Foreign direct investment (FDI) in Bangladesh

FDI in Figures

According to UNCTAD’s World Investment Report 2024, FDI inflows to Bangladesh decreased by 13.6% to USD 3 billion in 2023 (compared to USD 3.48 billion in 2021). At the end of the same period, the total stock of FDI was estimated at USD 20.54 billion. Figures from the National Bank show that total net FDI inflows stood at USD 1.47 billion in FY24, falling by USD 141.60 million (-8.80%) compared to FY23, driven by declines in equity capital (-USD 42.43 million, -5.98%) and reinvested earnings (-USD 173.14 million, -21.97%), despite a USD 73.97 million increase in intra-company loans. Among investor groups, Other European Countries (OEC) led with USD 400.39 million, down from USD 547.16 million in FY23. Other Asian Countries (OAC) followed with USD 310.14 million (vs. USD 495.93 million), while Asian Clearing Union (ACU) and SAARC contributed USD 112.21 million (vs. USD 105.66 million). The top sectors accounted for 84.28% of total equity capital. Textiles & Wearing attracted USD 435.78 million, followed by Banking at USD 229.73 million, Chemicals & Pharmaceuticals at USD 123.79 million, Gas & Petroleum at USD 117.24 million, Telecommunication at USD 102.92 million, Agriculture & Fishing at USD 57.42 million, and Leather & Leather Products at USD 53.88 million. In terms of stock, at the end of June 2024, Textiles & Wearing had the highest share (22.6%), followed by Banking (16%), Power (14.5%), Telecommunications (7.2%), Gas & Petroleum (6.1%), Food (4.7%), Trading (3.4%), Pharmaceuticals & Chemicals (2.6%), Leather & Leather Products (2.3%), and Agriculture & Fishing (1.8%). The top contributors to total FDI stock were the UK (17%), Singapore (9.9%), South Korea (8.9%), China (7.9%), the Netherlands (7.3%), Hong Kong (7.2%), the USA (5.8%), India (4.6%), Malaysia (4.5%), and Australia (3.5%).

Despite steady economic growth in the country over the past decade, foreign direct investment has been comparatively low in Bangladesh compared to regional peers. Bangladesh suffers from a negative image: the country is seen as being extremely poor, under-developed, and subject to devastating natural disasters and socio-political instability. Moreover, Bangladesh's capital markets are in the early stages of development, and the financial sector relies heavily on banks. However, the country has the advantage of being in a strategic geographical position between South and Southeast Asia. In addition, its domestic consumption potential and the wealth of its natural resources make the country a good candidate for investment. The government promotes private sector-led growth, foreign currency is abundant due to remittances, and the central bank respects the transferability of foreign currency. A number of more developed Asian countries have outsourced their factory production, mainly textile, to the country. Moreover, the government simplified a set of laws as part of its efforts to reduce barriers to foreign investment. Foreign and domestic private entities have the freedom to establish, operate, and divest interests in most business enterprises. However, the government imposes restrictions on foreign ownership and control in certain industries. Four sectors are exclusively reserved for government investment: arms, ammunition, and defence equipment; forest plantations and mechanized extraction in reserved forests; nuclear energy production; and security printing (e.g., currency). While private investments are allowed in power generation and natural gas exploration, full foreign ownership in petroleum marketing and gas distribution is not permitted. Foreign ownership in telecommunications is capped at 60% (70% for tower sharing). Seventeen sectors, including aviation, banking, coal, natural gas, and mineral exploration, require operational permission from ministries. Bangladesh ranks 105th among the 132 economies on the Global Innovation Index 2024 and 122nd out of 184 countries on the latest Index of Economic Freedom.

What to consider if you invest in Bangladesh

Strong Points

The main assets of Bangladesh's economy are:

• Good macroeconomic stability characterised by a high growth rate of 8.2% in 2019 and 3.8% in 2020 (IMF) as well as a satisfactory level of the public debt of 39.6% in 2020 (IMF)
• An open and diverse economy
• A very low-cost workforce
• A strategic geographic position as a gateway to countries in the Asia-Pacific region
• A strategic and competitive position in the value chain of the global economy
• An economic and legislative environment globally favourable to business
• Favourable biodiversity and weather conditions

Weak Points

The main obstacles to attracting investment include:

• A business environment complicated by the country's weak infrastructure, burdensome bureaucracy, high risk of corruption, lack of transparency and the slow pace of the judicial system
• Exports that are not sufficiently diversified and highly dependent on the textile sector
• Fragile political stability threatened by recurrent social movements;
• Weakness of the financial sector
• Vulnerability to natural disasters (cyclones, severe floods) that result in substantial income losses
• An economy dependent on the garment industry and characterised by a weak per capita income
  

Government Measures to Motivate or Restrict FDI

The Bangladesh government is actively seeking to attract foreign investment, particularly in the areas of energy and infrastructure. Many incentives have been implemented through industrial policy, growth strategy through exports and a public-private partnership (PPP) program launched in 2009. Although there is little discrimination against foreign investors, the government often favours local industries. For example, the importation of drugs that compete with locally manufactured pharmaceuticals is tightly controlled, and local majority ownership in new shipping companies is required.

In order to mitigate the risks of being too dependent on industrial production in the textile sector (over 86% of Bangladesh's exports earnings come from textiles according to Bangladesh Textile Mills Association's latest data available), the government is seeking to develop certain sectors by granting companies involved in these areas with incentives and favourable conditions. These include agricultural and agro-industrial products, light engineering, leather footwear and leather goods, pharmaceuticals, software and ICT products, as well as shipbuilding.

In recent years, the government has also launched numerous infrastructure projects: the project to build a road and rail bridge over the Padma River and the Dhaka metro, for example.

Bilateral investment conventions signed by Bangladesh

Bangladesh has signed 30 bilateral investment agreements. For more details, visit the site of the UNCTAD.