Social Icons

Thursday, March 18, 2010

FDI drying up due to political crisis

Sadiq Zafrullah

Developing countries are mostly dependent on export, remittance inflow and foreign direct investment (FDI) for economic growth. Foreign investment plays a vital role in the growth of gross domestic product (GDP) as it is very important to increase consumption demand and standard of life of the people. Foreign investments increase the flow of money, thus accelerates economic growth and development. But regrettably FDI is on the decline in Bangladesh.
It is easy to understand observing the condition of the commercial banks in recent times. The heaps of idle money in the banks mean less money circulation in the market and less investment. In Bangladesh, each indicator of the financial development is going down or being negative nowadays. These negative trends are exerting a heavy toll on the economy.
Why this sudden downturn of the economy of Bangladesh? To answer this question, most of the economists attribute to the political instability. The fickleness in the international relations also has link with the ups and downs of foreign investment. It is easily predictable that the recent political unrest is liable for such critical and fragile state of the economy.
Now wooing back the foreign investment is the biggest challenge for the government. But the challenge is daunting given the fact that most of the developed countries are experiencing economic slowdown. In addition, Middle Eastern countries are also going through political crisis. Bangladesh needs immediate action to increase the FDI. And to encourage the investors, interest rate of bank loan should be brought down to single digit.
The economy was in a stable condition and progress was satisfactory throughout the global economic downturn of the last few years. Again Bangladesh has been recognised internationally as a rising economic power; but it lags behind in many sectors. But the potential economy is being repeatedly affected by political violence and anarchy. After a peaceful year 2014, the 2015 has started with the eruption of violent politics as the two main parties continue to remain on collision course.
After increasing for three consecutive years, FDI has dwindled last year. Temporary estimates of Bangladesh Bank (BB) show FDI amounted to $153 crore in 2014 whereas it was $160 crore in 2013. FDI decreased by 4.25 percent. According to the BB statistics, half of the total foreign investment came as a reinvestment to the multinational companies last year. Of them, 25 percent investment came through the inter-company loans. And the only 25 percent came as new investments.
Local and foreign entrepreneurs have lost their interest to invest in the country due to prolonged political uncertainty. According to the Board of Investment (BOI) data, only one foreign direct investor got registered for investment in January this year. It amounts to Tk 50 crore compared to an average monthly registration of Tk 2,500 crore last year. Even Local investors fear that the political situation could aggravate the situation further. Such fear might have already sent a bad signal to foreign investors who were interested to invest in Bangladesh.
BOI data shows foreign investments registered in 2014 were $3,000m. The real FDI was $1,640m (Tk13,000 crore) in 2014. This year the re-investment, however, was $700m (Tk5500 crore). BOI saw a moderate growth in FDI situation in 2014 although FDI in 2014 was not diversified. The setback is reflected in the fact that a total of 30 firms - foreign, local and joint venture - registered with BOI in January this year. But of them, foreign firm was only one.
In the month of December last year, a total of Tk3,000 crore investment was registered. In January this year the figure came down to Tk1,000 crore. In 2013, total volume of investment registered was $2,621m but the real investment was $1,599m.
Industries Minister Amir Hossain Amu MP said that inflows of FDI into Bangladesh rose to a record high of US $ 1.6 billion in 2014. This figure is expected to cross 2 billion US dollars in 2015. Amir Hossain Amu said Bangladesh is a vibrant economy that has, despite the recent global economic meltdown, maintained a consistent growth rate 6 percent plus. “We are keen on increasing FDI and we welcome more foreign direct investment in our booming industrial sectors like shipbuilding and ship recycling, infrastructure, communication, ICT, agriculture, textile, power, health and education and other prospective sectors.” He also said that the government has taken up an initiative to formulate National Industrial Policy-2015 recasting the previous one, focusing on growth competitiveness, reform and ease of doing business.
On the other hand, the cost of imports increased in the first five months (July to November) of the current fiscal year compared to the corresponding period of last year. Imports of readymade garments (RMG) sector capital goods increased to several thousand percent. However, the growth in exports of RMG goods was very low in the last five months. So, question arises if the businessmen are related with money laundering.
In this context, research organization Center for Policy Dialogue (CPD) stated, there was no investment at all rather huge amounts of money have been smuggled out of the country last year. And it amounts more than foreign aid in taka. CPD worries if the smuggled money is coming back to the country as foreign investment and aid.
Assembling the reasons behind the sterile foreign investment, we observe, though the cost of business is comparatively less in Bangladesh, getting necessary plot for building industry/factory is next to impossible. Though cheap workforce is available, getting new connections for gas, electricity and water are quite impossible. Again, other cities have available plot for industries but requires environmental clearance and many other certificates. It wastes a lot of time. Therefore, Bangladesh is not getting expected foreign investment.
Most of the FDI in South Asia flows toward India. In last three years, about 90 percent FDI of this region entered into India. And Bangladesh got about 3 to 3.5 percent only. On the other hand, 85 percent of the FDI stock (reserve) of South Asia is in the possession of India.
Furthermore, foreign investment is not increasing due to lack of investment friendly policy, bureaucratic perplexity, political instability and energy crisis. Again, the investors are being disappointed by the absence of any visible government initiative. There was no mentionable foreign investment in any sector without telecommunication last year. The reason is that the government has not taken any positive steps to remove the aforesaid barriers of investment. Actually, the government has failed to provide the needed benefit and policies to attract foreign investment, resulting in an investment crisis.
Frequent change in the policies is another obstruction to expected foreign investment. If the government wants to attract foreign investors it has to establish an investment friendly policy and ensure a stable political atmosphere, improvement of law and order and supply of utility services.
Although many internationally reputed companies have shown interest to invest, they are turning away for not getting necessary support. Samsung (a mobile phone company) had shown interest to build a factory here in Bangladesh nearly 4 years ago. They asked for a 2,000 acre of land in the export processing zone but didn’t get it. Huge foreign investments are lost for not taking the right decision at the right time.
Bangladesh is left with no other alternatives but to attract more FDI and boost and diversify exports. It is the government who should come forward to take all the initiatives to gain local and foreign investors’ confidence. National Board of Revenue (NBR) and Board of Investment (BOI) are two important agencies which should work together to deal with the ongoing crisis. But above all, politicians should let the situation calm down.
The writer is a student of Department of Economics, University of Dhaka.

The Daily Sun, 23 February 2015