FDI desk in embassies a must for economic diplomacy

by Md Mazadul Hoque in Dhaka,

Inadequate infrastructure coupled with bureaucratic tangles and a wide range of corruption has become a bane for investors and thus Foreign Direct Investment (FDI), essential for economic progress, has not improved in Bangladesh as expected.

The other factor is boosting economic diplomacy without which it will not be easy to lure foreign investors. I believe expertise is required for economic diplomacy and FDI desks in Bangladesh embassies may be the answer to getting expected FDI. 

Foreign investment is badly needed for emerging economies in the world. Amid the COVID-19 crisis the emerging economies like Bangladesh are faced with major hurdles. The concerned ministry is in a race to attract foreign business to widen economic activity. The talks with different countries are underway in full swing. The non-stop move for attracting foreign investment is set to bring expected capital owned at home and abroad.

Under continuous initiatives, Bangladesh Investment Development Authority (BIDA) has, in the meantime, pulled foreign investment of US$ 11 billion since inception in 2016.

Actually, BIDA had been working hard to ensure quality foreign direct investment services and an investment-friendly environment since inception. Truly saying, novel coronavirus came as both curse and blessing for every economy. After the pandemic appears, the world’s famed magnets have sharply decided to relocate their production and operation plants. On hearing the message of relocation, many Asian countries opted for opportunities. Bangladesh, a south Asian country with over 160 million populations, is seen to struggle to bring plants that have planned to shift to another. The decision of shifting plants from China came following US-China trade war. Besides, the magnates, who had been carrying out business plants in China for long, have planned to shift production centers in the wake of coronavirus.

Apart from Bangladesh, many economies like Vietnam, Cambodia, Indonesia, India are in mad rush to take relocation facilities anyhow. The first ever major competition among these countries is being widely noticed. The world’s second largest economy- China now sees drastic fall of inflow of FDI since beginning pandemic. The growth trend of inflow of FDI has sharply been decreased across the world due to deadly virus. In view of covid-19 situation, United Nations Conference on Trade and Development (UNCTAD) made grim projections on FDI inflow. UNCTAD said global inflow of FDI may decline by 40 per cent in the current and next years due to covid-19. Bangladesh among other countries began to see decrease of inflow of FDI even before pandemic. According to Bangladesh Bank (BB) sources- Net inflow of FDI in 2019 declined by 20.45 per cent to $ 2.88 billion from $ 3.61 billion in 2018.  Besides, in four years, net inflow of FDI recorded at around $ 11 billion. So, in view of FDI scenario as noted, one of corona ravaged economies – Bangladesh might now face hurdle to attract foreign investment.

 Indonesia, in the meantime, was able to attract many firms owned by American and European nations. The success came following a good number of investment-friendly facilities given to foreign firms. A news paper news story reported that Indonesia has offered 50 per cent tax holiday for five years on FDI worth $ 7 million while 100 per cent tax holiday for five years on investment above $ 7 million to $70 million. Currently, Asian leading economy- Japan expressed optimism to launch automobile industry in Bangladesh shortly upon terms and conditions related to foreign investment. According to Japan’s leading newspaper – Nikki Asian Review, Japanese firms must be brought under subsidy facilities if they shift factories from China to India and Bangladesh.  An amount of US$ 22 crore 10 lac was kept aside as subsidy provided by government for the year 2020. It is important to note that around 30 Japanese companies have enjoyed subsidy facilities in July, 2020 for shifting the plants  to Vietnam and Laos from China. Existing around 310 Japanese companies are in operation in Bangladesh. 

As of March, 2020 total FDI stock stood $ 18.85 billion- Bangladesh Bank sources said. Of the total FDI stock, $ 3813.61 million came from USA, $ 2458.45 million from United kingdom, $1366.28 million from Netherlands, $1256.71 million from Singapore, $ 1215.05 million from Hong Kong, $ 1144.70 million from South Korea , $ 900.59 from China, $ 843.67 million from Australia, $ 823.08 million from Malaysia, $ 750.37 million from India, $ 433.34 million from Japan, $ 409.34 million from Taiwan , $ 390.68  million from UAE, 352.83 million from Sri Lanka, $ 343.44 from British virgin Islands, $ 319.08 million from Norway, 316.95 million from Thailand, $ 266.97 million from Saudi Arabia, $ 254.72 million from Mauritius, $ 212 million from Pakistan and $ 986.96 million from other countries.                          

