The development of a country is highly dependent on its economy, and Foreign Direct Investment (FDI) plays an important role in boosting economic growth as one of its main contributors.
Simply put, FDI is a model of cross-border investment in the business organisation of another country, allowing investors to enter foreign markets or promote international trade. FDI not only creates sustainable economic flows between two countries but also facilitates the exchange of technology, business strategies, and skilled manpower.
The economy of Bangladesh is at a very crucial point now, following the resignation of former Prime Minister Sheikh Hasina. On August 8, Nobel Laureate Dr Muhammad Yunus was appointed as the head of the interim government.
According to the Finance Ministry, the debt of the Bangladesh government was only 2,76,830 crore in 2009, when Sheikh Hasina was elected as the Prime Minister. After ruling for over a decade and a half, the debt increased by 15,58,206 crore, representing about 85 per cent of the total government debt.
In the first quarter of 2024, global FDI flows increased by 78 per cent compared to Q4 2023, reaching USD 462 billion. On a year-on-year basis, global FDI flows were comparable to the level recorded in Q1 2023.
Data from the Central Bank shows that Bangladesh received $3.004 billion in FDI in 2023, a 14 per cent decrease from $3.5 billion in 2022. Foreign direct investment in Bangladesh for 2022 was $1.63 billion, a 5.16 per cent decrease from 2021. FDI for 2021 was $1.72 billion, a 13.02 per cent increase from 2020. For 2020, FDI was $1.53 billion, a 20.06 per cent decrease from 2019. The FDI in 2019 was $1.91 billion, a 21.21 per cent decline from 2018.
According to the United Nations Conference on Trade and Development’s (UNCTAD) *World Investment Report 2023*, Bangladesh ranks fourth among South Asian nations in terms of FDI inflows as a percentage of gross domestic product (GDP), despite being the second-largest economy in the region.
As Bangladesh has experienced slow economic growth over the past decade, Foreign Direct Investment (FDI) is comparatively lower than in other countries. Bangladesh suffers from a negative image due to being perceived as poor, underdeveloped, corruption-ridden, and politically unstable—an image that has only been reinforced during Sheikh Hasina's regime.
Despite these drawbacks, there are still possibilities and strong reasons to invest in Bangladesh, which has shown good economic growth, signalled by a high GDP growth rate of 7.1 per cent in 2022 and 5.8 per cent in 2023, according to the IMF. Additionally, public debt in 2023 was believed to be around 39.7 per cent. Bangladesh, with its open and moderately competitive markets, low-cost workforce, and strategic geographic position in Southern Asia, has always been seen as a lucrative option for foreign brands to expand into its local and neighbouring markets.
Recently, with Dr Muhammad Yunus leading the interim government, new opportunities may open up, potentially attracting more FDI in the coming years.
Bangladesh is rich in natural resources. By increasing Foreign Direct Investment (FDI) to 5 to 6 per cent of GDP, the country could achieve a further 10 per cent economic growth. The Ready-Made Garments (RMG) sector, particularly textiles and weaving, could be a significant driver of foreign investment, constituting 40.5 per cent of total FDI. The gas, power, and petroleum sectors also have the potential to attract substantial investment.
The agriculture, fishing, real estate, and information technology (IT) sectors could become promising areas for foreign investment in the future if much-needed reforms and changes in practices are implemented.
Economists suggest that a 10 per cent increase in FDI could drive a 3.7 per cent increase in Bangladesh's GDP. Furthermore, a 13 per cent annual growth in FDI could reduce poverty by 1 per cent while also increasing labour demand.
Political instability has long been considered one of the biggest reasons for foreign businesses' reluctance to enter Bangladeshi markets, as its far-reaching effects have worsened the stability of many domestic markets. Additionally, the long-standing tradition of bureaucrats accepting bribes has tarnished the country's business reputation and discouraged foreign conglomerates from investing here. To improve the dire FDI situation, these issues must be addressed and resolved.
The potential for sustainable economic growth in Bangladesh is significant. By tackling existing challenges and fostering a favourable environment for investment, the country can establish itself as a leading destination for FDI in South Asia.
With the right strategies, Bangladesh can not only strengthen its economic resilience but also improve the quality of life for its citizens, creating a brighter future for generations to come.
The author of this article, Mashrur Arefeen Rohan, is North South University graduate
