Reinvested earnings drive positive FDI growth in Apr-June despite equity decline
Highlights:
- All key FDI indicators fell in April–June compared to prior quarter
- Year-on-year FDI rose 11% due to higher reinvested earnings
- New equity investment plunged 62%, signaling weak fresh foreign inflows
- Reinvested earnings surged as firms retained profits amid uncertainty
- Economists blame political instability, high costs, and energy shortages
- Analysts expect low new FDI until after elections and improved policies
All indicators of foreign direct investment (FDI) in Bangladesh turned negative in the April–June quarter of this year compared to the previous quarter. However, overall FDI posted positive growth compared to the same quarter last year, thanks to a sharp increase in reinvested earnings. Despite this rise, fresh foreign investment or equity inflow fell significantly.
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According to Bangladesh Bank data, net FDI in the April–June quarter stood at $303 million — up 11.41% from $272 million during the same period in 2024.
Net equity (new investment) dropped to $81 million in the June quarter from $214 million in the same period last year, marking a 62% decline.
In contrast, net reinvested earnings rose to $168 million in the June quarter, compared to a deficit of $33 million in the same period a year ago.
Intra-company loans amounted to $53 million this quarter, down from $92 million in the previous one.
Economists said that many foreign-owned companies operating in Bangladesh have retained their profits in the country, which has made the FDI growth appear higher. However, new foreign investments have not increased due to political uncertainty and negative ratings from credit agencies. "Foreign investors consider a country's overall stability before investing. Although the recent reserve growth is positive, political uncertainty persists," they noted.
Zahid Hussain, former lead economist at the World Bank's Dhaka office, said, "What confidence do foreigners have to invest in the country right now? For several quarters, FDI performance has been weak. A fall in equity means a fall in new investments, while reinvested earnings have increased — meaning profits made here have not been repatriated."
He added, "This situation will likely continue until the upcoming election. Even after the polls, new investment won't automatically increase — it will depend on the policies and decisions of the next government regarding FDI."
Zahid Hussain also warned that if any violence occurs before or after the election, foreign investment will drop further. "Foreign investors stay far away from violence. So, an election alone won't boost investment — what's needed is an investment-friendly environment," he said.
Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said, "The lack of new investment is not a good sign. Bida has tried — holding roadshows and launching a one-stop service — but high operational costs continue to discourage investors."
He added, "There are shortages in gas and electricity supply, and the cost of doing business is frustratingly high. Added to that is political uncertainty. Ensuring a business-friendly environment with reliable energy supply and political stability is key to attracting new FDI."
Why are profits being reinvested in Bangladesh?
Economists say several factors are keeping profits of foreign companies in the country. Currently, there is no dollar crisis, and banks have adequate dollar supplies. Bangladesh Bank has even been buying dollars through auctions to boost reserves.
Md Mazadul Hoque, chairman of the Policy Think & Economic Research Centre, said investors are seeing some positive signals.
"When profits are reinvested, it appears that investment has increased — but that's not real growth. Genuine FDI growth comes from rising equity, and that has been weak," said Mazadul Hoque.
He added, "Earlier, falling reserves, political instability, and a downgrade in credit rating created fear among investors. But now, with reserves increasing and the upcoming national election drawing attention, some investors are keeping their profits in the country."
He also noted that the upcoming LDC graduation is another factor: "As Bangladesh graduates from LDC status, its credit indicators will improve, which foreign investors view as important."
