Foreign investors like winter migratory birds

A few years back, I said in an interview that there is no political violence or instability in the country. However, a certain kind of uncertainty persists. It is still unclear whether any progress has been made in the current situation. Political uncertainty continues to exist. Alongside this, a form of instability has emerged with a focus on national elections. No one can confidently predict the direction in which the political situation is heading in the coming days.

The government is striving to hold national parliamentary elections within the framework of the existing constitution. Most of the major political parties in the country, which are in opposition to the current government, are requesting that no elections be held under the current government's control. They advocate for the conduct of elections under a caretaker government or any non-partisan interim government, devoid of political bias.
There is a fear of creating a kind of political instability in the country with the upcoming 12th national parliament elections. Many are skeptical about whether the elections will proceed smoothly or if the country is edging towards a perilous political confrontation. No party seems willing to compromise on their claims, and one group is engaged in protests and demonstrations, while another threatens to counteract them. In this situation, the country's politics are becoming increasingly complicated.

Even if the nation does not descend into outright political violence, there will still be no room for complacency. This environment is creating conflicts and confrontations, sometimes even within the same party. It can be concluded that the current discordant and tense political atmosphere in the country cannot be described as normal or conducive to stability.
Over the past decade, the individual investment rate as a proportion of GDP has not been increasing. The individual investment rate in the GDP has been capped at around 22 to 23 percent. If the rate of individual investment does not increase, the country cannot achieve economic growth. Without economic growth, new opportunities in the job market do not emerge, and without the creation of new job opportunities, the government's poverty alleviation programs are hindered. Ultimately, the country's progress will be impeded. In any country, increasing individual investment is of paramount importance. Every country endeavors to find ways to boost individual investment rates in order to stimulate economic growth and create new employment opportunities.
The investment in the public sector is mainly for the development of the infrastructure sector. The private sector increases production by making use of infrastructure facilities built by government initiatives. This is the custom. But in our country various infrastructures are being built by government initiatives but the investment in the private sector is not increasing in proportion to the desired level. The growth of bank loans to the individual sector is declining. It means that investors are not showing much interest in new investments. In August last year, the growth of bank loans to the individual sector was 14.7 percent. At present, the growth of bank loans to the individual sector is gradually decreasing. In January this year, the growth of personal loans from banks was at 12.62 percent. However, it steadily decreased, reaching 9.82 percent in July. This decline in the growth of personal loans from banks is the lowest it has been in the past 21 months.
According to a report published in a newspaper, it has been observed that individual contributions to GDP are exhibiting a repetitive pattern. In certain cases, the rate of individual investment as a proportion of GDP is decreasing. For the fiscal year 2018-2019, the rate of individual investment as a proportion of GDP was 25.25 percent. In the subsequent year, this rate declined to 24.02 percent. In the fiscal year 2020-2021, the rate of individual investment as a proportion of GDP was 23.70 percent. For the fiscal year 2021-2022, this rate decreased to 24.52 percent. As for the current fiscal year, 2022-2023, the rate of individual investment as a proportion of GDP has been estimated at 23.64 percent. Concurrently, there is a decline in the contribution of the industrial sector to the country's GDP. In the fiscal year 2019-2020, the industrial sector's contribution to the country's GDP was 12.33 percent, which, according to estimates for the fiscal year 2023-2024, has declined to 9.23 percent.

