Escolar Documentos
Profissional Documentos
Cultura Documentos
in Bangladesh Economy
Prepared for:
Dr. Pinki Shah
Course Instructor: Microeconomics
MBA Program
Prepared by:
Md. Tanvir Hasan
ID. 091051019
Master of Business Administration
Semester: Summer 2009
ULAB, Dhaka
August 10, 2009
Page | 1
Section A: Introduction
1.0 INTRODUCTION
Economic supremacy is the foremost feature of the current world. In order to survive,
Bangladesh has no other options but to attain economic development. Foreign Direct
Investment (FDI) is recognized as a key component for economic growth for Bangladesh.
Being one of the Least Developed Countries (LDC) with insufficient domestic savings rate for
investment after fulfilling its basic needs, the importance of foreign investment is
unquestionable. Foreign Direct Investment (FDI) will create employment, increase efficiency
of labor, encourage technology transfer and develop new exportable sector. To attract more
and more FDI the government of Bangladesh has been trying to establish private investment
friendly environment. A number of opportunities have been given by the Government of
Bangladesh (GoB) to attract foreign investors to invest in the country in some prospective
sectors. As Bangladesh does not have sufficient domestic savings for investment, foreign
investment is the most powerful ingredient for its economic development.
In international business FDI has become a significant component for many countries.
Nowadays Asian countries have a great influence in the global economy. Though Bangladesh is
comparatively lagging behind of them, there are a lot of opportunities to attain economic
development by undertaking some initiatives. Considering the above facts the overall purpose
of preparing the paper was to identify the prospect of Foreign Direct Investment in Bangladesh
Economy.
machinery, nuclear energy, forestry in the Table I: FDI inflows 1995-2006 (US$ in million)
reserved forest area, security printing and Year FDI inflow
minting, and railways (Foreign Investment
Promotion and Protection Act, 1980). 1995 92.3
1996 231.6
The table shows a fluctuating trend of the 1997 575.3
FDI inflows over the above mentioned 12 1998 576.5
years. Data shows that in 1999 there was a 1999 309.1
sudden fall in the FDI, and again in 2001, 2000 578.6
2002 and 2003 the falling tend continued for 2001 354.5
many reasons. Among others serious 2002 328.3
2003 350.2
political unrest during the period was a
2004 460.4
major factor that discouraged foreign
2005 845.3
investment in these years and it took quite
2006 989
some time to regain the confidence of
Source: Statistics Department of Bangladesh Bank.
foreign investors. It stabilized afterwards but
remained below the average achieved during 1997-2000. Later on during next two years period
it becomes alive again.
The graph shows inconsistent Exhibit I: FDI inflow trend from 1995-2006
proceeding of the FDI in Bangladesh
since 1995. It is a matter of great
concern that in spite of Bangladesh’s
comparative advantages in labor-
incentive manufacturing, adoption of
investment friendly policies and
regulations, establishment of EPZs in
different suitable locations and other
privileges, FDI flows have failed to be
accelerated. However, the year 2005 and
2006 show a substantial improvement in
FDI achievement.
Owing to comparative advantages and Exhibit II: Sector-wise allocation of FDI in 2005
an accommodative policy regime, a
large chunk of the FDI has gone into
the ready-made garment. In 2005, FDI
inflows in Bangladesh have been
widely spread among the key business
sectors, where the profit is higher,
concerning on telecommunication
(33%), manufacturing (26%), energy &
power (25%), trade & commerce (15%),
service, agriculture & fishing (1%).
In recent years, tremendous interests of foreign investors are shown to invest in Bangladesh. In
FY 2005-06, major foreign investors include Dhabi Group of United Arab Emirates, Singtel of
Singapore, Orascom of Egypt, YKK of Japan and Mircrosoft of USA. Besides, a number of
large investment proposals worth about US$ 10.5 billion are at negotiation and/or approval
stages. These include investment proposals from Indorama Group of Thailand, Luxon Global
of South Korea, Toray of Japan, Delta Arabia and other proposals from China, Malaysia,
India, Taiwan, UK, USA, Australia, Singapore, Thailand, Saudi Arabia, UAE and Kuwait.
6.1 Location
Geographic location of Bangladesh is ideal for global trades with very convenient access to
international sea and air route.
7.1 Textile
RMG and textile sectors have enormous investment opportunities. The phenomenal growth in
RMG was experienced in the last decade. In 1984-85, no of Garment factories was 800 RMG
jointly with knitwear accounted for more than 70% of total investments in the manufacturing
Page | 5
sector during the first half of the 1990’s. At present with about 4,000 factories and a workforce
of two million, 80% of which are women, employing over 50% of the industrial workforce and
having 75% of the total exports earning of the country. Government provides highly favorable
policy framework for investment in these sectors.
7.3 Leather
Bangladesh produces between 2 and 3 percent of the world’s leather market. Foreign direct
investment in this sector along with the production of tanning chemicals appears to be highly
rewarding. Having the basic raw materials for leather goods as well as for the production of
leather shoe, a large pool of low cost but trainable labor force together with tariff concession
facility to major importing countries under GSP coverage, Bangladesh can be a potential off
shore location for leather and leather products manufacturing with low cost but high quality.
In 2004-05 total export of leather goods was 220.93 million US$ on the other hand it is 257.27
million US$ during 2005-06 FY.
10.1 Bureaucracy
The activities of bureaucrators in some government agencies create problems in the
implementation of the project, thereby giving rise to acrimony and legal hassles. In
consequence, these adversely affect the attractiveness of a country for future potential
investment.
11.0 CONCLUSION
Bangladesh has considered FDI as more favorable factor for stimulating economic growth. A
number of factor lie behind this new orientation: slowdown of the world economy along with
political unrest in the international arena, declining trend in public capital or foreign aid and
the globalization of production and services. Though there are some interrelated administrative
barriers which result inferiority in policy formulation and implementation, competitive
drawbacks, poor quality of skills and infrastructure, ineffective institutions, and below average
governance which dampen potential of FDI. Besides the above, it has also been found out that
Bangladesh is not full of hindrances of FDI, but some opportunities and prospects are also
available in this host country. In very recent the quarrelsome political environment has been
changed and hopefully, new era will be started of investment for the native and foreign
investors.
12.0 RECOMMENDATIONS
In the view of foregoing detail findings, discussion on the key findings and subsequent
conclusions, a number of recommendations have been offered. It is suggested that the offered
recommendations are prioritized before going into action. Some recommendations have policy
implication and so those should be dealt with cautiously with inclusion of strong policy
advocacy strategy in the process.
REFERENCE
Bangladesh Bank Annual Report- 2006
FDI Inflow Survey 2005, Board of Investment, Bangladesh
Kafi, Md. Abdullahel et al (Dec. 2007), “Foreign Investment in Bangladesh: Problems and
Prospects”, The Journal of Nepalese Business Studies-2007, Vol. IV No.1, pp- 47-61
Muttakin, Mohammad Badrul et al (2005), ‘The Investment Scenario in Bangladesh-
Problems and Prospects’ Pakistan Journal of Social Sciences 3 (4): pp- 534-540 ©
Grace Publications, 2005
UNCTAD-2005, Bangladesh Investment Handbook 2007- BOI
Doing Business in 2006: Creating Jobs, World Bank 2006
Foreign Investment Promotion and Protection Act, 1980
World Investment Report 2006
URL: http://www.boi.gov.bd ;
URL: http://www.nbr.gov.bd