ACKNOWLEDGEMENT

This Report is prepared for evaluating the overall prospects as well as problems of foreign
direct investment (FDI) in Bangladesh.

We thank our course instructor Prof. Dr. Howlader Md. Mosarof Hossain for his kind guidance,
advice and encouragement during the course of and also in the time being of preparing this term
paper on the overall prospects and problems of foreign direct investment (FDI) in Bangladesh. His
encouragement and praise during the course has encouraged us to prepare this report. We also duly
appreciate him for extending his helping hand whenever we need.
We also thank our family members, friends and everyone who helped us in creating this report.
We couldnt have done it without their help and support.

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Rational of the Study:

Investment From the foreign carries enormous significance in a developing country like
Bangladesh. Realizing the importance of foreign investment Bangladesh formulated its first
industrial investment policy in 1973, revised it again in 1974, 1975, and in 1978. Foreign
private investment (Promotion and protection) act, 1980 and the Bangladesh Export Processing
Zones authority act 1980 were enacted. To make the foreign investment more attractive new
industrial policy was announced in 1982. However, the industrial policy 1999 is by far the
most comprehensive document. Bangladesh has ever made for investment including foreign
investment.
With the passage of time Bangladesh reform its regulatory structure in regard to the FDI to
open up the new avenue and to dislodge the compliances related to the FDI. But the effort of
this structural progress has back warded by sudden and unexpected political influence and
changes. The situation becomes worse after 9/11 attack on US. Bangladesh had also severely
affected by that unwanted changes in the world scenario. Before going for in depth analysis the
flow of FDI in Bangladesh we have the privilege to have a look on the regional and worldwide
flow of FDI in the recent period.

Objective of the study:

This study is conducted with the objective to get an overall insight in the flow of FDI in
Bangladesh. The total objective is decomposed into several parts to get idea about the
factors affecting the flow of FDI. The specific objectives of this study are:
a. To give an insight into the theoretical issues relating to FDI
b. To highlight the role of multinational corporation in FDI.
c. To give an overview of FDI in Asian Countries.
d. To focus on the administration of FDI in Bangladesh.
e. To evaluate the status of FDI in Bangladesh.
f. To identify the problem of FDI & prescribe some issues for their solution.
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Scope of the study:

The primary scope of this paper is to get acquainted with the flow of foreign direct
investment. The study will cover the scenario of FDI flow currently in Bangladesh.

Sources of Information:
i.

Primary data Source: Primary data sources are used for preparing this term paper is
a. The Board of Investment (BOI)
b. Bangladesh Bank &
c. Bangladesh Bureau of Statistics,
d. Bangladesh Export Processing Zone, etc.
ai. Secondary data Source: Secondary data are collecting from various papers supplements like
a. The Financial Express,
b. The Daily Star, etc. newspapers,
c. Internet
d. Books are studied.
e. Exchange of views from different people also played a significant role to do the
Study.

Methodology of the study:

Throughout the term paper we presented historical background of the flow of FDI and to get
insight about the possible changes in the coming years. We have gathered information and data
relevant to this analysis from several sources. This analysis helps me to know about the
movement of FDI flow over the year. We also tried to find out the possible causes and factors
that shaped the trend line of the flow. In a particular year the flow is upward moving at another
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time this is downward moving. So what is the reason behind that is the objective of the study
as a whole. The analysis of the report is supported by some theoretical arguments that enhance
the overall findings and guide towards a reasonable recommendation.

Limitations of the study:

Although we tried to find and set the causes that determine the shape of the flow of FDI, we
believe we are not at the best peak. We have relied extensively on published data and other
secondary sources to precede the paper. But some of those sources were not approachable and
we lacked from data of that sources. In analyzing the report we have presented some factors
that determine the shape of the flow of FDI. But these are not surely the only factors and many
important factors may be omitted from the analysis. And another thing is that the underlying
factors are mostly in qualitative factors in nature and therefore cannot be measured in numerical
way. The consequences are that we failed to provide absolute guideline about restructuring
policy and some other decisions. The finding of the report is based on some assumed scenario
and changes on those scenarios may reshape the future flow of FDI. That is the analysis is
situation and time based. The biggest problem we faced in the reporting period is the
paradoxical data set. We have three sets of data in regard to the FDI, but all that provides us
contradictory result. Board of Investment does not confirm what the Bangladesh bank published
and vice versa. On the other hand the recording of FDI data is almost a new concept in our
country. As a result we present the FDI data which we believe more accurate in best of our
knowledge for the related periods.

