Foreign Investment in Bangladesh Drops by Over 72%

Economic Desk

Bangladesh has experienced a significant decline in foreign investment. In the first seven months (July-January) of the current 2024-25 fiscal year, the net foreign direct investment (FDI) stood at only $252 million, a 72% drop compared to the same period in the previous fiscal year. During July-January of the 2023-24 fiscal year, the country received $900 million in net FDI.

The first month of the current fiscal year, July, saw anti-government protests leading to arson, clashes, and chaos. Following the change in power in August, ongoing political instability, deteriorating law and order, and labor unrest have increased economic uncertainty in the country. Economists and business leaders believe this situation has contributed to the decline in foreign investment.

They argue that the country lacks an investment-friendly environment. Even local investors are refraining from new investments. Under these circumstances, the prospects of attracting foreign investment are slim, reflecting the current reality.

Economists and business leaders note that foreign investment has been declining in Bangladesh for a long time. The lack of a conducive business environment has hindered investment growth. Without an increase in local investment, foreign investment will not rise, which is concerning for the overall economy.

Former caretaker government advisor AB Mirza Azizul Islam stated, “One of the primary conditions for investment is a favorable environment. If the environment is conducive, local investors come forward, and foreign investors follow suit. However, if local investment does not increase, foreign investors will also hesitate to invest.”

He added, “Currently, due to uncertainty and instability, entrepreneurs are holding back from new investments and waiting for the environment to improve. Foreign investors are following the same path. This is why FDI in Bangladesh is in such a dire state. However, there is no certainty when an investment-friendly environment will return. If foreign investors move to other countries in the meantime, a major crisis will arise. Employment will decrease, and the economy will suffer negative impacts.”

Azizul Islam further noted, “Projects like the Padma Bridge, Metro Rail, Karnaphuli Tunnel, and special economic zones had raised hopes for increased investment in the country. Foreign investors were also reevaluating Bangladesh. However, the instability following the change in power has led to a lack of both local and foreign investment.”

According to updated data released by the Bangladesh Bank on Thursday, the net FDI in the first seven months (July-January) of the 2024-25 fiscal year was only $252 million.

Of this, $216 million came in the first six months (July-December). In January, the net FDI was a mere $36 million.

In the same period (July-January) of the 2023-24 fiscal year, $900 million in FDI entered the country. During that period, $744 million came in the first six months (July-December). The total FDI for the entire fiscal year (July 1, 2023, to June 30, 2024) was $1.47 billion, an 8.8% decrease compared to the previous fiscal year.

Net FDI is calculated by subtracting the amount repatriated by foreign investors from the total FDI received in various sectors of Bangladesh.

On February 10, the Finance Ministry submitted a report to the chief advisor on the country’s macroeconomic situation. The report mentioned that from 2020 to 2024, an average of $1.5 billion in foreign investment came annually. Of this, equity investment or new investment amounted to $668 million.

According to data from the Finance Ministry and the Bangladesh Bank, foreign investment has also declined in the current fiscal year’s quarterly accounts. In the first quarter (July-September), new and reinvestment totaled approximately $150 million, while in the second quarter (October-December), it was around $70 million.

A significant portion of Bangladesh’s FDI comes from reinvestment of earnings and undistributed profits by companies already operating in the country.

Syed Ershad Ahmed, president of the American Chamber of Commerce in Bangladesh (AmCham), said, “The main reason for the decline in FDI in Bangladesh is the lack of branding. We have not been able to present our country effectively to foreign investors. Additionally, port issues persist. We have not yet automated the port system, which is highly unfortunate. Currently, political instability and uncertainty prevail in the country, so expecting an increase in foreign investment under these circumstances is not realistic.”

According to international standards, foreign companies can invest in Bangladesh in three ways:

1. Capital investment in cash or machinery for industry.
2. Reinvestment of profits earned in Bangladesh instead of repatriating them.
3. Investment through loans from one company to another.
Any investment through these methods is considered FDI.

Even during the COVID-19 pandemic, Bangladesh received $1.77 billion in net FDI in the 2020-21 fiscal year, a 39.34% increase compared to the previous year. In the 2019-20 fiscal year, net FDI was $1.27 billion.

Before the pandemic, in the 2018-19 fiscal year, Bangladesh saw a record increase in foreign investment, receiving nearly $3 billion in net FDI, the highest in the country’s history.

That year, Japan Tobacco made a significant investment, acquiring Akij Group’s tobacco business for approximately $1.5 billion.

Reasons for the Decline in Foreign Investment

A survey by the Japan External Trade Organization (JETRO) revealed that interest in investing in Bangladesh is declining due to various reasons.

A recent JETRO report stated that 61.2% of Japanese companies currently operating in Bangladesh are interested in expanding their business. However, this rate is 10.4 percentage points lower than the previous survey. Two years ago, the rate was 71.6%.

The report, titled “Business Opportunities and Challenges in Bangladesh,” highlighted that the major risks for investment in Bangladesh include political instability, policy opacity, complex tax structures, poor legal systems, administrative complexities, and lengthy approval and registration processes.

Before recovering from the impact of the COVID-19 pandemic, Bangladesh faced high inflation and a dollar crisis due to global conflicts like the Russia-Ukraine war. This has posed new challenges for foreign investors. Additionally, irregularities, corruption, economic mismanagement, and energy shortages have further worsened the investment climate in recent years. The recent increase in tariffs and VAT on over 100 products has also disappointed foreign investors.

The Foreign Investors’ Chamber of Commerce and Industry (FICCI) represents 90% of the total FDI in Bangladesh.

T.I.M. Nurul Kabir, executive director of FICCI, said, “Foreign investors have been facing various challenges for several years. Recent statistics show a significant decline in FDI. Investors seek stability and clear policies. However, frequent changes in tariff and tax policies harm businesses.”

He added, “In recent years, the impact of the Russia-Ukraine war, the dollar crisis, and administrative complexities have become major obstacles to foreign investment. Additionally, significant changes in tariffs and taxes, including an increase in the effective tax rate, have created uncertainty for investors. Investors want stability and predictable policies, but the current situation lacks these.”

Kabir further stated, “Tariff and VAT increases were implemented without prior discussion. Every company has its own business plan. These decisions were made without conducting an impact analysis of tax and tariff changes. Policymakers should consider this issue seriously.”

Japan Tobacco International (JTI) has been the largest single contributor to FDI in Bangladesh in recent years.

In a recent statement, JTI Bangladesh’s Managing Director Paul Holloway said, “JTI is one of the leading investors in Bangladesh. Over the past six years, the JTI Group has invested nearly $2 billion here. The most important factor in attracting and retaining foreign investment is ensuring a sustainable and predictable business environment. Sudden changes in tax rates without consultation with industry stakeholders and immediate implementation are contrary to investment-friendly policies.”