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Foreign Investment in Bangladesh Estimated deficit of investment if we want to achieve 8% growth rate And How much of it can be fulfilled

with F.Investment? • • • The target set in the election manifesto of AL was , by 2013 they want to achieve a growth rate of 8 % and by 2017 want to increase it further to a level of 10% and sustain it up to 2021! Our current investment/GDP ratio is 23 percent. With this we are enjoying a growth rate around 5.5%. So in order to have an 8% growth we need to increase our inv/GDP ratio to a level of 33%. At a low level of GDP, sometimes such a high level of savings is neither feasible nor desirable, because huge current consumption has to be sacrificed for initial years in order to achieve future growth and prosperity. Such trade off is not voluntarily possible in a democratic country under a normal regime. Two ways are possible—Colonial Plunder or Domestic Plunder known as internal colonization. The case of capitalism and socialism. Another new alternative is Foreign Aid” and “Foreign Investment” Our 2008-09 estimated growth rate was 5.9%. budget Total Govt. expenditure was 15.3 % of GDP (i.e. 941.40 billion Tk). Public Dev. Exp was 3.7% of GDP (230 billion tk). Of which 1.5 percent is foreign aid, another 20% investment is now coming from the domestic private sector. So another 10% ie 690 billion tk must be financed externally. 10 b. dollar inflow of external investment will be needed. Either aid should increase or foreign investment must come. The question is who is going to do that and under what terms and conditions?

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Pros and Cons of Foreign Investment • Rezwanul Islam (P-Alo, 9-2-2010) is against portfolio foreign investment in the capital market for its volatility and bad experiences from the recent global economic crisis and Asian crisis. More recently Debopriya Bhattacharya has raised the question of whether some money from the stock market had already fled away to the foreign country. [So called sri Lankan company, some says actually behind the scene there are local people!] DFI has better prospects. On the one hand it brings new capital, technology, knowledge and management ideas and contributes to both growth and employment.. However these positive effects will largely depend upon certain parameters and under certain conditions the net effect finally become even negative!

“ Clearly in Bangladesh context.Inv.Inv.Inv. 2. Some important negative findings of that study were: 1. and much of the foreign investment and lending in the telecom sector finance imports of telecommunication equipment. from 1977 to 1990 of the total F.g.83% of the gross F. From 1977 to 1990. 5. Largest F. . Net financial inflow or import of capital goods was only 12. (1997) Foreign Investment in Bangladesh. Profit Transfer or Reinvestment. 3. 5. Technology Transfer scope---green field investment or brown field investment. In 2004 ILO carried out a survey of F.76% was in industry. (e. Ownership (Example of Tata/Kafco/Cairn/Canco Phillip) 2. in 37 developing countries and found that the net effect was negative. Substitute or supplement to the domestic market.e. Import intensity. only 23.11% was in trade.Inv case is KAFCO and it has become a longterm burden! 3.8% of the total F. The bulk of FDI in the power sector so far is made of imports (e.Inv. was financed from local profit. Alli Rashid. • Desirable Areas Of Foreign Investment • One must first look into the source of the f. went to industry. Dhaka (Read This and try to find out latest stuies on Foreign Investment in Bangladesh) . Inv. 4. was in trade and net f. So is the case with the foreign inv. is mainly going to those developing countries who have not only cheap but also skilled labour and those who have a developed infrastructure. EPZ was opened in 1977.• Its net effect will depend upon following parameters: 1. is it a green field investment or a brown field investment (i.inv. Most of the f. Inv was only 13. Capital Intensity---Employment effect will be less. Foreign inv. so are capital costs (about 80% of PSCs) of IOCs engaged in the gas sector.” 4. About 70 percent F. WB said. the nature of private capital inflows has implied little augmentation of foreign exchange reserves.g. that industrial investment also enjoyed huge subsidy or incentive since they were located mainly in the EPZ. how much profit is repatriated and how capital intensive and import intensive is the foreign inv. 69. extension of old plants!). In manufacturing within and outside EPZ. capital. less than 25 % F. steel mills/rerolling mills) 6. Studies on Foreign Investment: Findings • An old study by Sadrel Reza and Md.Inv. pre-fabricated barge mounted power plants).

