Asian Business Review, Volume 3, Number 4/2013 (Issue 6)
ISSN 2304-2613 (Print); ISSN 2305-8730 (Online)
0
Foreign Direct Investment as an Instrument for promoting
Economic Development in Bangladesh
Md. Sajedur Rahman1; & Md. Ali Ahsan2
1
Lecturer, School of Business, University of Information Technology and Sciences (UITS), Bangladesh
Lecturer, School of Liberal Arts & Science, University of Information Technology and Sciences (UITS), Bangladesh
2
ABSTRACT
A healthy financial sector is very much crucial for economic growth, especially for economies like Bangladesh. Because,
growth in Bangladesh must come largely from exports and its enterprises must, therefore, be internationally
competitive. But unfortunately, Bangladesh has a financial system in which borrowers fail to repay loans, foreclosure is
almost unheard of, and the government has to bail out banks. However, the Foreign Direct Investment (FDI), the most
powerful weapon for accelerating economic development in Bangladesh. To attain an economic growth rate in the seven
to eight percent range, investment has to be increased significantly, Because of declining levels of official development
assistance in recent years and inadequate domestic savings, FDI presents opportunities for overcoming domestic
resource constraints. The Board of investment (BOI) was created as market mechanism where investors can cut
through red-tape associated with foreign trade and business start-ups. FDI basically helps to fill-up the capital gap and
shortage of a country. Foreign Direct Investment is one of the vital forces to boost up the economy. In this study paper I
would like to draw a current scenario of Foreign Direct Investment in Bangladesh. In this regard I present the most
updated data, avoid the uncompleted data and use the best judgment at the time of presenting the data to better
knowing the current trend about the Foreign Direct Investment in Bangladesh. The benefits of FDI in terms of physical
capital formation, transfer of technology, and know-how are sufficient to justify sustaining these flows. Capital
controls are not the answer to a rising flow of FDI. Foreign Direct Investment (FDI) will help the country in further
developing infrastructures, creating more employment, developing capacity, enhancing skills of the labour force of the
host country through transferring technological knowledge and managerial capability. To ensure that resulting
payments liabilities remain within the country’s debt-servicing capacity, it is essential to develop an effective nonintrusive reporting and monitoring system the main ingredients of which are presented in the study.
Keywords: Foreign Direct Investment status in Bangladesh, Economic growth, Prospects & problems
of FDI, Impact of FDI, Foreign Direct Investment (FDI), Development, Growth benefits.
JEL Classification Code: G11, O24
1
INTRODUCTION
F
or a resource poor country like Bangladesh Foreign
Direct Investment (FDI) can play a crucial role in
industrial financing through gathering scattered
funds from various global investors in this
connection Foreign Direct Investment (FDI) has played a
key role in the modernization of the Bangladesh
economy for the last 15 years. The total trend in the FDI
flows of the developing countries shows an encouraging
picture in general terms. More investment is coming
from private sectors in the developing countries from the
develop one through licensing, franchising, merging,
joint venture, contract manufacturing and so forth. Most
of the time developing countries become investors
among themselves. The situation for LDC’s (Least
Developed Countries) do not look that bright. Viewed in
this context Bangladesh is one of the most populous
LDC’s needs to make own stock taking of the
contemporary global economic situation as far as the FDI
flows are concerned. Government of Bangladesh revised
Copyright © 2012, Asian Business Consortium | ABR
its industrial policy of 1991 and offers a number of good
facilities and incentives by 1999 to attract FDI. Though
the policy has changed, FDI flows to Bangladesh are so
far been negligible. Its reform program for outwards
looking economics activities have failed to attract FDI a
sizeable in comparison with other Asian Countries.
Actually success of any policy or organization
achievement depends on its ability to establish and
maintain a good fit between itself and environment
where it will appropriate and on identifying the
competitive advantages and exploiting the opportunities
in the more efficient manner than that of the competitors.
The world economy is in stream of change in order to
integrate itself to achieve desire objectives of the
economic globalization for the growth and prosperity for
the irrespective of region in all parts of the world. Trends
in economic policies in both developed and developing
countries have been greatly influenced by the
globalization that is free market economy and as a matter
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Asian Business Review, Volume 3, Number 4/2013 (Issue 6)
ISSN 2304-2613 (Print); ISSN 2305-8730 (Online)
of fact foreign investment and trade labialization have
become its prime impulses. The existences of market
opportunities,
development
of
communication,
information technology and comparative advantages in
international level motivate foreign investor in the
international business operation. Researchers have
marked FDI as an important factor in accelerating
economic success and wealth of a country as well as a
door in creating jobs, facilitating economy, and creating
more competitive environment and contributing
productivity to the host country.
