Premier University

Term Paper on:

A Study of FDI and Bangladesh Banking.
Faculty of Business Studies

Department of Finance

(B.B.A Program)

Submitted to: Submitted by:

Rajib Datta Swapna Chandra Das

B.B.A Program (32nd Batch)

Assistant Professor
ID: 1503210108533
Premier University, Chittagong.
Department of Finance

Premier University, Chittagong.

Date of Submission- 21 December, 2020

 Letter of Transmittal
Date: 12 December 2020
To,
Rajib Datta
Associate Professor
Department of Finance
Premier University, Chittagong.
Subject: Submission of Term Paper.

Dear Sir,
It is great pleasure and privilege to present the Term Paper titled ‘’A Study of
FDI and Bangladesh Banking’’. This has been assigned to me as a partial
requirement for the degree to BBA Throughout the study. I tried with the best
of my capacity to accommodate as much information and relevant issues as
possible and tried to follow the instructions as you have suggested. I tried my
best to make to this term paper as much informative as possible. I sincerely
believe that it will satisfy your requirements. However, I sincerely believe that
this report will serve the purpose of my term paper of BBA.

My effort will be reworded only if it adds value of the research literature.

Sincerely Yours

Swapna Chandra Das

B.B.A Program (32nd Batch)
ID: 1503210108533
Department of Finance
Premier University, Chittagong.
 Acknowledgement

The Term Paper on ‘’A Study of FDI and Bangladesh Banking’’ has been
prepared to fulfill the requirements of BBA degree. I am very much fortunate
that I have received sincere guidance, supervision and co-operation from
various respected people while preparing this Term Paper.

At the very beginning I would like to express my gratitude to God for special
blessing in completing the Term Paper. Then, I would like to thank my
academic supervisor of the Internship Program Rajib Datta Assistant Professor
Premier University, Chittagong for giving me the opportunity to prepare this
Term Paper. He also provided me some important advices and guidance for
preparing this report. Without his assistance, this Term Paper would not be a
comprehensive one.

………………………….
Swapna Chandra Das
B.B.A Program (32nd Batch)
ID: 1503210108533
Department of Finance
Premier University, Chittagong.
 Preface

First of all, I am grateful to the Most Merciful Creator, whose

undeserved kindness. I have been able to prepare this Term Paper on
the ‘’ Impact of foreign direct investment on employment and Gross
Domestic product in Bangladesh’’ I would like to express my sincere
gratitude to Rajib Datta, as well as the other teachers of the department,
for their full support and guidance at the right time.
 Table of Contents
‘’A Study of FDI and Bangladesh Banking’’

Chapters Particulars Page No

Introductory Aspects
1.1 Introduction
Chapter I 1.2 Objectives of the study 01-03
1.3 Scope of the study
1.4 Methodology of the study
1.5 Limitation of the study
Chapter II Theoretical Aspects 03-08
2.1 Literature Review
Chapter Practical Aspects
III 3.1 Sample enterprise at a glance
3.2 Findings 09-13
3.3 SWOT Analysis
Conclusionary Aspects
4.1 Summarized View
4.2 Recommendation
Chapter 4.3 Conclusion 14-17
IV 4.4 References
4.5 Appendix
 Chapter I
Introductory Aspects

1.1 Introduction
According to the UNCTAD’s World Investment Report 2020, FDI inflows to
Bangladesh fell by 56% to USD 1,6 billion in 2019 (compared to USD 3,6
billion in 2018). The decrease mirrors an adjustment from a record level in
2018. The export-oriented clothing industry is still an important recipient of
FDI, with major investors from the Republic of Korea, Hong Kong and China.
Total FDI stock was estimated USD 16,4 billion in 2019 by the UNCTAD. The
main investors in the country are China, South Korea, India, Egypt, the United
Kingdom, the United Arab Emirates and Malaysia. According to latest available
data from Bangladesh Bank, FDI flows rose by 5.36% on the year to USD 1.65
billion in July-October 2019.
The country ranked 168th out 190 economies in the World Bank's 2020 Doing
Business ranking, rising eight spots compared to last year. Bangladesh suffers
from a negative image: the country is seen as being extremely poor, under-
developed, subject to devastating natural disasters and socio-political instability.
However, the country has the advantage of being in a strategic geographical
position between South and Southeast Asia. In addition, its domestic
consumption potential and the wealth of its natural resources make the country a
good candidate for investment. The government promotes private sector-led
growth, foreign currency is abundant due to remittances, and the central bank
respects transferability of foreign currency. A number of more developed Asian
countries have outsourced their factory production, mainly textile, to the
country.

