1.

0 Introduction:

For a developing country like Bangladesh, FDI has enormous significance in building up
the countrys economic and infrastructural development. The recent FDI situation in Bangladesh
has just touched a remarkable sign in the history of the country. Bangladesh was the fourth
largest Foreign Direct Investment (FDI) host among the Least Developed Countries (LDCs) in
the 2016. In South Asia, Bangladesh is ahead of all countries except India. Bangladesh has
witnessed the highest growth among the South Asian countries due to stable and favorable
investment atmosphere which prevailed in the country last few years.

2.0 FDI and Bangladesh:

Foreign Direct Investment (FDI) generates economic benefits to the recipient country
through positive impacts on the real economy resulting from physical capital formation, transfer
of technology and increased domestic completion. Bangladesh stands to gain from these inflows
provided it is able to allocate and manage these resources efficiently keeping in view the
concomitant liabilities of profit and income payments. In the Bangladesh context, the recent
surge in FDI in energy and telecom sectors appear to have heavy import content with little
impact on foreign exchange reserve accumulation. The concern that logically emerges is whether
the real economy would be able to generate sufficient foreign exchange to finance the remittance
of profits and income originating from the foreign investment.
The question arises, can the economy sustain the foreign exchange payments that will be
needed to cover the profit repatriation, interest payments and amortization of private debt?
Clearly, in the Bangladesh context, the nature of private capital inflows has implied little
augmentation of foreign exchange reserves. Thus two critical issues emerge from the nature of
these capital inflows:
First, the high import intensity of FDI inflow and subsequent profit repatriation and interest
payments, implies a worsening current account deficit associated with FDI.
Second, there is no discernible accumulation of foreign exchange reserves and consequently,
no upward pressure on exchange rates (essentially ruling out the prospects of Dutch Disease)

3.0 Current FDI situation in Bangladesh

Bangladesh has witnessed the highest foreign direct investment (FDI) in last year exceeding $ 2
billion mark, reports the BSS. The World Investment Report 2016, released by the United Nations
Conference on Trade and Development (UNCTAD) showed that Bangladesh registered 4.38%
growth at a record breaking FDI of $2.33 billion in 2016 riding on telecommunication sector,
compared to $ 2.235 billion in 2015.The FDI receipt was 44.10 percent or $ 684 million higher
compared to that in 2014.
In South Asia, Bangladesh is ahead of all countries except India which was the 10th largest FDI
recipient country in the world in 2015, receiving $ 44 billion.

3.1 FDI Inflows (Net) by Major Sectors:

The sectors that attracted maximum FDI (Net Inflows) for the calendar year 2016 include
Telecommunication (US$ 572.76 million), Textiles & Wearing (US$ 364.44 million), Power
(US$ 267.97 million), Gas & Petroleum (US$ 166.34 million) and Banking (US$ 166.07
million) which were 24.55%, 15.62%, 11.49%, 7.13% and 7.12% respectively towards the
contribution of total FDI inflows (net). There was a large injection of capital by Singapore
Telecom (Singtel) to enhance the capital base of Bharati Airtel in the country.
The UNCTAD reports said three Greenfield FDI projects in Bangladesh have positioned
themselves in the list of Least Developed Countries (LDCs) 10 largest greenfield projects
announced in 2016.

Figure 10: FDI Inflows (Net) by Major sector during 2016

(Figure-10). (In million US$)

572.76
795.14
(24.55%)
(34.09%)

364.44
(15.62%)
166.07
(7.12%)
166.34 267.97
(7.13%) (11.49%)

Telecommunication Textile & Wearing Power

Gas & Petroleum Banking Other Sectors
Capital inflows on the basis of the following sector are as follows:

3.2 FDI Inflows (Net) by Major Countries:

FDI inflows (net) from major countries during 2016 arranged in descending order of magnitude were:
Singapore (US$ 673.05 million) , United Kingdom (US$ 330.32 million), United States of America
(US$ 217.74 million), Norway (US$ 160.26 million), South Korea (US$ 151.33 million), Hong
Kong (US$ 98.46 million), Netherlands (US$ 88.87 million), India (US$ 79.20 million), China (US$
61.40 million) and Japan (US$ 48.26 million) which were 28.85%, 14.16%, 9.33%, 6.87%, 6.49%,
4.22%, 3.81% , 3.40% , 2.63% and 2.07% respectively towards the contribution of total FDI inflows
(net) (Figure-11).

