Bangladesh’s FDI ambitions undermined by outdated investment law
Bangladesh officially recognises foreign private investment (FPI) as a vital catalyst for economic progress, essential for job creation, technology transfer, boosting export growth, and strengthening national foreign exchange reserves. Under Bangladesh law, FPI refers to foreign capital in "industrial undertakings," as defined by the Foreign Private Investment (Promotion and Protection) Act, 1980. This differs from the broader, globally used concept of foreign direct investment (FDI), which includes a wider range of sectors and is reflected in Bangladesh Bank's statistics.
Despite a challenging foreign investment environment marked by low net FDI, the Bangladesh Investment Summit 2025, held in the capital from April 7 to 10, was an earnest effort by the interim government to reposition the nation. This significant event brought together over 2,300 participants from 50 countries, aiming to redefine Bangladesh as a stable and attractive destination for foreign capital by showcasing its economic reforms.
For all latest news, follow The Daily Star's Google News channel. Encouragingly, Bangladesh Investment Development Authority (BIDA), the country's national investment promotion body, announced that it had garnered investment proposals worth Tk 338.06 billion in the first quarter of 2025, with a substantial Tk 161.69 billion originating from foreign and joint-venture investment sources.
However, despite these foundational initiatives and the expressed commitment by past governments to nurture FDI, its effectiveness often falls short of expectations. Many foreign investors report disappointing rather than promising experiences, fuelling serious concerns about the nation's investment climate. Weak infrastructure, coupled with insufficient gas and electricity supplies, severely hampers industrial output. Factories frequently struggle to maintain continuous production due to power and gas shortages, directly impacting profitability. In addition, extensive delays at Bangladesh's ports, a substandard transportation system, and pervasive bureaucratic complexities and corruption significantly inflate production costs and erode the country's global competitiveness. This unfavourable environment means FDI in Bangladesh is not achieving its desired momentum, thereby negatively impacting the country's overall economic development.
While the interim government sometimes attempt to address these systemic issues, it often fails to implement the consistent, long-term reforms required to build lasting investor confidence. The reality is stark: Bangladesh Bank's FDI statistics, compiled on a fiscal-year basis, show that while the nation attracted a gross FDI of $4.43 billion in the FY2022-23, a significant $1.18 billion was withdrawn for different purposes, taking the net FDI to $3.25 billion. This figure is less than half of what Bangladesh receives in remittances in a single month.
Back in 1980, the government proactively enacted the Foreign Private Investment (Promotion and Protection) Act, 1980—a legislative initiative designed to cultivate a welcoming investment environment. This law aimed both to encourage and safeguard the interests of foreign investors, ultimately seeking to unlock the full potential of FPI for the nation's sustainable economic development. Yet, despite its original intent, persistent questions arise regarding the contemporary relevance of this law and, more critically, its actual capacity to effectively safeguard foreign investment in today's dynamic economic landscape.
A major flaw lies in the prevailing definition of "foreign private investment" as outlined in Section 2(B) of the act, which is unduly constrained, primarily aligning with "industrial undertaking" as defined in Section 2(C). This limitation poses a significant challenge, as it prevents foreign investment in burgeoning and increasingly vital sectors such as the service and information technology industries from receiving the comprehensive protections and benefits intended by the act.
Furthermore, investors face considerable risk under Section 3, which broadly empowers the government to approve foreign capital in an "industrial undertaking". The imprecision of this term, coupled with the government's discretion to "impose such conditions as it deems appropriate," creates an unpredictable landscape, inviting arbitrary rulings and jeopardising the transparency and reliability foreign investors critically seek.
Similarly, the ambiguity of the "fair treatment" clause in Section 4 of the act generates considerable uncertainty for investors. Without clear safeguards against altered investment terms or arbitrary governmental actions, this provision diminishes the predictability crucial for attracting and retaining capital, ultimately hindering sustainable economic growth.
Despite Section 7 of the act, intended to safeguard against expropriation and nationalisation, foreign investors remain vulnerable due to the ambiguous definitions of "public purpose" and "adequate compensation." While compensation is based on market value, the absence of precise assessment guidelines often leads to protracted disputes, and the unspecified timeframe for "prompt" payment introduces further unpredictability for those seeking timely restitution.
Moreover, while Section 8 guarantees foreign investors the right to repatriate their capital and profits, this assurance is conditional on the government's right to suspend it during "exceptional financial and economic difficulties." The undefined nature of these "difficulties" and the unspecified conditions for their application create significant uncertainty for investors, leaving them unsure about their ability to retrieve their funds during a crisis.
The Foreign Private Investment (Promotion and Protection) Act, 1980, is undeniably inadequate for resolving foreign investment disputes in Bangladesh. It is crucial to integrate Alternative Dispute Resolution (ADR) mechanisms such as arbitration and mediation into this act. ADR offers a speedy, cost-effective, and efficient way to resolve disputes; this fundamental shift would significantly boost investor confidence, attract more foreign investment to Bangladesh, modernise the existing legal framework, and cultivate a truly investment-friendly environment.
Furthermore, this law urgently needs detailed rules to guide its implementation. Without clear guidelines, investors face debilitating uncertainty, which directly discourages new investments. Crafting sector-specific rules would boost investor confidence, streamline processes, and ultimately fulfil the law's aim of promoting and protecting investments.
It is also important to note that, to effectively attract and manage foreign investment, Bangladesh already relies on a suite of major laws, such as the Bangladesh Export Processing Zones Authority Act (1980), the Bangladesh Economic Zones Authority Act (2010), the Public Private Partnership Act (2015), the Bangladesh Investment Development Authority Act (2016), and the Companies Act (1994). These laws offer specific incentives, protections, and regulations designed to attract and manage foreign capital. Therefore, it is imperative to amend the Foreign Investment (Promotion and Protection) Act to create a unified legal framework that aligns with and maintains the core objectives and substance of these existing investment-friendly laws.
Bangladesh's ambitions for strong economic development, heavily reliant on FDI, will not be realised without tackling deeply embedded systemic challenges and undertaking a fundamental restructuring of the legal environment.
The Foreign Private Investment (Promotion and Protection) Act, 1980 is a key target for immediate, comprehensive reform. Its restricted reach, ambiguous clauses, and missing modern dispute resolution mechanisms foster an unpredictable climate that actively discourages foreign capital. Integrating this Act with existing investment legislation and crafting clear implementation guidelines will establish the coherent and transparent framework essential for Bangladesh to truly secure and attract the FDI vital for its continued progress and prosperity.
Atiqur Rahaman is an apprentice lawyer at the District and Sessions Judge's Court, Dhaka. He can be reached at [email protected].
Views expressed in this article are the author's own.
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