How real is 19% FDI growth in FY25 after July Uprising?
"It is too early to claim results have started to come, as the FDI data does not support that," said former lead economist at the World Bank’s Dhaka office Zahid Hussain
Foreign Direct Investment (FDI) in Bangladesh grew by 19.13% in the fiscal 2024-25 following the July 2024 mass uprising. However, the growth was not because of fresh external injection but a sharp rise in reinvested earnings and intra-company loans by existing players.
The inflow of equity capital declined by 17% year-on-year in FY25 when reinvested earnings surged by 23.30% and intra-company loans by 180.66%, according to Bangladesh Bank data.
Share of equity capital in total FDI declined to 33% in FY25 from 45% in FY24. The total FDI inflow stood at $1.7 billion at the end of FY25, which was $1.4 billion in FY24.
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Equity capital is an initial investment in an enterprise, while reinvested earnings are profits from that investment that are not paid out as dividends but are kept within the business.
The difference is – equity capital represents an external injection of funds to purchase ownership stakes, whereas reinvested earnings are internal profits ploughed back by the existing investor. Intra-company loans, on the other hand, are funds transferred within the same multinational company, from the parent to its local subsidiary.
Meanwhile, presenting FDI growth in a Facebook post under the title "FDI Picture Post-Mass Uprising", Chowdhury Ashik Mahmud Bin Harun, executive chairman of the Bangladesh Investment Development Authority (Bida), yesterday (3 November) said, "The figures indicate continued investor confidence in Bangladesh's economy despite the political uncertainty often seen after major movements."
He also credited the National Board of Revenue (NBR) and the Bangladesh Bank, and the efforts of investment promotion agencies such as the Public-Private Partnership (PPP) Authority, Bangladesh Economic Zones Authority (Beza), and Bida for sound economic policies and their commitment to this growth.
Explaining the FDI growth, Zahid Hussain, former lead economist at the World Bank's Dhaka office, told TBS that it is too early to claim results have started to come, as the FDI data does not support that.
It is because, he said, reinvested earnings are non-repatriated profit of existing players, which is kept as retained earnings. "We don't know whether the retained earnings are invested in business expansion or kept in banks, or invested in treasury bills and bonds."
If companies invested their profit in treasury bills and bonds or kept it in a bank idle, then it is not an investment, Zahid said.
On the other hand, equity capital, which reflects the real inflow of external investment, declined significantly. So, it is not the time to claim victory that their activities started to bring investment, the economist said.
He said the size of the foreign investment is still very small compared to the country's economic size. So, little inflow will show a high growth figure, he said.
Zahid Hussain said the country has not yet attracted significant interest from foreign investors, despite having strong land and sea connectivity. It is encouraging that key institutions have stepped up efforts to attract investors after the uprising, but these efforts need to continue.
BIDA chief posts FDI growth, no clear explanation
Ashik Mahmud Bin Harun posted only the FDI growth but did not explain where the investment came from. Comparing the growth with some other trouble-hit countries, he said the country's FDI performance stands in sharp contrast to several others that experienced political or civil unrest.
He presented that in their first year following instability, Sudan's FDI fell by 27.60% after 2019, Sri Lanka's by 19.49% in 2022, Chile's by 15.68% in 2019, Ukraine's by 81.21% in 2014, Egypt's by 107.55% in 2011, and Indonesia's by 161.45% in 1998.
"Bangladesh's greatest quality is its ability to bounce back despite adversities. Usually, foreign investment drops drastically in the post-mass uprising period, but we are seeing the opposite," he said.
He attributed Bangladesh's resilience to several factors, including sound economic policies, the commitment of key institutions such as NBR, Bangladesh Bank, BIDA, Beza, and PPP Authority.
He also credited the private sector's determination and the coordinated support from relevant government bodies for creating a favourable investment environment.
Looking ahead, Ashik Chowdhury cautioned that FDI may experience a temporary slowdown before the upcoming national election but is expected to stabilise afterwards.
He urged stakeholders to take a long-term view of investment prospects, noting that short-term fluctuations should not overshadow the country's overall economic recovery and potential.
"We have always tried our best to help investors. Not all problems have been solved… but there was no lack of goodwill," Ashik Mahmud Bin Harun said, adding that Bida plans to release an annual report summarising the year's investment performance soon.
Where does foreign investment flow?
The textile and apparel sector, the top foreign investment-attracting sector, has seen a continuous decline over the past three years, falling from $530 million in FY23 to $403 million in FY25, according to Bangladesh Bank data. Its share of total FDI also dropped to 24% in FY25 from 30% in FY24.
Foreign investment in food products saw a big jump in FY25, making it the second-highest attracting sector. Food Products, which was not even in the top 10 investment sectors in FY24, accounted for 22% of total FDI in FY25 with $379.36 million in investment.
Banking was the third-highest FDI attracting sector with $319.58 million investment, which was 19% of total investment, while the power sector accounted for 17% with $292.24 million, and the leather and leather products sector accounted for 4% with $60.16 million investment, central bank data shows.
The Netherlands top investor country in FY25
The Netherlands, which was not even in the top 10 investors list in FY24, became the highest investing country in FY25, replacing the UK.
Investment from the Netherlands jumped to $453.65 million in FY25, which was 20 times higher than just $23 million in FY24, according to Bangladesh Bank data.
The Netherlands invested the most in the food and beverage sector, with $365 million in FY25, followed by $66.7 million in the power sector.
Investment from the UK fell drastically by nearly 41% to $300 million in FY25 from over $506 million in FY24. The country invested the most in textiles and clothing in FY25.
The UK's share in total investment fell to 17.81% in FY25 from 34.5% in FY24, central bank data shows.
China continued as the third-highest investor country with $274 million in investment in FY25, which was slightly lower than $283.55 million in FY24.
The US, which was the top investor country in FY22 with $426 million, was not even in the top 21 investor list in FY25, central bank data shows. The country's investment was only $89 million in FY24, which made it the seventh-highest investor in Bangladesh.
Other top 10 investor countries in FY25 were Korea, Singapore, India, Hong Kong, Malaysia, Japan and Sri Lanka.
