Every year billions of dollars are crossing nation's boundaries but Bangladesh is receiving only a tiny fraction of that. It is receiving much less foreign direct investment (FDI) compared to the size of its economy; many smaller economies are receiving more in this respect. Bangladesh wants FDI but the policy to attract it seems to be faltering, if not altogether failing.
Mere lecturing on the need for FDI does not work. Had it been so, Bangladesh would have received a lot of FDI by this time. In fact, lecturing does not need to be there, if the atmosphere and policies are right, FDI will flow automatically. No matter what facilities and incentives we offer on paper, FDI will not flow if conducive atmosphere is not there. Any investment, whether domestic or foreign, flows into an economy for gainful return.
Most of the economies are offering facilities same as those of Bangladesh. So, there is no special reason why more of FDI will flow only to Bangladesh.
Small and isolated economies do not get much FDI, neither those plagued by wars and conflicts. Only the stable economies with the right policy-setting like competitive tax regime and fair and quick arrangement for dispute settlement receive more of the FDIs. But now another thing has emerged as the determining factor in the case of receiving investment from abroad. That determining factor is the size of the market. FDI has a tendency to flow to big markets. No small economy with poor consumer base can attract FDI. These types of economies depend on investments from within for their economic growth. These economies only did good when they could partner with bigger economies.
Bigger economies accept small economies as partners only when they see economic and strategic benefit in them. Otherwise, poor economies which are grouped as LDCs (least development countries) by the United Nations would remain poor for generations. Economies like Taiwan and Singapore were once poor, but when they partnered with the Western economies on strategic grounds, they prospered. They prospered through export-led strategies. Though global scenario, to some extent, has changed since the days of the cold war when the world was divided between the so-called free economies and regimented economies, global trade and investments are still taking place more among the strategic partners. Bangladesh's domestic economic size is not that small. A sizeable consumer base is there, but for achieving more, its economy must be partnered with the relatively bigger ones. For Bangladesh, export is the all-important factor for achieving continuous high economic growth. Once our exports surge, the flow of FDI will also surge.
Bangladesh has all the qualifying factors for becoming a strategic partner of other economies. The economies like China and India can offer Bangladesh bigger markets. Once Bangladesh is assured of market access to the Chinese and Indian markets, FDI will flow in a much larger volume just to take the advantage of accessing markets with the exports.
For high-tech goods, Bangladesh's internal market is not enough. The country needs foreign markets for such goods. Also, Bangladesh should not count only on one product like the ready-made garments (RMG) when the question of export comes. Diversification of export basket will not be easy unless tech-based foreign investment comes in. The strategic location of Bangladesh is our asset, and Bangladesh must exploit this position to its advantage when it bargains with the potential partners in trade and investment. Once Bangladesh partners with powers, mighty both economically and militarily, others will count us, and then no lecturing will be needed for FDI.
For a while, Bangladesh needs to offer to foreign investors incentives bigger than those in other counties. Political decision in taking other countries as partners is important. The other factors, which matter in case of FDI, are the tax regime, the way of dispute settlement, availability of land, supportive infrastructures, and above all, supportive bureaucracy. Bangladesh has already achieved what is possible on its part without striking any FTA (Free Trade Agreement) deal or becoming a member of an economic union. Its future development will be difficult unless it becomes a partner of other economies in trade and investment.
Abu Ahmed is Professor of Economics, University of Dhaka.
