FDI drops to $1.27b in 2024, lowest in five years

Highlights

• Banking sector sees highest investment
• Textile sector also draws significant FDI
• 49% of net FDI was reinvested earnings

Bangladesh experienced its lowest net foreign direct investment (FDI) inflow in the past five years in 2024, primarily due to political and economic instability.

A sluggish inflow in the first half of the year, compounded by student-led mass uprising, the subsequent fall of the Awami League government in August, and a volatile forex situation throughout the year, contributed by experts to a 13.25% year-on-year decrease in net FDI in 2024.

According to central bank data, net FDI inflow amounted to $1.27 billion in 2024, significantly down from $1.46 billion a year ago.

When asked why FDI declined in 2024, Mohammad Ali, managing director and chief executive officer of Pubali Bank, told TBS that foreign investors lacked confidence in the year due to the law and order situation of the country after the political changeover.

He said, "We did not receive much foreign investment during the first six months of 2024. Then in July, following student-led mass protests, the government was overthrown in August and a new interim government took office. 

"During that period, the country's law and order situation deteriorated, although conditions began to improve after December. Foreign investors generally lack confidence in such situations, which is the main reason why FDI in 2024 was lower compared to previous years."

An analysis of the central bank data shows that Bangladesh received $1.57 billion in net FDI in 2021. Since then, net FDI has declined each year compared to the previous one. Overall, based on revised data following the BPM6 manual, the net FDI received in 2024 is the lowest since 2020. Data prior to 2000 was recorded according to the BPM5 manual, and therefore cannot be compared with the more recent figures.

The central bank data analysis shows that of the net FDI received in 2024, $622 million came from reinvested earnings. In other words, 49% of the total net FDI for the year was reinvested earnings. In addition, $545 million entered the country as equity capital. Furthermore, $104 million came as intra-company loans.

When asked why reinvested earnings make up a major portion of FDI, a senior official of the central bank explained, "The return on investment in our country is quite good. As a result, many investors choose to reinvest the income they earn from their existing investments. However, in many cases, investors face various obstacles, including a shortage of US dollars, when trying to repatriate their earnings. Consequently, they are often compelled to reinvest their earnings."

According to the central bank data, in 2024, the highest investment — $416 million — was made in the banking sector. Additionally, the textile and wearing sector received $407 million in investment. Sectors such as pharmaceuticals and chemicals, power, gas and petroleum, and food also attracted significant investment.

Echoing Mohammad Ali, a deputy managing director of a private bank said, "When a new government comes to power, there is often a possibility of changes in various policies, including tax rates. The current government is a short-term one, so investors are waiting to see what kind of policy changes might occur once a more stable government is in place. This is one of the key reasons behind the decline in foreign investment."

In the second week of April, the Bangladesh Investment Development Authority (Bida) and the Bangladesh Economic Zones Authority (Beza) jointly organised the Bangladesh Investment Summit 2025.

Chowdhury Ashik Mahmud Bin Harun, executive chairman of Bida and Beza, said that the investment summit successfully created immense potential for attracting both foreign and local direct investment. He pointed out that the summit drew 415 foreign delegates from 50 countries.

When asked how long it might take to see the benefits of such a summit, Mohammad Ali stated that summits like this send a message of new investment opportunities to participating countries and investors. 

"Following that, investors go through several stages to assess the feasibility of potential investments. If those assessments are positive, they proceed with new investments," he said. 

The Pubali Bank MD remarked that it typically takes at least one year for everything to be completed and for new investments to materialise.

When asked what steps are necessary to increase FDI, the banker suggested that the new government must move forward with implementing reforms in the financial sector, based on consensus and feedback from all stakeholders. "This would enhance transparency in the sector, which in turn would help attract new investments."

He also noted that investors tend to invest more during the tenure of a political government, as they seek long-term certainty — something that is generally assured under a political administration.