Reforming Bangladesh’s FDI law for a new economic era

Bangladesh sits in a prime spot; wedged between South and Southeast Asia, fueled by decades of steady economic growth, a thriving garment industry, and dramatic infrastructure improvements. On paper, this should make it a magnet for foreign direct investment. 

Yet, if you stack up the numbers, FDI inflows still lag behind Vietnam, Indonesia, and even some smaller emerging economies.

It's not that Bangladesh isn't open to foreign investment anymore. That mental hurdle has mostly disappeared. The deeper issue is the old, creaky legal and regulatory system that governs investment; a framework that struggles to meet the speed, certainty, and sophistication global investors expect today.

Right at the core is the Foreign Private Investment (Promotion and Protection) Act of 1980. Back when it was drafted, this law matched the country's needs. But today? It's out of step, too discretionary, and ill-equipped to handle modern sectors like technology, renewables, digital infrastructure, advanced manufacturing, or innovative financial structures.

If Bangladesh wants to graduate out of LDC status and truly reach upper-middle-income status, modernising this law can't wait any longer.

Let's dig into where the law misses the mark.

The real bottleneck: Too much discretion, no predictability

Section 3 is the main problem. It hands government officials sweeping authority to approve or block foreign investments. That made sense just after independence, with the country finding its footing. Now, it creates uncertainty because everything depends on bureaucratic opinions instead of clear, predictable rules.

Investors care about three things above all: speed, predictability, and enforceability. Bangladesh's system often delivers none of these, at least not reliably.

There are no deadlines for approvals. No "deemed approval" if agencies take too long. The law doesn't clearly separate risky sectors requiring scrutiny from others that should be open to all with minimal fuss. So investors end up shuttling between multiple ministries, agencies, regulators, the central bank, and tax authorities; never knowing when (or if) their project will move forward.

Section 3 has to change. Bangladesh needs an automatic approval system for all but the most sensitive sectors. Just make it clear: "If your sector isn't restricted and you file the right disclosures, you get approval automatically." And if there's no decision in 30 working days, it's approved by default.

That kind of regulatory overhaul worked wonders in India, Vietnam, and the UAE. It's time Bangladesh caught up.

Section 2: A definition stuck in the past

Section 2 defines foreign investment as if it were still the 1970s: factories, equipment, tangible assets. But investment today comes in all shapes: venture capital funding, fintech, software platforms, AI infrastructure, cloud computing, intellectual property, green finance, data centres, the lot.

Bangladesh can't dream of being a regional digital powerhouse while clinging to such an old-fashioned definition. Section 2 should clearly include a whole range of instruments and structures: equity, hybrids, startups, venture capital, software and data assets, sovereign wealth funds, infrastructure vehicles, ESG, and climate-linked finance.

If the law doesn't recognise how investment works today, the country will stay stuck chasing low-margin manufacturing dollars, missing the cutting edge of global capital.

Section 5: Investors want stability, not surprises

Section 5 does offer some basic protections for foreign investors, on paper. The trouble is, there are no guarantees to protect them from sudden regulatory changes after they've sunk in billions.

Major players in energy, telecom, logistics, and infrastructure; they all want confidence that tax rules, regulations, and contracts won't shift suddenly. Bangladesh has already lost credibility with some investors after abrupt policy changes, inconsistent enforcement, or retroactive decisions.

Section 5 needs real teeth: add stabilisation clauses, grandfathering protections, shields against retrospective taxes, and mandatory consultation before rolling back major policies. A stable, predictable regime is just as important as low tax rates.

Section 7: Weak dispute resolution sends investors elsewhere

Section 7 covers what happens in case of expropriation, but it's vague on international arbitration and modern dispute resolution. That's a critical gap.

Today's investors judge countries not just by how disputes arise, but by how they get resolved. Right now, commercial courts in Bangladesh are slow, with uncertain enforcement. That scares off anyone considering serious capital commitments.

Section 7 must give investors clear access to international arbitration (think ICSID, UNCITRAL), ensure awards are enforceable, and allow for faster mediation and commercial dispute resolution. If investors don't trust the system, all the incentives in the world won't matter.

Section 8: Make repatriation fast and simple

Yes, the law guarantees repatriation of profits and capital (Section 8), but in practice, foreign investors often experience delays and red tape, foreign exchange approvals, complicated procedures, and central bank compliance headaches.

Money moves fast worldwide. Bangladesh can't afford these friction points. Section 8 needs to make repatriation time-bound and digital: easy royalty/fee remittance, multi-currency accounts, streamlined exits. For many investors, the right to exit is just as important as entering the market.

One-stop service: It has to be legally binding

BIDA has introduced some one-stop-shop services, but there's still no integrated legal framework that requires agencies to coordinate and deliver seamless approvals.

Bangladesh needs to hardwire a statutory one-stop investment authority into law, with unified digital licensing, integrated tax/customs registration, mandatory inter-agency data sharing, and accountability for officials who drag their feet.

Investors expect institutions to work together by law, not just by administrative favour.

Bangladesh at a crossroads

Cheap labour alone won't bring in investment over the next decade. Global capital cares about regulatory speed, legal clarity, policy stability, transparency, and fast dispute resolution.

Bangladesh has the potential, people, location, and industry to become a serious regional investment hub. But it can't get there running on laws written forty-plus years ago.

The Foreign Private Investment (Promotion and Protection) Act, 1980, needs a full overhaul. Investors won't wait forever. Bangladesh must choose: actively compete for the next wave of global capital, or merely watch and observe as others do.

Sketch: TBS

A former investment banker and sports development professional, Sayeed Ibrahim Ahmed, is currently an Assistant Professor of Finance at AIUB and serves as a director of the Bangladesh Cricket Board (BCB).

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.