FDI Slips but Stays Above $3 Billion in Bangladesh

According to data from the central bank, foreign direct investment (FDI) in Bangladesh experienced a setback in 2023, slipping to $3.004 billion, a 14% decrease from the previous year. The decline highlights the challenges faced by outside investors amid uncertainties in the country’s foreign exchange regime.

Inflows of equity capital, a significant component of FDI, plummeted by 31% to $705.83 million, while reinvested earnings declined by 12.1% to $2.21 billion. However, intra-company loans saw a rise to $88.91 million.

M. Masrur Reaz, chairman of the Policy Exchange Bangladesh, expressed disappointment over the drop in FDI, particularly when the country needs foreign currencies to address macroeconomic challenges. He emphasised the importance of FDI in diversifying the economy and called for targeted strategies and promotion to attract foreign investments.

Reaz highlighted various factors contributing to the decline in FDI, including weaknesses in the business climate, trade policy, logistics sector, and regulatory framework. He noted that macroeconomic challenges such as exchange rate volatility and import restrictions have deterred foreign investors.

The decline in FDI inflows has also affected the financial account balance, which remained in deficit at $9.25 billion in July-March of the 2023–24 fiscal year, according to the central bank.

Despite the overall decrease in FDI, Bangladesh attracted significant investments from countries like the United Kingdom, the Netherlands, the United States, China, South Korea, and Norway. The manufacturing sector received the highest net FDI, followed by the power, gas, and petroleum sectors.

Zaved Akhtar, president of the Foreign Investors’ Chamber of Commerce & Industry (FICCI), highlighted challenges in the current tax regime that are hindering investment growth. He emphasised the need for tax reforms to create a more supportive business environment and stimulate investment.

Looking ahead, Reaz urged the government to develop a comprehensive plan to attract higher volumes of FDI, addressing both short-term challenges and long-term investment strategies.

Despite the decline in FDI in 2023, Bangladesh remains committed to fostering an attractive investment climate and enhancing its position as an emerging market for foreign investors.