In Bangladesh, FDI plays a significant role in GDP
acceleration and economic growth (Mottaleb 2007). FDI
has a mentionable role in the modernization of the
Bangladesh economy for last two decades. It helps the
country in building up infrastructure, creating more
employment, developing capacity, enhancing skills of
the labor force of the host country through transferring
technological knowledge and managerial capability, and
helping in integrating domestic economy and the global
economy. Various positive attributes of Bangladesh is
now drawing the attention of the investors from both
developed and developing countries. In Bangladesh, it is
available to get skilled labor at relatively low wages.
Moreover, there is reasonably stable macroeconomic
environment. These two important factors can make
Bangladesh an alluring destination for foreign investors.
Lowest wage rates among the Asian countries, tolerable
inflation rate, reasonably stable (except previous year)
exchange rate, investment friendly custom regulations
and attractive incentive packages make Bangladesh a
favorable investment destination. Bangladesh became
more open toward FDI policies over the last decades.
These above features will certainly maintain the recent
advancement in FDI investment in Bangladesh by the
foreign investors.
2 OBJECTIVES OF THE STUDY
To evaluate the contribution of FDI to the economic
development in Bangladesh
To analyze the impact of FDI inflow on GDP, Export
and private investment of Bangladesh
To measure the status of FDI in Bangladesh
To identify the problems & prospects of FDI and try
to prescribe some issues for their solution
3 METHODOLOGY OF THE STUDY
The methodology includes an econometric model as well
as simple statistical tools such as mean, standard deviation
and percentage. This paper is primarily based on
secondary information. The relevant secondary data are
collected from Statistics Department and Research
Department of Bangladesh Bank (Central Bank of
Bangladesh), Board of Investment (BOI), Bangladesh,
0
Bangladesh Bank Bulletin, Economic Trend, Bangladesh
Economic Review, World Investment Report 2010
published by UNCTAD, websites, journals, books and
newspapers etc. By using these data, the study at first has
figured out the present condition of FDI of Bangladesh.
Thereafter, these data were analyzed to assess the impact
of foreign direct investment in the economic development
of Bangladesh. Lastly, some policies are suggested for the
efficient and useful utilization of FDI by removing existing
obstacles to achieve the desired level of economic
development for the country.
4 LITERATURE REVIEW OF THE STUDY
Muhammad Azam (2010) examined the impacts of exports
and FDI on economic growth of South Asian countries
namely Bangladesh, India, Pakistan and Sri Lanka with
simple log linear regression model using secondary data
ranging from 1980 to 2009 and found that due to promotion
of exports, economic growth of each country would
increase. He also found FDI as positively significant at 1%
level of significance for Bangladesh and Pakistan, while for
India it's insignificant and in case of Sri Lanka though it is
significant but with unexpected negative sign.
Quader, Syed Manzur (2009) applied extreme bounds
analysis to the data of the various catalyst variables of FDI
inflows in Bangladesh. They found FDI and domestic
investment have a positive effect on economic growth.
Abdul Rehman, Orangzab, Ali Raza (2009) conducted
an analysis by using the data collected over the period of
1975-2008 and identified the determinants of FDI and its
impact on GDP growth in Pakistan through different
statistical tests and found positively significant impact of
FDI on GDP growth of Pakistan. Furthermore, these
results indicate that market size, trade openness / access
to international market and quality of labor are the major
determinants that have significant affect on the FDI
inflow. The study also found no affect of market
potential and communication facility on the attraction of
FDI inflow in Pakistan.
Mottaleb (2007) studied the determinants of FDI and its
effect on economic growth in developing countries. He
studied panel data of FDI flows of sixty low-income and
lower middle income countries and found that FDI has an
important effect on economic growth of third world countries
by creating bridge between the gap of domestic savings and
investment and familiarizing the up to date technology and
management skill from developed countries.
5 CURRENT SCENARIO OF FDI IN BANGLADESH
Foreign Direct Investment (FDI) is the acquisition of
managerial control by a citizen or corporation of a home
nation over a corporation of some other host nation.
