Introduction
Foreign Direct Investment (FDI) accelerates a countries economic growth, mostly for developing and under developed countries. FDI is a mechanism of technology transfer, particularly from developed countries to developing countries. Developing and under developing countries get more employment opportunities, physical capital, foreign exchange, tech know-how, human resource management. FDI is advantageous to other form of investment as it would not create obligation to the host countries. However Bangladesh came up with open economy in year of 1990 which is known as year of liberalization. Government enacted the “Foreign Investment Promotion and Protection Act, 1980. Since then Bangladesh having FDI inflows but the trend of FDI is not consistent. FY 2001-02, FY 2004-05 was USD 563.93 million and 803.78 million respectively. But in FY 2005-06 to FY 2007-08 the flow of FDI decreased and increased in FY 2008-09 again fall in FY 2009-10.
Trend of FDI inflow
Fig: Trend of FDI inflows from 2001-2010
The figure illustrates a clear inconsistency in the FDI trend of Bangladesh. In the FY 2001-02 and 2002-03 there was upward FDI in but 2003-04 experienced a sudden fall. But after that fiscal year FDI inflow increased much but there was significant ups and downs.
However, these FDI inflows can be divided in three components namely, equity capital, reinvested earnings and intra-company loans. These categories are shown in following diagram,
Category of FDI inflow
Fig: categories of FDI inflow to Bangladesh
This diagram depicts the inflow of FDI is significant in the form of equity capital as well as the reinvested earnings. However reinvested earning increases sharply from 2001 to 10 and after 2008 equity capital is overtaken by reinvested earnings because every year the investors reserve from their profit as retained earnings for their business. On the other hand intra-company loans are very small size.
Bangladesh was experiencing high FDI inflows in non-EPZ area than EPZ area. At the beginning of the decade, though FDI inflows declined, it increased in 2004. However in 2010 FDI inflows in EPZ zone recorded 118.17 million USD and non-EPZ zone recorded 795.15 million USD.
In last decade, if we go for sector-wise analysis, FDI towards power and energy, manufacturing and telecommunications were high. On the other hand agriculture, services and commerce was neglected.
Sectors
|
Year-2010 (in million USD)
|
Agriculture
|
13.6
|
Power
|
38.5
|
Gas and petroleum
|
53.6
|
Textiles and wearing
|
145.2
|
Chemicals and pharmaceuticals
|
6.3
|
Metal and machinery products
|
3.1
|
Leather and leather products
|
10.5
|
Banking
|
163.1
|
Insurance
|
16.7
|
Telecommunication
|
359.8
|
Computer software and IT
|
5.0
|
The table above showed the sector-wise FDI inflow of 2010. We can see that textile and telecom industry got the top FDI inflow.
Reasons for not attracting FDI
FDI inflow is not consistent in Bangladesh; the main reason behind this is ease of doing business in Bangladesh. The following table shows time to start a business in Bangladesh.
Indicators
|
Time (in day)
|
Starting business
|
19
|
Construction permit
|
231
|
Registering property
|
245
|
Getting electricity
|
109
|
As we can see construction permit, registering property and power need long time. This is the main reason behind unattractiveness in FDI to Bangladesh.
Other determinant which the investor consider when they go for FDI,
i. Macroeconomic environment
ii. Geographical location
iii. Cheap labor cost,
iv. Incentive for investors
v. Political stability
Among these Bangladesh got geographical location and cheap labor advantage. Our macroeconomic environment and political environment is not stable. As the government changes so do the rules and regulations. For these reasons investor barely finds the environment of Bangladesh is stable for FDI.
Recommendations
i. The government agencies should be well co-ordinated to make better business environment, smooth and efficient activities for the investors.
ii. The government agencies need to be dynamic and independent. Sometimes it makes problem in case of decision making over some large investment as some of the agencies like Bangladesh Bank, Bangladesh Board of Investment, Investment Promotion Agencies etc. are not independent in their activities.
iii. Accountability and transparency must be ensured.
iv. Better diplomatic relationship with the developed country can bring large investment to the country.
v. The logistic support e.g. power and energy is very much important for the investors.
vi. The political culture of Bangladesh is not favorable to attract more FDI in the country. The political governments did not care about the issue in the last few decades. That is why the trend of FDI inflow in the country was fluctuating, the two major parties have their own strategy and one do not tolerate others program whether it can bring more FDI or not. This type of attitude of the political leaders should be changed. Education based political culture is important as well as patriotic leaders can bring success to the country in economic development.
