Policy predictability, reforms ‘must’ for investment

Bangladesh urgently needs policy consistency and comprehensive reforms to boost investment and also direct tax collection by curbing systemic leakages, says Foreign Investors' Chamber of Commerce and Industry (FICCI) President Mohammad Zaved Akhtar.

Mr Zaved, also Chairman and Managing Director of Unilever Bangladesh, also calls for specific fiscal measures in the upcoming national budget for FY2025-26 to strengthen regulatory compliance and improve labourers' living standards to address the challenges Bangladesh will face following its LDC graduation.

He has outlined these recommendations in an interview with The Financial Express at the FICCI office in Dhaka's Gulshan area, now that final stitches are being given to the next budget.

The FICCI president explains details about the problems and prospects of private-sector investment, particularly foreign direct investment (FDI) attraction into Bangladesh.

He notes that FDI in Bangladesh has been weak historically - consistently below 1.0 per cent of GDP, which is lower than even in Pakistan. Not that the economy is currently facing a sudden drop, rather it never really managed to attract significant FDI.

He thinks the problem in attracting domestic investment and FDI is structural and persistent, and identifies three major issues at play here.

"First is credibility. Our policy environment is unstable - decisions are frequently changed or reversed, such as changes in tax policies or abrupt cancellation of government contracts and payments," Mr Zaved says, adding that this undermines investor confidence.

He blames a lack of consistency as another problem. "Business hates surprises. For instance, Bangladesh once introduced retrospective taxation, raising tax rates and applying them to previous years, even after financial audits had been completed," he says.

He has placed a lack of institutional capability as the third determinant of the FDI attraction, saying, "An investor coming from abroad is often unsure where to go - BIDA, BEPZA, BEZA, the Hi-Tech Park Authority." There are too many fragmented entities, which should be integrated into a single investment-promotion authority.

Such single investment window should guide and facilitate investors through the entire process - from land allocation to utility connections and regulatory compliance.

Responding to a question regarding the target of attracting $5 billion each year, set by the previous government, he quipped ambition is essential - but ambition without groundwork is futile.

"We must fix the foundational issues first. The challenges I mentioned earlier are not new; these have persisted for decades. Unless we address them, the $5 billion FDI target will remain aspirational."

In a reverse question he said, "Interestingly, we still attract some FDI despite these challenges. Why? Because there are still opportunity here - in cost, labour, market size, and value addition. But we must identify specific sectors, like leather, agro-processing, logistics, and systematically target them."

Vietnam attracts $10-15 billion a year in FDI. The $5-billion goal for Bangladesh is modest by comparison, but the country needs a concrete action plan, not just numbers, he said.

He suggests that the government identify the sectors having comparative advantages and opportunities to attract foreign investment and to pitch the potential investors regarding the "We should start by identifying our comparative advantages. In leather, for instance, we have labour supply and production capacity. Yet the sector is underutilized. With the right environmental compliance and global partnerships, exports could soar," he said.

He finds agriculture as another major potential area, saying that there is a 25 -35 per cent of post-harvest loss due to inefficiencies. Farmers do not get fair prices, consumers pay too much in the absence of a proper supply-chain system.

"From seed quality to fertiliser access, pesticide use, credit availability, and market linkage - everything needs reform," he says, adding that there is huge opportunity for foreign investment in agriculture, agro-supply chains and agro-processing industries," says the FICCI president and chief of the multinational.

He places the logistics sector as another potential area. There is no organised freight-logistics company in Bangladesh save having some trucks. In contrast, other countries use large-scale logistics operations to manage transport more efficiently.

The government should actively pitch this sector to foreign investors with data of traffic movement as an opportunity.

To a question regarding a little growth in private investment, while the private investment had increased at an exponential rate in Bangladesh over the last decade, he said infrastructure investment by the government has grown significantly - bridges, roads, power plants and so.

But the returns on these investments have not been adequately evaluated. Projects like the Padma Bridge were intended to make the economy more inclusive. However, whether those goals were met remains a question.

"Private investors look for stability and opportunity. If neither is present, large public investments would not crowd in private capital," he says about investment arithmetic, adding that some infrastructure lacks complementarities - for example, building power plants without setting up distribution networks.

He makes a point here that government's role should be to facilitate, not do business. There must be an integrated infrastructure plan to ensure all components are aligned. Only then can public investment truly catalyze private investment.

To another question if there is any discrimination between domestic and foreign investors in government policy, he said, "On paper, there is no policy discrimination, but there are significant disparities in policy execution."

Setting an example, he said foreign companies may account for 50 per cent of market share for some certain sector, but they pay 80 per cent of the sector's taxes.

"Why? Because tax enforcement is more rigorous for them. Domestic companies often evade compliance due to systemic leakages," he explains.

Foreign companies follow rules and pay into things like the Workers' Profit Participation Fund (WPPF), but many local firms do not. Such uneven enforcement makes Bangladesh look unfair to global investors, even when the policies appear balanced.

Ahead of the upcoming national budget, Zaved Akhtar asks for a greater clarity and consistency in tax policies as the investors want predictable environments.

He identifies reforms of customs as critical. "The role of customs should be to facilitate trade, not just collect tax."

He hails the separation of policymaking and execution in NBR as a good step. "We hope it is implemented properly. Policies should be formulated by a dedicated wing and enforced by another, ensuring transparency and reducing conflicts of interest."

He suggests budget allocations focusing on building institutional capabilities, not just hard infrastructure. From logistics to legal frameworks, everything must be made investor-friendly.

The FICCI president also asks for fiscal measures to ensure some reforms in terms of compliance and the standard of living of labourers to meet the challenges that will arise after graduation from LDCs.

"As Bangladesh moves toward graduation from the Least Developed Country (LDC) status, several key reforms are essential. Among these, issues such as regulatory compliance and safeguarding workers' livelihoods must be given the highest priority," he says.

He emphasizes that the government would need to adopt appropriate fiscal measures, if necessary, to ensure the wellbeing of labourers. Without such efforts, he cautions, it would be difficult for the country to navigate the next set of challenges associated with LDC graduation.

 jahid.rn@gmail.com