1.2 Objectives of the study

The objectives of this project paper are as follows:
1. To evaluate the FDI status in Bangladesh.
2. To find out the prospects & problems of FDI in Bangladesh.
3. To analyze the impact of FDI inflow on GDP, Export and private
investment of Bangladesh.
4. To explore FDI and Bangladesh Banking.
 Page No 01
1.3 Scope of the study
The scope of the study is limited in practical review and online reviews. I did a
small research in reality of application of Impact of foreign direct investment on
employment and Gross Domestic product in Bangladesh. I took some ideas
from Newspaper, from my relatives, Teacher and friends about impact of
foreign direct investment in Bangladesh. Then I research in online via Google
and found reality of application of green accounting in Bangladesh.

1.4 Methodology of the study

To find out the real problems and prospects of FDI in Bangladesh we have
taken help of secondary data instead of primary data.
To work with primary data is a very time-consuming task to do and so also
primary data collection in this level are really a tough job to do.

1.5 Limitation of the study

The shortage of time was the main obstacles to gain the actual result. Whatever
the situation was we have tried our best to accomplish the given job and we do
believe that people will appreciate this tiresome effort.
It was not an easy task to accomplish. The main obstacles were the short time
and the huge amount of secondary data for the assignment. It takes a huge time
to find out the real condition of FDI in our country and what the prospects are in
future.
We have tried our level best to complete the paper more meaning fully but at
the same time we express our regret for our failure of mentioning many other
important information due to very limited space allotted for assignment.
However, we think this study will prove pragmatic to those who feel interested
in the subject.
 Page No 02

Chapter II
Theoretical Aspects
2.1 Literature Review:
There is the global race for attracting FDI, but how much it can contribute to
host country's economic development is a matter of assessment. Aitken and
Harrison (1999) have evaluated the contribution of FDI to domestic productivity
and found positive impacts of FDI on economic development. Again, Levine et
al. (2000) found negative results on economic development.
1. Khan Md. Azizur Rahman conducted a study on “Globalization and the
Climate of Foreign Direct Investment: A Case for Bangladesh” where he opined
that Foreign Direct Investment is dramatically increasing in this age of
globalization. It has played important role for economic growth in this global
process. But, the distribution of FDI is uneven in all over the world. Some
countries are ahead and some are lagged behind to attract foreign direct
investment. The objectives of the study were to describe the overall
background, trends and definition of FDI in recent years; to reveal the
theoretical development and extensive literature review to find out the
appropriate variables to deter the Foreign Direct Investment from different
reputed studies and to focus on the challenges, opportunities, investment and
economic environment associated with the inflow of FDI in Bangladesh. The
study finds the determining factors of FDI in Bangladesh as market size and
access, trade and investment, infrastructure, foreign aid, human resources,
inflation etc. It ends up with the conclusion to promote the inflow of foreign
direct investment with a view to taking measures to strengthen the positive
impacts and reduce the negative impacts of FDI in Bangladesh.
2. Anu Mohammad in his research paper titled “Foreign Direct Investment and
Utilization of Natural Gas in Bangladesh: A note on understanding the trap in
Development Disguise‟ highlighted that Foreign Aid (FA) and Foreign Direct
Investment (FDI) have always been considered as crucial in development of a
country especially in the underdeveloped countries. It has always been argued in
modernization theories, later also by second generation modernization theorists
that the capital inflow, in either form, would help third world countries to give a
big push in the economy and would break the vicious cycle of poverty and
underdevelopment. FDI, according to this dominant view, would contribute in
economic development of the underdeveloped countries in different ways. It
would bring foreign currency along with latest technology, skill manpower, new
ideas and modern management; it would also create conditions for
strengthening and expanding productive base of the host economies. He focused
on the practical experience in Bangladesh and opined that time has come to
examine established hypothesis that FDI per sector can ensure or at least help
the economy to develop and industrialize. In that article an attempt has been
made to investigate the natural gas sector and to examine whether optimum
utilization of natural gas is directly or inversely correlated to the present form of
FDI. The objectives of the study were to understand the whole scenario, to
explore the economics and power matrix behind the crisis where natural gas
resources seem to have appeared as a liability for the people of Bangladesh
3. Rothgeb (1984) found an immediate troublesome effect of FDI flows on
developing countries. This effect would overcome after a short period of time,
with positive impacts on growth. Rothgeb (1984) used his model to explore the
impact of foreign investment on the growth of Bangladesh and found that FDI
has a positive impact on growth. He also found a strong positive effect of the
change in the level of domestic investment on growth.
4. V.N. Balasubramanyam, M. Salisu, and D. Sapsford (1996) did an
examination about the impact of FDI on economic growth in developing
economies using ordinary least squares. Applying the export promotion
strategy, they found positive and significant impact of FDI on economic growth
in developing countries. Simultaneously, it also showed that such relations do
not exist in developing countries applying the import substitution strategy.
5. Bengoa and Sanchez-Robles (1997) showed the positive correlation between
FDI and economic growth. In this connection, with a view to getting benefit
from long term FDI inflows, human capital, stable economic condition and
liberalized markets are required in host countries.
6. Borenszteina et al (1998) examined the data on FDI inflows of sixty-nine
developing countries by regression framework and found the importance of FDI
as a means of transferring technology that contributes more to growth than
domestic investment.
7. Pattama (1999) analyzed the long run relationship between FDI and domestic
investment in case of Thailand. He found that FDI has a significant and positive
long-term effect on domestic investment in Thailand. Despite this positive link
between FDI and economic growth, empirical evidence also reveals negative
association between them. This view goes to the dependency theorists who are
in the opinion that dependence on foreign investment tends to create a negative
impact on economic growth and income distribution.

