FDI: Aspiration is good, ground reality not

Bangladesh has long recognised foreign direct investment (FDI) as a key driver of economic transformation. Successive governments have offered tax incentives, established export processing zones and promised faster approvals to attract global investors.

Yet the results remain underwhelming. In 2024, Bangladesh attracted only $1.78 billion in FDI, compared with $38.89 billion in India, $21.44 billion in Indonesia and $20.35 billion in Vietnam. The gap is too wide to be explained by market size alone. It reflects structural weaknesses that continue to undermine investor confidence.

The recent roadmap presented by the Foreign Investors' Chamber of Commerce and Industry (FICCI) offers a diagnosis that is much closer to reality. It identifies nine interconnected barriers that foreign investors face throughout the investment lifecycle, from market entry to expansion and eventual exit. These are not isolated administrative problems; together they create an investment climate where uncertainty often outweighs opportunity.

The first challenge is regulatory unpredictability, and maybe ambiguity also. Investors can adapt to strict regulations, but they struggle with inconsistent implementation and prolonged delays. An approval process officially designed to take 76 days frequently extends to six months or even a year, while land registration alone can take around 260 days. Such delays obviously increase project costs, postpone production and weaken confidence in the regulatory system.

Institutional fragmentation compounds the problem. Rather than dealing with a single authority, investors often require approvals from as many as 23 government agencies. Every additional layer of bureaucracy adds time, cost and uncertainty. Bangladesh has introduced a one-stop service framework, but unless it has genuine decision-making authority, it cannot eliminate the bureaucratic maze investors face.

Infrastructure remains another major concern. Although the country has invested heavily in roads, bridges and power generation, critical bottlenecks persist. Gas supply continues to fall well short of industrial demand, while container dwell time at Chattogram Port remains far longer than in competing manufacturing hubs such as Vietnam. For export-oriented industries, these delays reduce competitiveness and increase operating costs.

The financial sector presents another challenge. A banking system burdened with a non-performing loan ratio exceeding 32% raises concerns about stability and governance. Investors evaluate more than access to credit. They also assess payment systems, foreign exchange availability and overall financial resilience. Weaknesses in these areas inevitably influence long-term investment decisions.

Tax administration also deserves attention. Although Bangladesh's statutory corporate tax rate appears regionally competitive, the effective tax burden can rise to between 43% and 48% because of supplementary taxes, advance payments and complex compliance requirements. Investors do not object to paying taxes; they seek transparency, consistency and administrative simplicity.

Another long-term constraint is the country's skills gap. Bangladesh has built a globally competitive garment industry on the strength of affordable labour. However, attracting investment into advanced manufacturing, technology and high-value services requires a workforce equipped with stronger technical and digital competencies. Without sustained investment in human capital, economic diversification will remain difficult.

Perhaps the most overlooked challenge is perception. Investment decisions are influenced not only by financial returns but also by confidence. International concerns about sudden policy reversals, banking sector vulnerabilities and governance standards inevitably affect Bangladesh's image among global investors. Reputation is an economic asset, and rebuilding it requires consistent reforms rather than promotional campaigns.

The encouraging news is that these challenges are solvable. Most require institutional reforms rather than large financial commitments. Faster approvals, an effective one-stop service, predictable regulations, modern customs, stronger banking governance and a simpler tax system would significantly improve the investment climate. Equally important is ensuring that reforms continue across political cycles so investors can plan with confidence.

Bangladesh stands at an important moment in its development journey. As global companies diversify supply chains and seek new investment destinations, we have a genuine opportunity to position ourselves as a competitive regional hub. Realising that potential will depend less on ambitious targets and more on implementation. 

Foreign investors are not asking for extraordinary incentives. They seek certainty, efficiency and institutional credibility. Delivering these fundamentals will determine whether Bangladesh becomes a preferred investment destination or continues to lag behind its regional or global peers.

Mamun Rashid is an economic analyst.

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.