Corporations that widely engage in FDI are called
multinational companies, multinational enterprises, or
transnational corporations. FDI traditionally implies
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Asian Business Review, Volume 3, Number 4/2013 (Issue 6)
ISSN 2304-2613 (Print); ISSN 2305-8730 (Online)
export of real capital from home to the host nation, but
even when economic investment results from FDI, capital
may not be transferred from the home nation to the host
one.
Rather,
multinational
corporation
may
acquire/utilize real capital from local (or a third-nation)
sources foreign capital” means capital invested in
Bangladesh in any industrial undertaking by a citizen of
any foreign country or by a company incorporated outside
Bangladesh. In the form of foreign exchange, imported
machinery and equipment, or in such other form as the
government may approve for the purpose of such
investment; Bangladesh invites FDI for industrial growth,
in particular welcoming establishment of manufacturing
firms and service sector enterprises that would sell their
products within the country and also export outside it.
Bangladesh is a high performing LDC, which has made
significant progress in the 1990s. This represents
Bangladesh as an interesting case for FDI destination for the
other countries. Bangladesh currently accelerates her GDP
growth rate (from 1980s: 3.84% to 1990s: 4.88%), decline in
population growth rate (from 2.32% in early eighties to 1.5%
in late nineties), achieved near full self-sufficiency in
foodgrain production through expansion of HYV rice
cultivation (17.85 MlnMT in 1991 and 23.07 MlnMT in
2000), performed high growth of export sector (12.98% per
annum during 1990s), made subsequent improvement in
human development index (Infant mortality rate declined
from 153 per thousand live births in 1975 to 94 in 1990, and
to 66 in 2000), achieved considerable success in
mainstreaming of women by achieving gender parity in
primary education, and almost removed gender gap in
secondary education, demonstrated significant progress
towards a viable democratic structure – change of
government through three successive national elections.
Share of private investment in GDP increased from 10.3% in
FY91 to 16.5% in FY03. However, there is little room of
exercise if the country desires to accomplish her targets as
mentioned in the Millennium Development Goal (MDG)
and MTMF (Medium-Term Macroeconomic Framework) of
its Poverty Reduction Strategy Paper (PRSP) - the
implementation framework of the National Strategy for
Economic Growth, Poverty Reduction and Social
Development. For sustained development with equity,
Bangladesh desperately needs both domestic and foreign
direct investment to boost the present trend of growth. The
FDI mentioned US$ 768.7 million in FY 2007-08. During FY
2008-09; the actual FDI recorded US$ 960.6 million, which
was higher than the previous fiscal year. The key feature of
this increasing flow of investment during FY 2008-09 was a
favorable investment environment and political stability. In
FY 2009-10(up to Dec‟10) the actual FDI recorded US$ 342.2
which is lower than the previous fiscal year because of
world economic recession. Table 1 presents the recent trend
in FDI inflow in Bangladesh:
0
Table 01: Recent Trend in FDI Inflow in Bangladesh.
(US$ Millions)
FY
FY
FY
FY
FY
FY
FY
FY
FY
2001 2002 2003 2004 2005 2006 2007 2008 2009
-02 -03 -04 -05 -06 -07 -08 -09 -10*
393.8 379.2 284.1 803.8 744.6 792.8 768.7 960.6 342.2*
Source: Enterprise Survey, Bangladesh Bank *July-Dec 2009-10,
*Estimated
The Table shows that FDI inflow to Bangladesh was
$1086 million in 2008, the highest so far in its history, but
it fell significantly thereafter, falling by 34.1 percent to
$716 million in 2009.
Table 02: Foreign Direct Investment Inflow
Countries
FDI Inflows
(Million US$)
1995-2005 2009 2010
(Annual
Avg.)
2011
FDI Stock
Million US$)
1995 2009 2010
427
1086 716 >1billion 600
4137 40148 34613
5641
India
732
5438 2387
5408
Pakistan
1657
8050 4500
7150
Vietnam
Source: UNCTAD, World Investment Report, 2012
Bangladesh
4816
5139
123294 163959
16473 17789
48325 52825
The decline occurred across all three sectors of FDI –
primary, manufacturing and services, and most FDI
components – equity investment, intra-company loans or
reinvested earnings – contracted. In the first half of 2010,
the global FDI witnessed a modest recovery, sparking
some cautious optimism for FDI prospects in the short
term and for a full recovery further on, but these
prospects are fraught with risks and uncertainties,
including the fragility of global economic recovery.