8. The dependency theories arguePagethat

No foreign
04 gigantic players may create
negative effect on the growth and development of domestic firms' of a host
country in the long-run as they have large volume of capital, superior
technologies, higher market access, advanced marketing networks and better
managerial and human relation skills (Marksun & Venables 1997, Agosin &
Mayer 2000, Kumar & Pradhan 2002). According to the dependency theories,
FDI may have an adverse impact on income distribution, employment, national
sovereignty and autonomy of a country (Musila and Sigue 2006).
9. Bogahawatte (2004) examined the relationship between FDI and economic
growth of Sri Lanka for the period of 1977 to 2003 by analyzing the relationship
between real GDP, FDI Inflow, domestic investment and openness of the trade
policy regime. The examination revealed a strong influence of FDI on economic
growth.
10. Mottaleb (2007) studied the determinants of FDI and its effect on economic
growth in developing countries. He studied panel data of FDI flows of sixty low
income and lower-middle income countries and found that FDI has an important
effect on economic growth of third world countries by creating bridge between
the gap of domestic savings and investment and familiarizing the up to date
technology and management skill from developed countries.
11. Jung Wan Lee, Gulzada S Baimukhamedova, Sharzada Akhmetova (2008)
analyzed the correlation between FDI inflows, exchange rate, and economic
growth of Kazakhstan by a multivariate regression model with weighted least
squares estimates. The results revealed the minimum significant impact of FDI
on GDP growth of Kazakhstan. Abdul Rehman, Orangzab, Ali Raza (2009)
conducted an analysis by using the data collected over the period of 1975-2008
and identified the determinants of FDI and its impact on GDP growth in
Pakistan through different statistical tests and found positively significant
impact of FDI on GDP growth of Pakistan. Furthermore, these results indicate
that market size, trade openness / access to international market and quality of
labor are the major determinants that have significant effect on the FDI inflow.
The study also found no effect of market potential and communication facility
on the attraction of FDI inflow in Pakistan.
12. Quader, Syed Manzur (2009) applied extreme bounds analysis to the data of
the various catalyst variables of FDI inflows in Bangladesh. They found FDI
and domestic investment have a positive effect on economic growth.
13. Piotr Misztal (2010) examined the influence of FDI on the economic
growth in the Romania in period of 2000-2009 using the Vector Autoregression
Model (VAR) and found linear relationship between FDI and economic growth.
14. Muhammad Azam (2010) examined Page No 05the impacts of exports and FDI on
economic growth of South Asian countries namely Bangladesh, India, Pakistan
and Sri Lanka with simple log linear regression model using secondary data
ranging from 1980 to 2009 and found that due to promotion of exports,
economic growth of each country would increase. He also found FDI as
positively significant at 1% level of significance for Bangladesh and Pakistan,
while for India it's insignificant and in case of Sri Lanka though it is significant
but with unexpected negative sign.
15. Many studies show that economic growth of recipient country has positive
effect on FDI inflow (Veugelers, 1991; Grosse and Trevino, 1996). FDI has
positive impact upon growth (Dunning, 1993; Ericsson and Irandoust, 2000;
Trevino and Upadhyaya, 2003) and in some cases, it has negative effect on
growth too (Moran, 1998). Positive effect of FDI on economic growth occurs
when FDI comes into markets, while negative effects occurs when FDI comes
into protected industries (Encarnation and Wells, 1986).
16. Zhao, 2003, FDI is considered as an important tool for economic
development in a developing country. If the investing country is wealthier than
the host country then capital will flow to the host country.
17. In order to attract FDI, wages, education level, tax laws, and political and
macroeconomic conditions of country in addition to market size play an
important role. Corporate taxes have negative (Hsiao, 2001) while
infrastructure, import tariffs, political and macroeconomic stability generally
