Introduction

Economic supremacy is the foremost feature of the current world. In order to survive, Bangladesh has no other options but to attain economic development. Foreign Direct Investment (FDI) is recognized as a key component for economic growth for Bangladesh. Being one of the Least Developed Countries (LDC) with insufficient domestic savings rate for investment after fulfilling its basic needs, the importance of foreign investment is unquestionable. Foreign Direct Investment (FDI) will create employment, increase efficiency of labor, encourage technology transfer and develop new exportable sector. To attract more and more FDI the government of Bangladesh has been trying to establish private investment friendly environment. A number of opportunities have been given by the Government of Bangladesh to attract foreign investors to invest in the country in some prospective sectors. As Bangladesh does not have sufficient domestic savings for investment, foreign investment is the most powerful ingredient for its economic development. In international business FDI has become a significant component for many countries. Now-a days Asian countries have a great influence in the global economy. Though Bangladesh is comparatively lagging behind of them, there are a lot of opportunities to attain economic development by undertaking some initiatives. Considering the above facts the overall purpose of preparing the paper was to identify the prospect of Foreign Direct Investment in Bangladesh Economy.

Defining FDI
FDI is defined as an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate ). FDI implies that the investor exerts a significant degree of influence on the management of the enterprise resident in the other economy. Such investment involves both the initial transaction between the two entities and all subsequent transactions between them and among foreign affiliates, both incorporated and unincorporated. FDI may be undertaken by individuals as well as business entities. Flows of FDI comprise capital provided (either directly or through other related enterprises) by a foreign direct investor to an FDI enterprise, or capital received from an FDI enterprise by a foreign direct investor. FDI has three components: equity capital, reinvested earnings and intra-company loans.

Present Status in Bangladesh

Since the last decade, there has been a considerable change in global flows of trade and finance including a surge in FDI. Despite being a recent phenomenon, several underlying factors have contributed to increasing the FDI inflows in Bangladesh, such as trade and exchange liberalization, current account convertibility, emphasis on private sector led development, liberalization of the investment regime, opening up of infrastructure and services to the private sector-both domestic and foreign, and above all the interest of foreign investors in energy and

telecommunication sector. It is argued that more open trade policies are associated with the presence of foreign firms and economy-wide technological and productivity gains in developing countries like Bangladesh. There also exists evidence of a strong positive correlation between increasing share of FDI in GDP and diversification to high-technology exports in countries that have open trade regimes. Still, FDI constitutes a low share in GDP or gross investment of the country. Over the last decade, FDI as a share of GDP varied between 1.4 percent in FY98 and 0.5 percent in FY04. In FY05, the share rose to 1.3 percent due mostly to the large inflow of FDI to the telecommunications sector (Chart 1). As a ratio of gross investment, FDI varied between a low of 1.2 percent in FY04 and a high of 3.2 percent in FY98. Thus, given its low share in GDP and gross investment, it is expected that FDI is not likely to have a significant impact on various sectors as well as on important macroeconomic indicators of the Bangladesh economy.

The volume of FDI inflows to Bangladesh since FY98 is given in Table 1. Over the period19982007, the aggregate FDI inflow to Bangladesh was USD 5,510 million. Of this, equity was USD 2,986 million (54 percent), reinvested earnings amounted to USD 1,634 million (nearly 30 percent), and intra- company loans constituted USD 890 million (16 percent) (Chart 2). After a relatively high inflow in FY 98, there was a declining trend in FDI inflows up to FY04 with an exception in FY01. In FY05, there was an abrupt growth in FDI inflow amounting to USD 804 million. However, when FDI and debt inflows are seen in the context of associated remittances on account of dividend/profit repatriation, disinvestments, and debt amortization, it is observed that over the 11-year period (2000-2010), the outward remittances constituted 65 percent of the total inflow. As a developing country, Bangladesh needs FDI for its ongoing development process. Since independence, Bangladesh is trying to be a suitable location for FDI. However, the total inflow of FDI has been increasing over the years. In 1972, annual FDI inflow as 0.090 million US$, and after 33 years, in 2005 annual FDI reached to 845.30 million US$ and to 989 million US$ in 2006 and to 913 million US$ in 2010. Contribution of FDI was not remarkable until 1980, a year of policy change. That year government enacted the Foreign Investment Promotion and Protection Act, 1980 with an attempt to attract FDI. Enacting the Act government opens all sectors for FDI other than defense equipment and machinery, nuclear energy, forestry in the reserved forest area, security printing and minting, and railways.