(UNCTAD, op. cit)
The table 3 shows that United Kingdom has gained the
top most position among the top 10 investing countries
in Bangladesh during 2006-2010 in investing in various
sectors of economy. Out of total FDI inflows from the top
10 investing countries during this period, 17.4% was
from United Kingdom, 13% from USA, 8% from Egypt,
7.7% from South Korea, 6.4% from Netherlands, 6.2%
from Singapore, 5.6% from Hong Kong, 5.2% UAE, 4.8%
from Japan, 3.5% from Malaysia, 3.2% from Australia,
2.1% from Denmark, 2.1% from Switzerland.
Table 03: FDI Inflows (in million US$) by Countries
during 2006-2010.
Country
2006 2007 2008 2009 2010
Australia
0
0
0
0.22 13.95
China
0.92
0.48
4.5
3.24 8.66
Denmark
15.38 8.99
1.91 9.09 5.91
Egypt
105.36 75.17 373.4 72.71 3.01
Hong Kong
47.43 55.45 39.85 75.6 63.84
India
6.09
1.67 11.29 7.99 43.19
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Japan
Malaysia
Netherlands
Norway
Pakistan
Saudi Arabia
Singapore
South Korea
Sri Lanka
Switzerland
Taiwan
UAE
U.S.A
U.K
A.D.B
I.F.C
Others
22.79
44.46
13
82.95
5.14
0.52
35.89
53.86
2.63
2.8
2.36
88.02
175.72
70.47
0
0
16.69
36.61
19.54
18.67
25.68
3.49
1.73
10.68
27.68
3.55
13.39
0.17
83.27
120.36
142.55
0
0
17.23
57.15
70.72
31.67
33.47
12.51
2.66
32.28
44.64
7.19
69.25
1.96
102.2
40.92
130.57
0
0
18.17
17.47
43.84
49.62
45.63
30.14
2.62
19.12
46
7.37
29.06
11.1
67.08
42.89
88.08
0
0
31.29
21.79
7.45
64.92
39.16
18.88
11.91
317.19
40
8.85
5.89
7.59
24.5
56.95
105.68
0
0
44
Source: Board of Investment, Bangladesh.
Sector-wise analysis of FDI reveals the fact that a shift
has been made by the foreign investors in their
investment in Bangladesh (Annex Table-3.4). The table
shows the trend of FDI towards power and energy,
manufacturing and telecommunications, whereas the
neglected sectors were agricultural, Services and trade
and commerce. In 2005, the main focus of investment
was in the manufacturing sector. The success in textiles
through the ready-made garments (RMG) industry was a
vital part of this investment.
In the table 4 and 5 it is clearly shown that the percentage
of investment in various sectors has changed quite a lot.
The percentage of telecommunication investment was
2% in 2006-2000 was only 2%, which increases to 21%
during 2001-2005 and finally it topped to 43% during
2006-2010. On the other hand, the portion of investment
in the gas & petroleum sector has declined gradually
during the year of 1996 to 2010. It was 28% in 2006-2000,
18% in 2001-2005 and only 13% in 2006-2010. It is also a
matter of great concern that the investment in energy
sector has decreased from 12% to only 3%, which is very
alarming. The government should take a close look in
this matter and take necessary steps to identify the
causing factors and to rectify those to improve our
present energy sector conditions.
Table 04: FDI Inflows (in million US$) by Sectors in
Bangladesh during 2006-2010.
Sectors
Agriculture & Fishing
Power
Gas & Petroleum
Textiles & Wearing
Chemicals & Pharmaceuticals
2006 2007 2008 2009 2010
1.3
7.3 14.4 11.8 13.6
21.1 25.8 27.8 30.9 38.5
187.1 190.2 73.3 20.3 53.6
70.1 102.3 126.4 134.0 145.2
6.3
5.2
4.2
3.9
10.4
0
0.0
0.0
0.0
1.3
3.1
0.0
1.5
1.6
7.2
10.5
Leather & Leather Products
117.7 80.0 141.8 142.6 163.1
Banking
6.4
7.3
4.6
10.4 16.7
Insurance
346.5 201.9 641.4 250.1 359.8
Telecommunication
0.2
0.0
0.4
1.8
5.0
Computer Software & IT
Source: Survey Report, Statistics Department of Bangladesh
Bank and Foreign Direct Investment in Bangladesh (1971-2010),
Board of Investment.