have positive impact upon FDI inflows (Mallampally and Sauvant, 1999;
Biswas, 2002).
18. V.N. Balasubramanyam, M. Salisu, and D. Sapsford (1996) did an
examination about the impact of FDI on economic growth in developing
economies using ordinary least squares. Applying the export promotion
strategy, they found positive and significant impact of FDI on economic growth
in developing countries. Simultaneously, it also showed that such relations do
not exist in developing countries applying the import substitution strategy.
19. Alam (2003) mentions that FDI inflows of a developing countries, like
Bangladesh depend upon to some extent, Government’s initiatives toward
reform of investment policy.
20. Muhammad Azam (2010) examined the impacts of exports and FDI on
economic growth of South Asian countries namely Bangladesh, India, Pakistan
and Sri Lanka with simple log linear regression model using secondary data
ranging from 1980 to 2009 and found that due to promotion of exports,
economic growth of each country would increase. He also found FDI as
positively significant at 1% level of significance for Bangladesh and Pakistan,
while for India it's insignificant and in case of Sri Lanka though it is significant
but with unexpected negative sign.
21. Jung Wan Lee, Gulzada S Baimukhamedova, Sharzada Akhmetova (2008)
analyzed the correlation between FDI inflows, exchange rate, and economic
growth of Kazakhstan by a multivariate regression model with weighted least
squares estimates. The results revealed the minimum significant impact of FDI
on GDP growth of Kazakhstan.
22. Abdul Rehman, Orangzab, Ali Raza (2009) conducted an analysis by using
the data collected over the period of 1975-2008 and identified the determinants
of FDI and its impact on GDP growth in Pakistan through different statistical
tests and found positively significant impact of FDI on GDP growth of Pakistan.
Furthermore, these results indicate that market size, trade openness / access to
international market and quality of labor are the major determinants that have
significant effect on the FDI inflow. The study also found no effect of market
potential and communication facility on the attraction of FDI inflow in Pakistan.
23. Quader, Syed Manzur (2009) applied extreme bounds analysis to the data of
the various catalyst variables of FDI inflows in Bangladesh. They found FDI
and domestic investment have a positive effect on economic growth.
24.Piotr Misztal (2010) examined the influence of FDI on the economic growth
in the Romania in period of 2000-2009 using the Vector Autoregression Model
(VAR) and found linear relationship between FDI and economic growth.
25. Aitken and Harrison (1999) have evaluated the contribution of FDI to
domestic productivity and found positive impacts of FDI on economic
development. Again, Levine et al. (2000) found negative results on economic
development.
26. Rothgeb (1984) found an immediate troublesome effect of FDI flows on
developing countries. This effect would overcome after a short period of time,
with positive impacts on growth. Rothgeb (1984) used his model to explore the
impact of foreign investment on the growth of Bangladesh and found that FDI
has a positive impact on growth. He also found a strong positive effect of the
change in the level of domestic investment on growth.
27. V.N. Balasubramanyam, M. Salisu, and D. Sapsford (1996) did an
examination about the impact of FDI on economic growth in developing
economies using ordinary least squares. Applying the export promotion
strategy, they found positive and significant impact of FDI on economic growth
in developing countries. Simultaneously, it also showed that such relations do
not exist in developing countries applying the import substitution strategy.
28. Bengoa and Sanchez-Robles (1997) showed the positive correlation between
FDI and economic growth. In this connection, with a view to getting benefit
from long term FDI inflows, human capital, stable economic condition and
liberalized markets are required in host countries.
29. Borenszteina et al (1998) examined the data on FDI inflows of sixty nine
developing countries by regression framework and found the importance of FDI
as a means of transferring technology that contributes more to growth than
domestic investment.
