Global FDI and Bangladesh

The decline in global foreign direct investment (FDI) in the first half of the current year is not unexpected, even if it is undesirable. A tariff war initiated by US President Donald Trump has intensified global trade tensions in the first half of 2025. During the period, the world also went through geopolitical uncertainty, mainly as the Russia-Ukraine and Israel-Hamas wars continued.  To contain inflationary pressure, some central banks also increased interest rates in the first half of the current year. These three broad factors drove investors to be cautious, resulting in the decline in FDI, according to the latest Global Investment Trends Monitor of the UN Conference on Trade and Development (UNCTAD). 

Released last month, the report showed that global FDI stood at $737 billion in the January-June period of the current year, which was three per cent lower than the half-year average of 2024. Last year, global FDI stood at $1508 billion, recording a modest rise of 3.70 per cent over the total world FDI in 2023. The modest increase in FDI last year was mainly due to volatile financial conduit flows through several European economies, which often serve as transfer points for investments. If the conduit flows were excluded, world FDI  last year dropped by 11 per cent, as pointed out by UNCTAD.

Against the global trend, FDI in Bangladesh surged by 61 per cent in the first half of the current calendar year. Statistics available with Bangladesh Bank showed that the net inflow of FDI reached $1091 million in the January-June period of 2025, which was $594.73 million in the last half of 2024. The amount was $675.66 million in the first half of 2024, a decline of 8.70 per cent from $739.80 million in the last half of 2023. 

The jump in net FDI in the first half of the current year is a record in recent years, and the surge helped to post a 19 per cent rise in the inflow of net FDI in the last fiscal year (FY25), when net inflow of FDI stood at $1686.24 million against $1415.46 million in FY24.

The fiscal year in Bangladesh is constituted on a July-June basis. In other words, the last half of a calendar year and the first half of the following calendar year constitute a fiscal year. For instance, July-December or the last half of 2024 is the first half of FY25 and January-June or the first half of 2025 is the latter half of FY25. 

The FDI in the last fiscal year posted the second-highest annual inflow of foreign direct investment in the country in recent years. Bangladesh Bank statistics showed that net FDI reached $1710 million in FY22, which was the highest amount in recent years, between FY19 and FY24, to be precise. 

Regarding the latest surge in FDI, the Bangladesh Investment Development Authority (BIDA) issued a press statement stating that the record 19 per cent surge in FDI in the first year after the mass uprising set a different example in the global context. The investment promotion agency stated that countries typically experience a decline in foreign investment following a mass uprising or revolution. 

"Bangladesh's post-uprising FDI growth stands in sharp contrast to a selection of other nations that experienced significant political or civil unrest around the timeframes analysed," said Chowdhury Ashik Mahmud Bin Harun, the Executive Chairman of BIDA, in a Facebook post. For instance, Sudan experienced a 27.60 per cent decline in FDI after the uprising in 2019, while Sri Lanka saw a decline of 19.49 per cent in 2022, Chile 15.68 per cent in 2019, Ukraine 81.21 per cent in 2014, Egypt 107.55 per cent in 2011 and Indonesia 161.45 per cent in 1998. 

Against the backdrop, a 19 per cent surge in FDI last fiscal year demonstrates "Bangladesh's resilience and continued investor confidence despite the internal instability typically associated with mass popular movements," he added. 

The student-led mass uprising during July last year compelled Sheikh Hasina to step down as prime minister and flee to India for shelter. Before ouster, her brutal repressive regime killed at least 1,400 people and injured more than 20,000 during the 36 eventful days of July-August. The fall of the autocratic regime, which was marked by extensive corruption and ruthless oppression, opened a new window of opportunity in Bangladesh. However, the first couple of months after the fall were turbulent. The dust, however, started to settle gradually, and the Yunus-led interim government has been trying hard to bring back normalcy. 

As the country passed a turbulent period in the third quarter (July-September) of 2024, the net inflow of FDI came down to $104.33 million from $272.22 million in the previous quarter. In the fourth or last quarter (October-December) of 2024, the net inflow of FDI regained and stood at $490.40 million. It jumped to $788.24 million in the first quarter of 2025 (or the third quarter of FY25), indicating a return of foreign investors. In the next quarter (April-June), the inflow of FDI, however, dropped sharply to 303.27 million, indicating that investor's confidence was short-lived. 

So, the claim made by BIDA regarding the country's 'resilience and investors' confidence' is not well-substantiated. Bangladesh Bank statistics also showed that the net inflow of equity decreased to $81.30 million in the last quarter of FY25, reflecting the injection of a relatively low amount of fresh capital by foreign investors. It means the investors' confidence is still low, and they may wait for some more months. An increased reinvestment of profit by the existing multinational enterprises (MNEs) contributed to the rise in the country's FDI inflow in the FY 2025.  Foreign investment in the form of reinvested earnings stood at $758.11 million in FY25 which was $614.87 million in FY24.

So, a drop in FDI in the last quarter of the fiscal year (or the second quarter of the calendar year) is also a general trend observed over the last couple of years. Except in 2023, the inflow of FDI declined in the second quarter of 2020, 2021, 2022, 2024, and 2025. 

BIDA chairman, however, rightly mentioned that FDI is likely to drop before the upcoming national election. It means FDI will not gain significant momentum until the second quarter of next year. Before that, there will be a fluctuation in the country's FDI inflow.

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