Bangladesh's FDI gamble

Bangladesh's budget for 2026-27, a historic Tk 9.38 trillion, arrived with fanfare and a striking new promise: anyone, citizen or expatriate, who successfully brings foreign direct investment into the country will receive a 1.5 per cent consultancy fee or commission as an incentive. The cabinet had already formalised this under the Foreign Direct Investment (FDI) Incentive Scheme Policy 2026 on June 4, and Finance Minister Amir Khosru Mahmud Chowdhury announced an even more ambitious goal in parliament: raising FDI from its current 0.45 per cent of GDP to 2.7 per cent, a near six-fold rise, within the budget cycle. The government has also published an investment heat map identifying 19 promising sectors, and Prime Minister Tarique Rahman has personally championed simplified profit repatriation and online trade registration.

On paper, the intention is sound. Bangladesh desperately needs fresh capital. The country requires at least $8 billion in FDI annually to push GDP growth by even one percentage point, yet actual inflows have hovered below 1 per cent of GDP for years. For comparison, Vietnam attracts 4.2 per cent of its GDP in FDI; India, 0.7 per cent. Bangladesh, at 0.33 per cent in 2024, is being outpaced even by neighbours with far heavier regulatory burdens. With LDC graduation looming and the ever-present danger of a middle-income trap, the urgency to act is real, and the budget's direction is correct. Saying so is not flattery; it is just acknowledging a fact.

But here is where honesty must enter the room. The 1.5 per cent commission scheme, for all its creativity, is essentially a finder's fee. It rewards the act of bringing investors to the table. It does nothing about what happens when those investors sit down. A foreign manufacturer from South Korea or a tech firm from Singapore does not decide against Bangladesh because no one offered to introduce them. They decided against Bangladesh because setting up a factory requires navigating up to 42 government approvals. Because the banking sector carries a mountain of non-performing loans and offers few reliable exit routes for capital. Because power supply remains unreliable, port logistics are costly, and the judicial system resolves commercial disputes at a pace that discourages long-term commitment.

The structural problems are not new and are well-documented. Bureaucratic red tape, weak contract enforcement, currency instability, and the persistent shadow of corruption have together kept Bangladesh's FDI stuck in low gear for decades. No commission scheme, however generous, addresses these root causes. It is a little like offering a reward to anyone who brings guests to a hotel while the plumbing is broken. Guests might arrive; few will stay.

There is also a design concern worth raising. The scheme sets a minimum investment threshold of $1 million to qualify for the incentive. This is a reasonable floor, but it means the policy is almost entirely oriented towards large-ticket foreign investors, precisely the investors who conduct the most rigorous due diligence before committing capital. Such investors hire their own advisers. They commission feasibility studies. A 1.5 per cent referral fee is unlikely to be the decisive factor in their decision-making. The investors most likely to be influenced by a commission incentive are smaller or more speculative, and a $7.5 million fund earmarked for the scheme suggests the government itself does not expect it to generate enormous volume.

What would actually move the needle? The budget does gesture at some right answers, online trade registration, removal of non-tariff barriers, revision of the Import Policy Order, and a declared ambition to build a genuine one-stop investment service. These are the reforms that investors cite repeatedly when asked why they chose Vietnam over Bangladesh, or Malaysia over Dhaka. The question is not whether to announce them, it is whether they will be implemented with the urgency and administrative seriousness that foreign investors watch for. Bangladesh has made such announcements before. The gap between policy declaration and institutional follow-through is a wound that keeps reopening.

Three things deserve particular attention in the months ahead. First, the banking sector must be stabilised. High non-performing loans are not merely an internal financial concern; they signal to foreign equity investors that exits will be difficult and profits hard to repatriate cleanly. The Bangladesh Bank's recently established Tk 600 billion fund for distressed industries is a step, but deeper governance reform in the financial sector cannot be deferred. Second, the one-stop investment service must become genuinely functional, not ceremonially so. Every week that a foreign investor waits for a licence approval is a week they are reconsidering. Third, the skills gap must be treated as an investment priority, not an afterthought. Bangladesh's young population is an asset, but it becomes a competitive advantage only when matched with technical and vocational training aligned to what investors actually need.

The budget's theme, "Economic Democratisation and Deregulation: Bangladesh's Journey Towards a Trillion-Dollar Economy," is aspirational in the best sense. Aspiration is not the problem. The problem is that aspiration without institutional backing is a slogan, and foreign capital has learned to distinguish between the two. The 1.5 per cent commission is a creative nudge. It may generate some leads. But the real FDI story of 2026-27 will be written not in commission payouts but in whether the approvals are faster, the courts are fairer, the banks are cleaner, and the power stays on. Bangladesh has the potential, the population, the geography, and the global moment. What it must now demonstrate is the institutional will to match its ambition.

Suborna Akther Laboni, Researcher, Dacca Institute of Research and Analytics (daira). 
mahbuba@dairabd.org