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Foreign Direct Investment (FDI)

Direct Foreign Investment is considered as one of the vital ingredients for overall development
process of a developing country like Bangladesh. Industrial development is an important prerequisite for economic growth of a developing country. Bangladesh is basically a country of
agricultural economy. For her economic development, industrial economy is imperative. So
Bangladesh is gradually moving from agricultural economy to industrial economy. In the age of
globalization, it has become a burning issue to exchange views, ideas, capital and human
resources. Government of Bangladesh is trying to create a favorable investment environment
through introducing economic policies, incentives for investors, promoting privatization and so
on. Therefore, the contribution of FDI is necessary in the enhancement of a countrys economic
growth.
Researchers have marked FDI as an important factor in accelerating economic success and
wealth of a country as well as a door in creating jobs, facilitating economy, and creating more
competitive environment and contributing productivity to the host country.
With the exception of a few reserved sectors, foreign investors are free to make investments in
Bangladesh in industrial enterprise. An industrial entity may be set up in collaboration with
local investors or may even be wholly owned by the foreign investors. No permission is needed
to set up such enterprises if the entrepreneurs use their own funds. However, to avail of
facilities and institutional support provided by the government, entrepreneurs/sponsors are
advised to apply for registration with the Board of Investment (BOI). For items in the control
list, the office of the Chief Controller of Imports & Exports (CCI & E) prescribes the basis and
conditions of import entitlement.
Shares may be issued in favor of foreign investors against capital machinery brought into
Bangladesh. For issuance of shares against foreign investment in the form of capital machinery,
the exchange control copy of bill of entry evidencing clearance of the capital machinery from
the Custom Authorities, copies of the relative import permit, invoice and bill of lading are
required.
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Importance of FDI
In Bangladesh the countrys savings-investment gap had been mainly bridged by external
economic assistance. However, after the cold war era, the availability of foreign aid is
decreasing gradually. As a result, there is now widespread support for the need for FDI in
Bangladesh. If the economy is to grow faster, as is being envisaged, there is the need for larger
inflow of FDI in Bangladesh with a view to creating jobs for vast labor force, increasing foreign
exchange earnings, acquiring new and modern technology and management skills, accelerating
overall growth and development of the economy. FDI is thought of contributing to economic
development (and therefore poverty reduction) through initial macroeconomic stimulus and by
raising total factor productivity and efficiency of resource use in the recipient economy by:
a. Transferring more advanced technology and organizational forms directly to MNC
affiliates in the host country.
b. Triggering technological and other spillovers to domestically owned enterprise.
c. Assisting human capital formation.
d. Contributing to international trade integration.
e. Helping to create a more competitive business environment.
f. Enhancing enterprise development
g. Improving environmental and social conditions.
Bangladesh has gradually increased its focus on FDI as a major means for raising resources for
its developmental need. However, concerns are being raised about the povertyalleviating
impactofforeigncapitalflow.Thisisparticularlyimportantgiventhefactthatmorethanforty
percentofthepopulationofthecountrylivesinpovertyonthebasisofDirectCalorieIntake
(DCI).BangladeshPRSPreportedthattherateofpovertyreductionduringthe90swasone
percentpointperyear.Ontheotherhand,GDPgrowthrateduringtheperiodwas4.8percentin
realtermsperyear.

History of FDI in Bangladesh

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Bangladesh has attracted USD 913 million foreign direct investments (FDI) in 2010 calendar
year, a leap by 30 per cent. This upgrades the country's position to 114 from 119 out of 141
nations in the World Investment Report (WIR). During this period the telecom sector received
USD 360 million FDI, the manufacturing sector received USD 238 million in investment from
abroad, USD 145 million in the textile and clothing sector, while leather and leather products
got USD 46 million. (The financial Express, 27 July, 2011)
As a developing country, Bangladesh needs Foreign Direct Investment (FDI) for its ongoing
development process. Since independence, Bangladesh is trying to be a suitable country for
FDI. In order to accelerate economic growth, Bangladesh opened her economy in the late 1980s
to reap the benefits of FDI. In 1989 the government set up Board of Investment (BOI).
The primary objective of which is aimed at attracting and facilitating investment from abroad
(Mondal 2003). The government also lifted restrictions on capital and profit repatriation
gradually and opened up almost all industrial sectors for foreigners to invest either
independently or jointly with the local partners. Further, the government also introduced
various financial and non-financial incentives like tax exemptions for power generations,
import duty exemptions for export processing industries, tax holiday schemes for undertaking
investment in priority sectors and low development areas, zero duty rate for the import of
capital machinery and spare parts for 100 percent export oriented industries, almost no
restrictions on the entry and exit mode, and reduction of bureaucratic hassles in getting faster
approvals of foreign projects. Together with all these incentives followed by a low labor cost
structure, Bangladesh has been an attractive destination for FDI in the South Asian region since
the late 1980s.

