How to boost FDI | The Daily Star
12:00 AM, September 25, 2019 / LAST MODIFIED: 12:00 AM, September 25, 2019

How to boost FDI

Some ideas from the Bangladesh Rising Conference at Harvard

At some of the conferences on Bangladesh held in the USA, particularly at Harvard University, I have noticed that introductory speeches often mention Henry Kissinger and his infamous remark about Bangladesh being a “basket case” or “bottomless basket”. At the recent Bangladesh Rising Conference, on September 16, Professor Tarun Khanna of Harvard University and Professor Kaushik Basu of Cornell University both used the basket case paradigm to highlight Bangladesh’s economic prosperity since our Independence.

Tarun Khanna, the Jorge Paulo Lemann Professor of Harvard Business School, reminded us that it is time for the rest of the world to recognise Bangladesh as an emerging powerhouse in South Asia and consider it as a viable destination for their investment.

It cannot be denied that the basket case allegory always evokes a positive reaction from the crowd. At the Bangladesh Rising Conference, speaker after speaker then used Kissinger’s scepticism about Bangladesh’s viability as a sovereign entity to pronounce in one voice, “Look how far they have come!” One speaker even suggested that Henry Kissinger should be held accountable for the misguided US foreign policy during Bangladesh’s Liberation War and blamed Samantha Power, President Obama’s close national security adviser, for letting Kissinger off the hook.

The one-day conclave in the basement of the Gutman Library of Harvard Graduate School of Education was sponsored by Lakshmi Mittal and Family South Asia Institute, of which Khanna is the Director. The Mittal Institute brought together scholars, representatives from Bangladesh government, Bangladesh private sector executives, and NGO leaders to “celebrate the country’s successes thus far and to critically examine some of its anticipated future challenges” in recognition of the nation’s approaching its 50th anniversary.

The ostensible purpose of these gatherings is to draw global attention to Bangladesh as a potential destination for foreign direct investment (FDI) and to showcase the efforts of the Sustainable Development Goals (SDG) initiative. In one of the remarkable statements made by Abul Kalam Azad, Principal SDG Coordinator of Bangladesh, he announced that Bangladesh should be able to meet SDG 1 (No Poverty) and SDG 2 (Zero Hunger) within the next few years and well ahead of the 2030 deadline.

However, some scholars at the conference were not convinced by the SDG coordinator’s logic. As Tareq Hasan wrote in an op-ed on September 22, 2019, the future “scenario becomes even more dismal if we consider the higher thresholds of poverty line benchmarked by the World Bank, which is USD 3.2 or USD 5.5 per person per day, instead of USD 1.9—typical of lower-upper middle-income countries.”

What are the takeaways from this year’s conference? First and foremost, the government and its leaders are successful in convincing the rest of the world that Bangladesh has worked hard to shake off the image that the US government and its allies tried to create in the early days of our independence.

Kaushik Basu, who is currently the Carl Marks Professor of International Studies and Professor of Economics at Cornell University and served as the Chief Economist of the World Bank, presented the case that Bangladesh has overtaken its neighbours, India and Pakistan, in many areas, particularly per capita income and social development of women. He and others also pointed out that the role of FDI in Bangladesh needs to grow and the institutional and infrastructural barriers are still formidable. Among those attending the conference, the secretary of finance along with the executive chairman of Bangladesh Economic Zone Authority (BEZA) were unanimous in their promise to ease any remaining hurdles that stand in the way of increased foreign investment.

Some of the speakers touched upon the challenges that Bangladesh faces to reach middle income status and draw foreign investors in greater numbers. FDI in Bangladesh is still miniscule in comparison with its neighbouring countries, according to Khalid Quadir, Managing Partner, Brimmer & Partners. Quadir raised the issue of foreign investors being concerned about the difficulties they face when they decide to restructure their portfolio. “We still have a long way to go in terms of policy streamlining and stabilisation,” he mentioned.

Last year, FDI in Bangladesh was USD 3.6 billion whereas it was USD 64 billion in India. What would it take for Bangladesh to attract a bigger chunk of the international capital flow? One speaker suggested that policymakers could turn to Sri Lanka, Vietnam, and the Philippines, in addition to India, to identify the factors that make these countries draw more FDI.

According to a study by UNCTAD, the development of new economic zones drives greenfield investment activities, particularly in the construction of industrial establishments and power generation such as the construction of zones in Indonesia, Thailand and Vietnam. Manufacturing and services, particularly finance, retail and wholesale trade, including the digital economy, will in future continue to underpin inflows to the South Asia region. Robust investment from Asian economies and strong intra-ASEAN investments supported FDI growth in the subregion.

“The prospects for FDI flows to the region in 2019 are moderately optimistic, thanks to a favourable economic outlook and ongoing efforts to improve the investment climate in several major economies,” according to James Zhan, director of UNCTAD’s division on investment and enterprise. However, the recent decisions by Sanofi and SKF to pull back from Bangladesh have raised some concerns among various observers at the conference.

Kaushik Basu, who served as the Chief Economic Advisor to the Government of India from 2009 to 2012, had some words of advice and caution for Bangladesh in three areas: labour laws, diversity, and transparency. In comparison to India, Bangladesh has less restrictive labour laws and this facilitates employment. In India, employers are bound by British-era laws which make it difficult to downsize during tighter market conditions which impact their decision to hire.

In response to a question on growing income inequality, Basu cautioned against strong laws that might harm growth of entrepreneurship and stifle domestic investment. 

Dr Abdullah Shibli is an economist and works in information technology. He is Senior Research Fellow, International Sustainable Development Institute (ISDI), a think-tank in Boston, USA.

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