Metal & Machinery Products
Figure 3.3.1 reveals that despite the initial increase and
steady continuation, FDI inflows in Non-EPZ areas was
in declining trend during the period of 2001-2003. In 2004
it increased to 800 million USD and this trend continued
up to 2005.The FDI inflows in Non-EPZ areas in 2010
recorded to USD 795.15 million which is 87 percent of
total inflows whereas in the beginning of this period (in
1996) it was USD 189.3 million which is 82 percent of
total inflows. In the EPZ areas, the FDI inflows were
always in a steady direction.
Table 05: FDI Inflows by Areas. (in million US$)
Area
Year
EPZ Non-EPZ Total
1996 42.31
189.3
231.61
1997 69.25
506.04
575.29
1998 88.31
488.15
576.46
1999 154.43 154.69
309.12
2000 81.2
497.44
578.64
2001 56.06
298.41
354.47
2002 87.53
247.94
335.47
2003 59.31
290.94
350.25
2004 42.68
417.72
460.4
2005 110.82 734.44
845.26
2006 71.03
721.44
792.48
2007 105.44 560.93
666.36
2008 118.55 967.76 1086.31
2009 141.88 558.28
700.16
2010 118.17 795.15
913.32
FDI in Bangladesh consists of three components: Equity
capital, Reinvested Earnings and Intra-company loans.
These components have fluctuated considerably in the last
two decades. In the early year of 1996, the total FDI inflow
was only 210 million USD where reinvested earnings were
the bigger portion. This trend continued up to 1998. Then
there is a sudden decline in terms of total inflow as well as
component wise inflow of FDI. Beside a slight increase in
2000, this declining trend continues up to 2003. After then
total inflow continues to rise with some ups and downs.
The portion of equity capital continues to have a bigger part
in the total FDI inflows. In 2008 the total inflows was 1100
million USD which is the highest ever.
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Table 06: FDI Inflows by Components (in million US$)
Total
Year Equity Reinvested IntraCapital earnings company Inflows
Loans
1996 69.63
121.65
40.33
231.61
1997 332.06
163.45
79.78
575.29
1998 280.51
189.88
105.07
576.46
1999 137.47
76.23
95.42
309.12
2000 350.18
77.77
150.69
578.64
2001 233.78
65.01
55.68
354.47
2002 133.81
116.82
84.84
335.47
2003 156.14
170.13
23.98
350.25
2004 155.89
239.79
64.72
460.4
2005 425.59
247.48
172.19
845.26
2006 503.65
264.74
24.09
792.48
2007 401.61
213.24
51.51
666.36
2008 809.25
245.73
31.33
1086.31
2009 218.55
364.94
116.67
700.16
2010 519.98
364.62
28.72
913.32
From table 7, it is found that the overall scenario of the
trend of the private investment in Bangladesh is increasing.
Proposed
Proposed
Total
Growth
Proposed
Local
Foreign
%
Investment Investment Investment
Project BDT Project BDT Project BDT
2005- 1754
2006
2006- 1930
2007
2007- 1615
2008
2008- 1336
2009
2009- 1470
2010
2010- 1298
2011
2011-2012 1604
18370
135
24986
1889
43356
124.62
19658
191
11925
2121
31583
-27.15
19553
143
5433
1758
24986
-20.89
17117
132
14749
1468
31867
27.54
27414
160
6261
1630
33678
5.67
39976
148
26935
1446
66912
98.71
338910 1813
835989
212
497078 209
In the year 2009-10 (February), there were 89 new foreign and
joint venture investment projects registered to BOI which
amount to $590m. The projects were invested to mainly in the
service, engineering, clothing and agricultural sectors.
