Originally posted in The Financial Express on 18 October 2023
FDI shrinks 7.0pc to $3.2b in FY23
Foreign direct investment (FDI) contracted by over 7.0 per cent to US$3.2 billion in FY2023, according to central bank data released on Tuesday, as the local forex market volatility shows no sign of subsiding anytime soon.
Economists, as usual, renewed their call about the country’s pressing need for foreign exchange buildup, while the ground reality was that equity investment plummeted notably during the period under review — dispatching another bad news for the country’s already strained economy.
Disinvestment, which is asset sales or liquidation, saw an uptick in FY23, which economists attributed to potential fund withdrawals.
According to Bangladesh Bank’s Tuesday report, equity investment plummeted by 40.91 per cent, while intra-company loans fell by 40.14 per cent.
In contrast, reinvestment by existing foreign-owned companies experienced a surge of nearly 16 per cent during the fiscal year under review.
The highest FDI inflows originated from the UK, totalling US$622 million in gross inflow, closely followed by the Republic of Korea at $603 million.
Other major contributors include the Netherlands ($512 million), Hong Kong ($371 million), the United States of America ($347.2 million), Singapore ($330.62 million) and China People’s Republic ($232 million) during the fiscal year 2022-23.
FDI in Bangladesh primarily focuses on three areas: economic zones (EZ), export processing zones (EPZ) and non-export processing zones (non-EPZ).
In FY2023, non-EPZ areas attracted the highest net FDI inflows, around $2.8 billion, while EPZs received $406 million. The EZ areas garnered nearly $4.2 million.
Commenting on the poor FDI inflow, Dr Khandker Golam Moazzem, research director at the country’s oldest private think tank Centre for Policy Dialogue (CPD), said this is very unfortunate for Bangladesh, which attracted much fewer FDIs in the past fiscal year.
He said this happened at a time when Bangladesh needed adequate foreign exchanges to stabilise its forex market volatility and help stabilise the balance of payment deficits.
Dr Moazzem said the foreign investors remained unwilling to invest in the country as many macroeconomic indicators are unstable and unfavourable.
The CPD economist said disinvestment has increased, indicating that many are liquidating or selling their assets.
The volume of disinvestment stood at $1.2 billion during FY 2023.
Seeking anonymity, a senior BB official said the remarkable drop in net FDI inflow was observed mainly because of two factors – a drop in intra-company loans and equity.
He said that reinvestment has surged as profit repatriation from Bangladesh is not straightforward.
When contacted, the chairman of the local think-tank Policy Exchange of Bangladesh Dr M Masrur Reaz said the net FDI inflow dropped significantly mainly because of three major economic challenges the country is now facing.
“The existing volatility in local currency in the form of continued depreciation of Bangladeshi Taka against the greenback has basically been hurting confidence of the overseas investors in making fresh investment or expansion of their business here,” he says.
Tight-fisted import is giving a signal that the decision to put in more money under such a controlled business climate will not be sustainable for the investors. “So, they defer their investment.”
On the other hand, the escalating cost of business in this higher-inflation regime is the third factor that is discouraging foreign investors, he adds.