Independent University of Bangladesh

The challenges and prospects of

local and foreign investment in
Bangladesh: An evaluation
MBA 550-Strategic Management Assignment

Instructor: Prof. Dr. Lt. Gen. (Ret.) Mohd. Aminul Karim

Mohammed Iqbal Hossain, ID 2031313

Challenges and Prospects of both local and foreign investment in Bangladesh:
An Evaluation

1. Introduction:

Investment is an essential pre-requisite for rapid and sustained economic development.

Investopedia defines investment as “an asset or item acquired with the goal of generating income
or appreciation.”1 The Online Cambridge dictionary definition of investment is: the act of
putting money or effort into something to make a profit or achieve a result.”2 Individuals and
firms want to investment money to earn profit or achieve result. Ultimately Individual
investments contribute to national profit, i.e., the national development and progress.
Government also invest money and perform other activities in the national development process.
The more the investment happens in the country, the more a country flourishes and peoples
livelihood improve. So, the countries want as many investments as in the country for its
economic development both from local investors as well as foreign investors. The increase in
Gross Domestic Product (GDP) mostly depends on investment. In fact, Investment Share is an
important indicator of Gross Domestic Product (GDP). This indicator refers to the share of
investment in total production and the rate of investment reflects the infusion of requisite capital
to support the development process.3 in Jun 2020, Bangladesh investment accounted for 31.8 %
of its Nominal GDP which contributed 5.2 % GDP growth in Jun 2020. 4. As mentioned earlier
investment comes from local sources as well as from foreign sources. The foreign sources named
Foreign Direct Investment (FDI) is seen as a catalyst of national growth.

2. Investment climate in Bangladesh

1
https://www.investopedia.com/terms/i/investment.asp
2
https://dictionary.cambridge.org/dictionary/english/investment
3

https://www.un.org/esa/sustdev/natlinfo/indicators/methodology_sheets/econ_development/investment_share_
gdp.pdf
4
https://www.ceicdata.com/en/indicator/bangladesh/investment--nominal-gdp
Generally good investment climate prevails in Bangladesh. The Investment climate is affected by
many factors, including: skilled workers, poverty, crime, infrastructure, workforce, national
security, political instability, regime uncertainty, taxes, rule of law, property rights, government
regulations, government transparency and government.5 According to Perspective Plan 20216,
Bangladesh aims at developing these conditions to make a sustainable growth. The plan set
following development priorities to make the country ready for achieving a middle-income
country with GDP growth rate 10.0 per cent by 2021,

The development priorities are

 Ensuring broad-based growth and food security.

 Addressing globalization and regional cooperation
 Providing energy security for development and welfare.
 Establishing a knowledge based society
 Building a sound infrastructure.
 Ensuring effective governance.
 Mitigating the impacts of climate change.
 Creating a caring society.
 Promoting innovation under a digital Bangladesh.

All these development priorities will contribute to achieve sustainable growth and a to build a
knowledge economy. The Plan also aims at increasing Per capita annual income to about USD
2,000 (at constant 2013 dollars) by 2021, thus crossing the middle-income threshold. Moreover,
to achieve and sustain the high rates of growth, gross domestic investment will reach 38% of
GDP, with gross national savings at 39%, and headcount poverty dropping to only 13.5%.7

5
Status of Investment Climate in Bangladesh Comparing with Selected Asian Countries, *Sonjoy Chkaraborty,
https://bea-bd.org/site/images/pdf/new17/28.pdf
6
PERSPECTIVE PLAN OF BANGLADESH 2010-2021, Government of the People’s Republic of Bangladesh, April 2012
(https://bangladesh.gov.bd/sites/default/files/files/bangladesh.gov.bd/page/6dca6a2a_9857_4656_bce6_139584
b7f160/Perspective-Plan-of-Bangladesh.pdf)

7
ibid
According to Bangladesh Investment Climate Authority (BIDA), Doing business in Bangladesh
is easier compare to any other country. To promote a more sustainable and inclusive investment
environment, Bangladesh Investment Development Authority (BIDA) has undertaken steps for
massive reforms to ensure:

 Creation of a true one-stop service for the investors.

 Facilitate the development of entrepreneurs.
 Aid the creation of necessary skills to match the needs of higher value production chains.
 Efforts to improve the ratings of Bangladesh in various indicators such ‘Doing Business
report of World Bank’, ‘Global Competitive Index’ of the World Economic Forum and
others.

Government hopes that ‘these reforms once implemented will ensure a better business climate
and smoother business operation in Bangladesh, eventually ensuring Bangladesh’s ranking in a
much better position in the upcoming Doing Business reports.’