Table 08: Country wise foreign and joint venture
investment during 2009-2010*
No. of
Proposed
Country
Projects Investment (US$ m)
Saudi Arabia
3
478.652
Australia
4
2.036
USA
5
2.990
Finland
2
3.023
9
8.451
South Korea
12
33.768
Malaysia
3
3.056
Netherlands
5
8.544
China
12
21.000
United Kingdom
5
3.507
Pakistan
2
0.990
Japan
8
2.624
Denmark
1
1.217
Sri Lanka
2
0.646
Canada
2
1.017
Taiwan
1
0.502
Singapore
4
1.929
Turkey
1
0.150
Greece
1
0.156
Italy
2
1.039
Hong Kong
5
14.805
Total
89
590.102
Source: Bangladesh, Ministry of Finance as of February, 2010
Table 07: Private Investment Statistics
Year
India
6 FACTORS AFFECTING FOREIGN DIRECT
INVESTMENT
Although Bangladesh is trying to be as friendly as
possible to FDI, she is facing some problems regarding
investment from foreign sector. The FDI friendly policies
of the government and a culture of hospitality to
foreigners are very much positive to welcome FDI in
Bangladesh. But it is a matter of concern that FDI records
in the country in terms of the number of projects
implemented as compared to those officially registered is
frustrating. Only 72 FDI projects went into production in
end of 1999 and 27 were in process of implementation of
the 365 FDI projects registered during the year of 1996 1998, while the remaining 266 projects languished only
as the file-cases. The problems that have restricted FDI
potentials in the country are as follows:
Bureaucratic interference
Irregularities in processing papers
Overlapping administrative procedures
Absence of a transparent system of formalities
Continuity and prevent timely implementation of
strategic, procedural, and even routine duties
Frequent power failures
Poor infrastructure support
Labor unrest
Political unrest
Lack of professional personnel
lack of commitment on the part of local investors
Unexpected delays in selecting projects in studying
feasibility
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Frequent changes in policies on import duties for
raw materials, machinery and equipment etc.
Because Foreign Direct Investment can significantly
affect a country’s economy, the most influential factors
are Inflation, National income, Government restriction,
and Exchange rates.
Impact of Inflation: If a country’s inflation rate increases
relative to the countries with which it invests, its capital
account would be expected to decrease, other things
being equal. Consumer and corporations in that country
will most likely purchase more goods or invest more in
overseas (due to high local inflation), while the country’s
exports to other countries & flow of investment from
foreign will decline.
Impact of National Income: If a country’s income level
(national income) increases by a higher percentage than
those of other countries, its capital account is expected to
decrease, other things being equal. As the real income
level (adjusted for inflation) raises does consumption of
goods. A percentage of that increase in consumption will
most likely reflect an increased demand for foreign
investment.
Impact of Government Restrictions: A country’s
Government can prevent or discourage investment from
other countries. By imposing such restrictions, the
Government disrupts investment flows. Among the most
commonly used investment restriction are bureaucratic
tangles, projection of intellectual property right and
fiscal policy changes. In addition to these, a Government
can reduce its country’s investment by enforcing laws, or
a maximum limit that can be invested.
Impact of Exchange Rates: Each country’s currency is
valued in terms of other currencies through the use of
exchanges rates, so that currencies can be exchanged to
facilitate international transaction. The values of most
currencies can fluctuate over time because of market and
government forces. If a country’s currency begins to rise
in value against other currencies, its capital account
balance should decrease, other things being equal. As the
currency strengthens, Investment by that country will
become more expensive than the receiving countries.
Prospects of FDI: Bangladesh has been promoting FDI
for decades with the most liberal investment policy and
incentive regime in South Asia. The Foreign Private
Investment (Promotion and Protection) Act, 1980,
ensures equal treatment for local and foreign Investors.
This act also provides legal protection to foreign
investment in Bangladesh against nationalization and
expropriation. It also gives the guarantee of repatriation
of capital and dividend.
Bangladesh has achieved a consistent GDP growth of over
5% in the last decade and never experienced a negative
growth. Even Bangladesh sustained growth of over 5%
during the recent global economic crisis. In 2009
Bangladesh achieved a 5.9% GDP growth. Various
0
necessary steps like generation of huge number of SMEs,
success in micro credit and NGO activities, rapid spread
of telecommunications services, record level of foreign
remittances, acceleration of export earnings are taking the
economy at a higher level of growth. Its investment
friendly climate offers generous and attractive packages of
incentives for foreign investors like 100% ownership, tax
and duty exemptions and others. Actually, Bangladesh
has gained a higher ranking than many developing
countries in terms of incentive package. A lot of additional
fiscal incentives are offered to export oriented industries.