The trend of Inflow of FDI in Bangladesh has increased over the 1980s as compared to earlier
periods and this same momentum continues in 1990s as well. The total inflow of FDI has been
increasing over the years. During the period of 1977-2010, total inflows of FDI were USD
8927.9 million, among which the total inflows of FDI during 2006-2010 was USD
4158.63 million. In 1977, this inflow was USD 7 million and in 2008, annual FDI reached to
USD 1086.31 million. Unfortunately, there was a declination in inflows of FDI in 2010 which
was USD 913.32million (Source: Survey Report, Statistics Department, Bangladesh Bank).
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Figure: illustrates the trend of FDI inflows in Bangladesh during 1996-2010.

Figure: FDI Inflows in USD in Bangladesh during 1996-2010

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign
Direct Investment in Bangladesh (1971-2010), Board of Investment.

The figure 3.1 shows an inconsistent proceeding of FDI inflows during the period. In 1999
there was a sudden decline in the FDI and the falling trend continued for many reasons again in
2001, 2002 and 2003. Serious political unrest during the period discouraged foreign investment
and it took quite some time to regain the confidence of foreign investors. There were also some
other factors that force this declination in the inflows. After that, there was very good news for
Bangladesh. The FDI inflow was on the steady rise from 2003 to 2005. It rose to US$ 1086.3
million in 2008 but slumped to US$ 700.16 in 2009 and again increased to $913.32.

Policy framework of Bangladesh government towards FDI

Investment in an economy raises output and improves standard of living of the people. Since
the supply of capital from the local source in Bangladesh is not adequate to meet the growing
need for investment due to low rate of domestic savings, the importance of foreign capital in the
form of FDI is increasing gradually. Now FDI is termed as a major stimulus to economic
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growth in the developing countries. Bangladesh Government has adopted several policy
measures to boost the FDI flow in Bangladesh. The government of Bangladesh has listed the
following five areas in which FDI should be encouraged under joint venture and 100%
ownership by the foreigners:
a) Export oriented industries
b) Industries located in the Export Processing Zones (EPZs)
c) Industries that are based on high technology, which will either be import substitute
or export oriented
d) Basic industries based mainly on local raw materials and investment towards
improvement of quality and marketing of goods manufactured and/or the increase of
production capacities of existing industries
e) Physical infrastructure projects on Build-Operate-Own (BOO) and Build-OperateTransfer (BOT).
In Bangladesh, FDI has to be registered either with the Bangladesh Export Processing Zone
Authority (BEPZA) for investing in an EPZ, or with the Board of Investment (BOI) in the case
of investing within the country but outside of EPZ. This registration process is to enable the
investors to avail themselves of the necessary government policy support and receive
certification to relieve the difficulties often experienced in dealing with the various public
enterprises.
Some of the recent major measures undertaken by the government to attract FDI are:
a) Private Export processing Zone Act has been enacted. Korea has set up a private EPZ at
Chittagong.
b) A Regulatory Reform Commission (RRC) has been set up.
c) A permanent Law Reform Commission has been set up to ensure greater transparency
and predictability in the way rules and regulations work.
d) An Administrative Reform Commission has been set up
e) The company law 1913 has been updated and revised in 1994.
f) Power generation in the private sector has been allowed.
g) Telecommunication in the private sector has been allowed.
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h) Multiple entry visas to visiting foreign investors are being given by all the Bangladesh
missions abroad.

i) Provision made for allowing import of standby generators free of tax and sale of
excess electricity to nearby industrial units without permission from any agency
provided own distribution line is used.
j) Licenses issued to six cellular telecom phone operators, which illustrate governments
commitment to a competitive and market economy.

k) Establishment of Bangladesh Better Business Forum (BBBF)

On the other hand, some of the incentives allowed for attracting FDI in Bangladesh are:
i) No ceiling on investment
ii) 100% foreign equity participation allowed
iii) Tax holiday up to 10 years
iv) Allowances of accelerated depreciation in lieu of tax holiday
v) Tax exemption and duty free importation of capital machinery and spare parts for
100% export oriented industries
vi) Residency permits for foreign nationals
vii) No restriction on issuing work permit to a foreign national
viii)

Capital, profit and dividend repatriation facilities

ix) Term loans and working capital loans from local banks
x) Avoidance of double taxation on the basis of bilateral agreement
xi) Tax exemption on the interest of payable to foreign loans and on royalties and
technical know-how fees
xii) Open exchange control
xiii)

Multiple entry visas for investors

xiv)

Convertibility of Taka for current account transactions

xv) Protection of foreign investment through The Foreign Private Investment Act-1980
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and Settlement of Investment Dispute (ICSID), The Multilateral Investment Guarantee

(MIGA), and World Intellectual Property Organization (WIPO).
xvi)

Adequate protection is available for intellectual property rights such as patents,

designs, trademarks and copyrights.

