‘Build competitive domestic market to attract more FDIs’

In order to attract more Foreign Direct Investments (FDIs) in Bangladesh, the government needs to build a transparent and competitive domestic market so that all entrepreneurs, local and foreign, can do business equally.

For this purpose, the government should get rid of the protective trade policy it has developed in the country, economists have urged.

They also called on the government to make the country more competitive in policy regimes, bring automation in regulatory measures and remove administrative barriers so that the cost of doing business becomes less and doing business easier.

They strongly recommended setting up a wide-ranging One Stop Service (OSS) centre to attract more FDIs during a post-Covid competitive and technology-driven era in Bangladesh.

They also demanded a holistic approach for development, including quality governance and competitive tax measures, to facilitate hassle-free foreign investments. Besides, they suggested an automated customs clearance process, integrated port and logistic infrastructure.

The economists and researchers placed the demands at a webinar, entitled "FDI Situation in Bangladesh: Problems and Prospects by Covid-19", arranged by Economic Development Research Organisation (Edro) today.

M Helal Ahmed, a research associate at Edro, presented the keynote paper on FDI stocks in Bangladesh compared to those in other countries.

He mentioned that in the last one decade till 2019, Bangladesh had been far behind Myanmar, Pakistan and India in FDI inflow. In those years, Bangladesh achieved 37% progress in FDI inflows, in comparison to Pakistan's 57%, Myanmar's 42.5% and India's 48.2%.

Also, Bangladesh presently lags far behind its neighbours in FDI volume. The size of India's FDI is over 26 times bigger than Bangladesh's while Vietnam's is around 10 times larger. Even the FDI volumes of Pakistan and Myanmar are more than double compared to Bangladesh's.

The paper also disclosed that Bangladesh's FDI inflow mostly came to the power and energy sector (over 50%) while the readymade garments industry received some amounts but that, too, was based on the economic processing zone.

Ahsan H Mansur, executive director of Policy Research Institute, said FDI contribution to Bangladesh's gross domestic product (GDP) was only 5.9% against Myanmar's 57%. Even the GDPs of Saarc countries have a 14% stake on average from FDI.

"We have had a FDI crisis from long ago. And Covid-19 has added some new challenges to it," he also said.

He further said that a political economy had developed here over the past decade, discouraging foreign investments in the local market.

Some traders have the government adopt a protective trade policy to monopolise business by avoiding local competition so that no foreign company with 100% ownership can do business here, he added.

For example, a foreign company needs a local partner to do business here. But multinational companies do not have interest in it. It has brought an opportunity for these local traders to arbitrarily fix product prices. They are also forcing consumers to buy those low-quality products, he went on saying.

"We need to come out of such a policy and make the local market more competitive and create equal opportunities for all," he recommended.

MS Siddiqui, vice president of International Business Forum of Bangladesh, said many multinational companies had already closed their business here. But neither they nor the government clearly says anything about the issue.

Referring to the recent business closure by GlaxoSmithKline (GSK) pharma in Bangladesh, he said although the local market here was very large, it was difficult to do business here.

Quoting the managing director of the GSK pharma, he said, "The import of our [GSK's] raw materials in the pharmaceutical sector requires approval from the Drug Administration. Every time you import, you have to get the approval. And to get it, you have to spend extra money. Multinational companies do not incur such costs.

"So clearance is not easily available here. And it takes a long time to import raw materials, raising the cost. Besides, the rule of drug marketing that has developed in this country, such as boosting sales by offering commissions to doctors, will not attract multinational companies in any way."

"In addition, our capacity in the export market is much lower than that of neighbouring countries," said Ahsan H Mansur.

Covid-19 has caused many changes to the world supply system. Besides, many companies are relocating their production systems from China. "But these companies are moving to Vietnam, Malaysia, Thailand and Indonesia as Bangladesh has no free trade deal with any country, is weak in cross-border trade and ease of doing business, and performs poorly in competitiveness and logistic support indices," he said.

"Even domestic companies are shifting their focus from export to concentrate on the domestic market," Mansur added.

For example, he said, Apex Footwear is now giving more importance to the local market than to export because this market is bigger and more profitable than the export one, thanks to a protective policy.

"If we want to increase our capabilities and attract more foreign investments in this competitive world trade, we need to bolster cross-border connectivity with other Asian countries, not just with Europe and America," he opined.

Nazneen Ahmed, senior research fellow of Bangladesh Institute of Development Studies, said, "We will have to understand the mentality of foreign investors. They do not want cheap labour but a stable tax policy, infrastructure, logistics support, skilled manpower similar to those offered by Vietnam and other countries."

Md Mazadul Haque, a banker and economic analyst, said, "Covid-19 along with the long-lasting US-China trade war is forcing businesses to shift from China but Bangladesh lacks enough preparations to welcome them.

"But our competitors like Vietnam, Cambodia, Indonesia and India are preparing well to grab the opportunity."

Forming a special tribunal to hear allegations from foreign investors is a must to attract FDI, Mazadul said, adding that regional connectivity along with open economic corridors might bring in more FDIs here.