One hundred Special Economic Zones (SEZs) are scheduled to cover expected volume of foreign investment worth US$ 30.20 billion made projection in Seventh Five Year Plan (7FYP). The SEZs has so far received US$ 20.50 billion Investment proposal from 151 local and foreign companies. So, it can be said that Economic Zones have began give green signal regarding foreign investment. Shortly after completion of one hundred SEZs, foreign investment is expected to be flooded. Bangladesh is in sorry state in terms of attracting foreign investment compared to Indonesia, Vietnam, India and Cambodia. The scenario made me frustrated much. Despite cheap labor cost, Bangladesh could not attract FDI in so many years. Whereas, present wages in China is US$ 150 to 260, Vietnam US$125-180, Indonesia $ 110-180, Cambodia US$180 where in Bangladesh only US$100. So, there are many reasons to be worried why Bangladesh is facing poor inflow of FDI. It is high time to discover loopholes.

It is said that irregularities and corruption made cost of doing business here in Bangladesh higher. If possible existing terms and conditions set by government might have been relaxed to address the need of foreign investors. It is happy news that central bank of Bangladesh already reformed foreign exchange transaction guidelines among others aiming to bring more FDI. But, considering current economic situation, the registration process along with foreign investors friendly-tax policy might have been relaxed. Moreover, customs act and bankruptcy act might have been revised right now. To improve ease of doing business indicator ranked by the World Bank ( WB), regulatory reforms is a must. What is worrying that Bangladesh economy is running with worth around $ 350 billion investment gap in infrastructure.

Satisfactory volume of foreign investment is yet to come from China and Japan. Bangladesh has failed to address their demand. What should be noted that Vietnam in RMG sector got around 60 per cent investment from China.  Vietnam’s position in apparel sector went above Bangladesh due to fulfill timely demand placed from foreign investors.  The move for signing Free Trade Agreement ( FTA)  with developed economies is needed considering current economic scenario. When Chinese President Xi Jinping came Bangladesh in 2016, he signed more than two dozen deals worth amounting $ 2,053 crore for infrastructure development. Once infrastructure development completed, a huge volume of FDI is set to hit Bangladesh economy.  Utilities facilities with lowest rate in economic zones need to be ensured.

As the US is the largest source of FDI in the region and FDI doubled from 2007 to 2017 reaching $ 940 billion, boosting economic relations with US is needed. Since 1971, the US has invested more than $ 7 billion in Bangladesh. So, US role on Bangladesh economy is unforgettable. The Asian development bank recently said that the Indo-pacific region would need around $ 26 trillion in investment by 2030 to develop its infrastructure. In response to ADB estimation, Bangladesh needs a bulk amount of FDI in infrastructure apart from in Special Economic Zones.    Nevertheless, the net outward FDI came down to US $ 1 million in 2019 from $ 23 million in 2018 – Bangladesh Bank & UNCTAD sources. Outward FDI from Bangladesh reached a record high of $ 142 million in 2017- the sources also said. So, the concerned authority must discourage outward FDI for economic interest. South–East Asia is considered as the best investment destinations to the globally renowned business people. Unexpected pandemic has cushioned the dream of investors. Among others, ASEAN countries have been affected much in terms of foreign investment.

Very recently launched US government report titled “2020 Investment Climate Statements: Bangladesh”   noted that the inflow of foreign direct investment ( FDI) in Bangladesh is one of the lowest in Asia. The report also read the country received FDI amounting to US$ 3.6 billion in 2018 that was slightly more than one per cent of country’s GDP. Bangladesh is going face untold economic challenges in the days to come due to pandemic that may persist for longer period. Unemployment situation and poverty rate in the country is not in good state at all. Due to expansionary monetary policy program for FY2020-21, inflationary pressure might appear soon also.  So, the current moment demands FDI and nothing else.

If FDI-friendly environment is not created, then the existing foreign companies also might shift to Indonesia and Vietnam from Bangladesh.