& çâÌæÚUæð´ ·¤è ¥ôÚU Îð¹Ùæ ÁæÚUè ÚU¹ð´ ¥ÍæüÌ ¥ÂÙð ÜÿØ ÂÚU ŠØæÙ ÚU¹ð´Ð ãæÚU Ù ×æÙð´, €UØô´ç·¤ ·¤æ× ·¤ÚUÙð âð ¥æÂ·¤ô ©gðàØ ·¤è Âýæç# ãôÌè ãñ ¥õÚU ÁèßÙ ·¤æ ¹æÜèÂÙ ÎêÚU ãôÌæ ãñÐ ÖÜð ãè ÁèßÙ ×ð´ ç·¤ÌÙè Öè ·¤çÆÙæ§ü €UØô´ Ù ¥æ°, çÁ™ææâæ ¥õÚU ©ˆâæã ÕÙæ° ÚU¹ð´Ð ŠØæÙ ÚU¹ð´, ÜÿØ ã×ðàææ ¥æÂ·Ô¤ Âæâ ãôÌð ãñ´ çÁ‹ãð´ ÂæÙð ·Ô¤ çÜ° ÂýØæâ ¥æÂ ·¤Öè Öè àæéM¤ ·¤ÚU â·¤Ìð ãñ´Ð

Foreign Direct Investment for Bangladesh: A Regional Perspective

by Kazi Farhad Jalal
As a fallow-up to The Daily Star Round Table, we are publishing this article on one of the major topics discussed in the meeting.
***Some of the recent developments in the world economy are expected to gather momentum during the decade of 1990s, affecting external resources flows to Bangladesh....
THE recent changes seen In the political and economic *pherea of Ba ngiadesh and event* occ urriM elsewhere tn the world have brightened Ks prospect* lor creating an internationally competitive manufacturing •ector. In that regard, there t* an Increasing recognition in Bangladesh that global as well as regional flows of external resources, specially foreign direct Investment (FDI). can be of special significance. The Industrial Policy 199 1 (IP 1991) echoes that recognition. Many analysts believe that a third wave" of FDI. the ripok * of which can already be fell in many other parts of the Asian Pacific region, can and should reach Bangladesh. The previous two waves" occurring during last thirty years were firmly anchored on production cost differences and industrial relocation activities of the capital surplus countries The "third wave" of FDI flows are likely to occur large^. but not entirely, in response to world wide trends In implementing liberalization and deregulation measures.
Some of the recent dcvcl opments In the world economy arc expected to gather mo mentum during the decade of 199Os, affecting external re source flows to Bangladesh and other LDCs. In particular. Soviet Union and East European countries arc poised to become an important segment of the world economy, competing for scarce savings, external markets and technology transfer, and accepting a rising share of exports from other countries. As the recon stmcUon of Kuwait and Iraq may cause a major diversion of development resources, the soc ial and infrastructure needs of unified Germany and other industrialized countries will add to strong global demand for savings. In order to overcome some of these uncertain ties surrounding external resource flows. Bangladesh would have to reorient its de-
vetopment priorities In using these resources In particular, concessionary official development assistance (ODA) would have io be used primar iiy lo ulk-viuK poverty, develop human resources, build infrastructure and set up basic in-d us tries. Other forms of external resources like FDI should be utilised lo create an Internationally competitive manufacturing sector with the support and participation of the don«t» private sector
Aaian-Paciflc Region
In the Asian Pacific region. FDI has become an important source of external resource bringing a wide range of bene fit* to the host countries, In eluding access to market*.
technology and management skills There have been several Im tors behind the- surge in FDI flows In the region In partk-u lar. the debt crisis of early 1980* and domestic policies pursued by many countries were responsible for the in crease in FDI flow*. It was realized that export-oriented industrialization strategics adopted by the NIEs first and then by the ASEAN-4. could be made more effective through the promotion of FDI. As a consequence. the Asian Pacific region has seen the fastest growth in FDI during the last two decades, averaging be tween 13 per cent lo 16 per cent, most of which flowed lo East and South East Asia.
During 1981 to 1987, Asian economics received FDI (low* totaling US9 18 billton, some 93 per cent of which went lo China. Hong Kong. Indonesia. Malaysia, Republic of Korea. Singapore. Taiwan I’rovlncc of China and Thailand. The bulk
of the FDI from outside the region went to the ASEAN 4 NIE* and Chin* with South Asia receiving a declining relative share of FDI flow* In Asia-Pacific.
