"Currently our laws are outdated, rules are unnecessary, processes are redundant, procedures are cumbersome, infrastructure is deficient, knowledge and skill level is behind many", Kazi Aminul Islam, Executive Chairman of Bangladesh Investment Development Authority (BIDA) reportedly said at a roundtable organised by a private think tank, the Policy Research Institute (PRI) in Dhaka last Saturday.
The observation made by the chief of the organization that handles many important issues relating to investment, both local and foreign, does amply highlight the ground realities about the current state of investment in the country.
The BIDA chairman felt that with the current state of 'infrastructure and regulations' the economic growth cannot go beyond 7.5 per cent.
The fact remains that economic growth rate at or above 7.0 per cent is considered a decent one and many developed and developing countries do aspire to achieve this level of growth rate. In sum, such a rate of economic growth is an enviable one. Unless the factors that have a bearing on economic growth are in right shape it is hard for an economy to hit such a growth target.
Among all the factors that make notable contributions to the economic growth and employment generation, foreign investment is the leading one. It is also a conduit for technology transfer and managerial capacity building.
With inflow of FDI suffering due to problems in areas mentioned by the BIDA key person, one may feel tempted to raise a few questions about achieving even 7.5 per cent GDP growth by the country. That is a statistical issue.
The inflow of foreign direct investment, which is most desired because of its ability to buoy up the economy and generate employment, has always been far less than the expected volume.
Between 1980 and 1995 it averaged between $308 million and $356 million. But since 1990s because of a series of policy changes that included offering of attractive incentive packages and investment sovereignty, the FDI started rising to some extent. Between 2002-16 the FDI inflow averaged $1.06 billion. In the fiscal year (FY) 2015-16, the inflow, according to the Bangladesh Bank (BB) statistics, was $2.06 billion and in the FY 2016-17, it increased to more than $2.5 billion.
The notable aspect of FDI flow into Bangladesh is that its large part comes in the form of reinvestment and intra-company loans. The inflow in the form of equity fund seldom records any notable rise.
The total FDI stock, BB data say, at the end of June 2017 was $14.44 billion following a hike in the inflow by $ 1.02 billion during the year over that of June, 2016.
The energy sector remains the major recipient (26 per cent) of the FDI stock as of June 2017, followed by textiles and clothing (18 per cent), banking (13 per cent), telecom (8.67 per cent) and power (5.6 per cent).
What, however, remains a disappointing factor in the FDI inflow into Bangladesh is the low share of equity fund which was only $500 million out of net $2.06 billion FDI followed into the country in FY 16 and $1.0 billion out of total $2.5 billion in FY17.
Of the total annual inflow of FDI, the bulk comes in the form of reinvestment of profits earned by the foreign companies. Notwithstanding the fact that reinvestment of profits does stop outflow of funds, the same is supposed to beef up capacity of the foreign companies operating in the country and generate more employment opportunities. It is the job of the BIDA to see that reinvestment of profits is made in productive activities that would benefit the economy.
For a number of decades developed and other leading developing countries have been relocating their labour-intensive industries in countries, generally in the least developed ones, where the factors of production are available at competitive rate.
Bangladesh is competitive, at least, in one factor of production-the cost of labour. It does enjoy edge over other competing countries in this particular area. But other factors, as mentioned by the BIDA executive chairman, have been working as a disincentive to the prospective investors.
For obvious reason, prior to coming to any country, foreign investors would try to know from the local businesses about the latter's experience. And what they would gather from Bangladesh businesses should be sufficient to put off their investment plans, if there is any.
Moreover, there is also a problem with the Bangladesh labour force. Bangladeshi workers are cheap compared with their counterparts in other competing countries, but most of them are unskilled and, productivity-wise, inefficient.
For many practical reasons, FDIs thus have been flowing into countries such as Vietnam, Cambodia, India and, lately, Myanmar.
Most people say large-scale reform in many areas is necessary to attract foreign investment in large volume. 'Reform' has been a catchword for experts and policymakers for decades in this land. But, since reforms are painful those are avoided by all concerned rather deliberately. Unless there is a change in attitude among the persons who matter, the situation with FDI is unlikely to improve.