Year

Million US $

2000 579 2001 355 2002 328 2003 350 2004 460 2005 845 2006 989 2007 666 2008 845 2009 716 2010 913 Table: 1 (Total Inflows) The table shows a fluctuating trend of the FDI inflows over the above mentioned 11 years. Data shows that in 2001 there was a sudden fall in the FDI, and again in 2002 and 2003 the falling tend continued for many reasons. Among others serious political unrest during the period was a major factor that discouraged foreign investment in these years and it took quite some time to regain the confidence of foreign investors. It stabilized afterwards but remained below the average achieved during 1999-2004. Later on during next several years period it becomes alive again.

The graph shows inconsistent proceeding of the FDI in Bangladesh since 1995. It is a matter of great concern that in spite of Bangladeshs comparative advantages in labor-incentive manufacturing, adoption of investment friendly policies and regulations, establishment of EPZs in different suitable locations and other privileges, FDI flows have failed to be accelerated. However, the year 2005 and 2006 show a substantial improvement in FDI achievement.

It may be mentioned that the surge in FDI in the energy and telecom sectors in Bangladesh is associated with heavy import content and little impact on foreign exchange reserve accumulation. This also raises a long term concern relating to the countrys ability to generate sufficient foreign exchange to finance remittance of profits and income originating from foreign investment. An associated concern is the rapid accumulation of foreign debt obligations of various maturities by the private sector; the outstanding stock of private-sector debt has now reached a significant level. The rapidly accumulating private sector debt gives rise to interest and principal payments in foreign exchange over and above official debt obligations to bilateral and multilateral agencies.

Inward FDI Flow in Bangladesh, South Asia and East Asia

The greater role of FDI on development can be perceived from East Asian experiences. High investment rates have driven this countries rapid pace of output growth. In the pursuit of achieving industrialized status, countries must develop a competitive edge in terms of quality products, market efficiency and ability to develop and upgrade technology. Following the path of the NIEs (Korea, Taiwan, Honking and Singapore), ASEAN4 countries (Thailand, Malaysia, Indonesia and Philippines) prospered through export led strategies by attracting FDI, based on intensive use of relatively cheap and skilled labor. These countries primarily rely on FDI as an important means for boosting technological capability. However competitive advantages of these countries in labor intensive products have eroded as countries like Bangladesh, Vietnam, India, and China. If we have a look over South Asia and East Asia then it is visualized that the inward trend of FDI is much higher than South Asia illustrating by the following figure-

FDI distribution by Source Countries (USD million)

FDI flows (millions of dollars)

FDI stocks (as a percentage of Gross Domestic Product, GDP)

Unfortunately FDI flow in Bangladesh is not satisfactory. According to UNCTAD, in 2003 Bangladesh achieved only 0.05 percent of total FDI while the proportion was 0.9 percent in India, 0.52 percent in Vietnam, 10.2 percent in Indonesia, and 70 percent in China. The statistics show that china has become the most attractive destination for FDI. Chinas success in FDI attraction can be explained by its abundant cheap labor- supply and large domestic market with strong consumption behavior. We also cannot deny the possibility herd like behavior of foreign investors. It is thought that India is lagging behind from china due to week consumption behavior of its market. Moreover, Indias policy toward FDI somewhat restricts easy flow of FDI. Although Bangladesh offers attractive package facilities for foreign investors, why FDI flow in Bangladesh is lower than the similar advantaged countries? This is not only a question for Bangladesh---this is a question on FDI dynamics as this is true for many countries. In the regional context, inward FDI in Bangladesh in 2003 is USD 121 ml, India USD 4269 and in South, East and South East Asia, USD 96915 ml. If investigate the FDI stock, then we can see that in Bangladesh USD 2695 ml, India USD 30827 ml, South, East and South East Asia USD 1352409 ml. Capital formation, Bangladesh 1.1%, India 4.0%. If we analyze the FDI in Bangladesh, most of the FDI has gone to the energy sector. Comparatively FDI in manufacturing sector is not high. This may be due to the fact Bangladesh has a small domestic market and is not fully capable of consuming quality goods due to poor economic conditions of the people. One good option for foreign investors is to choose Bangladesh looking at Indias big market. The problem is that there are many tariff and non tariff barriers in getting access to Indian market from Bangladesh. This problem may disappoint such types of foreign investors.

Sector wise distribution of FDI inflows

The sector-wise inflow of FDI during 1998 to 2007 is presented in Table 2. There are three broad sectors of FDI inflows: infrastructure, manufacturing, and services. The shares of the three sectors are 46 percent, 27 percent and 27 percent respectively. In infrastructure sector, gas and oil was the main recipient of FDI amounting to USD 1,241 million (22.5 percent). The flow was distributed more evenly across all years compared with other sectors. On the other hand, there was a high growth in FDI inflow to the telecommunication sector in FY05 which continued till FY10.