FDI Inflows from different countries

The country-wise FDI inflows in Bangladesh from top 10 investing countries during 1996 2010 are
presented in the figure

Figure: FDI Inflows (in million USD) by countries during 1996-2010. Source: Board of Investment,
Bangladesh.
[

The figure shows that United Kingdom has gained the top most position among the top 10 investing
countries in Bangladesh during 1996-2010 in investing in various sectors of economy. Out of total FDI
inflows from the top 10 investing countries during this period, 17.4% was from United Kingdom, 13%
from USA, 8% from Egypt, 7.7% from South Korea, 6.4% from Netherlands, 6.2% from Singapore,
5.6% from Hong Kong, 5.2% UAE, 4.8% from Japan, 4.7% from Norway.

Investment Facilities in Bangladesh

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Bangladesh offers generous opportunities for investment under its liberalized Industrial Policy
and export-oriented, private sector-led growth strategy. All but four sectors

Arms and ammunition and other defense equipment and machinery.

Forest plantation and mechanized extraction within the bounds of reserved forests

Production of nuclear energy, and

Security printing and mining

The governments role is that of a facilitator which helps create an enabling environment for
expanding private investment, both domestic and foreign. The Board of Investment (BOI),
established by the government for accelerating private investment, provides institutional
support services to intending investors.

Prospects of FDI
Bangladesh has been promoting FDI for decades with the most liberal investment policy and
incentive regime in South Asia. The Foreign Private Investment (Promotion and Protection)
Act, 1980, ensures equal treatment for local and foreign Investors. This act also provides legal
protection to foreign investment in Bangladesh against nationalization and expropriation. It also
gives the guarantee of repatriation of capital and dividend.

Bangladesh has achieved a consistent GDP growth of over 5% in the last decade and never
experienced a negative growth. Even Bangladesh sustained growth of over 5% during the recent
global economic crisis. In 2009 Bangladesh achieved a 5.9% GDP growth. Various necessary
steps like generation of huge number of SMEs, success in microcredit and NGO activities, rapid
spread of telecommunications services, record level of foreign remittances, acceleration of
export earnings are taking the economy at a higher level of growth. Its investment friendly
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climate offers generous and attractive packages of incentives for foreign investors like 100%
ownership, tax and duty exemptions and others. Actually, Bangladesh has gained a higher
ranking than many developing countries in terms of incentive package. A lot of additional fiscal
incentives are offered to export oriented industries. The government has created Export
processing zones (EPZs) to attract private investment. The government targets foreign investors
to invest in EPZ.

The vision is that the unique opportunities in energy and power, infrastructures, manufacturing
and knowledge-based sectors will attract substantial investment. Bangladesh has become a least
cost producer in the world with various positive factors like industrious low-cost workforce,
strategic location, regional connectivity and worldwide access, strong local market and growth,
low cost of energy, proven export competitiveness, competitive incentives, export and
economic zones, positive investment climate.

General Facilities/ Incentives for facilitating Foreign Direct Investment (FDI)

Tax holiday
Tax holiday facilities will be available for 5 or 7 years depending on the location of the
industrial enterprise. For industrial enterprises located in Dhaka and Chittagong
Divisions (excluding Hill Tract districts of Chittagong Division) the tax holiday facility
is for 5 years while it is 7 years for locations in Khulna, Sylhet, Barisal, and Rajshahi,
Divisions and the 3 Chittagong hill districts.

Tax holiday facilities are provided in accordance with existing laws. The period of tax
holiday will be calculated from the month of commencement of commercial production.
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Tax holiday certificate will be issued by NBR (National Board of Revenue) for the total
period within 90 days of submission of application.

Tax exemption
Tax exemptions are allowed in the following cases Tax exemption on royalties, technical know-how fees received by any foreign
collaborator, firm, company and expert.
Exemption of income tax up to 3 years for foreign technicians employed in industries
specified in the relevant schedule of the income tax ordinance.
Tax exemption on income of the private sector power generation company

for 15

years from the date of commercial production.

Tax exemption on capital gains from the transfer of shares of public limited companies
listed with a stock exchange.

