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Drastic fall in net FDI inflow from US in FY23

Hamimur Rahman Waliullah
03 Dec 2023 22:02:17 | Update: 03 Dec 2023 22:02:17
Drastic fall in net FDI inflow from US in FY23

When Bangladesh grapples with mounting pressure on its forex reserves amid a global economic crisis, the inflow of net foreign direct investments (FDIs) from the United States witnessed a significant decline in the past fiscal year, signalling a concerning trend.

According to the latest report from Bangladesh Bank titled "Foreign Direct Investment and External Debt," FDI inflow from the United States plummeted by 56 per cent to $289.17 million in FY23 compared to the previous year.

This decline occurred following the announcement of US sanctions on RAB and visa restrictions for those hindering political, democratic, and electoral processes, experts believe.

Additionally, Bangladesh experienced a significant decrease in FDI from China, another top foreign investor, marking an approximately 80 per cent decline to only $93.24 million in FY23, compared to $465.17 million in FY22.

The overall net FDI inflows for the country recorded a decrease of $189.95 million or 5.5 per cent to $3,249.68 million in FY23, down from $3,439.63 million in FY22, as per the report.

FDIs from US on NBFI, petroleum dropped

Analysing documents from the previous five fiscal years, it is evident that net FDI from the United States normally stays below $300 million. However, in the last fiscal year, the USA invested $260.53 million solely in non-banking financial institutions (NBFI), contributing to a total net FDI of $661 million from the USA.

While examining investment trends in other major sectors, it becomes evident that net FDIs from the USA in gas and petroleum decreased to $202.37 million in FY23, down from $305.44 million in FY22.

Net FDI inflow also decreased in the trading sector to $4.76 million in FY23, down from $38.04 million in FY22, as well as in the telecommunication sector, food, agriculture, fishing, computer software, and IT.

Moreover, the USA's net FDI in the power sector was negative $10.71 million in FY23, indicating an outflow of around $11 million from Bangladesh's power sector.

Top contributing countries

In FY23, the majority of net FDI inflows came from the top 10 countries. The United Kingdom accounted for 17.3 per cent of the total net FDI, amounting to $564.98 million, followed by the Netherlands contributing 13 per cent, equivalent to $425.89 million, and Korea investing $295.29 million or 9 per cent of the total net FDIs.

Other contributing countries include Singapore ($192.06 million), Norway ($184.04 million), Hong Kong and China ($183.91 million), Malta ($170.99 million), India ($119.88 million), and Malaysia ($99.58 million).

These top ten countries collectively contributed 77.5 per cent to the total net FDI inflows in Bangladesh.

Call for ensuring FDI-friendly environment

Commenting on the issue, distinguished fellow of the Centre for Policy Dialogue (CPD) Mustafizur Rahman told The Business Post, “The net FDI is reduced from the USA following the general trend of declining Bangladesh’s overall FDI. In FY22, the FDI from the United States was spiked up.”

“However, the major concern is, that when the USA is investing in Vietnam and India, we cannot attract them to invest in our country. Besides, another concern is most of their FDIs are from retained earnings. Fresh investment is lesser yet.”

“To increase FDIs from the globe including the USA, the government should have to enhance FDI-friendly environment,” he stressed.

He pointed out that the existing One-stop Service Act needs improvement to streamline services for investors effectively.

He stressed that enhancing these services would not only attract more FDI but also contribute to addressing the negative trend in the financial account, which has shifted from a surplus to a deficit of $14 billion in Bangladesh.