The government has created Export processing zones
(EPZs) to attract private investment. The government
targets foreign investors to invest in EPZ.
The vision is that the unique opportunities in energy and
power, infrastructures, manufacturing and knowledgebased sectors will attract substantial investment.
Bangladesh has become a least cost producer in the
world with various positive factors like industrious lowcost workforce, strategic location, regional connectivity
and worldwide access, strong local market and growth,
low cost of energy, proven export competitiveness,
competitive incentives, export and economic zones,
positive investment climate. Bangladesh is ranked 119th
position globally and 4th in the SAARC region in the
Ease of Doing Business Ranking by World Bank and IFC
report entitled "Doing Business in 2010".
7 FACILITIES SHOULD BE PROVIDED BY THE
GOVERNMENT OF BANGLADESH FOR
ATTRACTING FDI
The world has seen a spectacular wave of global
corporate activity particularly during the second half of
the last decade. This has been facilitated by advances
made in the information technology. This trend,
strengthened with the direction toward border less
Economies, is drawing more and more TNCs (Trans
National Corporation) into the global operation. FDI is
no longer only a strategic option of corporations; it also
plays a key role in the national economic development
strategies. Various countries are attempting to attract
foreign investors through a variety of measures, i.e.
liberalization of investment environment, fiscal reforms
and a package of incentive offers. FDI can transform a
country’s economic scenario within shortest possible
time. It is not merely access to fund, but also provide
transfer of technical know-how and management
expertise. It is also a stabilizing factor in any economy,
because once TNCs have made an asset-based direct
investment, they cannot simply pull out overnight like in
the case of portfolio investment. Normally the benefits
accruable from FDI are inclusive of Transfer of technology to individual firms and
technological spill-over to the wider economy,
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Increased productive efficiency due to competition
from multinational subsidiaries
Improvement in the quality of the factors of
production including management in other firms,
not just the host firm,
Benefits to the balance of payments through inflow
of investment funds,
Increase in exports
Increase in savings and investment and
Faster growth and employment.
5 to 7 years corporate tax holiday for selected sectors.
Private power companies enjoy corporate income tax
exemption for a period of 15 years.
Tax exemption on royalties, technical know-how and
technical assistance fees and facilities for their
repatriation.
Tax exemption on foreign loans regarding interest.
Tax exemptions on capital gains from transfer of
shares by the investing company.
Remittances of up to 50% of salaries of the foreigners
employed in Bangladesh and facilities for
repatriation of their savings and retirement benefits
at the time of their return.
No restrictions on issuance of work permits to
project related foreign nationals and employees.
Facilities for repatriation of invested capital, profits
and dividends.
Provision of transfer of shares held by foreign
shareholders to local investors.
Reinvestment of remittable dividends would be
treated as new investment.
An investor can wind up on investment either through
a decision of the AGM. Once a foreign investor
completes the related formalities to exit the country, he
or she can repatriate the sales proceeds after securing
proper authorization from the Central bank.
Thus, foreign direct investment is viewed as a major
stimulus to economic growth in developing countries. Its
ability to deal with two major obstacles, namely,
shortages of financial resources and technology and
skills, has made it the centre of attention for policymakers in low-income countries in particular.
8 CONCLUSION
Despite the presence of natural calamities like floods and
political feud between the country’s two major political
parties, the investment situation of Bangladesh remains
attractive to foreign investors. One of the major causes of
such attraction is high return to investment ratio.
According to business analysis Bangladesh remains as
one of Asia’s most attractive business place where return
to investment is in many cases 3 to 4 times higher than
many other South Asian or South East Asian countries in
specific sectors. Bangladesh with its widely available
0
English educated but cheap manpower, operational and
close to land sea ports and liberal economic policies is
believed by experts to attract more foreign investment,
specially from middle eastern nations, in the post 9/11
world scenario. The government initiated fiscal reforms,
undertook ambitious scheme to improve general literacy
in general and female literacy in particular, started
creating conducive environment for investment and
above all established rule of law in the country.
Improvement in various social development indicators
during the last ten years is the testimony of all these
efforts. Beyond these steps some other incentives are
essential for accelerating FDI. Moreover government as
well as oppositions should adopt national policy on
investment under natural discussion, so that whoever
comes to power will not reject the policy of previous
ruling party and pay high positive attentions to the
views of the prospective investors.
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