The inflation rate has almost reached double digits. While most countries in the world are capable of managing and mitigating inflation within tolerable limits in their domestic markets, Bangladesh is yet to show any significant signs of reducing inflation. With high levels of inflation, the general population experiences an increase in the cost of living. This situation can lead to a decrease in industrial production.
In Bangladesh, it is not realistically expected that the rate of individual investment in personal accounts will increase by 4 percent within the span of a year. Previously, during the seventh five-year plan, the target was set to improve the rate of individual investment in personal accounts to 28 percent of GDP. However, this target has not been achieved. As a result, it is not anticipated that there will be a 27 percent improvement in individual investment in personal accounts within the coming year. The favorable environment required for investment in the private sector does not exist in our country. Besides, it is not possible to say for sure which direction the political situation will go this year. Investors are unlikely to take new investment decisions in such an uncertain environment. They may adopt a more 'go slow' policy. The import of raw materials and capital machinery for the industrial sector is not showing a significant increase; instead, in certain cases, it is decreasing notably. The target set for the current fiscal year for the growth of individual investments is unlikely to be achieved with certainty.
It is essential to investigate where the funds acquired under the guise of bank loans are being utilized. On one hand, there has been an increase in the growth of personal loans in individual accounts, exceeding the set targets. On the other hand, there has been a decrease in the import of essential industrial raw materials and capital machinery. Therefore, it is crucial to trace where the funds obtained in the name of bank loans are being directed, as some individuals may be channeling these funds abroad, raising concerns about the misuse of such resources. Investigating the matter thoroughly is necessary to determine the actual situation. However, we do not have clear evidence on this issue close to us. Therefore, it cannot be stated with certainty. The deposits in bank accounts are not increasing significantly.

The entire matter should be closely monitored by the central bank. Some individuals allege that the growth achieved through bank loans in personal accounts is being channeled through various means into the domestic market. This is seen as one of the factors contributing to inflation. If the money received in the name of bank loans is not used in production and enters the market, it can contribute to inflation. The overall situation of our country's production sector is not entirely satisfactory. In this situation, a larger amount of currency has to be used for fewer goods.
If domestic production were to grow satisfactorily, inflation would not be such an upward concern. Foreign investments come in various forms, including fresh investments, intra-company loans, and reinvestments. However, regardless of how you analyze the situation, the level of foreign investment coming into Bangladesh is still relatively low compared to many other countries in South Asia.
It cannot be denied that Bangladesh lacks an efficient and conducive environment for investment. Even though we are not actively attracting real investments, without a conducive investment environment, investments will not materialize. According to the latest Ease of Doing Business Index by the World Bank, Bangladesh's ranking was not very satisfactory. Among 190 countries, Bangladesh's position was 177th. This means that 176 other countries had a more favorable environment for doing business compared to Bangladesh. Across South Asia, the investment climate in every country is better than in Bangladesh. When it comes to investment, another important aspect to consider is the state of governance, particularly internal governance within organizations. In our country, there is a significant lack of effective internal governance. No organization is operating efficiently and according to the right procedures. To receive services from service-providing organizations, one often needs to resort to unethical practices. In terms of internal governance, our organizations face serious weaknesses, leading to frustration for both investors and service recipients. This does not contribute to the creation of an investment-friendly environment.
The weak legal framework, lack of ethical controls, and governance issues are prevalent across all sectors in our country. In such circumstances, foreign investments are not expected to thrive. Local investors often invest within the confines of various legal obligations. However, foreign investors do not face the same restrictions in any country. They can invest in any country they choose. Foreign investors are like migratory birds in the winter. Just as migratory birds seek shelter in bodies of water with enough food and safety, foreign investors will only show interest in investment when they see the possibility of financial security and sufficient returns in a country. The most promising aspect of investment for foreign entrepreneurs in Bangladesh is its vast market.
Bangladesh is home to approximately 170 million people.

There are many places in Europe and other regions where even with several countries combined, they don't have as many people as Bangladesh does. The people of Bangladesh have shown an increasing capacity for consumption and spending. To improve the investment environment in the country, political consensus must be established. We need to prioritize national interests over political self-interest. Good governance and accountability must be ensured in state-owned institutions. Corruption and malpractice should be eradicated from root to branch. Those who create obstacles in various investment activities should be impartially dealt with. Despite various promises for controlling corruption in the country, it doesn't transform into reality. As a result, a sense of disillusionment prevails among the people.

Author: Economist, Professor and former Finance Advisor to Caretaker Government
Co-writer: M A Khalq