Bangladesh at a fork in the road
Companies can easily work in problematic countries if the rules are transparent, decisions are predictable, and promises are kept. However, what deters them is not so much the difficulty of the environment itself but the lack of certainty
At present, Bangladesh displays two distinct pictures.
On the one hand, there is growing alarm over the slowdown in GDP growth, challenges within the country's banking system, inflationary pressures, and the careful evaluation of its sovereign ratings.
On the other hand, the country is advancing a few key reforms to foster a conducive investment climate and macroeconomic stability. But the truth is that, today, Bangladesh stands at a crossroads and must determine how to leverage its economic advantages.
Execution is the current challenge for the country, not its potential.
According to estimates from international financial institutions, the pace of economic growth in Bangladesh has considerably slowed compared with the high growth rates that had made the country one of the most promising emerging markets in Asia.
In addition, the country has been dealing with inflation, weakening domestic demand, and the need for a wide-ranging banking sector reform.
That said, it would be inaccurate to overlook Bangladesh's proven capacity to cope with challenging situations. The country has shown greater flexibility in managing its foreign exchange transactions and greater discipline in its monetary policy.
Moreover, the state has begun improving the situation in financial governance and has introduced reforms to create a more favorable climate for investment.
As regards the latter, it should be noted that these efforts can play a crucial role in helping Bangladesh to regain its competitive edge in the future. Thus, recent reforms include simplifying the remittance of royalties, expanding services for foreign investors, and introducing new regulations on foreign share transfers and capital repatriation.
Interestingly, most of the changes mentioned directly address the complaints of foreign investors voiced in prior studies.
However, the mere announcement of any new initiative will hardly drive the necessary investments.
Why are many investors still waiting on the sidelines? The answer is neither new nor surprising. Surveys and studies conducted over the years consistently point to the same obstacles: lengthy bureaucratic procedures, regulatory unpredictability, customs inefficiencies, foreign-exchange complications, unreliable utility services, logistical shortcomings, and uncertainty over the enforcement of contracts
An even more relevant illustration of the investment climate in Bangladesh is the nature of its foreign direct investments. Although net FDI has recovered after dropping in earlier periods, most of these funds represent either reinvested income or intra-company lending.
This is a very important observation.
The fact that foreign companies continue to reinvest their profits in Bangladesh demonstrates that these businesses see potential in the local market and are ready to grow. That is a good sign.
Nevertheless, the slow growth in new equity investment in the country signals that foreign investors entering the market for the first time approach Bangladesh with caution.
Thus, investors currently operating in Bangladesh stay, while newcomers are yet to come.
Why are many investors still waiting on the sidelines?
The answer is neither new nor surprising. Surveys and studies conducted over the years consistently point to the same obstacles: lengthy bureaucratic procedures, regulatory unpredictability, customs inefficiencies, foreign-exchange complications, unreliable utility services, logistical shortcomings, and uncertainty over the enforcement of contracts.
Until these issues are addressed in practice, attracting large volumes of new investment will remain a challenge.
Japanese investors are particularly interesting to study, as Japan remains one of Bangladesh's key development partners and a leading investor in the country. In their annual surveys, Japanese firms emphasise difficulties associated with customs procedures, exchange rate instability, problems with power supplies, and limited capabilities of the logistics chain.
These complaints are not uncommon only to Japanese companies.
They represent the overall picture of the challenges faced by international investors interested in Bangladesh.
What is especially appealing about Japanese investments is that they typically represent long-term investments in the industrial sector, tightly integrated into the global logistics network.
Hence, it can be argued that once Japan decides to continue investing in Bangladesh, other international investors will be encouraged to follow suit.
Fortunately, it seems that the authorities have become aware of the issues discussed.
Recently, the country's government focused more on industrial parks' readiness to host foreign enterprises, improved approval processes, modernised its logistics infrastructure, and strengthened coordination among government institutions.
In other words, Bangladesh understands that the next phase of its economic development calls for a new type of investment policy.
Foreign investors rarely look for perfection; they look for predictability.
Companies can easily work in problematic countries if the rules are transparent, decisions are predictable, and promises are kept. However, what deters them is not so much the difficulty of the environment itself but the lack of certainty.
And this is precisely what Bangladesh's reform policy is to be tested for.
In this regard, the country does not need another set of incentives and another marketing campaign. Rather, Bangladesh needs an effective implementation of the reforms that it has already declared.
Service standards should become enforceable; the approval process should be measurable; land allocation, utility connections, customs clearance, and capital repatriation should operate as reliably in practice as they are described officially.
In the coming years, this will prove decisive.
Demographic potential, expanding industrial sector, strategic competition within Asia – all these factors make the country a promising place for business. Nevertheless, opportunity alone is insufficient for success.
Investors now have plenty of options. Countries like Vietnam, Indonesia, and India compete for the same resources that Bangladesh tries to attract. Under such conditions, implementation becomes the key determinant.
Hence, the investment climate story of Bangladesh is not one of crisis nor triumph but one of transition.
Today, the country has already proved that it can attract investments.
What remains to be done is turning announcements into reality.
If it manages to do that, today's optimism will turn into tomorrow's investment boom. Otherwise, Bangladesh will be doomed to constantly collide with its own opportunities.
Zillur Rahman is a political analyst and president at the Centre for Governance Studies (CGS). He hosts 'Tritiyo Matra' on Channel i. His X handle is @zillur.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.