Intra-Asian Flows
In Intra Aslan flow* of FDI. Japan and NIE* emerged as the major source* of Inlru-Asian FDI with Japan » FDI growing by 73 per cent in
1987 and 45 per rent tn 1988 The NIE* as a group have emerged as the second most important source of IntraAsian FDI flow*. Investing prl marily in Malaysia. Indonesia. Thailand and the Philippines.
Despite a very favorable government policy toward* FDI. available evidence sug getts that foreign direct Investment tn Bangladesh has remained quite Insignificant, amounting lo only US* 7.7m In 1977 and an average of USM.39 for 1985 88 period The reinvested profit part of FDI amounted lo mote than 50 per cent of total FDI Inflow and it reached 92 per cent tn 1988. FDI is not well dlvcrsl fled and until recently, was confined to only a few manu factoring activities like pharmaceutical and chemicals The contribution of foreign enterprises to employment genera tion. export earnings and technology flows has also been limited. In 1986, foreign en-
terprlscs employed approxi matcly 112,000 people a counting for les* than 5 per cent of estimated total industrial employment of 2.33 nill-hon. Since FDI in Bangladesh has generally flowed Into rcla lively tow technology industries. its contribution to tech nology transfer and expanding the technological base of the country has been very limited. For a tong time, local en-
trepreneur* found it difficult to enter the industries dominated by foreign Investors, principally due lo lack of capital, marketing links and other expertise. In recent years local entrepreneurs have began to partk-tpatc in these industries, specially In pharmaceuticals and activities not requiring high technology.
Strategic Approach
In view of this disappointing performance of FDI In Bangladesh, the country must adapt a strategic approach in attracting FDI on any significant scale. In that regard. Bangladesh will need lo focus on two broad aspects In order lo attract FDI on a sustained basis: (1) identify partk-ular enterprises where Bangladesh has a dynamic comparative ad vantage; and (it) overcome the structural weaknesses of the economy -whU h hinder growth and therefore discourage flow of FDI into the country.
The key elements of a strategic approach to attract Fill can be sketched as follows:
(U Labour ifitea sive/domestic market: Industries tn thts cate gory use labour as thetr most Important input and these should be chosen to meet domestic priorities. In this category. a good potential exists tn developing industries that supply inputs to agriculture. such as pumps, pipes, irrigation tools, tillers and transport vthk les
(II) Labour iateasivc/ezps^ rtoriented These industries also use labour as the most important input. Since they must cater to domestic needs, industries in this category can be chosen to meet aomestic p.-lorlties In this category, the
textile and garment industry ha* a potential for both earning scarce foreign exchange as well as generating employment for tow-skilled labour Over time these labour-intensive/export oriented Industrie* should be encouraged to develop back ward linkages In the produc tion of capital goods, intermediate input* and other raw ma teriaia Electronics and some electrical component* manufacturing have also a good possibility for development in Bangladesh. Assembly of printed circuit board* (PCB) for use in TVs. radios and other electronic equipment and assembly of integratnl circuits arc *ome of the examples of the types of activities for which opportunities exist.
(til) Tsehnology-iatsasl-▼s/domestlc Market: These industries use technology and capital, rather than labour, as major factor Inputs. Expensive
to set up. they often do not match the requirements of a country like Bangladesh Bangladesh has pod natural and substantial water resources which, with the infusion of appropriate technical, managerial and capital resources. can be exploited for the industrial development of the country through the participation of foreign and local investors
•vTechnotogyintsaaHa/-export srlented These industries predominantly use capital and technology as ma jor factor inputs. While expensive to set up. investment may be recovered by their potential to earn foreign exchange in future. Examples would include natural gas based fertilizer production and cement for ex port. The technologies which will be particularly useful and relevant to Bangladesh during the next decade are those which will add value to its natural resources fe.g. down stream gas processing, furniture making); facilitate compliance with international standards by enterprises; offset local shortages of specific skills; facilitate Joint production between offshore industries and those to be located tn Bangladesh and develop and upgrade the skills of the work force. In acquiring technology, one or combination of three modes based on the dominant pattern of interaction between the source and the receiver, could be pursued. In Public Domain Mode, the desired technology is freely available. In Passive Mode, receiver needs are met by acceptance of standardized terms and conditions provided by the source. And in Cooperative Mode, mutual trust enables a working relationship between source and receiver.
The author Is the Director of the Division for Industries and Human Settlement. ESCAP. Bangkok