Figure 11: FDI Inflows (Net) by Major Countries during 2016

(In million US$)

673.05
700.00
600.00
500.00 423.83

400.00 330.32

300.00 217.74
160.26 151.33
200.00 98.46 88.87 79.20 61.40 48.26
100.00
0.00
4.0 Factors Influencing FDI in Bangladesh:

4.1 Reasons Behind choosing Bangladesh for Investment place

Faster growth in industry (overtaken agriculture)
Developing infrastructure significant target for infra investment
Export springboard access to all the large markets of world
High demand for technology transfer
Continued business environment reforms on global investors spotlight
Strong local market and growth
Competitive utility cost
4.2 Attractive features that allure the investors to invest in Bangladesh
Large educated and motivated youth
Increasing trade integration, e.g. Labor cost advantage, largest garments exporter
Increasing urbanization
Investment Environment in Bangladesh
Risk factors for FDI are the minimum in Bangladesh
Bangladesh never posted negative economic growth during the past 30 years
Bangladesh has never defaulted in its debt repayments, nor asked for its rescheduling
Bangladesh has an open, market based economy led by a vibrant and innovative
private sector which provides the main stimulus to its growth

5.0 Sector Wise Opportunities Of Investment

 Investment Controlled Industries (Free to invest but requires permission)
1. Bank/financial institution in the private sector
2. Insurance Company in the private sector
3. Generation, supply and distribution of power in the private sector
4. Exploration, extraction and supply of Natural gas/oil, coal and other mineral resources
5. Large-scale infrastructural project (e.g. flyover, elevated expressway, monorail, economic
zone, inland container depot/container freight station)

6.0 FDI Policy Framework

6.1 Fiscal Incentives & Financial & Other Incentives

Fiscal Incentives Financial & Other Incentives

Corporate tax holiday: 5 to 7 years for selected sectors
and areas
Accelerated depreciation on cost of machinery for products
new industries in lieu of tax holiday
Avoidance of double taxation under
bilateral tax convention
Tariff concessions on import of capital machinery
Tariff concessions on import of raw materials of the
export oriented industries
Abolition of ceiling on investment and equity share-
holding by foreigners
Concessionary duty and VAT on capital machinery
and spares
Tax exemption on capital gains under certain simple
conditions
Cash incentives and export subsidies ranging
from 5% to 20% on the FOB value of selected
Funds for export promotion, export credit
guarantee scheme, permission for domestic sales up
to 20% by export-oriented companys outside EPZ.
Remittance of royalty, technical know-how
and technical assistance fees
Citizenship by investing a
minimum of US$ 5,00,000
Six month multiple visa for prospective
investors.
Bonded warehouse and back to back L/C for
exporting industries
Protection of intellectual property rights
6.2 Cash Incentives For FY 16-17

6.3 Sector Wise Incentives

0% and 1% customs duty rate is in force for the import of industrial capital machinery and spare
parts.
Special concessionary customs duty rate for import of raw materials for Ship- Building Industry,
Pharmaceuticals Industry, Textile Industry, Toys, Manufacturing Industry, Telecommunication
Industry, Handloom Industry
Raw materials, machinery and spare parts of poultry and dairy farms, Solar Panel Manufacturing
Plants are exempted from customs duty
Raw materials, machinery and spare parts imported by Oil and Gas exploration and extraction
companies, and also by CNG filling station are exemptions from customs duty
Medical equipments and medication materials are exempted from customs duty
Technical grades imported by the pharmaceutical raw materials producing industries are
exempted from customs duty
Import of De-inking chemicals and waste paper by newsprint paper manufacturing industries is
exempted from customs duty
Special concessionary customs duty rate is in force for the import of chemical materials by the
leather industries
Imports undertaken by 100% export-oriented industries are exempted from customs duty
7.0 Problems of Foreign Trade in Bangladesh

A number of factors act as impediments to FDI, including weak infrastructure, inconsistent

energy supply, lack of land and skilled labor, political instability with occasional strikes, weak
financial sector, endemic corruption, cumbersome bureaucracy, lack of transparency, slow
judicial system, lack of stable policy, limited export base and the absence of effective
mechanism for alternative dispute resolution.

Political
culture

Inefficient Bureaucracy
port handling

Power crisis Factor affecting FDI Inadequate

infrastructure
growth

Sloth
Corruption information
flow
Sluggish
administrative
bodies

MAIN ISSUES TO OVERCOME

1. Strong political leadership

2. Ensuring utilities supplies
3. Reducing corruption
4. Strengthening diplomatic relationship
5. Arranging Trade Fairs
6. Infrastructural development
7. Political Stability
8. Reducing Bureaucratic Hassles