FDI outlook bleak for Bangladesh

The Daily Star June 22, 2021

Says UNCTAD’s World Investment Report

Bangladesh’s historically low foreign direct investment, which had dropped 10.8 percent to $2.6 billion last year, is unlikely to pick up in the near future as investment commitments remain lukewarm, according to the UNCTAD.

The announced greenfield investment projects in 2020, an indication of FDI trends over the next few years, contracted 87 percent in Bangladesh, said the World Investment Report 2021 of the UN Conference on Trade and Development (UNCTAD), which was released on Monday.

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“In Bangladesh and Sri Lanka, FDI inflows will take longer to recover, as investment commitments in these countries remained weak,” the report said.

In Sri Lanka, the announced greenfield investment projects in 2020 plummeted 96 per cent.

This contraction is due to weak investment interests in garment production, a major export industry and FDI recipient, the report said, adding that investment in, and production of, garments suffered severely in 2020, with no sign of recovery as of early 2021.

“There is no climate for investment — how would the inflows come?” asks Zahid Hussain, a former lead economist of the World Bank’s Dhaka office.

The foreign companies prefer to invest in the export processing or economic zones and there are just three functional ones, he said.

At present, investors from Japan, India and South Korea have shown interest in the economic zones in Narayanganj, Anwara and Mirsarai.

“Instead of targeting 100 economic zones, why not focus on the ones where there is registered investor interest and get them ready at the earliest? In doing so much, we are unable to anything.”

If those three economic zones are up and running, there would be a cascading effect and reassure foreign investors, Hussain said.

Besides, there is hardly any regulatory preparation.

With the view to providing choice service to foreign investors, the government has set up the likes of the Bangladesh Export Processing Zones Authority, the Bangladesh Economic Zones Authority, the Bangladesh Investment Development Authority and the Bangladesh Hi-Tech Park Authority.

But those are not truly facilitating the foreign investors, Hussain said.

“The foreign investors have no shortage of investment options, but there are not many bankable investment projects here. It would be very difficult to draw in transformative investment from abroad,” he added.

But Bangladesh has great potential to attract foreign investment in the healthcare sector, particularly in vaccine manufacturing, according to the report.

The study went on to highlight Bangladesh’s pharmaceuticals sector as an example for other low and lower middle-income countries.

The level of economic development, an insurmountable obstacle, did not get in the way of the development of Bangladesh’s pharmaceuticals sector, the UNCTAD said.

“Since the 1980s, Bangladesh has been consistently implementing measures to support the development of the local pharmaceutical industry. Over time, the measures helped to improve the business environment, including the availability of skilled personnel and streamlining of trade and industrial regulations.”

Bangladesh, as a least-developed country until 2026, would be privy to patents of Western drug makers until 2033, as per the World Trade Organisation agreement.

“Among LDCs, Bangladesh demonstrated its ability to use this flexibility when one of its pharmaceutical companies, Beximco Pharma, launched in 2015 a generic version of a hepatitis C drug that had been developed by Gilead Sciences,” the report said.

Incepta’s interest in manufacturing the COVID-19 vaccines would also be taking advantage of the benefit.

The drug maker “preferred to cooperate with vaccine developers to manufacture the already-approved vaccines, rather than work on its own to develop manufacturing processes that meet the regulatory standard, which it perceived would be more challenging”.

“The success of the Indian pharmaceutical sector is credited to the use of this flexibility,” the report said.

So the country’s pharmaceuticals sector, which has developed the scale, is ripe for foreign investment.

Bangladesh can particularly showcase and also build on its vaccine manufacturing capabilities, according to Hussain.

“The world would be needed COVID-19 vaccines for the foreseeable future,” he said, while calling for quick decision-making, regulatory easing and trust-building to attract vaccine investment.

The government is also actively promoting foreign investment in the pharmaceutical industry, liquefied natural gas plants, agribusiness and fintech, according to the report.

“Foreign investment inflows are shifting away from large non-renewable energy and finance projects.”

Meanwhile, Bangladesh’s FDI inflows in 2020 accounted for 10.8 percent of the sum received by the 46 LDCs.

Of the $2.6 billion received in 2020, reinvested earnings by the already existing foreign companies accounted for the lion’s share: $1.6 billion, which is an increase of 6.7 percent from a year earlier, according to data from the Bangladesh Bank.

The UNCTAD used the BB data for its report.

Equity investment stood at $0.8 billion, up 4.8 percent year-on-year.

However, intra-company loans nosedived 74.3 percent to $0.15 billion. Intra-company loans refer to short or long-term borrowing and lending of funds between direct investors (parent enterprises) and affiliate enterprises.

In South Asia, FDI inflows rose 20 percent to $71 billion, thanks to India.

FDI increased 27 percent to $64 billion in India driven mainly by strong mergers and acquisitions.

In Pakistan, FDI was down by 6 per cent to $2.1 billion, cushioned by continued investments in power generation and telecommunication industries. Inflows in Sri Lankacontracted by 43 per cent.

FDI fell in other South-Asian economies that rely on export-oriented garment manufacturing, as orders from the US and the EU dropped substantially in 2020.

Global FDI flows have been severely hit by the pandemic: they plunged by 35 percent in 2020 to $1 trillion.

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