't be judged by the ongoing economical hardship alone, analysts say.
"FDI flow around the world has declined in recent periods as a result of financial crisis, which were only available in March," said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue.
Global FDI flows are forecast to diminish by up to 40 per cent in 2020, from their 2019 value of $1.54 trillion, according to the World Investment Report 2020 of the United Nations Conference on Trade and Development (UNCTAD) released in June.
This provides the global FDI below $1 trillion for the very first time since 2005.
In March, the International Monetary Fund said that investors had withdrawn $83 billion from developing countries because the beginning of the Covid-19 crisis, the most significant capital outflow ever recorded.
"Combined with the latest economical slowdown, Bangladesh has been struggling to attract desired FDI for a long time due to red tape," Rahman said.
The government had geared to attract FDI to the tune of $32 billion beneath the seventh five-year plan stretching from FY16 to FY20.
"But the country were able to attract less than $10 billion, which is frustrating beyond a doubt," he said.
"This means there have been many other issues together with the pandemic for the sharp decline in FDI last fiscal year."
The government continues to be definately not resolving the dispute settlement mechanism, implementing one-stop services, and providing required logistics and trade facilitation to foreign investors, in line with the economist.
Poor services have already been discouraging foreign investors for a long time to create Bangladesh as their investment destination, he said, adding that the barriers ought to be resolved promptly.
FDI in neuro-scientific equity capital declined 39 % year-on-year to $728 million, Bangladesh Bank data showed.
"The regulatory environment in Bangladesh is weaker than in peer countries, and it is emerging as a major roadblock to attracting equity capital," said Mamun Rashid, an investment analyst.
Some unnecessary regulations also have created complexity to produce a smooth investment in the united states as well, he said.
Restrictions on movement across the globe to tackle the spread of the deadly flu also have turned out as an integral obstacle for the expansion of FDI, Rashid said.
Chief executives of global companies are now struggling to visit their probable investment destinations due to the restriction, he said.
In addition, the country's FDI is shifting its pattern.
During the past, foreign investors preferred buying power plants, private hospitals, banks, and non-bank finance institutions.
"Now, they are planning of buying fintech, pharmaceutical industries, LNG plants, and agro-based manufacturing units," Rashid said.
Intra-company loans dipped to $132 million in contrast to $1.33 billion in FY20. Reinvestment of earnings by existing foreign companies grew around 11 % to $1.51 billion.
"A great number of foreign investors are still shying away from the united states to select it as their investment destination," said Muallem A Choudhury, a director of Brummer & Partners (Bangladesh) Ltd, which advises foreign businesses looking to invest in the united states.
The lock-in period for a foreign investor in the united states is 3 years, which is excessively greater than in lots of other competing nations, he said.
The lock-in period means investors, who hold 10 % shares in a company or directorship, aren't allowed to sell shares within the stipulated period.
This implies the exit from Bangladesh is difficult, Choudhury said. "The lock-in period for foreign investors ought to be reduced to one year."
Brummer & Partners, which started its journey in 2009 2009, has so far attracted $200 million in equity capital from foreign businesses to the country, he said.
The quantity of domestic consumption is large, given how big is the population. Still, per capita income has not reached to a reasonable level, Choudhury said.
Per capita gross domestic product in Bangladesh was $1,816 in 2019.
Bureaucratic complexity ought to be avoided as it irritates foreign investors, Choudhury said.