Accelerated depreciation
Industrial undertakings not enjoying tax holiday will enjoy accelerated depreciation
allowance. Such allowance is available at the rate of 100 per cent of the cost of the
machinery or plant if the industrial undertaking is set up in the areas falling within the
cities of Dhaka, Narayangonj, Chittagong and Khulna and areas within a radius of 10
miles from the municipal limits of those cities. If the industrial undertaking is set up
elsewhere in the country, accelerated depreciation is allowed at the rate of 80 per cent in
the first year and 20 per cent in the second year.

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Private investment from overseas sources is welcome in all areas of the economy with
the exception of the four reserved sectors (mentioned earlier). Such investments can be
made either independently or through venture on mutually beneficial terms and
conditions. Foreign investment is, however, especially desired in the following major
categories of industries:
Export oriented industries;
Industries in the Export Processing Zones (EPZs)
High technology products that will be either import substitute or export oriented.
Foreign Equity:
For foreign direct investment, there is no limitation pertaining to foreign equity
participation, i.e. 100 percent foreign equity is allowed. Non-resident institutional or
individual investors can make portfolio investments in stock exchanges in Bangladesh.
Foreign investors or companies may obtain full working loans from local banks. The
terms of such loans will be determined on the basis of bank-client relationship.

Personal tax holiday:

A foreign technician employed in foreign companies will not be subjected to personal
tax up to 3 (three) years , and beyond that period his/ her personal income tax payment
will be governed by the existence or non-existence of agreement on avoidance of
double taxation with country of citizenship.
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 Dividend and retain earning:

Full repatriation of capital invested from foreign sources will be allowed. Similarly,
profits and dividend accruing to foreign investment may be transferred in full. If
foreign investors reinvest their repatriable dividends and or retained earnings, those will
be treated as new investment. Foreigners employed in Bangladesh are entitled to remit
up to 50 percent of their salary and will enjoy facilities for full repatriation of their
savings and retirement benefits.

Entrepreneurs facility:
Foreign entrepreneurs are, therefore, entitled to the same facilities as domestic
entrepreneurs with respect to tax holiday, payment of royalty, technical know-how fees
etc.

Work permit:
The process of issuing work permits to foreign experts on the recommendation of
investing foreign companies or joint ventures will operate without any hindrance or
restriction. Multiple entry visa will be issued to prospective foreign investors for 3
years. In the case of experts, multiple entry visa will be issued for the whole tenure of
their assignments.

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Investment Protections / International Agreements

Legal Protection
The policy framework for foreign investment in Bangladesh is based on The Foreign
Private Investment (Promotion & Protection) Act 1980 which ensures legal protection to
foreign investment in Bangladesh against nationalization and expropriation. It also
guarantees non-discriminatory treatment between foreign and local investment, and
repatriation of proceeds from sales of shares and profit.

International Agreements
Bangladesh has concluded bilateral agreements for avoidance of double taxation and
investment treaties for promotion and protection of investment with the following
countries:

Bilateral agreements
Belgium, Canada, China, Denmark, France, Germany, India, Italy, Japan, Poland,
Romania, Singapore, South Korea, Sri Lanka, Sweden, Thailand, The Netherlands,
United Kingdom ( including Northern Ireland ). Negotiations are ongoing with U.S.A,
Iran, Philippines, Qatar, Australia, Nepal, Turkey, Indonesia, Cyprus, Norway, Finland
and Spain.

Investment treaty
Belgium, Canada, France, Germany, Iran, Italy, Japan, Malaysia, Pakistan, Philippines,
Poland, Republic of Korea, Romania, Switzerland, Thailand, The Netherlands, Turkey,
United Kingdom, USA, Indonesia. Negotiations are ongoing with India, Hungary,
Oman, Moldova, DPRK, Egypt, Austria, Mauritius, and Uzbekistan.
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In addition, Bangladesh is a signatory to MIGA (Multilateral Investment Guarantee

Agency), OPIC (Overseas Private Investment Corporation) of USA, ICSID
(International Centre for Settlement of Investment Disputes) and a member of the WIPO
(World Intellectual Property Organization) permanent committee on development cooperation related to industrial property.

Incentives to Non-Resident Bangladeshis (NRBs)

Investment of NRBs will be treated on par with FDI. Special incentives are provided to
encourage NRBs to invest in the country. NRBs will enjoy facilities similar to those of
foreign investors.

Moreover, they can buy newly issued shares/debentures of

Bangladeshi companies. A quota of 10% has been fixed for NRBs in primary public
shares. Furthermore, they can maintain foreign currency deposits in the Non-resident
Foreign Currency Deposit (NFCD) account.

Competitive Strength of Bangladesh for Investment

The democratic government has already taken a number of measures to stimulate the economy.
In macro-economic terms, we have very prudent and market oriented fiscal policies.
1. Location: Geographic location of the country is ideal for global trades with very convenient
access to international sea and air route.
2. Natural Resources: Bangladesh is endowed with abundant supply of natural gas, water and
its soil is very fertile.

