Home ›› 04 Sep 2022 ›› Opinion
The least-developed and developing countries have to struggle economically in many fronts. With a view to keeping the economic wheel afloat, prudential monetary and fiscal measures have to be taken from time to time. In particular, the economies, hit hard by untoward economic shocks, need huge efforts as well as take time to be recovered.
Most economies of the world– hindered by the deadly pandemic– are yet see light in the economic arena. Bangladesh economy was also adversely impacted by the coronavirus pandemic like other countries. The pace of economic growth coupled with foreign direct investment (FDI) inflow in Bangladesh came to a standstill during the height of the pandemic.
As a least developed economy, Bangladesh’s growth pace drew attention of the world immediately before the Covid-19 spread its tentacles. Nevertheless, Bangladesh’s economy earned brownie points from the International Monetary Fund (IMF) amidst the virus in terms growth rate. The IMF in its 2020 report estimated that global economy is set to contract by 4.4 per cent growth while the estimation was positive for the Bangladesh economy.
When Bangladesh began to see significant volume of FDI inflow, the virus stood as a barrier. According to World Investment Report 2021, Bangladesh saw a decrease of 11 per cent FDI in 2020 due to the pandemic. At the time, FDI declined by 35 per cent globally.
FDI inflow helps the least-developed and developing countries to be viable economically in many ways. FDI works as powerful engine of economic growth. FDI inflow comes as blessing in any economy. There are immense advantages of FDI in an economy. It helps to create employment opportunities, enhance skills of local labour through transfer of technology and managerial know-how. Besides, FDI helps to integrate the domestic economy with the global economy apart from developing productive capacity. An economy with capital shortfall requires FDI to a great extent for building physical capital.
In particular, the third world countries can benefit much through getting FDI. Capital owned by foreign investors comes along with modern technology and management skills through FDI. Over the years, the government in Bangladesh had been trying its best to woo foreign investors through introducing FDI-friendly services,
Bangladesh Investment Development Authority (BIDA) is working on behalf of the government in respect of bringing capital owned by foreign entrepreneurs. The government is on the move to increase investments through re-investments, merger and acquisitions and Greenfield Investment. Greenfield investment is a part of FDI. In Greenfield investment, establishments of new businesses take place wherein through mergers and acquisitions, a takeover of existing business takes place. Greenfield investment is a type of FDI in which a parent company creates a subsidiary in a different country, building its operations from scratch. Normally, such type of strategy in the form Greenfield FDI is seen in developing countries.
It is generally accepted that Bangladesh lags far behind in developing business environment. Despite giving efforts, to create congenial business environment for foreign investors remains a distant dream. As part of the move, hundred economic zones have already been set up apart from giving relaxation in tax arena.
Moreover, the country’s infrastructure development has become part of this move. In Doing Business Index prepared by the World Bank (WB), Bangladesh is in an unenviable position.
In the 2020 index, Bangladesh ranked 168th out of 190 economies, lowest among South Asian nations except Afghanistan. Bangladesh’s neighbouring nation India is ranked 1st (63rd out of 190 countries) among South Asian nations in Doing Business Index 2020, the last such study by the World Bank.
The improved business climate in India helps bringing significant volume of FDI. In 2021, India saw around US $ 44.73 billion FDI where Bangladesh received just US $ 2.9 billion, second highest next to India. In Bangladesh, FDI stock stood US$ 21.58 billion up to 2021.
With registering 13 per cent growth in FDI, Bangladesh did really good, according to World Investment Report 2022. In Greenfield FDI performance, Bangladesh failed to attract the subsidiary of foreign-owned parent companies.
According to Greenfield FDI Performance Index 2021, Bangladesh scored 0.30 against top performer Costa Rica which scored 15.5 in the year under review. In 2020, Bangladesh scored 0.31.
A study titled ‘Asia-Pacific Employment and Social Outlook 2020’ carried out by the International Labor Organization (ILO) revealed that Asia Pacific region saw around 34 per cent decline in Greenfield FDI. Extra-regional investment dropped by 41 per cent and intraregional investment dropped by 26 per cent, the study report reads. Bangladesh came under attack of Covid-19 and saw an 84 per cent decline in Greenfield investment during the first half of 2020, the ILO report said.
Bangladesh’s status as LDC is set to be changed in 2026 as per United Nation (UN) recommendation. From the relevant year, the country will have to experience lots of untoward situations in economy.
The existing Duty-free Quota-free (DFQF) trade facilitation, now enjoyed by Bangladesh, will be no more available. The foreign investors, who usually look for business-friendly destinations, are now changing their investment decision following LDC graduation issue. Their returns from Bangladesh might not satisfy them despite investment here in the country. The government now has to invite the globally-branded companies for creating their subsidiary in Bangladesh considering the need of the economy. Unemployment rate among youth population is growing in absence of works and skills. As National Employment Policy-2022 sets target to generate 30 million jobs by 2030, FDI and Greenfield FDI are essential factors to materialize the target. The recently launched Padma Bridge is scheduled to attract various types of FDIs. The economic zones, which will be built in the country’s southwestern districts, are expected to lure more foreign capital or subsidiary. Employment generation definitely helps to fulfill most goals set in SDGs that are related to any types of FDI. If current economic needs are taken into consideration, there is no alternative but to attract FDI.
The writer is an economic affairs analyst. He can be reached at mazadul1985@gmail.com
