FDI rose 20% in FY25

Bangladesh saw a rebound in foreign direct investment (FDI) in the fiscal year (FY) 2024-25, with net inflows reaching $1.71 billion.

The figure marks an increase of nearly 20 percent compared with the previous year, following a three-year low in FY24 amid a heated political climate centred on the national elections and subdued investor confidence, according to central bank data.

Economists and business leaders welcomed the recovery as a sign of renewed investor confidence. Still, they warned that the overall volume remains far below what is needed to support the country's long-term development ambitions.

They said sustained reforms, political stability, reliable infrastructure, and investor-friendly policies are essential to attract new greenfield investments and diversify the FDI base.

"It is good to see this uptick, but it is important to understand how much came from new investors versus reinvestments by those already operating in Bangladesh," said Syed Akhtar Mahmood, former lead private sector specialist in the Trade & Competitiveness Global Practice of the World Bank Group (WBG).

"Reinvestment could reflect growing confidence, but it may also be a response to rising local borrowing costs," he added.

Mahmood said attracting new foreign investors is critical for long-term growth and diversification. "While existing investors are important, Bangladesh must actively seek fresh investment, especially in export-oriented sectors and emerging industries."

He also called for examining the sectoral distribution of FDI, especially in areas that support exports such as energy, logistics, and new product development.

He noted that much of the FDI recorded in a given year often reflects decisions made earlier. "So, while the current figures are encouraging, the full impact of recent reforms may not yet be visible."

Rupali Chowdhury, former president of the Foreign Investors' Chamber of Commerce and Industry (FICCI), said the current level of FDI is insufficient to meet Bangladesh's long-term growth goals.

"To increase our GDP growth by 1 percent per year and become a high-income country, we need at least $8 billion in FDI annually. But inflows have remained between $1.5 billion and $3 billion," she said.

She pointed to persistent uncertainty as a major deterrent for foreign investors. "Concerns over the overall business environment are holding back investment," said Chowdhury, urging the government to prioritise resolving the gas and power shortage and improving logistics.

She compared Bangladesh with regional peers. "Vietnam attracted around $36 billion in FDI commitments in 2024, while India secured more than $28 billion. Even smaller Southeast Asian economies like Cambodia have often outpaced Bangladesh in winning large greenfield projects."

She added that consistent, investor-friendly policies are essential to attract and retain quality investment. Chowdhury cited the Japanese economic zone as a promising model for drawing FDI.

Ashraf Ahmed, former president of the Dhaka Chamber of Commerce and Industry (DCCI), described the recent rise in FDI as encouraging, crediting efforts from both the public and private sectors.

"This is certainly a positive sign and the result of a lot of hard work," he said. Ahmed, however, added that the overall volume remains far below what is needed to achieve Bangladesh's growth ambitions.

"The aggregate FDI still stands at a very low base," he said, noting that much more needs to be done to attract both domestic and foreign private investors.

The business leader stressed that progress must be made in political stability, macroeconomic management, infrastructure, regulation, and the broader business environment.

"Only a consistent and comprehensive reform strategy will enable Bangladesh to unlock its full investment potential and remain globally competitive," he added.

M Masrur Reaz, chairman and CEO of Policy Exchange of Bangladesh, also welcomed the FDI increase, describing the year-on-year rise as encouraging.

However, he cautioned that inflows remain far below what is required to sustain long-term growth.

"While the numbers look good on the surface, they are still quite low compared with our needs," he said, adding that much of the investment is concentrated in export-processing activities.

Reaz added that much of the recent FDI has come from reinvestments by existing foreign investors rather than new greenfield projects or entry into new sectors. "If this pattern continues, we should not be overly satisfied with the headline figures," he said.

The economist called for time-bound reforms to attract new investors, diversify sectors, and improve transparency. "Without a sector-wise breakdown of FDI, it is difficult to assess the quality and sustainability of these inflows," Reaz said.