Foreign direct investment (FDI) in Bangladesh

FDI in Figures

According to the UNCTAD’s World Investment Report 2023, FDI inflows to Bangladesh increased by 20.2% to USD 3.48 billion in 2022 (compared to USD 2.89 billion in 2021). In the same year, the total stock of FDI was estimated at USD 21.1 billion, representing only 4.6% of the country’s GDP. Figures from the National Bank show that, during the fiscal year 2022-23, net FDI inflows totaled USD 3.25 billion, marking a decrease of USD 189.95 million or 5.5% compared to the fiscal year 2021-22 and an increase of 29.6% compared to the fiscal year 2020-21. In FY 2022-23, net FDI inflows by country blocs showed that Other European Countries (OEC) led with USD 0.828 billion, down from USD 0.845 billion in the previous fiscal year. The European Union (EU) followed with USD 0.729 billion, up from USD 0.624 billion. Other Asian Countries (OAC) contributed USD 0.659 billion, down from USD 0.836 billion, while the Association of South-East Asian Nations (ASEAN) invested USD 0.351 billion, down from USD 0.423 billion in the preceding fiscal year. In FY 2022-23, the manufacturing sector attracted the highest net FDI inflows, totaling USD 1.316 billion or 40.5%. This comprised mainly textiles & wearing (USD 0.662 billion or 20.4%), food products (USD 0.256 billion or 7.9%), and leather & leather products (USD 0.121 billion or 3.7%). The second-highest attracting sectors were power, gas, and petroleum, which drew USD 0.691 billion or 21.3%, including power (USD 0.365 billion or 11.2%) and gas and petroleum (USD 0.326 billion or 10.0%). Transport, storage & communication ranked third, attracting USD 0.463 billion or 14.3%, mainly from the telecommunications sector (USD 0.434 billion or 13.4%). Trade and commerce followed, drawing USD 0.404 billion or 12.4%, with banking (USD 0.364 billion or 11.2%) and trading (USD 0.055 billion or 1.7%) being the major contributors. Finally, services attracted USD 0.243 billion or 7.5%, mainly from the other service sector (USD 0.186 billion or 5.7%).

Despite steady economic growth in the country over the past decade, foreign direct investment has been comparatively low in Bangladesh compared to regional peers. 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. Bangladesh's capital markets are in the early stages of development, and the financial sector relies heavily on banks. In 2022, the sector experienced a significant scandal where 11 banks collectively faced a shortfall of USD 3.1 billion. 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 the transferability of foreign currency. A number of more developed Asian countries have outsourced their factory production, mainly textile, to the country. Moreover, the government simplified a set of laws as part of its efforts to reduce barriers to foreign investment. Foreign and domestic private entities have the freedom to establish, operate, and divest interests in most business enterprises. However, the government imposes restrictions on foreign ownership and control in certain industries. Four sectors are exclusively reserved for government investment: arms, ammunition, and defense equipment; forest plantations and mechanized extraction in reserved forests; nuclear energy production; and security printing (e.g., currency). While private investments are allowed in power generation and natural gas exploration, full foreign ownership in petroleum marketing and gas distribution is not permitted. Foreign ownership in telecommunications is capped at 60% (70% for tower sharing). Seventeen sectors, including aviation, banking, coal, natural gas, and mineral exploration, require operational permission from ministries. Bangladesh ranks 105th among the 132 economies on the Global Innovation Index 2023 and 116th out of 184 countries on the latest Index of Economic Freedom.

What to consider if you invest in Bangladesh

Strong Points

The main assets of Bangladesh's economy are:

• Good macroeconomic stability characterised by a high growth rate of 8.2% in 2019 and 3.8% in 2020 (IMF) as well as a satisfactory level of the public debt of 39.6% in 2020 (IMF)
• An open and diverse economy
• A very low-cost workforce
• A strategic geographic position as a gateway to countries in the Asia-Pacific region
• A strategic and competitive position in the value chain of the global economy
• An economic and legislative environment globally favourable to business
• Favourable biodiversity and weather conditions

Weak Points

The main obstacles to attracting investment include:

• A business environment complicated by the country's weak infrastructure, burdensome bureaucracy, high risk of corruption, lack of transparency and the slow pace of the judicial system
• Exports that are not sufficiently diversified and highly dependent on the textile sector
• Fragile political stability threatened by recurrent social movements;
• Weakness of the financial sector
• Vulnerability to natural disasters (cyclones, severe floods) that result in substantial income losses
• An economy dependent on the garment industry and characterised by a weak per capita income
  

Government Measures to Motivate or Restrict FDI

The Bangladesh government is actively seeking to attract foreign investment, particularly in the areas of energy and infrastructure. Many incentives have been implemented through industrial policy, growth strategy through exports and a public-private partnership (PPP) program launched in 2009. Although there is little discrimination against foreign investors, the government often favours local industries. For example, the importation of drugs that compete with locally manufactured pharmaceuticals is tightly controlled, and local majority ownership in new shipping companies is required.

In order to mitigate the risks of being too dependent on industrial production in the textile sector (over 86% of Bangladesh's exports earnings come from textiles according to Bangladesh Textile Mills Association's latest data available), the government is seeking to develop certain sectors by granting companies involved in these areas with incentives and favourable conditions. These include agricultural and agro-industrial products, light engineering, leather footwear and leather goods, pharmaceuticals, software and ICT products, as well as shipbuilding.

In recent years, the government has also launched numerous infrastructure projects: the project to build a road and rail bridge over the Padma River and the Dhaka metro, for example.

Bilateral investment conventions signed by Bangladesh

Bangladesh has signed 30 bilateral investment agreements. For more details, visit the site of the UNCTAD.