Merits and Demerits of Foreign Direct Investment
Bangladesh needs FDI to functionalise its upcoming SEZs and generate employment to the growing number of job seekers. But we must reserve few sectors in product and service for the local entrepreneurs
Md. Joynal Abdin
There are significant reserves of foreign currency in Bangladesh. It is mounting up during last few years. At the same time we have a good amount of unutilized money in the banking system. It seems to be listen good that we are becoming wealthy nation with handsome cash in hand. But till now our investment in percentage of GDP is about 29. It is 56 in Bhutan, 33.25 in India. Bangladeshs investment in percentage of GDP is increasing day by day but the growth rate is too slow. It is a matter of investigation weather foreign currency reserve and unutilized cash in banking system is mounting because of this poor performance in investment or not? In terms of attracting foreign direct investment (FDI) we are performing even poorer than that of the neighboring or competitor countries. Bangladesh earned USD 1191, 1726, 1432, 1830 and 2001million during last five fiscal years. It is only 0.98, 1.19, 1.74, 1.47 and 1.73 of the GDP. Whereas India earned FDI of 2.00, 1.31, 1.52, 1.70 and 2.11 of its GDP during last five years. Vietnam got FDI 5.48, 5.37, 5.20, 4.94 and 6.10 of its GDP. Maldives received FDI 17.29, 9.05, 12.91, 10.77 and 8.70 of its GDP during last five years.
Lets have a look to the benefits of receiving FDI into a developing country like Bangladesh. FDI could offer following benefits to its host country:
1. Increasing supply of foreign currency and channelize international sources of industrial funds into the host country.
2. Increasing employment opportunity and help to reduce unemployment rate in the host country.
3. Increase skills of the host countrys labor and facilitate technology transfer.
4. Increases managerial knowledge of the host countrys professionals.
5. Foster economic growth, export earnings of the host country.
6. Introduce products standardization and international exposer of other products of the host country.
7. Provide corporate tax to the host government and contribute in revenue growth.
8. Creates a competitive business environment and productivity improves with the competition.
9. Develop international channel of distribution
10. Assists in adopting international standard policies and create a global business regime.
11. Contributes in development of backward and forward linkage local enterprises.
12. Assists in improving living standard of the stakeholders through different social responsibility measures.
Bangladesh is fighting with the development barriers like unemployment, poverty reduction, enlarging product basket, enlarging export basket etc. since its independence. It achieved significant economic advancements but till we have scope to grow further. Therefore government provides highest priority to industrialization of the economy by any means. Already we have eight Export Processing Zones (EPZ), 78 Industrial Estate developed by BSCIC to host investment. Furthermore the government is progressing to establish 100 Special Economic Zone (SEZ) in Bangladesh. All these arrangements are to host investment either from local or foreign sources. Bangladesh Investment Development Authority (BIDA) has been restructured by merging the Board of Investment (BoI) and Privatization Commission together. BIDA is organizing conferences, seminars, road show in abroad to draw attention of the foreign investors. Government declared a long list of fiscal and non-fiscal incentives to boost up the investment movement.
But till now Bangladeshs performance in FDI attraction is considered as poor. It is because a number of other factors like good governance, political stability / understanding among the political parties, security and safety of investment, law and order situation, availability of industrial logistics, hassle free business registration and licensing etc. are involve with an investment decision making.
Now Bangladesh has to go for a comprehensive investment services like one stop service, approaching foreign investors with specific project proposals, justification of investment policies and revision (if necessary), establishment of sector specific technical and engineering institute, establishment of sector specific testing laboratories, signing free trade agreements with existing and potential export destinations, reducing business licenses and registration requirements, activating BIDA with own manpower instead of the cadre officials deploy in deputation to activating the investment attraction measures.
Bangladesh has everything to be a good destination for foreign investment. It is located at the heart of South Asia, corridor between SAARC and ASEAN countries. It is near to 1/4th of world population with a large number of domestic consumers. Purchasing power of local people is increasing day by day with economic growth of the country. Bangladesh has a good number of sectors to invest profitably with supply of enough manpower in competitive cost. Government is keep to assist the investors with a long list of fiscal and non-fiscal incentives. Finally export items of Bangladesh are enjoying duty free and quota free market access to most of the export markets other than the USA. All the LDC facilities under the WTO arrangement are enjoying by an entrepreneurs while doing international trade from Bangladesh. Therefore Bangladesh could be considered as one of the most attractive location to relocate global business corporations to the EPZs and SEZ developing by the government.
It is for sure that Bangladesh needs foreign investment to boost-up its economy but we must remember that there are some adverse effects of FDI too. For example FDI in some sectors could have an adverse effect on local employment sector. For better understanding we could imagine a scenario where a large corporation establishes a highly sophisticated readymade garment factory here in Bangladesh; where most of the tasks completed by robotic technologies instead of human labor. I
ts productivity is much higher than human labor and product cost is also lower. In such case local factories will lose market share to it. After a certain period it could be seen that local factories are reducing their manpower to adjust with the situation. Long lists of people lose their employment due to that large investment. Similarly extreme competition from an FDI company may be cause of death to many local SMEs. Repatriation of a large FDI conglomerate could have an adverse effect on foreign currency reserve or balance of payment of a country. Therefore we must consider all these possible adverse effects of FDI into the local economy and adopt legal framework to mitigate these threats.
Finally, we could state that, Bangladesh needs FDI to functionalize its upcoming SEZs and generate employment to the growing number of job seekers. But we must reserve few sectors in product and service for the local entrepreneurs. Welcoming campaign of FDI has to be increased and equip with enough precautionary measures. Adequate preparations, practical drive and a business friendly local business environment could encourage the investors to invest here in Bangladesh.
We have everything to become a middle income country by 2027 if our government, political leaders, decision makers play respective role accordingly. Otherwise piecemeal investment drive will not give us complete output up to the expectation.
The writer is a development researcher