4. ELECTRCITY and TELEPHONE. should do more to attract f. Cheap Raw materials. How you can attract foreign investment under better terms and conditions? • Number one precondition is better investment climate. Thus it is clear that topmost priority is assigned in the F. WDR 2005 defines investment climate as “A set of location specific factors shaping the opportunities and incentives for firms to invest productively. Govt.• • The most important. Infrastructure or manufacturing investment is better than investment in natural extractive industries. • Yes. For power sector. should do more to attract f. High profit and security of investment. Singapore. certain African and LA countries. Taiwan. etc. Aug. On 15 th. For maximum return gas should be exported to India. Govt.” The definition is broad enough and is a function of various factors: 1. US ambassador Marry Ann Peters. In the telecommunication sector. Inv.----Middle East. Should prepare an action plan for the garments sector. in PORT. 2001 that in the next 100 days program the Govt. 7. 2.D? • Poor infrastructural facilities are the number one constraint and that covers: electricity— electricity=73. 5. 3. Inv. Good Governance. minerals. Large Market: China.2 [to this also add transport and port ]and customs hazards. 6. Cheap labour: Bangladesh. energy resources. India. create jobs and expand. Better Infrastructure. Geopolitics: e. . High Domestic investment What important constraints are perceived to be the major constraints against business operation in Bangladesh by the businessmen in B. Inv. should undertake the following 5 point programme: Implementing agreement between the govt.g.Inv. this will help to meet foreign exchange deficit(?). 8. GAS. In Bangladesh USA emphasizes a particular type of F. told in a meeting of Am-ch. and Stevedoring Services of America (SSA) and sign the 450 m $ project as quickly as possible. Is whether it competes with and substitutes the local venture or whether it spurs local investment through forward and backward linkages. South Korea.

6%). Policy uncertainty=45. then Pakistan (3. chemical and pharmaceuticals.5%).D 97. third is Kyrgyzstan (82. then Kenya (5. Unnayan Shamonnoy and Pathak Shomabesh. 2007.2%). labour legislation=11% . Foreign donation is likely to decline or become costly in future.• Lack of good governance and corruption.8%).4 One should also note that the SME and informal enterprises have been disproportionately affected by these constraints. electronics. Past experience shows that the main investment source for physical and social infrastructure is foreign donation and public investment. Tax rate=35.5. ed by abdur Razzaque and Selim Raihan. Asia. etc.6%)) and then Bangladesh (2. is the second largest constraint. garments. Labor skills==20% and Other Constrains mentioned by the investors: Licensing=22.3% reported that they had to pay on average 2.9 Tax admin= 50.] • Selm Raihan noted that cross country regression results show that net FDI flow is significantly related with GNI. etc. the top scorer is Cambodia (6. China.5 percent and then Philippine and Indonesia (4. corruption=57. Total Population. [S-WB. leather and leather products. Gross Capital/GDP ratio and geographic dummies (S.8% of sales value as bribe.). 2005. • [This is based on survey of 1001 firms in six sectors of B. .6%).7 In B. food and food processing. Dhaka] What is the Government strategy to finance investment? • • • Main Investment should occur in the physical and social Infrastructure..2%). Sub Sahara. WDR. textiles.: Finance=45. In terms of % paying bribe . then Bulgaria (4. last is China (2.8.7. is the highest in the whole world! Second is Albanya(84. But all soft constraints related to governance do not have any significant impact on FDI! [ S= Trade and Industrial Policy Environment in Bangladesh with special reference to some non traditional export sector.4%) .] • • • Finance is the third largest constraint.D. Last constraint is the poor quality of human resources. But in terms of % of sales value.

so it is relatively harder to attract private investment in this field. were built by the private sector. But for attracting foreign investment we must first create favourable conditions for the domestic investors. Haripur. For investment in the field of infrastructure.• • • • • • • • So huge public investment will be needed to fill the gap or private investment both local and foreign should be encouraged under socially acceptable terms and conditions. Special Economic zones will be created with ensured supply of electricity. called viability gap funding and 2100 cr. PPP showed past success in 1998-99. Two successful large scale electricity generation plants in Meghna ghat. Taka for technical consultancy and preparing the projects. The question is will PPP be really more competitive and reduce COST AND CORRUPTION or will it be a bribe to the private sector instead of Bureaucracy? In transport sector the return is slow and uncertain. Besides local private investment. Taka to give subsidy to PPP projects. we need to encourage foreign inv. 300 cr. One innovative proposal by the current Government is PPP. Three support funds have been kept for projects under ppp: 100 cr. institution that will ensure transparency. Tk.. . accountability of both public and private sector and harness the energy and initiative of the market and private sector. PPP is actually a follow up of previous IPP in 1996. The challenge for PPP is to create a Govt. transport and communication in backward areas of the country.