Bangladesh has made gradual progress over the past decade in reducing some constraints on investment, said a report published by the US Department of State.
While efforts to ensure reliable electricity and improve the business environment have been made, inadequate infrastructure, limited financing options, bureaucratic delays, lax enforcement of labour laws, and corruption continue to hinder foreign investment, according to the report.
US Secretary of State Antony Blinken published the report titled, “2023 Investment Climate Statements: Bangladesh” on Twitter Thursday.
“Today we released the 2023 Investment Climate Statements for more than 165 foreign markets to help U.S. businesses benefit from global connections and make informed decisions about expanding into and investing in foreign markets,” Blinken tweeted.
The report noted that the Bangladesh government has made efforts to improve the business environment, but the full implementation of its foreign investment policies has yet to materialise.
The “Investment Climate Statements” highlighted the growth of the capital market in the country and also the financial sector’s dependence on banks.
“Capital markets in Bangladesh are still developing and the financial sector is highly dependent on banks, which suffered a major scandal in 2022 in which 11 banks faced a collective shortfall of USD 3.1 billion,” the US Department of State wrote in the executive summary of the report.
“A sluggish and reportedly corrupt judicial process and limits on alternative dispute resolution mechanisms impede the enforcement of contracts and the resolution of business disputes,” the summary reads.
According to the report, although the Bangladesh government has enacted several contemporary laws concerning labour, intellectual property rights (IPR), and the environment, it has not efficiently enforced a significant number of these regulations.
The annual report by the US Department of State provides up-to-date information on the investment climates of more than 165 countries and economies.
The report warned that the political and security situation in Bangladesh may become volatile ahead of the next parliamentary election of the country.
“Bangladesh is historically moderate, secular, peaceful, and stable, but as the country nears general elections in late 2023/early 2024, the political and security situation may become volatile,” the executive summary of the report states.
The US State Department report mentioned the country’s latest deal with the International Monetary Fund (IMF) to obtain a loan worth $3.3 billion under the Extended Credit Facility/Extended Fund Facility and an additional $1.4 billion under the Resilience and Sustainability Facility.
Referring to the country’s annual GDP (gross domestic product) growth of over 6 per cent between 2010 and 2020, the report states, “Its (Bangladesh) strategic location between the emergent South and Southeast Asian markets and its large workforce were reasons for U.S. companies to invest. Bangladesh received USD 3.44 billion in foreign direct investment in FY 2021-2022, according to Bangladesh Bank (the central bank).
“The COVID-19 pandemic and Russia’s war in Ukraine impacted Bangladesh by reducing demand for its main export—ready-made garments—while contributing to a sharp rise in the prices of energy and food.”
The executive summary also highlighted the surge in commodity prices and imports in 2022 that resulted in a widening balance of payments deficit and the depletion of foreign exchange reserves.
“The government responded with measures to delay foreign currency payments. The foreign currency shortage also coincided with a banking scandal in which several major Bangladeshi banks made large, questionable loans to companies that then defaulted on the loans,” the report states.
In September 2022, non-performing loans (NPL) in the banking system reportedly surged to a record $12.8 billion, much of which the government has been unable to trace, it added.
