Little FDI for job creation
The majority of the paltry foreign direct investment enjoyed by the country is dominated by capital-intensive sectors while labour-intensive sectors receive an insignificant share.
Experts, while talking to New Age on Sunday, said that the lion’s share of the FDI in the county’s capital-intensive sectors was a normal phenomenon as the foreigners looked to maximise their profits in a short period of time.
Multinational companies are wary of the county’s labour-intensive sectors, said former Bangladesh Bank governor Salehuddin Ahmed.
He noted that policy uncertainty and regulatory weaknesses were the main reasons for the poor FDI in labour-intensive sectors.
But the country needs FDI in labour-intensive sectors to address the unemployment problem, further aggravated by the Covid pandemic since 2020.
The country has been attracting FDI since the inception of its economic reform in 1995.
But the rate of FDI inflow has been less than 1 per cent of the country’s gross domestic product, one of the lowest rates in Asia.
The country’s FDI volume has stood at $20,069.85 million until March 2021, according to Bangladesh Bank statistics.
Some 54 per cent of the investment has been received by capital-intensive gas and petroleum, banking, power, telecommunications and trading sectors.
These sectors do not create much employment opportunity, said Salehuddin, adding that the capital machinery imported under FDI projects become obsolete after a certain period.
The rest of the overall FDI amount has been obtained by 11 sectors, as per a BB chart.
The sectors include the textile and wearing industry, which alone accounts for 17 per cent of the country’s overall FDI stock.
More than $200 million of the $3,481 million investment in the readymade garment sector has been provided by offshore companies based in British Virgin Island, well-known as a tax haven.
Profit repatriation by offshore companies can be likened to capital flight, said experts.
The other 10 sectors include food, construction, chemical and pharmaceutical, agriculture and fishing, leather and leather goods, cement, machineries and miscellaneous, which enjoys 29 per cent of the overall FDI.
Experts said that it was imperative for Bangladesh to identify the reasons why the FDI in labour-intensive sectors was insignificant in the labour-surplus country.
They said that many reputable multinational companies operating in the country manufactured few products in their local factories while these firms imported various products from a neighbouring country to sell on the local market.
Former World Bank Dhaka office chief economist Zahid Hussain said that the policy uncertainty was one of the major reasons for multinational giants not investing in labour-intensive sectors.
Referring to Samgsung’s investment plan for 2010, he said that the giant South Korean company had finally made the investment in Vietnam.
He noted that Vietnam had attracted a substantial amount of its FDI to its manufacturing sector.
CPD research director Khondaker Golam Moazzem, however, said that multinational companies wanted a secure and sustained market as a prerequisite for their investment in capital-intensive sectors.
He admitted that the local market of Bangladesh could not attract them in the past.
However, he said, things are changing somewhat, adding that the investment made by Samsung in Bangladesh to manufacture handsets carries a positive massage about the local market.
The government is setting up special economic zones across the country to attract export-oriented investors.
But production in the first SEZ is unlikely until next year.
The country’s total FDI volume has been US$20,069.85 million until March 2021, with the largest FDI holding belonging to the gas and petroleum sector and the United States of America being the top investing nation.
The gas and petroleum sector has attracted $4,465.22 million, 22 per cent of the county’s overall FDI stock, according to BB statistics.
The second biggest FDI stock, 17.34 per cent, is in the textile and wearing sector while the third largest share is 12.9 per cent in the banking sector and 10.6 per cent, the fourth largest, in the power sector.
The telecommunications and food sectors are the fifth and the sixth in terms of the size of the FDI obtained, with 7 per cent and 6.5 per cent of the overall FDI, respectively.
These six sectors account for some 66 per cent of the overall FDI stock.
The United States of America alone holds 65.9 per cent of the stock in the gas and petroleum sector, making that country the lead nation in FDI use here.
The total US investment stands at $3,828 million, accounting for 19 per cent of the country’s overall FDI volume, in 15 notable sectors.
The stakes held by the US in other sectors include $261.24 million in insurance, $205.12 million in power, $189.35 million in banking and $76.94 million in textile and wearing.
Besides the US, Australia, Canada and Singapore are other major investors in the gas and petroleum sector.
Australia, Canada and Singapore hold 18.18 per cent, 9.4 per cent and 5 per cent shares in the sector respectively.
The US share in the country’s second largest FDI sector, textile and wearing, is a paltry 2.21 per cent.
The sector, dominated by South Korea, Honk Kong, the United Kingdom and other nations, has attracted 17 per cent of the overall FDI, some $3481.17 million.
South Korea holds the largest stock with 25.65 per cent or $893.94 million.
Hong Kong, with FDI worth $511 million, is the second with a 14.6 per cent stake and the United Kingdom is the third with $374.30 million or 10.75 per cent share in the textile and wearing sector.