30. Pattama (1999) analyzed the long run relationship between FDI and
domestic investment in case of Thailand. He found that FDI has a significant
and positive long-term effect on domestic investment in Thailand. Despite this
positive link between FDI and economic growth, empirical evidence also
reveals negative association between them. This view goes to the dependency
theorists who are in the opinion that dependence on foreign investment tends to
create a negative impact on economic growth and income distribution. The
dependency theories argue that foreign gigantic players may create negative
effect on the growth and development of domestic firms of a host country in the
long-run as they have large volume of capital, superior technologies, higher
market access, advanced marketing networks and better managerial and human
relation skills (Marksun & Venables 1997.
31. Agosin & Mayer 2000, Kumar & Pradhan 2002). According to the
dependency theories, FDI may have an adverse impact on income distribution,
employment, national sovereignty and autonomy of a country (Musila and
Sigue 2006).
32. Bogahawatte (2004) examined the relationship between FDI and economic
growth of Sri Lanka for the period of 1977 to 2003 by analyzing the relationship
between real GDP, FDI Inflow, domestic investment and openness of the trade
policy regime. The examination revealed a strong influence of FDI on economic
growth.
 Page No 08
Chapter III
Practical Aspects
3.1 Sample enterprise at a glance:
Bangladesh has attracted USD 913 million foreign direct investments (FDI) in
2010 calendar year, a leap by 30 percent. This upgrades the country's position to
114 from 119 out of 141 nations in the World Investment Report (WIR). During
this period the telecom sector received USD 360 million FDI, the manufacturing
sector received USD 238 million in investment from abroad, USD 145 million
in the textile and clothing sector, while leather and leather products got USD 46
million. (The financial Express, 27 July, 2011) As a developing country,
Bangladesh needs Foreign Direct Investment (FDI) for its ongoing development
process. Since independence, Bangladesh is trying to be a suitable country for
FDI. In order to accelerate economic growth, Bangladesh opened her economy
in the late 1980s to reap the benefits of FDI. In 1989 the government set up
Board of Investment (BOI). The primary objective of which is aimed at
attracting and facilitating investment from abroad (Mondal 2003). The
government also lifted restrictions on capital and profit repatriation gradually
and opened up almost all industrial sectors for foreigners to invest either
independently or jointly with the local partners. Further, the government also
introduced various financial and non-financial incentives like tax exemptions
for power generations, import duty exemptions for export processing industries,
tax holiday schemes for undertaking investment in priority sectors and low
development areas, zero duty rate for the import of capital machinery and spare
parts for 100 percent export oriented industries, almost no restrictions on the
entry and exit mode, and reduction of bureaucratic hassles in getting faster
approvals of foreign projects. Together with all these incentives followed by a
low labor cost structure, Bangladesh has been an attractive destination for FDI
in the South Asian region since the late 1980s. The trend of Inflow of FDI in
Bangladesh has increased over the 1980s as compared to earlier periods and this
same momentum continues in 1990s as well. The total inflow of FDI has been
increasing over the years. During the period of 1977-2010, total inflows of FDI
were USD 8927.9 million, among which the total inflows of FDI during 2006-
2010 was USD 4158.63 million. In 1977, this inflow was USD 7 million and in
2008, annual FDI reached to USD 1086.31 million. Unfortunately, there was a
declination in inflows of FDI in 2010 which was USD 913.32 million (Source:
Survey Report, Statistics Department, Bangladesh Bank).
 Page No 09
3.2 Findings:
Foreign Direct Investment Table in Bangladesh Banking.
Foreign Direct Investment 2017 2018 2019
FDI Inward Flow (million USD) 2,152 3,613 1,597
FDI Stock (million USD) 14,557 17,062 16,385
Number of Greenfield Investments 19 28 19
Value of Greenfield Investments (million
USD)
Source: UNCTAD, Latest available data