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3. Human Resources: We have a population of 160 million who are hard working and
generally intelligent. There is an abundant supply of disciplined, easily trainable, and low-cost
workforce suitable for any labor- intensive industry.
4. Social Stability: Bangladesh is a liberal democracy and mostly a one race and one religion
country. The population of this country irrespective of race or religion have been living in total
harmony and understanding for thousands of years.
5. Language: Although Bengali is the official language, but English is generally used as second
language. Majority of even moderately educated population can read, write and speak in
English.

6. Market Access: As a result of low per capita GDP of only US$956, present domestic
consumption is not significant. However, it should always be considered that there exists a
middle class with some purchasing power. As economic growth picks up, the purchasing power
will also grow substantially. And in a country of more than 160 million people, even a small
middle class may constitute a significant market.
7. GSP Facility: Most Bangladeshi products enjoy complete duty and quota free access to EU,
Japan, USA, Australia and most of the developed countries. However, for apparel export to
USA, we have certain quota regime which is generally favorable to Bangladesh.

Initiative of the Bangladesh Bank

There are some initiatives taken by the Bangladesh Bank to promote the investment especially
the FDI in the Bangladesh & for these types of initiatives we can hope Bangladesh can make a
lot of foreign direct investment. These are some of them
It is not mandatory to have prior notification of the Bangladesh Bank for making any
investment in the Bangladesh.
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 Extension of term loans by banks on normal banking considerations to foreign firms

operating in Bangladesh.
Extension of working capital loans to all foreign owned/controlled industrial and trading
firms/companies by banks on the basis of bank customer relationship, and normal
banking practice.
Companies can remit their earned money to their country by the head office without any
hazard.
Nonresident can invest their money in the country & can take their money away.
Remittance of principal and interest installments on loans/suppliers credits obtained by
industrial units from foreign lenders with approval of the BOI. 100% foreign owned
(Type A) industrial units in the EPZs (Export Processing Zone) do not require prior
permission of BOI for such foreign borrowing.
Remittance in repayment of principal and payment of interest of such loans.
Remittance of technical fees and royalties against technical assistance/royalty
agreements in conformity with BOI guidelines.
Portfolio investment by non-residents including foreign individuals/enterprises in shares
and securities through stock exchanges in Bangladesh.
Remittance of dividends on portfolio investment by non-residents through stock
exchanges in Bangladesh.
Remittance of sale proceeds, including capital gains of portfolio investments of nonresidents through stock exchanges in Bangladesh.
Remittance of savings of expatriate personnel at the time of their leaving Bangladesh,
out of the salaries and benefits stated in their employment contracts as approved by
BOI.
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FACTORS AFFECTING FDI

Infrastructure
Better infrastructure of the host country attracts foreign investors. Inflows of the FDI
depend mostly on quality and quantity of physical infrastructure like roads and
highways, transport, power, telecommunications and so on. Banking and other financial
services also affect the FDI inflows significantly. Good transport facilities-road, rail and
air, including developed port systems, energy and water and low cost utilities like
telecommunications are important infrastructural factors in attracting FDI. Business has
to incur excess cost to collect information in a country with poor infrastructure. But it
can be done easily and with minimum cost in a country having good infrastructure that
makes FDI financed projects cost efficient and competitive in the global market.

Macro Economic Environment

Macroeconomic factors such as fiscal policy, monetary policy and exchange rate
policies, political stability and business climate have a serious influence for FDI.
Foreign investors choose a location where there is evidence of success and availability
of favorable macroeconomic conditions. Investment is generally driven by profit, and
foreign investors always prefer a country with a rich business sector measured in terms
of GDP growth rate, rate of inflation, level of industrialization etc and also where the
macroeconomic environment is sluggish.

Governance
Governance of a country comprises economic and business policy and regulations such
as taxation system and tax rate, interest and Bank rate, drive against corruption etc. All
this factors are related with the cost business and profit. Foreign investors very
consciously consider the governance of a country to invest. An important aspect of
governance is the ease with which investors can enter and exit a market. It is an
important determinant of productivity, investment and entrepreneurship.
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 International integration
International integration is another determinant that drives investment. Countries that
aggressively pursue integration with the global economy grow more quickly than those
that did not. The low level of incoming FDI in indicates poor integration with the global
economy.

Political stability
Political factors like change of government, attitude of opposition group, transparency
in bureaucracy, degree of nationalism, corruption, terrorism etc. are seriously considered
by the investors in pre-investment decision making. For example, in case of Bangladesh
the most sensitive issue for discouragement of the FDI is political unrest and corruption.

