6 years ago

FDI inflow curve heads downward again

Actual figure trails 7FYP projection

Picture used for illustrative purpose only — Collected
Picture used for illustrative purpose only — Collected

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The foreign direct investment (FDI) in Bangladesh dropped again in the past fiscal year (FY) after three years of gaining, according to the latest statistics of the central bank.

Provisional data of the Bangladesh Bank (BB) on the annual balance of payments (BoP) showed that the gross inflow of FDI declined by 7.90 per cent to US$ 2.79 billion in FY 2017-18 from $3.03 billion in FY 2016-17.

According to the BoP data, the net inflow of FDI also slipped to $1.58 billion in the past fiscal year from $1.65 billion in FY '17. Thus the rate of decline in the net FDI stood at 4.23 per cent.

It is to be noted that the net FDI data, as presented in the BoP table, do not denote the actual net inflow, but it is a primary estimation.

The country last experienced a decline in FDI in FY '14, when the net inflow of FDI declined by 14.45 per cent to $1.48 billion from $1.73 billion in FY '13.

The decline in FDI in the past fiscal year also went against the ambitious projection made in the Seventh Five Year Plan (7FYP) of the country.

For FY '18, the 7FYP projected an FDI inflow worth $ 5.87 billion. But the gross inflow of FDI stood at $ 2.79 billion.

Thus the difference between the projection and the actual inflow hovered over $ 3.0 billion.

In FY '17, the actual inflow of FDI also stood well behind the projection of $ 4.31 billion.

Mr Aftab ul Islam, former president of American Chamber of Commerce in Bangladesh (AmCham), gave four major reasons for the low level of FDI inflow into the country.

"Though return on investment is quick in Bangladesh, the higher rate of corporate tax is discouraging new investors to come here," he said while talking to the FE on Saturday.

"The corporate tax rate is one of the highest in Asia," he added.

The average corporate tax rate is 40 per cent in Bangladesh while it ranges between 17 and 25 per cent in countries like Thailand, Indonesia, Vietnam and India, the business leader mentioned.

He also said the access to land is very challenging in Bangladesh. "Land prices go up and there are a lot of land-related litigations that make the investment very costly," he continued.

"Again, some of the big foreign investors in the country are in tax-related disputes with the government," he added.

Mr Islam, also a former president of Dhaka Chamber of Commerce and Industry (DCCI), was of the view that political uncertainty in the days ahead centring on the next national election might be another factor that kept the foreign investors away.

The Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI), in its latest quarterly review of Bangladesh economy, also shed lights on the trend of FDI.

"FDI inflow into Bangladesh is low compared to many countries at the similar level of development," it said.

"Bangladesh's low labour costs are generally believed to be attractive to foreign investors, but yet they hesitate to make fresh investments in the country because of the country's underdeveloped infrastructure," the leading trade body pointed out.

It also mentioned other impediments like the shortage of power and energy, lack of consistency in policy and regulatory framework, scarcity of industrial land, corruption and political uncertainty.

"The government needs to address these impediments to attract more FDI into the country," it observed.

Disinvestment, repayment of loans and losses are deducted from the gross inflow to estimate the net inflow of FDI in the BoP as per the sixth version of the Balance of Payment Manual (BPM6), designed by the International Monetary Fund (IMF).

The central bank adopted the version two years back and has been adjusting its data following the version since FY '15.

On the basis of quarterly enterprise surveys, the statistics department of the BB finalises the data on gross and net FDI.

Generally there is a slight difference between the provisional data on gross FDI in the BOP and the actual data.

But the provisional net FDI data reported in the BoP vary far from the data derived from the enterprise survey.

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