Govt looks to simplify rules as FDI plummets 13.8pc
Gross inflow of foreign direct investment to Bangladesh fell 13.8 per cent to $3.73 billion in the first 11 months of last fiscal year, largely owing to the coronavirus pandemic, which came as a shock to foreign investors.
The drop would sound out a warning bell to Bangladesh as it would have to make its laws simple and incentives attractive to attract foreign investors as it seeks to draw FDI moving out of China in the wake of the epidemic.
Gross FDI receipts were $4.33 billion during the same period a year earlier, Bangladesh Bank data showed. Net FDI dropped 19.04 per cent year-on-year to $1.97 billion in the 11 months.
The fall in FDI was expected as the United Nations Conference on Trade and Development last month forecast that global FDI flows to decrease by up to 40 per cent in 2020, from their 2019 value of $1.54 trillion, because of the pandemic.
This prompted the finance minister to write to the central bank last month to remove barriers in the banking sector to make investing in Bangladesh easier and repatriating funds and profits smooth.
"The Covid-19 has created an opportunity for Bangladesh to attract increased foreign investment. To seize this opportunity, foreign investors have to be allowed to easily repatriate their investment money or profits or transfer them to other locations."
Possibility of investment or factories relocating from China has been created in the wake of the coronavirus pandemic, the letter said.
Many countries in the region such as India, Vietnam and Indonesia are simplifying rules, regulations, tax regime, and banking systems to attract the investment moving out of China.
Ensuring smooth repatriation of investment and profits to home countries of the investors is prerequisite to creating a congenial environment for FDIs.
So, related agencies should take immediate measures so that investors can repatriate the funds easily, the finance division said.
"To make it happen, simplifying banking activities, easing rules and regulations and making them time-befitting and their applications are important."
The prime minister at a cabinet meeting on June 8 ordered to take steps so that foreign investors can take back their invested money or profits without any hindrance, the letter said.
The premier emphasised ensuring top-class banking services to help foreign investors go for capital investment and repatriate invested money or profits, it said.
According to the finance division, non-resident Bangladeshis are increasingly becoming interested in investing in Bangladesh in the manufacturing, agriculture and services sectors.
They are investing in various savings schemes at local banks as the rate of interest rates on deposits is higher than in foreign banks.
But they face a complex banking process when they withdraw the funds upon their maturity and take back the funds. This discourages many NRBs to invest in Bangladesh, the letter said.
Steps need to be taken so that foreign investors can easily deposit funds in their foreign currency accounts, withdraw funds and repatriate the invested funds or profits.
To do so, the central bank can take urgent steps to simplify banking and make it faster, it said.
A committee of the finance division and the central bank has already prepared a draft to make the Foreign Exchange Regulation Act 1947 in Bangladesh time-befitting.
The process to pass the bill in parliament to turn it into law to get rid of legal barriers is underway.
FDI surged 51 per cent last fiscal year to its highest on record, riding largely on Japan Tobacco Inc's acquisition of Akij Group's tobacco business for $1.47 billion.
In fiscal 2018-19, net FDI stood at $3.88 billion in contrast to $2.58 billion a year earlier, according to data from the central bank.
Bangladesh expects a bigger inflow of FDI in the days to come as different nations plan to relocate their factories to countries like Bangladesh to bring down cost amid a cash crunch caused by the pandemic, said Commerce Minister Tipu Munshi recently.
Bangladesh needs to increase private investment -- and especially foreign investment -- to raise productivity levels, diversify exports and accelerate economic transformation, the World Bank said last month.
The country is not attracting near enough FDI to help propel a new phase of economic transformation.
China is joining the European Union and the US as a leading source of FDI in Bangladesh and recent anecdotal evidence indicates that some East Asian manufacturers are turning to Bangladesh to diversify their production and overcome rising international import tariffs.
Bangladesh would have much to gain from the capital, technology, innovation and managerial knowhow that may accompany FDI.
But it is well behind emerging economies in the region such as Cambodia, India, Myanmar and Vietnam when it comes to FDI inflows per capita or as a share of GDP, the WB said in a document.
"There are signs that Bangladesh may be on the cusp of becoming a new frontier market for market-seeking foreign investment and possibly for efficiency-seeking foreign investment too. But old concerns and perceptions about Bangladesh's ability to accommodate and partner with foreign investors must continuously be addressed," it added.
Improvements in infrastructure, governance and stepping up anti-corruption efforts will be necessary to enhance the business environment and attract FDI, the International Monetary Fund said recently.
The government plans to redesign the incentive package for post-pandemic FDI flow, Paban Chowdhury, executive chairman of the Bangladesh Economic Zones Authority, told state-run news agency BSS last week.
He said a redesigned incentive package appeared crucial for Bangladesh as other FDI-seekers like India, Vietnam, Thailand and Cambodia were offering "more than what we are doing" and some of them by now ensured their access to bigger markets under different free trade agreements.
"We have made a series of recommendations to incorporate new offers in our existing incentive packages to draw FDI during and after the pandemic," Chowdhury said.