Bangladesh can be an FDI hub, benefit from 'friendshoring': Atlantic Council

With a large, young workforce and a strategic location within Asia, Bangladesh has the potential to become a major hub for foreign direct investment, which can be unlocked by addressing infrastructure and bureaucratic hurdles, checking corruption, says an American think tank.

Bangladesh's journey toward becoming a rich nation requires a significant boost in investment, but the country has consistently attracted less FDI compared to its neighbours.

Bangladesh's FDI stands only 0.4% of GDP – far below the global average of 1.7% and the country needs to implement reforms to bolster investment freedom to attract more foreign investment, the Atlantic Council says in its report released today.

Citing an IMF report that highlights how the growing trend of "friendshoring" is changing global FDI and supply-chain landscapes with countries choosing trusted allies as economic partners and avoiding geopolitical rivals.

"This trend has significant consequences for China's position as a dominant manufacturing hub and recipient of foreign investments. Bangladesh is well-positioned to capitalize on this shift," it views, stressing investments in transportation, power, logistics and skill development.

The American think tank finds FDI decisions in 2022 were significantly influenced by three factors: security, property rights, and bureaucracy and corruption, which collectively shape the investment climate of a country.

The Atlantic Council delves into those factors in Bangladesh. It says property rights in Bangladesh have stagnated, exhibiting minimal progress over the past three decades in simplifying the legal framework to buy and utilise private property. Property rights create a stable environment for entrepreneurship to make long-term investment, and Bangladesh needs to improve land titling and registration systems, it says.

It highlights data findings that find FDI and freedom are correlated.

Countries rated as "free" in the Freedom Index tend to attract the most FDI per capita, with an average of $2,200 per person in 2022, while "Mostly unfree" countries (Bangladesh falling in this category) and "unfree" countries receive far less FDI.

Investment freedom best among peers

Investment freedom in Bangladesh, though remained at its 1995 level, is the best compared to its South and Central Asian peers, says the American think tank.

In terms of trade freedom, the country has experienced significant advancements during the period of 1999-2001, but the progress in this regard has since plateaued, Atlantic Council says, revealing a decline in the overall economic freedom of Bangladesh. The economic sub-index is one of the parts of Atlantic Council's Freedom Index, and it comprises several components including trade and investment freedom.

"Despite progress in other areas, investment freedom has remained at a similar level compared to 1995. Yet this is the component in which Bangladesh performs the best compared to its peers, with a rank of 109 out of 164," says the report.

The same happened with trade freedom, where Bangladesh's progress has plateaued since significant advancements made during the period of 1999–2001, the report says.

Put together, the overall economic freedom in Bangladesh, though showing noteworthy progress since 1995, has declined from its decade-ago peak.

"Most of the progress has been made in the 1999–2011 period, and economic freedom as a whole has declined over the past ten years," it reveals.

These observations suggest the need for renewed efforts to revitalise trade and investment policies and initiatives, ensuring sustained growth and competitiveness in the global market, it says.