US State Department report finds Bangladesh lucrative for FDI despite pandemic-induced economic downturn across the world
Bangladesh will continue to be resilient and attract foreign direct investment (FDI) to live up to its image as a preferred location for global investors, despite the economic downturn induced by Covid, according to a new report released by the US State Department.
The report, titled “2021 Investment Climate Statements” and released on Wednesday, mentioned Bangladesh’s sustained economic growth over the past decade, a large, young and hardworking workforce, a strategic location between major South and Southeast Asian markets and the presence of a dynamic private sector.
The Government of Bangladesh’s efforts to improve the business environment in recent years are promising, but implementation has yet to materialize, according to the report, which analyzes the investment climate in more than 170 global economies that are current or potential markets for US companies.
Bangladesh has made gradual progress in reducing some constraints on investment, including taking measures to better guarantee reliable electricity, but inadequate infrastructure, limited financing instruments, bureaucratic delays, lax application of the Labor laws and corruption continue to hamper foreign investment, the report says.
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The slow adoption of alternative dispute resolution mechanisms and slow court processes hamper contract enforcement and the resolution of trade disputes, the report said.
Driven by a young workforce and a growing consumer base, Bangladesh has experienced steady annual GDP growth of over 6% over the past decade, with the exception of the Covid-induced economic slowdown in 2020 , according to the report.
Much of this growth continues to be driven by the ready-to-wear industry (RMG), which exported $ 28 billion in apparel products in fiscal year 20, and continued remittances , hitting a record $ 18.2 billion in FY20, according to the US report.
However, the country’s RMG exports fell more than 18% year-on-year in fiscal 2020, as Covid lowered global demand for apparel products.
The government of Bangladesh is actively seeking foreign investment in sectors such as agro-industry, textiles, leather goods, light manufacturing, power and energy, electronics, light engineering, information and communication (ICT), plastics, health, medical equipment, pharmaceuticals, shipbuilding, and infrastructure.
Bangladesh offers a range of investment incentives as part of its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors, according to the report.
Bangladesh’s stock of foreign direct investment (FDI) stood at $ 16.9 billion in 2019, with the United States being the top investing country with $ 3.5 billion in cumulative investment.
Bangladesh received $ 1.6 billion in FDI in 2019. The FDI inflow rate was only 0.53% of its GDP, one of the lowest rates in Asia, according to the American report.
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As a traditionally moderate, secular, peaceful and stable country, Bangladesh has seen a decrease in “terrorist activity” in 2020, accompanied by an increase in terrorism-related investigations and arrests, the US government said.
The report, however, underlined “the diminishing space for political opposition, undermines the independence of the judiciary and threatens the freedom” of the media and NGOs.
Bangladesh continues to host one of the world’s largest refugee populations, over one million Myanmar Rohingya, in what is expected to be a humanitarian crisis requiring significant financial and political support for years to come.
International retail brands selling products made in Bangladesh and the international community continue to pressure the government of Bangladesh to meaningfully address workers’ rights and safety concerns in factories in Bangladesh , according to the report.
With unprecedented support from the international community and the private sector, Bangladesh’s RMG sector has made significant strides in fire and structural safety, the US government noted.
Critical work remains to be done to protect the rights of workers to freely associate and bargain collectively, including in export processing zones (EPZs), he said.
The government of Bangladesh has limited resources devoted to protecting intellectual property rights (IPRs), and counterfeit products are readily available in Bangladesh, according to the report.
Government policies in the ICT sector are still under development. Current policies give the government wide powers to intervene in this sector, he said.
Bangladesh’s capital markets continue to develop and the financial sector is still heavily dependent on banks, according to the US report.