Beyond trade preferences: How Bangladesh can attract FDI after LDC graduation

As Bangladesh prepares to graduate from the Least Developed Country (LDC) group in 2026, a fundamental shift is looming. The loss of long-standing trade preferences raises an urgent question: How will the country remain competitive in a more challenging global market? 

If history is any guide, foreign direct investment (FDI) must take centre stage — not just to offset trade-related losses but to drive Bangladesh's long-term sustainable economic transformation.

Although Bangladesh has historically struggled to attract FDI compared to other emerging economies, the empirical data suggests that all previously graduated LDCs experienced an increased inflow of FDI in the post-graduation era. 

This trend indicates that the upcoming LDC graduation in Bangladesh could provide the necessary impetus for an enhanced FDI influx. Bangladesh's new status, alongside its strategic and geographic location with a young and dynamic workforce, could position the country as a promising investment destination.

Recognising this potential, the government of Bangladesh established a sub-committee in 2021 to identify the necessary steps to attract FDI, facilitate technology transfer and promote the development of new products as part of a broader smooth transition strategy. 

Although the draft recommendations of this sub-committee outlined a range of domestic regulatory, administrative, and institutional reforms aimed at improving the investment climate in Bangladesh, it did not adequately address the critical role of International Investment Agreements (IIAs) in attracting FDI.

One of the policy tools to attract FDI has been the conclusion of IIAs, namely bilateral investment treaties (BITs) and treaties with investment provisions (TIPs). As of 3 January 2025, the IIA regime consisted of 2,841 BITs and 476 TIPs. Bangladesh is also a party to 34 BITs and 5 TIPs. Studies show that developing countries stand to benefit from engaging in IIAs in terms of attracting more FDI. There is also room for developing countries and LDCs to develop IIAs with effective and operational provisions to attract high-quality FDI in the strategic sectors that would contribute to fulfilling the development objectives.

As Bangladesh prepares for LDC graduation, it must take a strategic approach to IIAs to attract FDI that aligns with its long-term development goals. This transition presents a crucial opportunity to move beyond reliance on trade preferences and embrace a forward-looking economic model focused on sustainability, digital transformation, and high-value investment.

The global economy is undergoing a profound transformation driven by digitalisation, green growth and sustainability-focused trade and investment policies. Emerging economies are redefining their economic strategies, shifting towards sustainability and technology-driven growth. Bangladesh must do the same, using its LDC graduation as a springboard for diversification and structural transformation. 

This transition will require a comprehensive policy framework to help Bangladesh shift from being low-cost and preference-dependent to a more sustainable and digitally driven economy. The country must actively attract targeted FDI that supports green and digital transformation – particularly in renewable energy, smart infrastructure, digital technology, and high-tech industries.

The global trend is going in that direction. The new generation of IIAs is evolving to go beyond traditional investor protection and increasingly focusing on how FDI can drive sustainable development goals (SDGs).

A growing number of modern IIAs now incorporate provisions encouraging investments in green industries and digital infrastructure such as broadband networks, data centres, artificial intelligence, and fintech ecosystems. Bangladesh needs to either modernise the old generation of IIAs or start negotiating a new generation of IIAs that explicitly position FDI as a tool for sustainable and green development. 

The recent EU-Angola Sustainable Investment Facilitation Agreement (SIFA) (2024) is a befitting example of how new generation IIAs are immensely contributing to diversification, steering towards green energy, agri-food value chains, digital innovation, fisheries, logistics, and critical raw materials. 

Adding to this, the Singapore-Australia Green Economy Agreement (2022) included innovative provisions for enhancing cooperation on green skills development. Taking lessons from this trend, Bangladesh should negotiate IIAs that align with its post-LDC graduation priorities and sustainable economic transformation.

Furthermore, Bangladesh can draw inspiration from the Digital Economy Partnership Agreements (DEPAs) and incorporate the basic principles of DEPAs into its IIAs. Singapore's success in attracting significant FDI from tech giants like Google and Facebook is partly attributed to its participation in DEPAs. 

Bangladesh should also carefully consider joining the WTO Joint Statement Initiative (JSI) on Investment Facilitation for Development Agreement (IFDA). This agreement sets a global benchmark for investment facilitation. Many developing countries, including LDCs, are participating in this plurilateral initiative. Joining this initiative would provide a strong signal to prospective investors that Bangladesh is committed to creating a welcoming and transparent investment environment with a robust framework.

It needs to be kept in mind that it is not only about attracting FDI-rather the right kind of FDI. In post-graduation Bangladesh, investment agreements should focus on quality over quantity. It should ensure that the flow of foreign capital enhances the transfer of technology, sustainability, innovation-driven upgradation and economic resilience.

Mohammed Abu Saleh is an international trade lawyer and formerly worked with the WTO Secretariat in Geneva, Switzerland. Email: mohammedabusaleh.mas@gmail.com.  Muhammad Omar Faruque is a researcher in law with a focus on public and international laws. Email: omarfaruquefahim@gmail.com. 

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.