In the manufacturing group, the most significant recipient was the textiles sector amounting to USD 903 million (16.4 percent) out of USD 1,374 million to the group. The third group is the services sector where FDI inflows amounted to USD 1,349 million during the period out of which trade and commerce was the highest recipient with USD 909 million (16.5 percent). The overall picture over the last ten years can be seen in following Chart.

Over the 1998-2007 periods, gas and oil, textiles, and trade and commerce dominated the first half in terms of FDI inflow whereas telecommunication sector was the highest recipient during the second half of the ten year period. On the other hand, gas and oil, and trade and commerce sectors showed better performance during the last two years but the textiles sector experienced declining inflow of FDI in the second half of the decade.

FDI Trends
The increasing trend of FDI in recent years is a good sign for Bangladesh. But a sector-wise analysis of FDI reveals that the foreign investors have so far made a major shift in their investments in Bangladesh. Table II (Sector-wise analysis of FDI inflow) shows a shift of FDI that has been made towards power and energy, manufacturing (especially in RMG) and telecommunications, whereas agricultural, industrial and trade and commerce have been neglected. Industrial sector that plays key role in the economic development of a country got foreign investment US$ 494 million in 2000, which is the last highest amount of FDI in industrial sector till 2005.

Owing to comparative advantages and an accommodative policy regime, a large chunk of the FDI has gone into the ready-made garment. In 2005, FDI inflows in Bangladesh have been widely spread among the key business sectors, where the profit is higher, concerning on telecommunication (33%), manufacturing (26%), energy & power (25%), trade & commerce (15%), service, agriculture & fishing (1%).

Sources of FDI
Bangladesh generally, depends on 36 countries across the globe for FDI. Among the sources, 21 countries belong to the developing transition economics. In 2005, FDI has been originated from 30 different sources dominated by the developed economies (51.45%) and a significant share of FDI also came from developing economies (43.23%).

FDI outflows by Bangladesh 2006-2008 (millions of US dollars)

FDI outflows 2006 4 FDI outflows 2007 21 FDI outflows 2008 9

Source: UNCTAD, FDI/TNC database.

Factors Affecting FDI

The vital element and major factor about foreign investment of any country is political stability, stable government, sound economic policy, a strong industrial base and peaceful atmosphere. Bureaucracy The activities of bureaucrats in some government agencies create problems in the implementation of the project, thereby giving rise to acrimony and legal hassles. In consequence, these adversely affect the attractiveness of a country for future potential investment.

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Infrastructure Better infrastructure of the host country attracts foreign investors. Inflows of the FDI depend mostly on quality and quantity of physical infrastructure like roads and highways, transport, power, telecommunications and so on. Banking and other financial services also affect the FDI inflows significantly. Good transport facilities-road, rail and air, including developed port systems, energy and water and low cost utilities like telecommunications are important infrastructural factors in attracting FDI. Business has to incur excess cost to collect information in a country with poor infrastructure. But it can be done easily and with minimum cost in a country having good infrastructure that makes FDI financed projects cost efficient and competitive in the global market. Macro Economic Environment Macroeconomic factors such as fiscal policy, monetary policy and exchange rate policies, political stability and business climate have a serious influence for FDI. Foreign investors choose a location where there is evidence of success and availability of favorable macroeconomic conditions. Investment is generally driven by profit, and foreign investors always prefer a country with a rich business sector measured in terms of GDP growth rate, rate of inflation, level of industrialization etc. than one, where the macro economic environment is sluggish. Political stability Political factors like change of government, attitude of opposition group, transparency in bureaucracy, degree of nationalism, corruption, terrorism etc. are seriously considered by the investors in pre-investment decision making. (Mian. M. E 2006) For example, in case of Bangladesh the most sensitive issue for discouragement of the FDI is political unrest and corruption and red-tapes. Governance Governance of a country comprises economic and business policy and regulations such as taxation system and tax rate, interest and Bank rate, drive against corruption etc. All this factors are related with the cost business and profit. Foreign investors very consciously consider the governance of a country to invest. An important aspect of governance is the ease with which investors can enter and exit a market. It is and important determinant of productivity, investment and entrepreneurship. International integration International integration is another determinant that drives investment. Countries that aggressively pursue integration with the global economy grow more quickly than those that did not. The low level of incoming FDI in indicates poor integration with the global economy. Human resources Skilled workforce leaves a country at an ease to attract investment. Development programs financed by the FDI may be interrupted for the absence of skills and adequate knowledge infrastructure. Low growth that takes place in trade and investment is the result of the use of

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unskilled cheap labor. Bangladesh is a country where there is ample scope for development of human resources. It is a shame for the planners that thousands of Indian sand other foreign nationals are employed in the top positions of most of the multinational and national corporations. Technology infrastructure Economic growth of a country largely depends on technological progress, which stimulates FDI. It includes more modest advances, implementation of better business processes, and involves the adoption of new technologies. In this area, again, Bangladesh lags behind in comparison to its competitors.

