INCREASING global integration and trade internationalisation are economic trends certain to characterise the world economy to an even greater degree in the future. Bangladesh is well-positioned to take advantage of these trends, including in attracting foreign direct investment (FDI).
FDI involves capital provided by a foreign investor, either directly or through a related enterprise, where the investor is directly involved in the management of the established enterprise.
For a developing economy in transition from an agricultural to a more modern base, such as the Bangladeshi economy, FDI offers considerable scope to strengthen domestic economic conditions to the benefit of the country and betterment of its people.
Recognising its benefits, many countries offer FDI incentives including tax concessions, tax holidays, accelerated depreciation on plants and machinery, export subsidies and import entitlements. Such strategies, including the establishment of special economic zones and lucrative incentive packages, are likewise important for Bangladesh.
FDI can have a positive impact in several ways. It enables the building up of physical capital, creates employment opportunities and develops production capacity. FDI enhances local labour skills through technology transfer and management knowhow. In turn, the domestic economy becomes better able to integrate globally to take advantage of emerging economic opportunities at the international level.
In addition, as unemployed people gain employment due to FDI, the standard of living increases along with purchasing power, providing impetus for the business cycle to move faster. This gain is compounded by the development of local support industries and institutions.
Simultaneously, transport facilities and infrastructure, communications systems and education stand to benefit. Increased competition in the local market meanwhile can reduce the price of commodities, as gross domestic product rises.
In recent years Bangladesh has experienced a surge in FDI. Foreign investors were attracted by abundant resources, skilled and cheap labour, effective monetary and fiscal policy, infrastructure improvements and longterm strategic planning. From an FDI inflow of $0.7 billion in 2009, effective government policy has encour-
aged FDI inflow to rise to $1.6 billion in 2013.
The key areas of activity in attracting FDI have included trade and exchange rate liberalisation, current account convertibility and an emphasis on private sector-led development. The infrastructure and services sectors have been opened to private investment, domestic and foreign alike.
It is foreseeable that with the more open trade policy associated with the presence of foreign firms, the Bangladeshi economy stands to experience broad technological and productivity gains.
It is envisaged that the private sector will play an increasingly active role in infrastructure and human resource development programmes. With this goal in mind, government policy reforms in recent years have endeavoured to create a more open and competitive climate for both foreign and domestic investors.
The Board of Investment (Bol) has an important role in creating a favourable investment climate Established in 1989 with a mandate to encourage investment in the private sector, identify hindrances to investment and provide necessary facility and assistance in the establishment of industrial units, the Bol offers investors a wide range of services including promotion, support, advice and aftercare.
Coupled with the activities of the Bol, generous private investment opportunities under the government's liberalised industrial policy and export-oriented, privatesector-led economic growth strategy have strengthened ties with developed countries. It can yield cost advantages in the form of the positive externalities resulting from technology transfer.
Recent growth experience, meanwhile, has validated the decision to pursue higher national education expenditure in order to make the domestic labour force more competitive. This strategy has in turn substantially increased the number of potential investors and source of investments in key sectors, including manufacturing, telecommunication, energy and gas.
FDI is fast becoming a significant source of financing for domestic investment in Bangladesh. To maintain competitive strength in attracting FDI, it is important to continue to promote the country's natural economic assets including its strategic geographic location with respect to global trade, its convenient access to international sea and air routes and its low-cost workforce. In addition, domestic purchasing power for FDI products in a country of 160 million people is not negligible.
Under continued careful management and encouragement, Bangladesh stands to gain substantially from FDI in the years to come. With the benchmark strategies in place, there is little reason to doubt that FDI performance in contributing to national development will be very satisfactory.
The writer is a director at the Board of Investment.