Human resources
Skilled workforce leaves a country at an ease to attract investment. Development
programs financed by the FDI may be interrupted for the absence of skills and adequate
knowledge infrastructure. Low growth that takes place in trade and investment is the
result of the use of unskilled cheap labor. Bangladesh is a country where there is ample
scope for development of human resources. It is a shame for the planners that thousands
of Indians and other foreign nationals are employed in the top positions of most of the
multinational and national corporations.

Technology infrastructure
Economic growth of a country largely depends on technological progress, which
stimulates FDI. It includes more modest advances, implementation of better business
processes, and involves the adoption of new technologies. In this area, again,
Bangladesh lags behind in comparison to its competitors.

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PROBLEMS OF FDI IN BANGLADESH

The FDI plays an important role in the economic development of Bangladesh in terms
of capital formation, output growth, technological progress, exports and employment.
But the inflow of FDI is not smooth at all in Bangladesh. The factors which are blocking
foreign investment in Bangladesh would be as follows:

Complicated Bureaucracy
The country has a bureaucratic system that is not at all compatible with an investment
environment. The concrete implementation of investment related policies are pro-longed
to obstruct both local and foreign investors. An inefficient and dishonest bureaucratic
system is extensively responsible for the absence of FDI in the country.

Political Unrest
The political situation in Bangladesh is extremely vulnerable because of the continuous
hostility among the political parties, which in turn pollutes the entire investment
environment. It is unfortunate that Bangladesh is an exception where most of the
political violence centered on industries. Even EPZs are not exempted by any means.
However, the situation has been apparently improved since the present interim
government has taken over.

Corruption
Culture and society have become corrupted through sick politics. The bureaucrats and
regulatory bodies are steeped in corruption. For business enterprise, corruption works as
taxation or lubrication cost. Many companies regard bribery as just one of the costs of
doing business (Lubrication Cost) and show these payments as legitimate business
expenses. However the current situation in this regard is as gloomy as it was in the past.

High Inefficiency Cost

Government control and management has been extremely ineffective and inefficient.
The country is suffering from inefficiency of state-owned entities in telecommunication,
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energy, ports, aviation, railways, banking and many other sectors. All these sector
inefficiencies push the total cost of local and foreign businesses extensively high.

Absence of Autonomous Regulatory Bodies

The politically influenced government agencies are functioning as regulatory bodies
without any operational autonomy. So an effective and rapid response towards providing
the necessary services to investors is apparently absent in Bangladesh.

Differential Treatment
Though are regulations to provide equal treatment of local and foreign investors, certain
inequitable conventions are practiced with the foreign investors. Such inequalities are
evident in cases of authorization necessities for foreign investment, barriers against
capacity expansion, suppliers credit, etc.

Insufficient Power Supply

Bangladesh faces a system loss often more than 40% of the gross power generation
probing with the lowest per capita power consumption and network coverage of
electrification among developing countries. This creates immense discouragement for
investment in the power intensive industries.

Inconsistent Policy Implementation

Bangladesh provides various favorable investment facilities and incentives under
liberalized industrial policy. Bodies like the Export Processing Zones are there to
promote export orientation and privatization based growth strategy. However, in reality,
none of these favorable policies and strategies are implemented, thus foreign investors
are being discouraged.

Tax Authoritys Discretion

The government of Bangladesh has given its tax administrators discretionary author-ity
and they unduly apply it to bother businessmen and investors. This authority has made
many of the officials highly corrupt. At present Bangladesh is trying to get red of from
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this scandal.

Lack of effective cooperation of Board of Investment (BOI)

The BOI of Bangladesh has a One Stop Service cell to serve and assist with various
investment facilities, mostly FDI. But, materializing the service in reality is still an
illusion. The least capable and least productive government personnel working for the
cell naturally fail to improve the situation.

Legal Absurdity
The system of legal suits and actions prolonged over the years puts business investors in
a dilemma about placing their precious capital in businesses in Bangladesh.

Disrupting Fiscal Policy

Each year the government declare Fiscal Policy that quite often goes adverse to the
investors and disrupts their regular business and operations plans and strategies both in
short and long run.

Administrative coordination problem

Policies and the implementation processes are not materialized simultaneously because
of lack of administrative communication and coordination among the government
agencies. This situation results high business costs and hassles for investors.

Time wasting customs processing

The inefficient and corrupt customs system quite often takes more than twenty
signatories to discharge a shipment along with physical inspection by the authorized
personnel.
There are many other problems such as poor leadership quality, ignorant labor forces,
and unorganized financial or capital markets that damage the national image of the
country to the foreign investors.

