Why Bangladesh cannot reach its next growth phase without investment reforms
Private investment has remained stuck below 24% of GDP for years, exposing deep structural weaknesses in Bangladesh’s investment climate that political stability alone cannot resolve
For the past several years, overall private investment in Bangladesh has remained stagnant. For a long time, it has failed to cross the 24% threshold of GDP; in fact, in recent times it has declined to around 23%. At this level of investment, it is not possible to take the economy to the next phase of growth, generate the required employment, or diversify the production and export structure for both domestic and external markets.
The primary reason for this is that the country's investment climate remains weak, complex, and lacking in timely reforms. The tax structure is not investment-friendly; rather, the overall tax burden on businesses is among the highest in the region. In addition, lengthy timelines and complicated procedures for starting a business, obtaining licences, securing approvals, and receiving regulatory decisions are discouraging investors.
Alongside weaknesses in the policy and regulatory framework, deficiencies in production and trade-related infrastructure are also creating major constraints. Limited access to uninterrupted electricity and primary energy—especially gas—is hindering industrial production. A shortage of industrial land, the absence of a transparent and efficient system for land transfer, and complex property registration procedures for foreign investors are increasing investment costs and risks.
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Bangladesh also lags behind in contract enforcement and the resolution of commercial disputes. Complex and protracted judicial processes, limitations of commercial courts, and weak implementation of legal frameworks related to arbitration and mediation are undermining investor confidence.
Structural weaknesses are equally evident in the export-led growth strategy. High tariffs and taxes on capital machinery and raw materials in the domestic economy are eroding the competitiveness of the industrial sector. This is compounded by high logistics costs, limited availability of globally standard port and terminal facilities, and a weak multimodal transport system—all of which are hampering overall trade facilitation.
In this context, one point needs to be stated clearly: it is mistaken to assume that investment growth will automatically return simply because an elected government comes to power. If the investment environment remains weak and deficiencies in production and trade infrastructure are not addressed, political stability alone is not sufficient to attract investment.
Structural weaknesses are equally evident in the export-led growth strategy. High tariffs and taxes on capital machinery and raw materials in the domestic economy are eroding the competitiveness of the industrial sector.
That said, when a democratically elected government assumes office, it can help create long-term policy predictability and an environment of confidence—both of which are important preconditions for investment recovery. However, this must be accompanied by a coordinated programme of time-bound, medium- and long-term structural reforms, with a clear focus on improving the investment climate, infrastructure, and policy and regulatory frameworks.
It is particularly important to note that increasing foreign direct investment (FDI) requires more than general improvements in the investment environment. Attracting strategic foreign investment from high-potential countries such as Japan, the United States, China, and Saudi Arabia demands targeted and well-planned initiatives. This calls for sector-specific strategic FDI promotion, special incentive packages, and proactive investment diplomacy.
Without such deep and coordinated reforms, Bangladesh will face serious challenges in achieving three critical development objectives: transitioning to upper-middle-income status, competing globally in the post-LDC graduation period, and creating sufficient, high-quality employment for its young population.
Masrur Reaz is the Chairman and CEO of Policy Exchange Bangladesh.
