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FDI rising, still low

| Updated: October 21, 2017 21:12:26


FDI rising, still low
It may be a coincidence. The day terrorists attacked a cafe in Gulshan area of Dhaka was the first day of the current fiscal year (FY17). The incident shocked the whole country. It sent an ominous signal to the businesses, especially foreign investors.
One and a half months after the Gulshan cafe carnage, the Bangladesh Bank (BB), the central bank, has unveiled the update statistics of foreign direct investment (FDI). It shows that net inflow of FDI reached $2.0 billion level for the first time in any fiscal year of the country. This is an estimated amount and there will be a revision after having the full details of foreign investment. On calendar year basis, the inflow of FDI stood at $2.23 billion in 2015, registering a record 44 per cent growth. 
Two related aspects of the last fiscal year's FDI are:  firstly, the amount is well below the figure projected in the
Seventh Five Year Plan (7FYP) which was $2.59 billion.
Secondly, the upward trend of FDI is now facing some uncertainties due to Gulshan incidents.  Inflow of FDI - around 1.0 per cent of the country's gross domestic product (GDP) - is still low in Bangladesh. The 7FYP lays high emphasis on the incremental inflow of FDI for the plan period (FY16-FY20).  The Plan document says: "Increasing the inflow of FI (Foreign Investment) in Bangladesh to 3% of GDP would be critical for achieving the financing of the investment target of the 7th Plan. Thus, the external financing for private investment, comprising primarily private FDI and external borrowing in foreign currency by the private sector, will increase markedly in the 7th Plan as compared with the 6th Plan." (P-xxxviii) 
It means, one of the fundamental assumptions for achieving the higher growth, 7.4 per cent annually on average, during the Plan period is the inflow of higher amount of FDI. According to the Plan document, FDI has to be 'increased substantially' to $9.6 billion by FY20 when GDP growth would be 8.0 per cent. 
Against this backdrop, the opening of the ambitious 7th Plan journey is obviously below expectation and target. 
The composition of FDI is also quite interesting. First, more than 50 per cent of the FDI is coming as reinvested earnings of the existing multinational corporations or enterprises (MNEs). It may be interpreted as a consolidation of the existing MNEs in the country and positive in the sense that they are earning sufficient revenue to run their business. 
Secondly, the downside is that most of the MNEs are not injecting fresh equities to continue and expand their operation. Moreover, FDI is mostly concentrated in the existing leading sectors. 
Central bank statistics show that during 2010 and 2015, total amount of FDI was $8.70 billion of which $4.27 billion came as reinvested earnings while $2.96 billion as equity capital and $1.46 billion as intra-company loans. 
The scenario is opposite in neighbouring India where more than 70 per cent of FDI came as equity while rest of the amount as reinvested FDI (as debt or leasing).  Both services and manufacturing are almost equally divided on attracting FDI. 
But, FDI in Bangladesh is concentrated in a small number of sectors. The main five sectors contribute 70 per cent of the total amount of FDI. These are: textile, power, gas and petroleum, banking and telecommunications. This means, there are ample scopes to attract FDI in many other sectors. 
Recent trend on Greenfield FDI shows that power and energy gets maximum priority. [Accroding to Investopedia: A green field investment is a form of foreign direct investment where a parent company builds its operations in a foreign country from the ground up. In addition to the construction of new production facilities, these projects can also include the building of new distribution hubs, offices and living quarters.] According to the 'fDi Markets', a service of the Financial Times, Bangladesh received announcement of Greenfield FDI worth $4.49 billion against 22 projects by the MNEs. The amount jumped last year mainly due to the announcement of two proposed large-scale electricity projects by Indian conglomerates Adani and Reliance. Total value of these two projects is $3.0 billion. 
The '$2.0 billion plus' figure of FDI is apparently a glimmer of hope when the country is arguably facing the challenge of boosting business confidence in the aftermath of Gulshan carnage. 
Meanwhile, the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) organised an event on August 10 in memory of the victims of the July 01 Gulshan café attack. The business leaders urged foreign countries not to put a red alert on Bangladesh. They said that the government was doing everything necessary to root out militancy and make the country a safer place. 
 

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