Recommendation
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FDI is viewed as a major stimulus to economic growth in developing countries as it brings

prosperity to the recipient countries through technological transfer, increasing volume of
exports, enhancing job opportunities and increasing government revenue. Realizing the
importance of FDI, Bangladesh offers one of the most liberal regimes for FDI in South Asia and
these policies are producing results in terms of increased inward investment. Despite, FDI
inflow in the SAARC region particularly in Bangladesh is not satisfactory. Furthermore, the
lions share of FDI is being repatriated.
To attract FDI, Bangladesh has to reinforce its infrastructure facilities, and improve the quality
of services. Furthermore, a consistent incentive package should be implemented which may
include fiscal measures (such as rationalization of para tariffs, elimination of non-tariff
barriers), financial measures (such as reducing interest rates, access to financing), and
institutional measures (such as enhancement of competitiveness through capacity building). It is
true that FDI follows domestic investment, and if the level of domestic investment is low, it will
not help FDI to rise at the desired level. Thus, to boost foreign investors confidence and
encourage them to invest in Bangladesh, the domestic investment rate, which is closely related
to improvement of the business environment and of economic governance, should be increased.
Simply providing incentive packages and liberalization measures will not attract FDI, nor has
FDI always proved to have a positive impact on the economic growth of the country.

Conclusion
Same as most other developing and least developed countries, Bangladesh also considers
Foreign Direct Investment (FDI) as an important resource for development. In order to attract
more and more FDI, the country undertook a massive liberalization of its investment program.
The Board of Investment (BOI) was established in 1989 by the Investment Board Act to
encourage investment in private sector, to identify the hindrance of investment and provide
necessary facilities and assistance in the establishment of industries.

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That is why potential investors from local and foreign countries have grown substantially in
sectors like manufacturing, telecommunication, energy and gas sectors in addition to other
sectors or sub-sectors being very promising for potential private investment. The FDI is capital
provided by a foreign direct investor, either directly or through other related enterprises, where
the foreign investor is directly involved in the management of the enterprise. When a country
has a situation of low cost of production and stable political situation that country is generally
the best choice for FDI. Until the 1980s, most developing countries viewed FDI with great
weariness as it has also some bad sides because it exploits the cheap labor of our country. We
have a huge amount of active and strong manpower. That's why they come to our country in the
name of FDI but in return they actually exploit us. Besides, they use our natural resources
recklessly. So, our natural resources like gas and other things are going to be exhausted. They
earn a lot of profit every year and take away to their country but they do not reinvest it in our
country. Another most important thing is influencing power in government decision. Since they
are giant companies, they have a powerful influential capacity in government decision. So there
is a possibility of losing the sovereignty of a country. Actually, disadvantage is a matter of fact.
If there is proper government control over the company, it becomes advantages most of the
times. In recent years, however FDI restrictions have been significantly reduced. Most countries
offer incentives to attract FDI, such as tax concessions, tax holidays, accelerated depreciation
on plants and machinery, export subsidies and import entitlements etc. As a developing country,
Bangladesh needs FDI for its ongoing development activities.
On the other side there are a lot of advantages of FDI. A huge number of unemployed people
are employed due to FDI. So, the standard of living is increased due to the increase of income
level of the unemployed people. Their purchasing power is increased that's why the business
cycle moves at a good speed. Other sides like roads, communication system, transportation
facilities, and education are also improved at a greater speed. Competition is increased in the
local market with the local companies. That's why price of the product starts to fall down. Gross
Domestic Product (GDP) is increased due to increased production in the economy. Another
advantage is that we can use our unutilized resources by FDI.
Problems that have restricted FDI potentials in Bangladesh include excessive bureaucratic
interference, alleged irregularities in processing papers, lack of commitment on the part of local
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investors, inordinate delays in selecting projects for feasibility studies, and frequent changes in
policies on import duties for raw materials, machinery and equipment. Overlapping
administrative procedures and absence of a transparent system of formalities and recognized
dissemination of facts often confuse not only investors proposing projects, but also staff and
personnel assigned for discharging procedural responsibilities. Frequent transfers of top- and
mid-level officials in various ministries, directorates and departments affect continuity and
prevent timely implementation of strategic, procedural, and even routine duties. An additional
problem is the lack of professional personnel, i.e., the technical, managerial and innovative
skills in the country needed to efficiently handle entrepreneurial function including risk taking,
planning and coordination and control.
However, competitive strength of Bangladesh for investment is good. It is the government who
should come forward to take all the initiatives to make the outside people interested about our
economy to rise and the opportunity for the investors to invest in our country.

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