To attract foreign investors, Bangladesh has implemented a range of investment incentives and policies. These encompass tax holidays, exemptions on capital machinery imports, reduced tariffs on raw materials, and facilities for the repatriation of profits and dividends. The government has further introduced a “One Stop Service” to streamline administrative processes, ensuring swift approvals for investment projects. Additionally, measures such as avoiding double taxation and offering foreign investment guarantees contribute to creating a favorable investment environment.
Several favorable attributes make Bangladesh an appealing choice for foreign investors from both developed and developing nations
Bangladesh’s competitive investment incentives and FDI regulations align closely with those of comparable nations. According to the World Investment Report 2022, Bangladesh garnered a three-year peak in Foreign Direct Investment in 2021, positioning itself as the second most attractive destination in the subcontinent after India. Global investors frequently implement state-of-the-art production methods, research and development capabilities, and efficient management practices, thereby enhancing productivity and competitiveness.
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In the current global scenario, Foreign Direct Investment (FDI) emerges as a potent driver of economic development, presenting a valuable tool for a nation like Bangladesh. It facilitates the accumulation of physical capital, the creation of employment opportunities, the development of productive capacity, and the enhancement of local labor skills through technology and managerial expertise transfer, thereby fostering integration with the global economy.
The Previous Outlook on FDI in Bangladesh
The economic landscape of Bangladesh is in a state of transition, shifting from a predominantly agricultural model to a more contemporary one. This shift is accompanied by substantial changes in global trade and finance patterns, highlighted by a surge in foreign direct investment (FDI).
A key factor behind the escalating investment flow in FY23 is the favorable investment atmosphere and political stability. In the FY 2009, FDI registered a decline compared to the previous fiscal year, attributable to the worldwide economic recession. In spite of the extensive incentives provided by Bangladesh to attract foreign investors and the global recognition of the country as an appealing investment hub, the level of Foreign Direct Investment (FDI) had consistently stayed at a historically low level. When looking at per capita figures, FDI in Bangladesh was a mere $7 in 2008, in stark contrast to $31 in India and $32 in Pakistan.
The decline in Foreign Direct Investment (FDI) was mainly a result of the global economic downturn affecting all regions and sectors – primary, manufacturing, and services. Although there was a modest recovery in global FDI during the first half of 2010, there was cautious optimism about short-term FDI prospects and the potential for a full recovery later on.
How Bangladesh Defied the FDI Odds?
Registering a 13 percent year-on-year growth, Bangladesh received $2.9 billion in 2021, recovering from the pandemic-induced decrease to $2.56 billion in 2020. With a rise in FDI, the GDP growth soon picked up, leading to a decrease in unemployment, and potentially propelling the country into the category of upper middle-income nations.
Bangladesh’s competitive edge in drawing foreign investors lies in its low labor wage rate and favorable climate. The country’s abundant resources serve as a compelling allure for potential investors hailing from Japan, China, the Netherlands, Germany, Russia, the USA, and India to constantly play significant roles in contributing to foreign direct investment (FDI) in Bangladesh. Presently, France, South Korea, Qatar, and other nations are also expressing a strong interest in engaging in business ventures with Bangladesh.
Following a substantial decline in the initial year of the pandemic, global investment in Sustainable Development Goals (SDG) experienced a remarkable 70% surge. The majority of the rebound occurred in the realms of renewable energy and energy efficiency, with project values surpassing threefold the pre-pandemic figures.
The relationship between FDI and a country’s foreign exchange reserves is highlighted by Syed Mahbubur Rahman, managing director of Mutual Trust Bank Limited. “The positive performance of remittance and export earnings, coupled with a decrease in imports during the 2022-23 fiscal year, led to an increase in forex holdings at commercial banks. Settlements for letters of credit associated with significant imports have already been concluded,” according to Syed Mahbubur Rahman, managing director of Mutual Trust Bank Limited.
Several favorable attributes make Bangladesh an appealing choice for foreign investors from both developed and developing nations. The rising availability of skilled and unskilled labor at competitive wages, coupled with the country’s success in maintaining a reasonably stable macroeconomic environment, contributes to its attractiveness. Foreign investors are cognizant of the fact that wage rates in Bangladesh are among the lowest in Asian countries, inflation is typically within acceptable limits, the exchange rate remains reasonably stable, customs regulations are investor-friendly without discrimination, and there are attractive incentive packages for foreign investors.
Considering global trends, the impact of Foreign Direct Investment (FDI) varies across countries, with potential for ambiguity or even negative outcomes. Nonetheless, given its current attributes, Bangladesh stands poised to reap advantages from increased FDI inflows. It is crucial for Bangladesh to cultivate an investment-friendly environment to attract more FDI.