Favourable environment necessary to attract foreign investment

Economic development at the desired level is not possible in any way without investment. Even if a country is rich in natural resources, investment is needed to achieve prosperity through the use of those resources. Natural resources must be transformed and continuously modified to enhance economic utility. There are many countries in the world that are rich in natural resources, but due to lack of financial capacity to use those resources, they have to lease them to foreign companies. Foreign companies loot the natural resources of the country. Such situations have been observed in many African countries. Therefore, no dignified country wants to hand over its natural resources to the custody of another country.

Surplus capital is required for investment; but since people in countries like ours have low financial capacity, they tend to turn to foreign entrepreneurs for investment. A country that invests heavily in unproductive state sectors can never achieve economic progress at the desired level. Because the state cannot be a businessman or producer. The state sector will ensure infrastructural development and the private sector will utilize those facilities to increase production. If too much money is spent in the state sector of a country, it should be understood that the private sector is being neglected in that country.

If we focus on the development process of Bangladesh, what will we see? During the past government's 15 and a half years of autocratic rule, the development that took place in roads and other infrastructure has never happened before. Instead of trying to develop the productive private sector, development was carried out only in the infrastructural sector. The core policy of the past government’s development was ‘excessive development, excessive corruption.’ The White Paper Committee formed by the interim government mentioned in its report that during the period of the past government, from 2009 to 2023, a total of Tk 2.8 million crore equivalent to $234 billion was laundered abroad from the country. Most of the laundered money came from development projects. Money was embezzled in the name of development in the state sector while the private sector was neglected.

During the Seventh Five-Year Plan period, the target was set to increase private sector investment to 28 percent of GDP, but that was not achieved. Even in the recently concluded fiscal year, although the target was set to increase private sector investment to 27 percent of GDP, that was not achieved either. Private sector investment is still fluctuating at 22/23 percent of GDP. Entrepreneurs in Bangladesh constantly suffer from shortage of investable funds. Even if they are willing, entrepreneurs cannot supply capital at the desired level. In developed countries, the capital market is usually relied upon for long-term investment; but in our country, the capital market has not yet developed properly. Moreover, due to the absence of trials in major scandals in the capital market, general small investors have not been able to build much confidence in it.

A certain class of self-proclaimed entrepreneurs have taken loans from banks through various processes under different names and diverted those funds to other sectors. Many have laundered the loan money abroad. The banking sector is no longer able to provide loans as per the demands of entrepreneurs. According to the latest report of Bangladesh Bank, in March last, the amount of defaulted loans in the banking sector exceeded Tk 4.2 trillion. This is the visible amount of defaulted loans. If the hidden defaulted loans concealed through legal changes are revealed, many believe the amount will rise to Tk 6-7 trillion . In this situation, we have to move away from the idea of bank-dependent investment in the private sector.

As an alternative, steps must be taken to attract a higher volume of foreign investment. Bangladesh deserves to be considered a fertile ground for attracting foreign investment. Bangladesh has a population of 180 million. Earlier, 12 percent of families in Bangladesh belonged to the middle class. Currently, the rate of middle-class families has exceeded 20 percent. The purchasing power and spending capacity of the consumer class have also increased. Bangladesh enjoys duty-free GSP facilities from the European Union. It receives preferential treatment in export of goods compared to some other countries. Therefore, foreign entrepreneurs may be interested in investing in Bangladesh. Whenever the issue of attracting foreign investment arises, we tend to say that cheap labor is abundantly available in Bangladesh. Hence, foreigners can take advantage of this comparative benefit of low labor wages; but we must remember that most of the workers in Bangladesh are untrained and unskilled. It is only natural for wages of unskilled and untrained workers to be low. There is nothing to be proud of in this. Still, it can be said that there is potential for attracting foreign investment in Bangladesh; but we are not able to capitalize on that potential.

