FDI on the wane

According to the LDC Report 2006 of UNCTAD, Bangladesh could not do well in five sectors including FDI inflow per capita. Bangladesh stood ninth among the 50 LDCs regarding FDI inflow, which is lower than the average rate. Angola, a poor African country received $2,047 million FDI during the year 2004 while Bangladesh received only $460 million. Though Bangladesh offers attractive package facilities for foreign investors, political unrest, the rise of Islamic militancy and the tarnishing of the country's image were impediments to smooth FDI flow.

Bangladesh was ranked 119 out of 135 countries in terms of the factors influencing FDI in a study recently carried out by the renowned international magazine Forbes. It revealed that the capital hospitality of Bangladesh has been dragged down, scoring only 32.6 out of 100 in the Capital Hospitability Index. The Forbes study has revealed that the position of Bangladesh has dropped, compared to its major South Asian neighbours, due to rampant corruption, poor competitiveness, and technological backwardness. Bangladesh was also ranked 133 out of 140 countries by inward FDI performance index in 2001-2003.

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Bangladesh may also lose FDI due to incompetence of government officials and lack of appropriate preparedness for the next trade policy review by the WTO. The trade policy of Bangladesh is scheduled to be reviewed from September 13 to 15, in Geneva, to see if they comply with the international standards. The WTO reviews trade policy of LDCs once every six years. Bangladesh failed to raise a single query during the US trade policy review in Geneva, while India, alone, raised 21 questions, and other developing countries many more.

Bangladesh and other countries in this region have lately turned their attention to luring FDI to sustain their economic growth against declining aid flow in the coming days. The World Bank estimated that at least 18 to 20 percent investment rate is required to achieve a growth rate of 6 to 7 percent in our GDP. The actual investment rate in Bangladesh, however, swung to nearly 14 percent over the last two decades. Bangladesh badly needs FDI to attain a reasonable growth rate of GDP, but inflow of FDI remains lukewarm owing to political turmoil, rampant corruption, bureaucratic bottlenecks, weak infrastructure and poor law and order situation.

Among the South Asian countries, India's score was highest in terms of capital hospitality, followed by Sri Lanka and Pakistan. Being a most hospitable country to foreign investment in the world, China's score (41.2) was not satisfactory compared to its Asian peers, Japan, Malaysia, India and Singapore. Though Bangladesh scored relatively well in some areas like workers' wages, office rent, etc., much of its gains have been lost due to the pervasive corruption.

According to the World Development Indicator-2005 of the World Bank, China was the highest FDI recipient during 1990-2003, despite the fact that it held no position in 1970-79. This became possible with the change in its economic policy since 1979. India, which was low in the list of FDI recipient countries since 2000, scored 11th position in 2003.

But the progress of Bangladesh, as an FDI recipient is relatively very slow notwithstanding the fact that the Foreign Investment (promotion and protection) Act, 1980, provides assurance to foreign investment against nationalisation, and guarantees equal treatment to foreign investors. Bangladesh is also a signatory to the Multilateral Investment Guarantee Agency (MIGA) of the World Bank group, the International Centre for Settlement of Investment Disputes (CSID), etc. Such guarantees protecting the foreign investors against political and other risks have not been able to increase FDI inflow to the country..

The biggest industrial conglomerate of India, the Tata group, has suspended $3 billion investment plan in Bangladesh. It is clear from the statements of government officials that pre-poll political reckoning has put big economic deals on the back burner.

Such a situation is not at all conducive to investment, while it has become quite difficult these days to attract FDI against cut-throat competition.

Foreign investors are taking out more money than they have pumped into Bangladesh in the last five years, mainly through profit repatriation, and repayment of loans to foreign banks. According to Bangladesh Bank, out of several hundred foreign investors in the country, a few mobile phone companies dominate this outflow of money, followed by oil and gas companies and foreign banks. Between 2001 and 2005, foreign investors repatriated $2,744 million while the FDI inflow was $2,185 million.

If we analyse the nature of FDI in Bangladesh in this context, we find that most of these are in the energy and fertiliser sectors. FDI in the manufacturing sector is very poor. FDI brings economic prosperity to the recipient countries by creating job opportunities, increasing volume of exports and revenue to government, and through transfer of technology. The main target of technology transfer cannot be achieved through these FDI.

While considering the cases of Malaysia, Thailand and Philippines, we find that these Asian countries primarily relied on FDI as an important means for boosting technological capability. As far as the remittance of profit and dividend is concerned, unrestricted repatriation of capital and profit, with capital gains, are allowed in Bangladesh. According to some economists of the country such FDI will hardly bring long-term benefit for our economy.

As one of the poorest countries in the world, with 40 percent of its population living below the poverty line, Bangladesh needs to increase FDI for raising the growth rate to the level of seven percent. But the inflow of FDI is lower in Bangladesh despite the country being the cheapest place among 21 places in Asia in terms of eight investment components. The investors look forward to political stability, but our political leaders have not realised this plain truth.

ANM Nurul Haque is a columnist of The Daily Star.