Sectors for Prospective Investment

A number of competitive sectors exist for investment in Bangladesh. Textile, Spinning, Frozen Foods, Leather, Electronics, Agro-based Industry, Information Technology, Ceramics, Light Engineering, Natural Gas-based industries, Steel and Pharmaceuticals are the most prospective areas for investment. Government of Bangladesh provides different types of incentives and facilities to attract more investments in several areas. Textile RMG and textile sectors have enormous investment opportunities. The phenomenal growth in RMG was experienced in the last decade. In 1984-85, number of Garment factories was 800 RMG jointly with knitwear accounted for more than 70% of total investments in the manufacturing sector during the first half of the 1990s. At present with about 4,000 factories

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and a workforce of two million, 80% of which are women, employing over 50% of the industrial workforce and having 75% of the total exports earning of the country. Government provides highly favorable policy framework for investment in these sectors.

Frozen Foods The frozen foods export is the second largest export sector of the country. Frozen food sector has credible opportunities in Middle East, EU and North American countries and far Eastern countries. In 2004-05, total fish production was 22.16 lack metric tons of which 8.82 metric tons were shrimp. At present, there are 868 fish hatcheries and farm of which 2.18 lacks hectors of shrimp farm. Investment in frozen food sector with new technology and equipment has a vast potential for growth. Leather Bangladesh produces between 2 and 3 percent of the worlds leather market. Foreign direct investment in this sector along with the production of tanning chemicals appears to be highly rewarding. Having the basic raw materials for leather goods as well as for the production of leather shoe, a large pool of low cost but trainable labor force together with tariff concession facility to major importing countries under GSP coverage, Bangladesh can be a potential off shore location for leather and leather products manufacturing with low cost but high quality. In 2004-05 total export of leather goods was 220.93 million US$ on the other hand it is 257.27 million US$ during 2005-06 FY. Agro-based Industry Being an agrarian economy, agriculture has dominated in the economy for years. It has fulfilled the preconditions of access to input and raw materials in setting up successful agro-based industries. Alluvial soil, a year-round frost-free environment, adequate water supply and abundance of cheap labor are available in Bangladesh. Increased cultivation of vegetables, spices and tropical fruits now grown in Bangladesh could supply raw materials to local agro-processing industries for both domestic and export markets. Information Technology Availability of substantial number of qualified and experienced young people in various branches of engineering, science and technologies have opened up the scope of profitable investment in these sectors. A growing number of computer training schools and institutes are being opened. Management of most of the IT firms is professionally strengthened with the Bangladeshis who have studied and worked in both North America and Europe, and returned home. The annual market size for IT including computer hardware, peripherals and software was estimated to be worth approximately US$ 20 million. The market is fast growing at an annual rate of about 25%. The country has over 400,000 PCs. Formalization of VOIP by the early 2003 and telecom deregulation in mid 2003 would boost the overall IT sector lucrative for investment.

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Interest of Foreign Investors

Bangladesh is one of the easiest locations for doing business in South Asia, better than Sri Lanka and India. Besides, persistent growth in FDI is the best testimony of a favorable business climate prevailing in Bangladesh. In 2005, total FDI inflow in Bangladesh was increased by 84% amounting US$ 845 millionhighest ever in any year since her independence. The growth is second highest in entire South Asia (Bangladesh Investment Handbook 2007-BOI). Bangladesh now ahead of India in terms of FDI Performance Index being ranked 116th among 200 economies while India is ranked on 119th.

Figure: FDI inflows in Bangladesh A component-wise analysis of FDI inflow in 2005 shows that about 50% of FDI came as equity, 29% as reinvestment and the rest as intra-company borrowing. The higher reinvestment rate indicates unwavering confidence of foreign investors on overall investment climate of the country and competitiveness.

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In FY 2005-06, major foreign investors include Dhabi Group of United Arab Emirates, SingTel of Singapore, Orascom of Egypt, YKK of Japan and Microsoft of USA. Besides, a number of large investment proposals worth about US$ 10.5 billion are at negotiation and/or approval stages. These include investment proposals from Indorama Group of Thailand, Luxon Global of South Korea, Toray of Japan, Delta Arabia and other proposals from China, Malaysia, India, Taiwan, UK, USA, Australia, Singapore, Thailand, Saudi Arabia, UAE and Kuwait.

