Why int'l companies reinvesting profits in Bangladesh instead of repatriating?

Foreign-owned companies operating in Bangladesh are increasingly reinvesting their profits in the country instead of repatriating them, economists have said. While this has created the appearance of higher foreign direct investment (FDI) inflows, actual new investments remain weak amid political uncertainty and low investor confidence.

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."

"This situation will likely continue until the upcoming election," he added. 

"Even after the polls, new investment won't automatically increase, it will depend on the policies and decisions of the next government regarding FDI."

Echoing the same concern, 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 said.

"There are shortages in gas and electricity supply, and the cost of doing business is frustratingly high. Added to that is political uncertainty," he added. 

"Ensuring a business-friendly environment with reliable energy supply and political stability is key to attracting new FDI."

Economists noted that several factors are prompting companies to retain profits within Bangladesh. With no ongoing dollar crisis and banks maintaining adequate foreign currency reserves, firms find it more convenient to keep their earnings locally. 

The Bangladesh Bank has also been buying dollars through auctions to strengthen 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.

"Earlier, falling reserves, political instability, and a downgrade in credit rating created fear among investors," he continued. 

"But now, with reserves increasing and the upcoming national election drawing attention, some investors are keeping their profits in the country."

He also pointed out that Bangladesh's upcoming graduation from least developed country (LDC) status is another consideration. 

"As Bangladesh graduates from LDC status, its credit indicators will improve, which foreign investors view as important," he added.