Note: Greenfield Investments are a form of Foreign Direct Investment where a parent
company starts a new venture in a foreign country by constructing new operational
facilities from the ground up.
Country Comparison For the Bangladesh South United Germany
Protection of Investors Asia States
Index of Transaction Transparency 6.0 5.0 7.4 5.0
Index of Manager’s Responsibility 7.0 5.0 8.6 5.0
Index of Shareholders’ Power 7.0 6.0 9.0 9.0
Source: Doing Business, Latest available data
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater
the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it
Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of
Investor Protection.

UNCTAD: FDI in Bangladesh falls by 56% in 2019

Having gone through a sharp rise in 2018, Foreign Direct Investment (FDI)
inflows to Bangladesh have seen a sharp decline by 56%, to $1.6 billion in
2019, according to a report of the United Nations Conference on Trade and
Development (UNCTAD). The apparel sector, a $34 billion local industry, was
an important FDI recipient, with major investment from the Republic of Korea,
Hong Kong and China in the year.
The UNCTAD report, ‘World Investment Report 2020,’ was globally released
yesterday. However, the Bangladesh Investment Development Authority
(BIDA) claimed the FDI in the country was $2.87 billion last year, as the
UNCTAD report did not include the investment figure made in the final quarter
of last year.
“Inflows to Bangladesh, an important FDI recipient in South Asia, fell by 56 per
cent to $1.6 billion. The decline reflects an adjustment from a record-high level
in 2018. The export-oriented apparel industry remains an important FDI
recipient, with major investors from the Republic of Korea, Hong Kong and
China,” said the report. In 2020, the sector is expected to be severely affected
by factors like closed down factories and falling global demand for apparel
goods, says the report.
As of April 2020, the country’s garments manufacturers and exporters
association estimated that more than $3 billion worth of exports had been
cancelled or suspended, adds the UN report.
“The figure ($1.6 billion) mentioned in the UNCTAD report does not reflect the
real picture of Bangladesh’s FDI as it did not add the investment of the last
quarter of 2019. As per Bangladesh Bank data, the FDI was $2.87 billion in
2019,” Sirajul Islam, executive chairman of Bangladesh Investment
Development Authority (BIDA), told Dhaka Tribune.