Bangladesh has been passing through a demographic dividend phase for over two decades; but we are unable to take advantage of the demographic dividend situation. When two-thirds or more of a country’s total population is between the ages of 15 and 60, that situation is called a demographic dividend. According to economists, a country experiences a demographic dividend situation only once. Some even say that such a situation arises once in a thousand years. Those who fail to take advantage of it cannot reach the peak of development. A prime example of how economic development can be accelerated by properly utilizing the demographic dividend is China. China was once referred to as a developing country of the third world. When the demographic dividend situation arose in China, they planned and utilized that opportunity. As a result, they have now emerged as one of the major economic powers in the world. A few years ago, China surpassed Japan’s 44-year dominance in the global economy and rose to second place. If this continues, China will surpass the United States in economic power by 2050. Although Bangladesh is passing through a demographic dividend period, there is no initiative observed among policymakers to take advantage of this opportunity.

The banking sector of the country is no longer in a position to provide capital as per the needs of entrepreneurs. Therefore, to accelerate economic development through investment, efforts to attract foreign investment must be intensified. The interim government is trying to attract foreign investment; but it does not seem that much benefit will be achieved from it. Because foreign investors will not come to invest just on someone’s words. For that, an effective and practical investment-friendly environment is needed. In most countries of the world, foreign investment is increasing. But the opposite is happening here. Foreign investment can generally be attracted in two ways.

First, direct foreign investment can come. That is, a foreign entrepreneur or investor can come directly to Bangladesh and invest. Secondly, a foreign investor may come to Bangladesh and establish a joint venture project with a local investor. The problem in establishing a project through a joint venture is finding a suitable and trustworthy local investor. If the local investor is not trustworthy, the foreign investor may be deceived. The UN trade and development agency UNCTAD’s World Investment Report 2025 presents the picture of foreign investment attraction in various countries. The foreign investment picture of Bangladesh mentioned in it is not very promising.

The report stated that foreign investment attracted by Bangladesh in 2024 decreased by 13 percent compared to the previous year. In 2024, Bangladesh was able to attract a total of $1.27 billion in foreign investment. In Bangladeshi currency, that amounts to about Tk 150 billion. In the previous year (2023), Bangladesh attracted a total of $1.46 billion in foreign investment. The amount of foreign investment received last year is half of one month’s remittance income and one-fourth of export income. At the end of last year, Bangladesh’s foreign investment stock stood at $18.29 billion, which is only 4 percent of total GDP. Yet, most countries in South Asia were able to attract more foreign investment than Bangladesh. The average foreign investment attraction rate of South Asian countries is 13 percent of GDP. In India, it is 14 percent. Bhutan’s foreign investment rate was 17 percent of its GDP. Last year, foreign investment in South Asia totaled $34.57 billion. Overall, global investment volume has dropped to $1.5 trillion.

During the past government’s tenure, many initiatives were reportedly taken to attract foreign investment, but in reality, investment did not increase. Foreign investment will not come just from words. To attract foreign investment, an effective investment-friendly environment must be created. Foreign investors are like migratory birds. Just as migratory birds do not take shelter in a waterbody unless there is sufficient food and security of life,

Foreign investors also do not decide to invest in any country unless they see security for their capital and lives and the possibility of adequate profit. Local investors, due to various legal limitations, cannot go abroad to invest; but foreign investors do not have such restrictions. They can take investment proposals from one country to another if they wish. During the past government’s tenure, every state-owned service institution was pushed to the brink of destruction through widespread politicization. The aftermath of that is still being borne by those institutions. The World Bank, in its latest Ease of Doing Business index, ranked Bangladesh 176th among 190 countries. The Ease of Doing Business index is no longer being published. Instead, a new index called Business Ready has been published. It considers the investment and business environment of 50 countries. Bangladesh has been placed in the fourth category in that list.

The investment statistics published annually by the Investment Board are misleading. If a project is registered with the Investment Board, it is shown as foreign investment. But UNCTAD publishes investment statistics based on cash transfers. As a result, there is always a discrepancy between the investment statistics of the Investment Board and UNCTAD.

During the current interim government’s tenure, corruption and harassment of service recipients in state-owned offices have decreased to some extent, but this is not the real picture. It is feared that widespread corruption will resume again once a party government comes to power in the future. Regardless of whether we are talking about local or foreign investment, unless a favorable investment environment is ensured, investment at the desired level will not be attracted. We must keep this in mind.

MA Khaleque: Retired General Manager, Bangladesh Development Bank PLC, and economic affairs writer