The present government in Bangladesh has identified public-private partnership (PPP) as one of the key focus areas and is committed to attracting foreign investors to thrust sectors. The government has resolved to ensure economic and political stability and foster transparency and availability of information.
There are several other determinants of inward foreign direct investment (FDI) attractiveness of an economy. Economic growth trend, more importantly projected growth rate, is a key indicator. Subjective and more difficult-to-measure factors like level of terrorism, political stability, and corruption are also equally important. Various controllable and out-of-control factors play significant role in determining what portion of inward FDI of the world is going to which country.
There are a few problems that are holding us back but we can create sufficient control over the situation. These must be fixed so we can reach our maximum potentials. We need to eliminate bureaucracy, make land acquisition and construction easier, up-grade and update regulations.
Average wage of workers increased in India, Indonesia and China during the past years, which in turn increased our competitiveness. Despite all the challenges, during 2009-2010, a total of 89 new foreign and joint venture investment projects registered with Board of Investment (BoI) worth a total of $590 million. 82.5 per cent of these investments were in the service sector, distantly followed by 8.5 per cent in clothing sector. Within the next 2 years, the composition is expected to change. Larger shares will most likely be occupied by the thrust sectors such as energy and power, transportation, etc. A number of bilateral agreements are in place for avoidance of double taxation.
After much anticipation, public-private
partnership (PPP) policy has been made effective since August 2010. With
proper implementation, PPP can become the chosen vehicle for FDI. We have made
good progress in the foreign relations, particularly with United States and
India, during the recent years. It is hoped that some good news are also due
from the ongoing discussions with trade
authorities of India, Turkey, Japan and Denmark that we read about in the
newspapers. Many multi-national companies (MNC) have re-invested their earnings
from Bangladesh for expansion of their business and operations rather than
remitting out, which shows their confidence in the country's growth prospects.
FDI inflow is most necessary for Bangladesh not only from the capital and
foreign currency perspectives, but also because it transfers new technologies, skills and management practices
embedded with the investors. After the global economic downturn, the world is
turning to Asia and thus, it is much easier for us to attract attention than
earlier times. Global FDI inflow is expected to head towards $2.0 trillion by
2012. In Asia, more countries and more industries are being included every
year. All we got to do is create the right climate and allow the right investors
as this is definitely the right time.
Local entrepreneurs' attitude to competition from FDI is really not very
welcoming as they fear of being competed out. In theory we preach that
competition makes us excel and put in our best. But when it comes to practice,
local entrepreneurs start advocacy to protect their business by creating high
entry barriers. This is also true that FDI follows strong domestic investment,
which carries testimony to encouraging business environment as well as
`opportunity to make money'. All the stakeholders therefore should understand
and appreciate the synergy between domestic and foreign investment.
All the while we have to keep in mind that FDI is not an end in itself, it is a
means towards economic growth. It is not wise to grant lower priced lands and
utilities to investors just because they are foreigners. The policy-makers can
perform a deep dive objective analysis and who knows, the conclusion may be
against FDI! But the approach should be to assess how much investments we need
to attain the aspired GDP growth, how much can be contributed by domestic
sector in itself, and how much foreign investment we need to bridge the gap.
Then comes the question: Does Bangladesh have the right investment climate to
guarantee FDI? If not, what is the strategy to ensure the desired amount of
FDI?
Current mechanism of FDI generation in Bangladesh and future trends: It has
been argued that until the early 1980s the economy of Bangladesh was highly
protected and inward-oriented and import substitution was the key aspect of the
government's development strategy, which primarily attracted global
multi-national enterprises (MNE) with the motive of capturing domestic markets
or tariff jumping-type investments.
However, recently two forces have played a key role in the surge of FDI into
Bangladesh. First, liberalisation of the
economy, which began in the early 1990s, especially the lifting of restrictions on FDI. Secondly, MNEs'
shift toward more integrated global investment and production strategies based
on the country's chief resource endowments, namely low cost labour. The
country's labour-intensiveready made garments (RMG) sector allows foreign MNE
to set up offshore production facilities for duty free re-import of goods
and components in the country's export processing zones (EPZ). Bangladesh has
an abundant gas reserve, which is chiefly
influencing global MNE toward FDI generation in Bangladesh, and also
enabled them to shift their focus from the traditional forms of foreign
investments, such as marketing seeking to more dynamic forms like resource and
efficiency seeking export oriented production platforms.
It has been argued that if FDI is a substitute for imports, it can improve the host country's balance of
payments, as has been seen that much of the FDI by Japanese automobile
companies in the United Kingdom and United States in their initial phase of
market entry were chiefly looked upon as substitution for imports from Japan,
which improved the US balance of payments to a certain extent. However, it has
been also argued that when foreign investments are directed towards third
country markets or rich regional markets, they can substantially improve a
country's balance of payment positions.
It is believed that export-oriented FDI is a special type of FDI and is
governed by different factors than is domestic market seeking FDI. Being
efficiency seeking in nature, export-oriented FDI could be more sensitive to
availability of quality infrastructure than overall FDI. It has been argued that
infrastructure development should become an integral part of any host
government's strategy to attract FDI inflows in general and export oriented
production from MNE in particular. Studies have also shown that in a number of
developed and developing countries, governments have indulged in policy
competition between themselves to attract FDI through a package of investment
incentives.
However, countervailing arguments also suggest that investment incentives tend
to distort the patterns of FDI in favour of developed countries given their
capacity to provide substantial fiscal incentives. So, it has been argued that
rather than getting sucked into competition with developed countries by
offering investment incentives, governments of developing countries would do
well to focus on the development of physical infrastructure in their respective
countries. This would help to mobilise the domestic as well as foreign
investments and help expediting the process of their development.
Therefore, the Government of Bangladesh should give top priority to more export-oriented FDI. This will help foreign
subsidiaries to mobilise their resources both in the domestic economy and also
global markets. Thus additional foreign exchange will be earned and the
country's present balance of payments
position will significantly improve. Besides, more local jobs will be created and the overall economic development of the country will be benefited.
Moreover, Bangladesh should leverage its core competencies for high-value added
production activities, especially its RMG sector, for exploiting new potential
markets. It should develop its other potential growth areas like leather,
frozen food, silk or the emerging information technology (IT) sector. It should
also tap some of its other unrealised potentials like fisheries, light
manufacturing (for example, tools and consumer electronics) by working in close
partnership with global MNE. This would help Bangladesh develop the kinds of
customised assets such as skilled labour and public infrastructure. Global MNEs
essentially seek these facilities in a host country in order to more
efficiently deploy or harness their 'created assets', namely communications
infrastructure, marketing networks, technology and innovative capacity to
maintain their competitiveness in the global economy and more efficiently serve
their host markets. Moreover, this would help Bangladesh promote its dynamic
comparative advantages and add greater value to its own resources and
competencies for additional foreign exchange generation, improving the
country's present balance of payments position and also enhancing its overall
export competitiveness in the global economy.