Increasing FDI: where it pinches?

Bangladesh has made gradual progress in reducing some constraints on foreign direct investments (FDIs). However, many feel a lot needs to be done when it comes to improving the ease of doing business here.  

Corruption has been coined as a major obstacle that continues to hinder foreign investment as per "The 2022 Investment Climate Statement" released earlier this year. Challenges in security, political interference, and land disputes are also acting as major barriers to investment. Coupled with this comes political cronyism and 'licence raj'.

Power generation capacity had grown significantly over the last decade, but transmission and distribution systems still need additional work to ensure more reliable and inclusive access. The electricity and gas crisis in recent months has made an urgent overhaul in the power sector of utmost importance.

Ambiguities still exist in numerous sections of the overall regulatory framework and what's more confusing and irritating to investors is that multiple conflicting regulators are often involved in the same sector, each with their own differing agenda that may not be in the best interest of the investors.

Double taxation avoidance agreement treaties (DTAAs) are in place with various countries but to take advantage of them, official approval is required from the National Board of Revenue (NBR), and whether the NBR actively honours these DTAAs is already a matter of major concern for foreign investors because there have been frequent complaints from foreign companies and firms in this regard.

Even though from a national policy level, it may appear that Bangladesh allows outward remittance of dividends, royalties, technical fees, management costs etc., the reality is completely different since there appears to be significant resistance and roadblocks, which are immensely time-consuming, resource-draining and plagued with rampant corruption in every step. Added to these are also the way we value the assets of a divesting entity.

As we continue our focus on bringing in FDIs, we also should keep an eye on the prospective advantages of outward FDIs.

Outward FDIs (OFDIs) from Bangladesh rose nearly seven times to $92 million in 2021, according to the United Nations Conference on Trade and Development.

Market, strategic assets, and efficiency-seeking are important motivations for OFDIs. Overseas investments in joint ventures and wholly-owned subsidiaries could become essential channels for promoting the growth of Bangladesh's business enterprises.

Mergers and acquisitions and other forms of alliances with companies in host countries could be particularly valuable for the generation of intangible capability returns such as additional knowledge, skills, technological upgrading, managerial expertise, and brand goodwill.

Bangladeshi investors should start making more investments abroad and take advantage of preferential market access in third-world countries to overcome the challenges of the post-LDC graduation period.

Presently, Bangladeshi companies are somewhat deterred from making investments overseas and one of the contributing factors has been that the government is relatively circumspect on undertaking liberalisation of outward investment. An ongoing challenge with foreign currency liquidity has made it even worse.

Going forward, Bangladesh needs a transparent policy framework to manage investment abroad that is synergetic with domestic FDI expansion. The government may review the existing restrictions on OFDIs, weigh their costs and benefits and adopt measures that strengthen economy-wide policy coherence and absorptive capacity.

Simplifying investment processes to ensure clarity of rules regarding foreign investment and establishing a conducive investment climate will help mobilise investments for sustainable development.

The author is an economic analyst.