It is said that Bangladesh has created an unparalleled investment climate in recent years
compared to other South Asian economies.  PWC, a renowned economy reviewer projects that
Bangladesh is going to be the 23rd largest global economy in the world by 2050 which is another
good news for the investors.8

3. Local investment scenario

Local investment climate is in Bangladesh is also positive. Bangladesh is doing good in the
following sectors: power generation, distribution and exploration of gas and other mineral
resources, highway development including bridge, express-way and tunnels, Port infrastructure
facilities, Industrial parks/private export processing, computer software and electronics,
diversified jute goods and jute based pulp and study, chemicals and petrochemicals, LP gas,
environment friendly insecticides, leather and leather goods, tourism, food processing, Fruit
canning and allied products, sports goods, light, engineering and agro-based industry etc. Both

8
https://b2bmap.com/potential-sectors-for-investment
local and foreign investors are encouraged to invest in these sectors. Irrespective of local and
foreign following facilities/incentives has been given for all investors:

 Tax holiday: Tax holiday facilities will be available for 5 or 7 years depending on the
location of the industrial enterprise
 Tax exemption: In certain case tax exemption are given.

 Accelerated depreciation allowance: This is another facility who can Foreign Investors
can enjoy. Companies may use accelerated depreciation for tax purposes, as these
methods result in a deferment of tax liabilities since income is lower in earlier periods.9

4. Foreign Direct Investment

As mentioned earlier Bangladesh is a fertile land to attract foreign investment. Except four
sectors (i.e. (1) arms and ammunition and other defence equipment and machinery, (2) forest
plantation and mechanised extraction within the bounds of reserved forests, (3) production of
nuclear energy, and (4) security printing and mining) are open for private investment in
Bangladesh. 10.

Special Facilities/Incentives are offering to the foreign investors by Bangladesh

(a) For foreign direct investment, there is no limitation pertaining to foreign equity participation,
i.e. 100 percent foreign equity is allowed.

(b) A foreign technician employed in foreign companies will  not be subjected to personal tax up
to 3 (three) years , and beyond that period his/ her personal income tax payment will be governed
by the existence or non-existence of agreement on avoidance of double taxation with country of
citizenship.

(c) Full repatriation of capital invested from foreign sources will be allowed.

9
https://www.investopedia.com/terms/a/accelerateddepreciation.asp
10
https://www.bb.org.bd/investfacility/invesfac.php
(d) Foreign entrepreneurs are, entitled to the same facilities as domestic entrepreneurs with
respect to tax holiday, payment of royalty, technical know-how fees etc.

(e) The process of issuing work permits to foreign experts on the recommendation of investing
foreign companies or joint ventures will operate without any hindrance or restriction. Multiple
entry visa" will be issued to prospective foreign investors for 3 years.

Moreover, some other attractive incentives are given to attract FDI in Bangladesh which is
Citizenship by investing and Permanent residentship by investment. By investing a minimum of
US $ 500,000 or by transferring US$ 1,000,000 to any recognised financial institution ( Non-
repatriable ) is given citizenship. By investing a minimum of US$ 75,000 ( non-repatriable)
permanent residentship can be obtained.

Bangladesh Bank is giving some waiver in certain cases to attract investment and no prior
approval is required in the certain cases:11

Another good thing is that foreign investment is protected by by law in Bangladesh. The Foreign
Private Investment (Promotion & Protection ) Act. 1980 passed by Bangladesh Parliament
ensures  legal protection to foreign investment in Bangladesh against nationalisation and
expropriation. It also guarantees non-discriminatory treatment between foreign and local
investment, and repatriation of proceeds from sales of shares and profit.12

5. Challenges of local and FDI

In spite of these measures taken by government both foreign and local investment in Bangladesh
13
is still low: According to World Investment Report 2021 published by UNCTAD FDI inflows
11
ibid
12
https://www.bb.org.bd/investfacility/invesfac.php
13
https://unctad.org/system/files/non-official-document/wir_fs_bd_en.pdf
in Bangladesh in 2020 is 2,564 million US dollars which is 2.8 of Gross Capital Formation
which is in India 8.3%, and in South Asia it is 5.9%. Globally the percentage of FDI inflow of
Gross Capital Formation is 4.5%. With this information it can be said that though Bangladesh
offers enormous opportunities and incentives to foreign investors, the inflow of fund is still low
compared to neighboring country and South Asia Region.

LightCastle Analytics published a report on FDI Inflow in Bangladesh: Time to Rethink and
Redesign Policies14 where it mentions that FDI inflows (net) as percentage of GDP is still low in
comparison with regional contemporaries showing UNCTAD and World Bank data. The follows
graphs show the comparison.

