Home ›› 29 Jul 2021 ›› Front
Foreign direct investors in Bangladesh are increasingly opting for the manufacturing sector to grab the growing domestic consumer market and take advantage of export opportunities, among others.
Traditionally, the Foreign Direct Investment (FDI) has been focused on power, gas and telecommunication. But in recent years, foreign investment is diversified mostly in manufacturing and consumers items such as food processing, cement, pharmaceuticals and agriculture.
“From the very beginning, foreign investors’ target was concentrated on natural resources like gas, oil and power which later shifted to telecommunication and financial sectors,” Md Sirazul Islam, executive chairman of Bangladesh Investment Development Authority (BIDA), told The Business Post.
Islam said investors are now focusing on foods, manufacturing and agriculture sectors as the power, gas and telecommunication sectors are saturated. He said the rise in domestic market as well as the opportunity to export to other countries from Bangladesh encouraged investors to diverse investment.
Growing consumer base, export opportunities
Last year, the country received $2.56 billion foreign investment, according to Bangladesh Bank (BB).
Of the investment, $508 million was made in power sector while food processing sector received $332.54 million, the second highest, up from $107.27 million in 2017. Chemicals and pharmaceuticals attracted investment of $75.30 million, which was $30.35 million in 2017, BB data show. Trading sector received $121 million.
While cement, fish and agriculture sectors attracted $32 million investment respectively, leather and leather goods received $31 million and fertiliser $18 million. Banking sector received $302 million followed by textile and weaving sector at $271 million, telecommunications $260 million and construction $138.25 million.
“In recent times, we are seeing investment in manufacturing sector including food processing, cement, agricultural products, which focused on the domestic market. The consumers here are durable,” Zahid Hussain, former lead economist of World Bank’s Dhaka office told The Business Post.
On the other hand, the size of domestic consumer market is increasing thanks to rising purchase power pushed by improved per capita income. Bangladesh offers export opportunity to global markets under its duty-free market access benefits, said the economist.
According to Bangladesh Bureau of Statistic (BBS) data, the per capita income of Bangladesh stood at $2,227 in 2020-21 fiscal year. On the other hand, by 2025, middle and affluent class Bangladeshis will account for about 17 per cent of the population.
Zahid noted that Bangladesh is offering incentives for domestic industry and to take advantage of this, one has to invest here. This is encouraging investors to make investment in the manufacturing sector.
Where Bangladesh needs FDI
BIDA’s Sirazul said as a country, Bangladesh welcomes any kind of investment.
“Right now, we are focusing more on investment in ICT sector while the second priority is automotive and light engineering sector, which offers huge employment opportunities,” he said, adding that Bangladesh can produce spare parts for the automotive industry for both local and global companies.
BGMEA President Faruque Hassan said Bangladesh also needs investment in high-end products like non-cotton in the textile and garment sector.
“The demands of non-cotton products are on the rise but we are producing 75 per cent cotton products,” he told The Business Post.
To move towards the production of manmade fibre, foreign investors and joint investment are crucial. Here, foreign investors can take the advantage, said Hassan.
Retaining FDI trend
As a developing nation, Bangladesh needs more investment from home and abroad to create employment and meet the demand.
Amid the pandemic, the net inflow of overseas investment in Bangladesh declined by 10.8 per cent last year from $2.87 billion a year before.
BB data show that equity investment increased by 4.8 per cent to $842.29 million while reinvestment rose by 6.73 per cent to $1.56 billion in 2020. On the other hand, intra-company loans declined by 74.26 per cent to $155 million.
The Netherlands made the highest investment of $400 million, while the United Kingdom was the second-largest investor with an investment of $396.65 million followed by the United States with $296.35 million.
“The government should offer business-friendly environment as well as policy support to attract more investment in the manufacturing sector,” Khondaker Golam Moazzem, research director of Centre for Policy Dialogue (CPD), told The Business Post.
He suggested creating investment opportunities for promising sectors like automotive and IT-based ones.
“Investors will make investments to take advantage of the re-exporting opportunity, which will help Bangladesh in both ways by meeting local demand and earning foreign currency,” Moazzem said.