Incentives for Foreign Investors

The foreign investors will choose Bangladesh for their next investment destination as Bangladesh conducted Bilateral Investment Agreement (BIA), Double Taxation, and Treaties etc. to protect the interest of them. The investors also enjoy the following incentives investing in Bangladesh. a) Tax Exemptions: Generally 5 to 7 years. However, for power generation exemption is allowed for 15 years. b) Duty: No import duty for export oriented industry. For other industry it is @ 5% ad valorem. c) Tax Law: 1. Double taxation can be avoided in case of foreign investors on the basis of bi-lateral agreements. 2. Exemption of income tax up to 3 years for the expatriate employees in industries specified in the relevant schedule of Income Tax Ordinance. d) Remittance: Facilities for full repatriation of invested capital, profit and dividend. e) Exit: An investor can wind up on investment either through a decision of the AGM or EGM. Once a foreign investor completes the formalities to exit the country, he or she can repatriate the sales proceeds after securing proper authorization from the Central Bank. f) Ownership: Foreign investor can set up ventures either wholly owned on in joint collaboration with local partner.

The Impact of the FDI in Bangladesh:

Since there is a positive correlation between the investment and the development, it is obvious that due to the FDI Bangladesh has faced development in different sectors. We would like to show some of the direct impact of the FDI in the economic sector of Bangladesh. 1. Because of the FDI the saving gap has been plugged. In Bangladesh the energy sector has taken most of the FDI which is developing day by day. FDI also provided the much

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needed foreign exchange. It supplemented the local saving of 18.33 percent to attain the national rate of 22.74 percent. 2. FDI gives support to the sect oral transformation. Due to the FDI the contribution of the industry in GDP has raised from 21.5 percent in 91-92 to 27.17 percent in 07-08, while that of services from 49.74 percent to 50.9 percent. 3. The share of the industrial sector has raised in absolute term from tk- 327830m from tk- 462380m in 07-08, This was possible because of the FDI.

Impact of FDI on Balance of Payments

The economic impact of FDI on the level of economic activity has been widely investigated in recent years across different countries. Some results suggest that the inflow of FDI can crowd in or crowd out domestic investment depending on specific circumstances. Overall, FDI has a positive impact on economic growth but the magnitude of the effect depends on the availability of complementary resources, especially on the domestic stock of human capital.

In Bangladesh, FDI inflows are reported under the capital and financial account of the countrys Balance of Payments (BOP) statement which provides the direct effect on the BOP. Thus the inflow of FDI plays an important role in determining the surplus/deficit in the capital and financial account of the BOP statement. From the above, it can be said that the initial impact of an inflow of FDI on Bangladeshs BOP is positive but the medium term effect could become either positive or negative as the investors increase their imports of intermediate goods and services, and begin to repatriate profit. After setting up capital machineries, the FDI-financed companies begin to export their products as most of these companies are export-oriented. Usually, FDI inflow tends to have a greater positive impact through augmenting exports than creating a negative impact through increasing imports. It is found that FDI-financed firms tend to export a greater proportion of their output

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than their local counterparts as these firms usually tend to have a comparative advantage in their knowledge of international markets, efficiency of distribution channels, and their ability to adjust and respond to the changing pattern and dynamics of international markets. Similarly, policies of creating Export Processing Zones (EPZs) contribute to strengthening the positive correlation between FDI inflows and exports. So, the inflow of FDI may play an important role in Bangladesh in the long run in reducing the deficit in the countrys trade balance. Empirical research in several countries suggests that the initial inflow of FDI tends to increase the host country's imports. One reason for this is that primarily FDI companies have high propensities to import capital and intermediate goods and services that are not readily available in the host country. However, if FDI is concentrated in import substituting industries, then it is expected to affect imports negatively because the goods that were imported earlier would now be produced in the host country by foreign investors.

Competitive Advantages
Bangladesh has some competitive advantages that make it very much attractive for FDI. These are as follows:

Geographic Location Geographic location of Bangladesh is ideal for global trades with very convenient access to international sea and air route. Natural Resources Bangladesh is endowed with natural gas, water and its soil is very fertile. Human Resources Bangladesh has a population of more than about 140 million who are hard working and generally intelligent. There is a profuse supply of disciplined, easily trainable and low-cost workforce suitable for any labor-intensive industry. GSP Facility Most Bangladeshi products enjoy complete duty and quota free access to EU, Japan, Australia and most of the developed countries and quota regime to USA had been ended on 1st January 2005. However, despite quota phase out, Bangladesh apparel has successfully taken up a better position in US market and experiencing substantial growth. Social Stability Bangladesh is a liberal democracy and mostly a one race and one religion country. The population of this country irrespective of race or religion have been living in total harmony and understanding for thousands of years.