They also identified following impediments

14
https://www.lightcastlebd.com/insights/2020/10/fdi-inflow-in-bangladesh-time-to-rethink-and-redesign-policies
  Regulatory Uncertainty 

 Absence of Adequate Policies

 Restriction in Profit Repatriation

 High taxation and VAT Policies

 Ease of Doing Business

 Underdeveloped Capital Market

Ease of Doing Business is an interesting and important indicator prepared by World Bank15 and
shows level of convenience of doing business in a host country. It plays a crucial role in making
investment decisions. In 2019, Bangladesh ranked 168th out of 190 countries and scores 45.0.
Here also the country lags behind the South Asian countries putting itself in tough competition.
Even though Bangladesh is recognized for its low labor cost, the ease of doing business in other
countries trumps this benefit for the investors.

The report also provides topic wise ranking which investors use for their decision making.

Rankings on Doing Business Topics (1-190) – Bangladesh, Source: World Bank

6. Prospects of local investment and FDI

15
https://www.doingbusiness.org/en/data/exploreeconomies/bangladesh
Although Bangladesh faces many challenges and impediments in overall investment climate in
Bangladesh there are also huge prospects in this country. In the same report 16 by World Bank,
they identified three topics where Bangladesh has improved. The topics are

 Starting a business: Bangladesh made starting a business less expensive by reducing

name clearance and registration fees and abolishing the fee for certifying digital
certificates. This reform applies to both Dhaka and Chittagong.
 Getting electricity: Bangladesh made getting electricity faster by investing in digitization
and human capital at the utility. Bangladesh also made getting electricity less costly by
reducing the amount of the security deposit for a new connection. This reform applies to
Dhaka.
 Getting credit: Bangladesh improved access to credit information by expanding the
coverage of the credit information bureau.

Moreover, the following are the some of the prospects Bangladesh can utilize in attracting both
local and foreign investment:

Political stability: This is one of the key factors of investment. According to a report published in
Asia Business Law Journal, “Bangladesh have had the same government in power for more than
a decade, which has given much confidence to foreign and domestic investors.”17

Prof. Sarwar Md. Saifullah Khaled mentioned following prospects of Bangladesh in his article 18
published in the independent news portal in 2016.

Geographic location:  Bangladesh is an ideal country for global trades with very convenient
access to international sea and air routes. 

Natural resources: Bangladesh is abundant supply of natural gas, water and its soil is very fertile.

16
https://openknowledge.worldbank.org/bitstream/handle/10986/32436/9781464814402.pdf
17
https://law.asia/bangladesh-business-ready/
18
Problems and Prospects of Investment in Bangladesh,
https://m.theindependentbd.com/printversion/details/38545
Huge Population: Bangladesh has a hard working and generally intelligent population of
approximately 170 million with low-cost workforce suitable for any labour-intensive industry.

Democratic government: Bangladesh is a liberal democracy and mostly a one race and one
religion country.

Language: Although Bengali is the official language, but English is generally used as second
language. Majority of even moderately educated population can read, write and speak in English.

Growing middle class: Though domestic consumption is not significant. However, it should
always be considered that there exists a middle class with some purchasing power which is
growing.

Duty and quota free access: Most Bangladeshi products enjoy complete duty and quota free
access to EU, Japan, Australia and most of the developed countries.

Moreover government is investing several mega projects such as Padma Bridge, Padma bridge
rail link, Dhaka Metro Rails (MRT), Dhaka Elevated Expressway, Chattogram-Cox's Bazar rail
link, Rooppur nuclear power plant, Matarbari 1,200MW coal-fired power plant and the Payra
deep seaport which will give a big push to the country’s infrastructure and ultimately will be is a
big factor to the investment climate in the country.

7. Conclusion

Bangladesh has a long-term vision, to make the country a developed nation by 2041 with per
capita income of over USD 12,500 in today’s prices, aiming at increasing real GDP growth at 9.9
percent and reduce poverty level at less than 3.3 percent. A 20-year roadmap was designed to
reach the ultimate goal of Bangladesh becoming a developed country by 2041 which is called
Making Vision 2041 a Reality: Perspective Plan of Bangladesh 2021-204119. In this long-term
plan government articulated its vision and action plans how a country can achieve its targets.

19

https://plandiv.gov.bd/sites/default/files/files/plandiv.portal.gov.bd/files/79060938_fbce_4286_b787_e8f41edfc6
15/PERSPECTIVE%20PLAN%20of%20BD%202021-2041.pdf
Obviously, investment gets priority in the perspective plan. Institutional development,
Macroeconomic management for accelerated inclusive growth, Zero Poverty Country, Human
Development, Sustainable Agriculture to ensure Food Security and Nutrition, accelerated growth
with industrialization and trade, Sustainable Power and Energy, Creating an Innovation
Economy, Building Transport and Communications Infrastructure, Urban Transition, Managing
Environment and Climate Change, are the key agenda of the perspective plan 2041. The
Sustainable Goals of the United Nations are also linked with this plan. Government has taken
several steps to increase investment climate and FDI in the country in the plan so that country
can achieve its ultimate goals. If all the positive environments are materialized and the
perspective plan and other short-term plan are implemented, the investment of the country can
reach its next level.