3.5

3.5

2.5

1.5
2014 2015 2016 2017 2018 2019
Since the FDI depended on the global economic situation and willingness of
investors, it could be up or down anytime, he added. “Sometimes there is a big
inflow from a certain sector, which pushes up the trend,” Sirajul said.
“In 2018, we had good investment in tobacco and the stock market, which
helped to register a sharp rise by 68% over last year,” he explained.
The sharp rise in FDI in 2018 was caused by a big investment by a Japanese
company and Chinese strategic investment in the Dhaka Stock Exchange
(DSE), which was not a regular phenomenon, Sirajul noted. In 2018, Japan
Tobacco invested $1.47 billion to acquire United Dhaka Tobacco, a venture of
Akij Group, while two Chinese stock exchanges invested Tk947 crore for
buying a 25% stake of the Dhaka Stock Exchange. Meanwhile, economists have
called for an investigation to look into the anomaly between the data of the
Bangladesh Bank and the UNCTAD. “The FDI inflow was supposed to decline
in 2019 as in the previous year FDI increased due to some big-amount
investment in tobacco and the stock market,” Zahid Hussain, former lead
economist of the World Bank, Bangladesh, told Dhaka Tribune. In Vietnam,
India and other South Asian countries, the investment patterns diverged and had
continuity in overseas investment because of their business environment and
skilled workforce in different sectors, said the economist. In attracting regular
FDI in different sectors, Bangladesh must complete a few Special Economic
Zones (SEZs) and ensure a favorable investment climate, he suggested.
3.3 SWOT Analysis:
Strengths:
Now a daze Bangladesh is trying her best to attract foreign direct investment to
boost up her economic condition. Bangladesh has liberalized a number of
policies so that she can attract more foreign direct investment into the country.
It is usually considered that foreign capital inflows can boost up domestic
capital. It is believed that FDI accelerates economic activities and eventually
causes economic growth. It increases employment opportunities. FDI brings
highly productive resources into the recipient economy. This causes positive
effects on the employment creation not only in the sectors that attract FDI
inflows but also in the supportive domestic industries.
Weaknesses:
Although Bangladesh is trying to be as friendly as possible to FDI, she is facing
some problems regarding investment from foreign sector. The FDI friendly
policies of the government and a culture of hospitality to foreigners are very
much positive to welcome FDI in Bangladesh. But it is a matter of concern that
FDI records in the country in terms of the number of projects implemented as
compared to those officially registered is frustrating. Only 72 FDI projects went
into production in end of 1999 and 27 were in process of implementation of the
365 FDI projects registered during the year of 1996 - 1998, while the remaining
266 projects languished only as the file-cases. The problems that have restricted
FDI potentials in the country are as follows:
Bureaucratic interference
 Irregularities in processing papers.
 Overlapping administrative procedures.
  Absence of a transparent system of formalities.
 Continuity and prevent timely implementation of strategic, procedural,
and even routine duties.
 Frequent power failures.
 Poor infrastructure support.
 Labor unrest.
 Political unrest. Page No 12
 Lack of professional personnel.
 lack of commitment on the part of local investors.
 Unexpected delays in selecting projects in studying feasibility.
 Frequent changes in policies on import duties for raw materials,
machinery, equipment etc.
Opportunities:
Private investment from overseas sources is welcome in all areas of the
economy with the exemption of five industrial sectors (arms, production of
nuclear energy, forest plantation and mechanized extraction within the bounds
of reserved forests, security Printing and minting, air transportation and
railways) reserved for public sector. Such investments can be made either
indecently or through joint venture on mutually beneficial terms and conditions.
In other words, 100% foreign direct investment as well as joint venture both
with local private sponsor and with public sector is allowed. Foreign
investment, however, is specially desired in the following categories:
 export-oriented industries.
 Industries in the Export Processing Zones.
 High technology products that will be either import-substitute or export-
oriented.
 Undertaking in which more diversified use of indigenous natural
resources is possible.
 Basic industries based mainly only on local raw materials.
 Investment towards improvement of quality and marketing of goods
manufactured and/or increase of production capacities of existing
industries.
 Labor intensive/technology intensive/capital intensive industries.
 Page No 13
Chapter IV
Conclusionary Aspects
4.1 Summarized View:
The thesis investigates the performance of problems, prospects, opportunities
and statistics of Direct Foreign Investment in Bangladesh. It also identifies the
overall direct foreign investment system in Bangladesh. Problems and
opportunities of direct investment in Bangladesh follow the rules and regulation
prescribed by the investment forum for schedule countries on companies. The
functions of the country or company cover a wide range of investment and
functional activities to individual, firms, corporate bodies and other
multinational agencies. It is very important to the national economy as a whole
because the expansion and condition of the company or firm affect the level of
business activity through their effect on the nation’s money supply. The direct
foreign investment extended its credit facilities to different sectors to diversify
its credit portfolio in compliance with credit policies of direct investment of the
foreign country such as Industrial, Housing, Contract work, Working capital for
trades, manufacturing processing plants and export-oriented industries and other
business.
4.2 Recommendation:
In the view of foreign detail findings, discussion on the key findings and
subsequent conclusions, a number of recommendations have been offered.
Some recommendations have policy implication and so those should be dealt
with cautiously with inclusion of strong policy advocacy strategy in the process.
Following recommendations are being offered:
 Overcoming the barriers: One can now look for the ways to overcoming
the barriers to FDI as we have mentioned above. Here, we would
recommend following measures that the authorities concerned might
consider:
 Ensuring good governance: Good governance denotes a desirable state of
affairs and so is the key to success of all the reforms. Political and
bureaucratic accountability are the two principal components of good
governance, and without ensuring them, good governance is not possible.
 Securing progress on this front is the highest priority as continued
difficulties pose a serious threat to the sustainability of even the
development achieved already. Establishing the rule of law is in fact a
pre-requisite to ensuring good governance.

