The Foreign Direct Investment (FDI) issue in Bangladesh lacks a coherent and comprehensive outlook and commitment of ensuring doors of accesses in investment. There is widespread notion that the policies are FDI friendly. But the reality tells a somewhat different story.
There are some undeniable hurdles to the investment climate which challenge the FDI growth and reduce the chances of booming in the sector. These recurrent issues are pointed to lack of proper governance, slow paced bureaucracy, shortage of energy resources and proper infrastructural facilities.
The FDI has seen a surge in manufacturing and service sectors in recent inflows. In current decade, Bangladesh witnessed a huge shift in sector-wise and country-wise FDI inflows. It changed from import-substitutes to export oriented manufacturing. Besides, the country received FDI from 36 different countries, both developed and developing countries across the globe. Some 70% of total FDI inflow is from 11 countries but the major investors are from the EU members and the USA. In recent times the expected FDI is aspired to be from 24% to 32% of the economy. But how the benchmark could be achieved, is yet to be vividly clear, both to the concerned authorities and the investors. A country’s regulatory framework consisting of a set of commercial laws and regulations and the institutions established for their enforcement, should have transparency and economic aspiration in mind.
But when these regulations are designed and implemented in inefficient and arbitrary manner, then it alienates any future interest from foreign investors. Some years back, cell phone manufacturing giant Samsung came to Bangladesh to assess setting up large scale mobile phone factory. It sought a 2000 acre land in BEPZA but that didn’t happen. Lack of a timely decision deprived the chances of tapping the international cellular phone market.
Rather than protecting the rights and obligations of the investors and assisting the smooth functioning of the market, sometimes the regulations bring in unprecedented complexities and obstructions.Sportswear giants Nike, Reebok and Adidas planned to shift manufacturing plants from China to Bangladesh in 2010, they sought only 65 acres of land. But they were not provided with the land whereas some 1700 acres of land are there as abundant land in state owned factories, according to report of the privatization commission.
It is recurrent experience that overpowering bureaucracy is not compatible with an environment conducive to FDI growth.Some other challenges are power supply, high inefficiency cost, absence of autonomous regulatory bodies, taxauthority’s discretion, time wasting customs processing etc.
From the Mckinsey & Company Report , some 54 percent of CPOs shared their plans to decrease their sourcing activities in China. If a certain share of this percentage could be attracted with proper policy guidelines, Bangladesh could have easily surpassed China in the apparel industry.
Garments industry is the biggest example of success where the government incentives and policy supports have made the total economy exceptionally vibrant. It is now the highest forex earner and in 2013 the amount amounted to $20 billion.
Very recently, government settled for lower tax at sources to 0.3 percent from 0.8 percent. Centre for Policy Dialogue have estimated that government might lose an amount of Tk500 crore as advanced income tax (AIT).
However, the proportional growth supported by the tax cut would automatically increase the total export earnings as well as create more jobs, adding total economic value. If the FDI is geared up with visionary policy supports and implementations, it would be no wonder that big multinationals will hit Bangladesh market for outsourcing.
While Toyota, Honda and Ford look forward to India as outsourcing center, Bangladesh certainly possess competitive edge for its cheap labor market. Not only in automobile sector, FDI could hit record, making ways for Bangladesh towards a well entrenchedmiddle-income country if technical and strategic issues are fixed.
FDI enables a country like Bangladesh to build up physical capital, create employment opportunities, develop productivecapacity, enhance skills of local labor through transfer of technology andmanagerial know how, and help integrate the domestic economy with theglobal economy.
However, Bangladesh stands in the back row in attracting FDIs. Despite the grounds, there is a positive side of the FDI phenomenon. A Pew Global Attitudes Survey, conducted by Pew Research Center, showed a remarkable positive attitude towards foreign companies. When asked whether they had a positive impact, a large number of people in countries like Brazil, India and Bangladesh said yes. The survey was conducted in 47 countries and of them, it was found some 75 percent of the respondents from Bangladesh bear better positive attitudes towards foreign direct investment than those of in India and Brazil.
This FDI friendly approach might have been developed from the contribution to Bangladesh economy of the 189 members of Foreign Investor’s Chamber of Commerce & Industry (FICCI). The combined contribution of FICCI members exceeds 30% of total tax revenue collected by the government.
In recent times it was found that some of the reputed foreign companies paying highest taxes to government have received unlawful claims from government authorities.The basis of these claims is contradictory to the existing laws of the land. It is further noted that there have been no such observations on local companies operating in the same industry.
To ensure an even playing ground, a common and general policy is needed to encourage all types of FDIs in Bangladesh. Accountability and transparency must be ensured in all stages, predictable rules for investment and a sound legal framework for all as well as a political promise from contending parties to make the FDI a big fish for total economic development. Since the developing economic trend of any country can be identified by its FDI and export scenario, it is high time all parties acted coherently.
