Lesotho is a name that is unknown to most of us and that doesn’t ring a bell because we don’t know. It is a landlocked country within the borders of South Africa. A very small landlocked country, Lesotho is a more popular name in the United States and in European countries due to the fact that it is one of the largest clothing exporting countries in Africa, which has grown from a marginal manufacturing sector to one of the most popular. supply centers for the global apparel market. This was possible because Lesotho benefited from foreign direct investment (FDI), which not only brought about significant changes in the economic situation of that country, but also generated enough jobs to appease its citizens. The World Bank believes that a strategy like attracting foreign investment can bring significant benefits to developing economies.
Bangladesh, as an emerging economy, is also expected to leverage FDI to bring about laudable economic changes and catalyze growth momentum. Bangladesh has recently opened its market to foreign investors and welcomes FDI. According to the latest data from the Bangladesh Bank, FDI inflows increased by 5.36% to reach USD 1.65 billion in July-October 2019. In contrast, another report claims that gross FDI inflows in during the year 2019 reached 3,991.49 million USD. However, the pandemic has dealt a heavy blow to FDI around the world, and Bangladesh is also suffering in this regard. Statistics from the Bangladesh Bank show that net FDI inflows into the country declined by 19.50% in the first nine months (January-September) of 2020. The situation is expected to improve once the pandemic is over. attenuated. Recently, the Bangladesh Investment Development Authority (BIDA) has taken initiatives to attract foreign investment. Its one-stop-shop service portal is one that aims to provide all investment-related services under one roof and offers 41 services. In addition, BIDA has started to work together with other organizations to attract foreign investors to our country. Teaming up with Standard Chartered Bank and hosting the Bangladesh-Italy Investment Summit to be held next April are some of the steps taken to promote Bangladesh as an investment destination and attract investment from overseas. . All of these are set to pay off in the long run.
However, there should be a few points of focus if Bangladesh is serious about reaching the full potential of foreign investment, which in turn will accelerate the process of economic rebound. One of these strategies could be to focus more on attracting foreign investment for our digital ecosystem, our e-commerce sector to be more precise, as the e-commerce sector is an integral part of the digital ecosystem and has the potential to grow exponentially due to its increasing popularity.
Statista, a German company specializing in market and consumer data, recently revealed that the overall e-commerce market value in Bangladesh in 2019 was $ 1,648 million, which will increase to $ 2,077 million this year and By 2023, the market size is expected to reach $ 3,077 million. On the other hand, according to a recent report by Bangladesh Bank, the transaction amount of Bangladesh e-commerce sector is increasing every month. In June 2020, the transaction amount was Tk 491.4 crore, while it was Tk 640.4 crore in July 2020. Such an upward trend will continue in the coming days, as the pandemic has opened up new possibilities for the e-commerce sector.
At a time when our e-commerce sector is flourishing, foreign investors are showing their penchant for our local start-ups, which could change the whole landscape and bring windfall for our economy. Recently, Daraz, an Alibaba Group company, bought the Bangladeshi food delivery service company HungryNaki. HungryNaki is the first Bangladeshi start-up to be fully acquired by a foreign investor. Along with its involvement in e-commerce, Alibaba hopes to significantly contribute to the ecosystem of food delivery services in Bangladesh after this acquisition. HungryNaki will continue to operate as usual with all existing employees and will operate as a subsidiary of Daraz.
Such direct investment from foreign companies is important for two reasons: economic development and the spillover effect. When a local company starts working with a foreign investor, there is room for improvement in productivity and transfer of knowledge. This can help revolutionize the system, as the expertise and experience from both sides can be merged to produce something more formidable, which will ultimately result in smooth operation, better customer service, job opportunities ( with business expansion) and better turnover.
More importantly, FDI inflows combined with the development of human capital are considered to be one of the most effective catalysts for the economic growth of the host country, as they allow healthy competition in the industry. Such an investment has the ability to induce other market competitors to expand their business and at the same time encourage young entrepreneurs to set up their own start-up which is good for the economy of a country and indicates stable economic growth.
FDI can also be a good source of government revenue, as the profits generated by foreign investment directly contribute to corporate tax revenues in the host country. To put it simply, the more FDI there is in the country, the greater the possibility of waking an emerging economy out of its slumber.
Syed Mostahidal Hoq, Managing Director, Daraz Bangladesh.