 Accountability and transparency: Accountability and transparency

continue to remain the Page twin No
elusive
14 prerequisites for the overall
development of the country. Private sector investment and FDI inflow are
severely hindered by the administrative barriers that arise out of a lack of
transparency and accountability, which logically leads to inefficiency and
corruption. Competence and efficiency, which are both appallingly,
lacking in the bureaucracy, will both become achievable goals with the
infusion of transparency in decision-making and governance. This will
also greatly reduce what is commonly known as “red-tapes” or
“bureaucratic wrangling” since the tiers of the decision-making process
are bound to become fluent and responsible if they are held accountable
for their work.
 Co-ordination among state agencies: Without reducing the utter lack of
co-ordination among the state agencies, the services and functionaries
cannot be efficient. Assuring proper co-ordination among ministries,
departments, regulatory bodies, and faster decision-making in the
implementation process will enhance the flow of investment.
 Strengthening the regulatory authority: Government agencies responsible
for facilitating investment need to be more active. In this regard, full
autonomy to the agencies like the central bank, investment promotion
agencies, telecom regulatory authority, energy regulatory authority,
securities and exchange commission’s etc., is a prerequisite.
 Rightsizing the government: The size of the state organs is quite large and
thus mostly inefficient, unproductive and hazardous. So, rightsizing the
government is important. By reducing the number of officials in the
decision-making process in various state organs, transparency and
accountability of bureaucracy can be established. Offering a reasonable
compensation package to the officials retained is also one of the key
factors in ensuring transparency and accountability.
 Tackling corruption: Tackling corruption in banking, power, other state-
owned enterprises and tax administration ought to be an urgent priority. A
comprehensive resolution of the corruption problem in banking, power
and other state-owned enterprises will require privatization along with
independent regulatory bodies functioning in the public sector.
  Fiscal reform: Regarding tax administration, reform option includes
establishing an autonomous tax institution with proper incentive and
accountability. Countries of the region can learn from the international
experience of a number of countries including the Internal Revenue
Service of the USA. There is, however, a need for further deregulation of
authority. It is also necessary to establish a coordinating mechanism to
take decisive and continuous steps in resolving problems identified in
relation to project implementation.
Page policy
 Infrastructure reform: The main No 15 challenge is to redefine the role of
public sector in infrastructure development by gradually allowing the
private sector to play a bigger role. Public sector’s role should be
restricted to regulatory functions only. Mention may be made here that,
Bangladesh’s existing Industrial Policy includes infrastructure as a thrust
sector acknowledging a lead role of the private sector supported by
special incentives and the Finance Minister of Bangladesh, in his 2002
budget speech, stressed the need for more private sector participation in
infrastructure development of the country. The Infrastructure Investment
Facilitation Center (IIFC) of Bangladesh has been interacting with the
private sector to attract private investment in this sector. Other countries
of the region could take lesson from Bangladesh in this regard.
Finally, it appears that Bangladesh has put in place a relatively investment-
friendly policy regime which has helped to attract significant FDI flow
particularly since 1990s.

4.3 Conclusion:
Bangladesh has considered FDI as more favorable factor for stimulating
economic growth. A number of factors lie behind this new orientation:
slowdown of the world economy along with political unrest in the international
arena, declining trend in public capital or foreign aid and the globalization of
production and services. Though there are some interrelated administrative
barriers which result inferiority in policy formulation and implementation,
competitive drawbacks, poor quality of skills and infrastructure, ineffective
institutions, and below average governance which dampen potential of FDI.
Besides the above, it has also been found out that Bangladesh is not full of
hindrances of FDI, but some opportunities and prospects are also available in
this host country. In very recent the quarrelsome political environment has been
changed and hopefully, new era will be started of investment for the native and
foreign investors.
 Page No 16

4.4 References:
 Zhao, L,(1998), “The impact of Foreign Direct Investment on wages and
employment,” Oxford Economic Papers, Vol.50, pp. 284-301.
 Encarnation D. J. & Wells, L. T., (1986). Evaluating foreign investment.
In T. H. Moran et al. Investing in Development: new roles for foreign
capital? Washington, DC: Overseas Development Council.
 Biswas, R. (2002). Determinants of foreign direct investment. Review of
Development Economics, 6 (3).
 Bosworth, B., P. & S., Collins, M. (1999). Capital flows to developing
economies: Implications for saving and investment. Brookings Papers on
Economic Activity, 1, pp.143-169.
 Trevino, L., J. & Upadhyaya, K., P. (2003). Foreign aid, FDI and
economic growth: Evidence from Asian countries. Transnational
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 Veugelers, R. (1991). Locational determinants and rankings of host
countries: An empirical assessment. Kyklos, 44 (3), pp.363-382.
 Aitken, Brian J. and Harrison, Ann E., 1999, ‘Do Domestic Firms Benefit
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 Ericsson, J. & Irandoust. M. (2000). On the causality between foreign
direct investment and output: A comparative study. International Trade
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 Grosse, R. & Trevino, L., J. (1996). Foreign direct investment in the
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 Balasubramanyam, V.N., Salisu, M., and Sapsford, D., 1996, ‘Foreign
direct investments and growth in EP and IS countries’, The Economic
Journal Vol. 106, pp. 92-105.
 Bengoa, M., and Sanchez-Robles, B., 2003, ‘Foreign direct investment,
economic freedom and growth: new evidence from Latin America’,
European Journal of Political Economy 19, pp.529-545.
 International Journal of Humanities and Social Science Vol. 2 No. 5;
March 2012.
  Afsana Rahman (2011), “Foreign Direct Investment in Bangladesh,
Prospect and Challenges, and its impact on economy”. Retrieved 15 May
2012.
 Shamima Nasrin, Angathevar Baskaran and Mammo Muchie (2010),
“Major Determinants and Hindrances of FDI in Bangladesh: Perceptions
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April 2012.

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4.5 Appendix: B05