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Language Although Bengali is the official language, but English is generally used as second language. Majority of even moderately population can read, write and speak in English. Market Access Bangladesh has a population about 140 million, which will provide a larger market for the foreign investors to place their product. They also can target Bangladesh as a station of exporting their product to the neighboring countries at very low cost. Cost of Business Overall cost of doing business in the country is fairly competitive in the global standard.

Impediments of FDI in Bangladesh

The FDI plays an important role in the economic development of Bangladesh in terms of capital formation, output growth, technological progress, exports and employment. But the inflow of FDI is not smooth at all in Bangladesh. The factors which are blocking foreign investment in Bangladesh would be as follows: Complicated Bureaucracy The country has a bureaucratic system that is not at all compatible with an investment environment. The concrete implementation of investment related policies are pro-longed to obstruct both local and foreign investors. An inefficient and dishonest bureaucratic system is extensively responsible for the absence of FDI in the country. Political Unrest The political situation in Bangladesh is extremely vulnerable because of the continuous hostility among the political parties, which in turn pollutes the entire investment environment. It is unfortunate that Bangladesh is an exception where most of the political violence centered on industries. Even EPZs are not exempted by any means. However, the situation has been apparently improved since the present interim government has taken over. Corruption Culture and society have become corrupted through sick politics. The bureaucrat sand regulatory bodies are steeped in corruption. For business enterprise, corruption works as taxation or lubrication cost. Many companies regard bribery as just one of the costs of doing business (Lubrication Cost) and show these payments as legitimate business expenses. However the current situation in this regard is as gloomy as it was in the past. High Inefficiency Cost Government control and management have been extremely ineffective and inefficient. The country is suffering from inefficiency of state-owned entities in telecommunication, energy,

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ports, aviation, railways, banking and many other sectors. All these inefficiencies push the total cost of local and foreign businesses extensively high.

Absence of Autonomous Regulatory Bodies The politically influenced government agencies are functioning as regulatory bodies without any operational autonomy. So an effective and rapid response towards providing the necessary services to investors is apparently absent in Bangladesh. Differential Treatment Though are regulations to provide equal treatment of local and foreign investors, certain inequitable conventions are practiced with the foreign investors. Such inequalities are evident in cases of authorization necessities for foreign investment, barriers against capacity expansion, suppliers credit, etc. Insufficient Power Supply Bangladesh faces a system loss often more than 40% of the gross power generation probing with the lowest per capita power consumption and network coverage of electrification among developing countries. This creates immense discouragement for investment in the power intensive industries. Inconsistent Policy Implementation Bangladesh provides various favorable investment facilities and incentives under liberalized industrial policy. Bodies like the Export Processing Zones are there to promote export orientation and privatization based growth strategy. However, in reality, none of these favorable policies and strategies are implemented, thus foreign investors are being discouraged. Tax Authoritys Discretion The government of Bangladesh has given its tax administrators discretionary authority and they unduly apply it to bother businessmen and investors. This authority has made many of the officials highly corrupt. At present Bangladesh is trying to get red of from this scandal. Lack of effective cooperation of Board of Investment (BOI) The BOI of Bangladesh has a One Stop Service cell to serve and assist with various investment facilities, mostly FDI. But, materializing the service in reality is still an illusion. The least capable and least productive government personnel working for the cell naturally fail to improve the situation. Legal Absurdity The system of legal suits and actions prolonged over the years puts business investors in a dilemma about placing their precious capital in businesses in Bangladesh.

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Disrupting Fiscal Policy Each year the government declares Fiscal Policy that quite often goes adverse to the investors and disrupts their regular business and operations plans and strategies both in short and long run.

Administrative coordination problem Policies and the implementation processes are not materialized simultaneously be-cause of lack of administrative communication and coordination among the government agencies. This situation results in high business costs and other hassles for investors. Ti me wasting customs processing The inefficient and corrupt customs system quite often takes more than twenty signatories to discharge a shipment along with physical inspection by the authorized personnel. There are many other problems such as poor leadership quality, ignorant labor forces, to the foreign investors.

