US investors’ interest in Bangladesh is going downhill, evident by the gradual decline of foreign direct investment (FDI) from the country, and steady withdrawal of liquidity from the local capital market since 2022.
This downturn could not have come at a worse time, as Bangladesh is already navigating through a persistent USD shortage, and Dhaka-Washington diplomatic ties are now somewhat chilly.
According to Bangladesh Bank data, US investors withdrew a chunk of their funds from Bangladesh’s stock market throughout the last three years.
In 2021, the stock position of American portfolio investment was $1.05 billion. But the figure is down to just $698 million in 2022 and $497 million in 2023. This means the capital market had lost about 53 per cent or $555 million of US investment between 2021 and 2023.
For this reason, the USA's shareholdings as a foreign investor in Bangladesh’s capital market are down to 45.9 per cent in 2023 from 54.7 per cent in 2021.
A US Department of State publication titled “2023 Investment Climate Statements: Bangladesh” mentions that “Foreign participation in Bangladesh’s stock exchanges is permitted but remains low due to perceptions of corruption, limited liquidity for shares, and the lack of publicly available and reliable company information.
“Bangladesh’s capital markets rely primarily on domestic investors."
The Bangladesh Securities and Exchange Commission (BSEC) organised a week-long roadshow in the US back in July, 2021 as part of its efforts to attract foreign investors and non-resident Bangladeshis to the country’s stock market.
The roadshow titled “The Rise of the Bengal Tiger: Potentials of Trade and Investment in Bangladesh” was held in four cities in the United States – New York, Washington DC, Los Angeles, and San Francisco.
The stock market regulator’s initiatives, such as roadshows in various countries to bring in investments, appear to have produced no significant positive outcome, market insiders said. The events were also broadcast on the BSEC’s Facebook page.
When the camera panned to the audience, most seemed to be known faces from Bangladesh. Only at the roadshow held in Silicon Valley did the target audience show up.
Speaking to The Business Post, former chairman of BSEC Faruq Ahmed Siddiqi said, “Foreigners do not invest at anyone’s request or order. They research and invest. At the same time, they invest considering the country’s policy, systems, and other matters.”
“Attracting investors and holding roadshows are not the jobs of BSEC. Its job is to regulate the market and ensure fair play.”
Faruq added that the roadshows could be organised by stock exchanges or other stakeholders.
He also stated that foreign investors began selling shares at the beginning of the year to avoid losses from a possible exchange rate correction as a result of Russia-Ukraine conflict.
Stress on FDI
On the other hand, net FDI inflows from the USA have declined to $315 million in 2024, compared to $354 million in 2022 and $586 million in 2021. As a result, the USA FDI stock until December 2023 is down to $3.94 billion, from $4.1 billion in 2022 and $4.33 billion in 2021.
The country, however, still holds the leading position in Bangladesh’s FDI and occupies a 19.2 per cent share.
The United Kingdom (UK) and Singapore hold second and third positions by investing $3.04 billion and $1.56 billion, respectively.
Experts said the lack of accountability, poor business environment, political uncertainty, frequent policy changes, the depreciation of the Taka, and the setting of the floor price in the capital market caused US investors to lose interest in Bangladesh.
FDI status
The Bangladesh Bank Statistics Department has been conducting an enterprise survey since 1995 to collect detailed information on FDI in Bangladesh.
According to the central bank, net FDI inflow in 2023 was $3 billion, recording a decrease of $475.55 million, or 13.7 per cent year-on-year, and an increase of 3.8 per cent compared to 2021.
In 2023, gross FDI inflows were $3.97 billion, recording a decrease of $857 million or 17.8 per cent compared to 2022.
Net FDI equity capital inflows were $705.83 million in 2023, whereas they were $1.02 billion and $1.14 billion in 2022 and 2021, respectively, marking a decrease 31 per cent compared to 2022 and also 38 per cent compared to 2021.
The central bank data further shows that FDI stock in Bangladesh was $20.55 billion at the end of December, 2023, after recording a decrease of 5.1 per cent over the level at the end of December, 2022.
Foreign participation in the capital market stagnates
The net foreign portfolio investments in companies listed on the Dhaka Stock Exchange (DSE) hit an eight-year low in December, 2023.
Until December last year, total foreign equity ownership stood at 3.7 per cent of the total market capitalisation, dipping below a mark that has not been recorded since 2015, according to a monthly business review conducted by IDLC Finance.
The foreign ownership of equity market capitalisation had reached its peak at 6.8 per cent back in 2019.
AS per the Bangladesh Bank data, at end of December, 2023 Portfolio Investment stock position (Equity Securities and Debt Securities) in Bangladesh was placed at $2,080 million, recording decrease of $497.52 million or 19.3 per cent and $1,520.74 million or 42.2 per cent over the end of December, 2022 and over the end of December, 2021 respectively.
The share of equity securities in total portfolio investment stock position was stood $1,084.63 million or 52.1 per cent at the end of December, 2023, recording a decrease of 14.1 per cent over at the level of the end of December, 2022 and a decrease of 43.7 per cent over at the level of the end of December, 2021.
According to central bank data, the share of debt securities in total portfolio investment stock position was placed at $995.37 million or 47.9 per cent at the end of December, 2023, recording a decrease of 24.3 per cent compared to December, 2022 and a decrease of 40.6 per cent compared to December, 2021.
Other countries’ portfolio investments
In a surprising incident, American investors withdrew a chunk of their funds from the Bangladeshi stock market. The US portfolio investment stood at $497.48 million at the end of December 2023, down 28.6 per cent from the previous calendar year.
The United Kingdom-based investors held the second position with $140.36 million (12.9 per cent of the total foreign investments) in the market in 2023 while the Luxembourg-based investors registered the third position with $135.12 million (12.5 per cent).
Singapore investors held the fourth position with $97.01 million (8.9 per cent of the total foreign investments) in the market in 2023, while UAE $55.08 million, the British Virgin Islands $43.04 million, Canada $42.74 million, Cayman Islands $13.53 million, Investment from Mauritius $10.70 million, and Pakistan $7.71 million.
The other countries had $41.86 million in investments in the country’s stock market in 2023.
