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FDI feared to shrink further

Sarwar A Chowdhury
Inflow of fresh foreign direct invest ment (FDI) to Bangladesh will shrink further, hurt by the global financial trauma.
Domestic investment for the export-oriented industry has already taken a hit from the crisis.
However, local investment, some claim, is set to rise with the confidence boosting up among entrepreneurs, thanks to a transition to democracy.
The investment from these entrepreneurs marked a slowdown during the rule of the caretaker government.
The declining trend in capital machinery import shows that Bangladesh has already started facing the knock-on effects of the global financial meltdown.
Bangladesh Bank statistics say L/Cs worth $628.87 million were opened for the imports of capital machinery during July-December of 2008 against $792.83 million in the same period a year earlier.
Financiers showed a 12 percent decline in L/C opening in the first quarter of the current fiscal year, compared to the previous quarter.
"We saw a declining trend in L/C opening for the capital machinery import in the last three months,” said a senior official of Eastern Bank Limited.
Some other bank officials echoed the view.
The FDI, which was declining since 2006 due mainly to political uncertainty, has been projected an upturn for 2008, backed by Japan's NTT DoCoMo's purchase of the 30 percent stake in AKTEL for $350 million from local AK Khan and Company.
Bangladesh received $ 483.6 million FDI during the first six months of2008.
The actual FDI in Bangladesh was $ 843 million in 2005, which was $ 793 million in 2006 and $ 666 million in 2007.
The United Nations Conference on Trade and Development (Untad) says worldwide FDI inflows shrank 21 percent in 2008 to $1.4 trillion. The World Association of Investment Promotion Agencies says FDI will be contracted by 12 15 percent this year.
In contrast to trade, the impact of the global downturn on investment has so far hardest on the countries where financial woes began.
The Asian Development Bank in its latest quarterly update on Bangladesh economy said the fall in FDI proposals by foreign investors in 2008, as registered by the Board of Investment, is of concern.
In 2008, the Bol registered only $60 million in FDI proposals covering 13 projects, the ADB said. "The expected FDI flows in the energy sector are unlikely to materialise in the near term as investors will be cautious about any large investment. Postponement of
FDI in the energy sector will be seriously detrimental to growth prospectus in view of the prevailing power and gas shortages," the ADB said.
Experts also said political or economic instability in the US or Europe will certainly leave an impact in other parts of the world. As these countries are major export destinations of Bangladesh, the economic downward will certainly hurt Bangladesh, they said.
"The global recession has a correlation with FDI inflows to Bangladesh,” said Mustafizur Rahman, executive director of Centre for Policy Dialogue.
Despite the global crisis Bangladesh can manage a healthy FDI, if some constraints can be resolved, an optimistic Rahman said. “Non-assurance of energy availability and inadequate infrastructure are the main constraints for both the local and foreign investment. If we can address these issues, we are hopeful that the country will be able to attract more foreign investment."
Mamun Rashid, a leading banker and economic analyst said, “It seems that we can't avoid the impact of the global financial meltdown, which other countries have already started facing. This is evident from the issuance of L/C and credit to private sector."
He suggested a cohesive and integrated policy response to keep the shock at a minimum level.
Annisul Huq, president of the Federation of Bangladesh Chambers of Commerce and Industry, said it is obvious that business expansion or investment will see contraction during a financial crisis worldwide.
In the case of Bangladesh, the impact may not be so high, as the country has already entered into a democratic era and has cheap labour force, Huq, also an entrepreneur, pointed out.
Ifty Islam, managing partner of Asian Tiger Capital Partners, a financial institution focusing on private equity and venture capital, at a discussion with chief executives of local and multinational companies said it is possible for Bangladesh to achieve $5 billion in FDI.
He identified eleven sectors in
Bangladesh that deserve this investment, such as energy, infrastructure, pharmaceuticals, textiles, agriculture, healthcare, telecom, climate change, education, shipbuilding and light engineering.
To attract FDI, Ifty Islam recommended four types of investment activities: National image building, investment generation, investor servicing and policy advocacy.
"Investor servicing involves assisting committed investors to analyse business opportunities, establishing a business and maintaining it. Policy advocacy encompasses initiatives aiming to improve the quality of the investment climate and identifying the views of the private sector in this area,” Islam said.
Other experts said the new government should undertake proper plans to attract greater FDI to Bangladesh.
Meanwhile, financiers pointed to the fact that disbursement of industrial term loans, which were negative in the previous quarters, will increase from the next quarters.
The industrial term loans during July-September, 2008 stood lower at Tk 4950.93 crore, compared to Tk 5576.51 crore during April-June, 2008, according to Bangladesh Bank.
The Bol also said registration of local investment proposals is increasing. Tk216 billion investment proposals were registered with the Bol in 2008 against Tk 135 billion in 2007. up by 60 percent.
“We are receiving industrial loan applications, especially from the RMG sector. But we are analysing these investment proposals very carefully, as the global recession, as reported by media, has left an impact on this sector,” said SM Aminur Rahman, managing director of Janata Bank. "We are now focusing on SME and energy sectorinvestment."
The rising business confidence is also prompting the local entrepreneurs, who remained silent during the caretaker government period amid fear, to move forward to the banks and leasing companies for term loans for business expansion.
"Many of our corporate clients did not come to us during the last two years. But, they are now coming to us for loans to make new investment,” said an official of Dutch-Bangla Bank.
“We can get the whole picture of new investment after this year," said Jamal Uddin Ahmed, corporate head of IDLC Finance Limited, an industrial leasing company, which is now busy in implementing the last year's industrial projects. BLEAK DAYS FOR MIGRANTS B4
sarwar@thedailystar.net