The Favorable Policies and Incentives to Encourage the FDI in Bangladesh:

Although Bangladesh has a low flow of the FDI but to encourage the foreign investors it has taken some steps. Yet, the flow of the FDI has been shrinking every year. As a result recent two big multinational companies ( Dhabi groups and TATA) wish to investment in this economy.  FDI is allowed in every sector of the economy except in 5 industries reserved for the public sector (i.e., defense equipment, nuclear energy, forest plantation, security printing, and railways).  Tax holiday for 5-7 years from the month of commencement of production.  Private sector power companies enjoy income tax exemption for 15 years from the date of commercial production  Foreign enterprises and/or experts get tax exemption on their royalties and technical fees.  For tax paying foreign enterprises there are bilateral arrangements with major trading partners which protects the foreign firms from double taxation  100 per cent export-oriented units do not have to pay any duty for importing machinery and spare parts.  Foreign technicians or experts are exempt from income tax during the first three years of their employment.  Full repatriation of profit and dividend by the foreign companies is permitted.  Re-investment of reparable dividend is treated as new investment.  Foreign investors or companies are free to apply for full working capital loans from the local banks in which case no restrictions apply as the terms of loans are determined on the basis of bank-client relationship.  100 per cent foreign firms or joint ventures are NOT required to sell their shares through public issues and they are eligible to buy shares through the stock exchange.

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 Apart from the above, Foreign Investment Promotion and Protection Act, 1980 of Bangladesh provides for: y Non-discriminatory treatment between foreign and local investment y Protection of foreign investment from expropriation by the state and ensures repatriation of proceeds from sale or shares and profit. Bangladesh is also a signatory of the Multilateral Investment Guarantee Agency insuring investors against political risk. As a member of World Intellectual Property Organization (WIPO) and World Association of Investment Promotion Agencies (WAIPA) the country further safeguards the interest of foreign investment. Standard dispute settlement procedures are followed in case there is any dispute with the government or with any private party. If the foreign investors feel that their rights have been violated, they can file writs with the High Courts.

SWOT Analysis of FDI in BD

The FDI of Bangladesh has some strengths, weaknesses, opportunities and threats which are as follows:

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Sponsoring Agencies and Area of Responsibilities

Sponsoring agency means an agency engaged in promoting, assisting, supervising and administering as well as offering pre and post registration assistance to industries. The list of sponsoring agencies responsible for private sector industrial development and their respective areas of responsibilities are as follows:

Recommendations
Bangladesh needs to undertake effective promotion measures to convince the potential foreign investors that their involvement in business activities in the country is valued, they would be facing friendly regulations, and they can enjoy investment incentives that are competitive with those offered by other countries in the region and the developing world. The country also needs to move forward through implementing investment-friendly policies, simplifying regulatory practices, and removing inefficient bureaucratic procedures. Over the last decades, almost all developing Asian economies including Bangladesh have progressively adopted more open policies toward FDI and this trend is likely to continue in the foreseeable future. The general conclusion of this study is that FDI brings net benefit to Bangladesh. These benefits appear to be important for integrating the domestic economy with the global economy and in the area of technology and skill transfer. The global experience suggests that, depending on the country context, the benefits of FDI are highly uneven and can become ambiguous or possibly negative. However, given its present characteristics, Bangladesh is likely to benefit through more FDI in flows. It is important, therefore, for Bangladesh to ensure an investment climate that can attract more FDI flows to the country. For the purpose, several policy areas are important that include:

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Quality of bureaucracy and governance: Appropriate reform measures are needed in the country's administrative system. The bureaucracy needs reorganization in order to bring about a perceptible improvement in its efficiency and productivity. Bureaucratic control and interference in business and investment activities should be minimized on a priority basis. Improvement of law and order situation: Law and order situation needs to be improved through appropriate reforms in law enforcement and introducing other measures. A social consensus is needed to establish the rule of law, avoid political confrontation, and reduce corruption. Development of infrastructure and human resources: Both the government and private sector need to come forward to invest in infrastructure development. For the purpose, appropriate policies are needed such that the private sector can smoothly operate in providing infrastructure services. Similarly, both public and private universities should come forward in introducing courses/programs that produce graduates with technical and management skills required in modern industrial and other activities. In this context, if the government and the private sector work together to implement effective economic reforms in a successful manner, Bangladesh stands a good chance of being able to participate in the prosperity and growth that are sweeping the rest of Asia. Improvement of port services: Despite recent improvements, the efficiency of port services can be further improved through appropriate measures. Similarly, the custom clearance procedures can be further simplified along with improvement in physical facilities and reforms in the labor management system. Privatization and further reforms: The privatization program of the state owned enterprises needs to be geared up that would stimulate domestic and foreign investments. Several financial institutions and some of the public utilities may be privatized in order to ensure better and more efficient services. The policies should encourage private sector participation in several key sectors like agricultural processing, manufacturing, infrastructure including transportation, telecommunication, power, port and in the production of high value added products. Modernization of business law: It is important for Bangladesh to modernize and revamp all laws relating to business and investment keeping in view the international practices and requirements of globalization. Setting up of industrial parks: The development of new industrial parks can help in creating a favorable environment of foreign investment. The availability of ready infrastructure along with secure and enabling investment climate can act as a powerful catalyst in attracting foreign investors for investment in profitable ventures.

