Bangladesh's FDI Growth: A Post-Uprising Boom or a Misleading Picture?
Foreign Direct Investment (FDI) in Bangladesh surged by 19.13% in FY2024-25, but is this growth a true economic revival? The answer is not as straightforward as it seems. While the numbers look impressive, a deeper analysis reveals a complex story.
The growth was primarily driven by reinvested earnings and intra-company loans, rather than new equity capital. And here's the twist: Equity capital, which represents fresh external investment, actually declined by 17% year-on-year. This means that the apparent FDI growth may not be attracting new investors to the country.
Reinvested earnings, which are profits retained within the business, soared by 23.30%, and intra-company loans skyrocketed by 180.66%. This shift indicates that existing investors are doubling down on their investments, but it doesn't necessarily reflect increased confidence from new foreign investors.
Bangladesh Investment Development Authority's (BIDA) Executive Chairman, Chowdhury Ashik Mahmud Bin Harun, celebrated the FDI growth on social media, attributing it to investor confidence in Bangladesh's economy. He praised the efforts of various institutions and agencies for their role in this growth. But here's where it gets controversial: Zahid Hussain, a former World Bank economist, argues that it's premature to claim success. He points out that the decline in equity capital suggests that the growth may not be as substantial as it appears.
Hussain highlights that the retained earnings could be sitting idle in banks or invested in treasury bills, not necessarily contributing to business expansion. He emphasizes that the size of foreign investment is still relatively small compared to the country's economic potential, and attracting significant foreign interest remains a challenge.
A closer look at the data reveals more intriguing trends: The textile and apparel sector, once a top investment magnet, has been on a three-year decline, with foreign investment dropping from $530 million in FY23 to $403 million in FY25. Meanwhile, the food products sector emerged as a surprise runner-up, attracting $379.36 million in FY25, a significant leap from being outside the top 10 in FY24.
The investor landscape also underwent a dramatic shift: The Netherlands, absent from the top 10 in FY24, became the top investor in FY25, with a staggering 20-fold increase in investment. Conversely, the UK, a previous top investor, saw its investment plummet by 41% in the same period.
As the country gears up for national elections, BIDA's Ashik Chowdhury predicts a temporary FDI slowdown but expects stabilization post-elections. He encourages stakeholders to focus on long-term investment prospects, downplaying short-term fluctuations.
In summary, while Bangladesh's FDI growth post-uprising is noteworthy, it may not signify a substantial economic turnaround. The surge in reinvested earnings and intra-company loans, coupled with the decline in equity capital, suggests a nuanced picture. As the country strives to attract foreign investors, the question remains: Is this growth sustainable, and what does it truly signify for Bangladesh's economic future?
