FDI hits all time high
Foreign direct investment to Bangladesh surged 51 percent last fiscal year to its highest on record, riding largely 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 in contrast to $2.58 billion a year earlier, according to data from the central bank.
“The rise in the FDI last fiscal year will not bring any positive impact for the country. This will not create any fresh investment or give a boost to exports,” said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
Japan Tobacco has made the investment focusing on the domestic market of Bangladesh and there is no scope to recruit additional workers from the domestic workforce for the existing industry, he said.
“This is a one-off investment and indicated that FDI flow may decrease this fiscal year,” said Mansur, also a former economist of International Monetary Fund.
Japan Tobacco, one of the largest tobacco companies in the world, completed the acquisition of Dhaka Tobacco, a concern of Akij Group, in November last year, in what was the biggest ever single FDI in Bangladesh.
Mansur also said there is no ray of hope to widen the periphery of FDI in the next few years as Bangladesh is yet to become an investment destination for foreigners because of poor governance and low ranking in the World Bank’s Ease of Doing Business index.
Bangladesh advanced eight notches to 168th out of 190 counties in this year’s ranking.
“But, the progress is not good enough to win the confidence of foreign businesses,” Mansur said.
He suggested the government take immediate measures to attract foreign businesses to prop up export earnings, create fresh jobs and resolve the ongoing crisis stemming from balance of payments. A good number of businesses are now shifting their operations from China due to its ongoing trade tension with the US and the rising cost of production in the world’s second-largest economy.
“The government should seize the opportunity by way of attracting the businesses to the country,” Mansur said.
The economist, however, expressed his hope that the FDI would increase once the special economic zones start running in full swing. Bangladesh Bank calculates the FDI in three categories: equity, reinvestment of earnings, and intra-company loan.
The FDI posted a significant jump in equity capital, or new investment, climbing 94 percent year-on-year to $1.19 billion.
Intra-company loans rose 87 percent to $1.33 billion and reinvestment of earnings by existing foreign companies grew 8.77 percent to $1.36 billion.
The high volume of the FDI has given a positive indication to the country’s business sector, said Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue.
But the unremarkable growth of the reinvested earnings has hinted that the existing foreign businesses are cautious towards expansion, he said. There are some complexities and fussy calculation to estimate intra-company loans, Moazzem said.
“The central bank should verify the figure of intra-company loans cautiously with the help of the Bangladesh Investment Development Authority. This will help figure out the actual number,” he said.