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Setting up of new EPZs: The government may come up with a phased program of setting up new EPZs in order to extend facilities to export oriented investors. The private sector may also be encouraged to set up new EPZs. Improving the countrys image abroad: Positive developments regarding the countrys economy, society, and future prospects, including the hospitable investment climate existing in the country and the facilities available to foreign investors, should be projected abroad in an effective manner, especially among the potential investors. Such image building efforts would be crucial to dispel the negative images that have persisted for long and discouraged the investors to come forward. In addition to the above, maintaining consistency in policies and actions is important so that no wrong signal is conveyed to the investors. Policies regarding macroeconomic stability: The government should implement appropriate policies to ensure macroeconomic stability in a sustained manner, foster growth promoting and growth accommodating policies, and undertake further actions to reduce poverty at a faster rate. Bangladesh has already achieved notable success in this regard and achievements in both economic and social development should be actively publicized abroad to promote a positive image of the country among the prospective foreign investors. Economic and commercial diplomacy: Strengthening economic and commercial diplomacy is a key factor in attracting FDI in the present world characterized by rapid globalization and increasing competition. In this respect, improved bilateral relations with potential investor countries can act as a catalyst to increasing FDI inflows to Bangladesh. Moreover, it is important not only to improve relations with countries that have already invested in Bangladesh, but also to identify potential investors in other countries and undertake appropriate measures to attract them to invest in the country. Dynamic and Independent Govt. Agencies More dynamic government agencies can facilitate investment in Bangladesh. That is why the independence and dynamism of state agencies like Bangladesh Bank; Investment Promotion Agencies, Bangladesh Board of Investment etc. are essentially suggested to enhance FDI in Bangladesh. Accountability and Transparency More accountability and transparency are recommended for the development, efficiency and competence government and regulatory bodies in the work of investment. Developing Diplomatic Relation Bangladesh should maintain a good relation with the developed countries as well as with developing countries for significant share of FDI by developing countries.

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Devoting Efforts to Shift FDI Track In recent years foreign investments are going to RMG, telecommunication, power and energy or other profitable areas. Bangladesh should provide appropriate attention to attract more FDI in the industrial and infrastructural areas like construction of roads and highways (especially in building large bridges, flyovers, underground ways etc.), assuring enough inducing competitive advantages to investment in these sectors. Political Reformation In Bangladesh Politics, volatile in nature, pushes the FDI to downstream. The politicians desire seemed to capture the governing power of the country only rather serving the nation. This evil desire has been ruining the country since many years in every aspect. Thus political reformation is a requisite of time for Bangladesh. Ensuring Power and Energy Nowadays Bangladesh is badly suffering for lacking of power supply and it is a great obstacle in the smooth inflow of FDI. So the recipient country has to ensure required supply of power and energy.

Conclusion
FDI is not only a strategic option for a country, but also a key factor in the national economic development. Most countries attempt to attract foreign investors through liberalization of investment environment, fiscal reforms and a package of incentive offers. FDI can transform a country's economic scenario within shortest possible time. It is not merely access to fund, but also provide transfer of technical know-how and management expertise. It is also a stabilizing factor in any economy. Following conclusions can be drawn on the FDI reality and prospect in Bangladesh: Political unrest hampers the FDI growth in Bangladesh. Bangladesh has been experiencing a stable social and political order since last January 11, 2007. Bangladesh is experiencing an increasing trend of FDI since 2001. It is a matter of concern that the most FDI in recent years goes to Telecommunications, RMGs, and Energy and Power other profitable area. Agricultural, Industrial and Trade & Commerce get very negligible amount of FDI. Government has taken a lot of policies on foreign investment, which are being said liberal, supportive and focused, but yet the policies have not been proven so. Bangladesh is being thought a wholesome investment destination to the foreign investors, as they are reinvesting their investment. It is seen that there are some interrelated administrative barriers that result inferiority in policy formulation and implementation, competitive drawbacks, poor quality of skills and infrastructure, ineffective institutions, and below average governance which dampen potential of FDI.

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Besides, the above it has also been found out that Bangladesh is not full of hindrances of FDI, but some opportunities and prospects are also available in this host country. In very recent the quarrelsome political environment has been changed and hopefully, new era of investment for the native and foreign investors has been started.

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