M Masrur Reaz

Over the past five decades, Bangladesh managed to transition to an increasingly manufacturing-based and service-oriented economy and fared well in social indicators. It has registered average gross domestic product (GDP) growth rates of more than 6 per cent in the last 10 years and over 8 per cent in the fiscal year 2019.

The poverty rate dropped from 31.5 per cent in 2010 to 21.8 per cent in 2018, a significant step toward reaching the Sustainable Development Goal target of eradicating extreme poverty by 2030.

The success of a persistent and sturdy growth rate is based on real structural transformation, growing private sector engagement, export-oriented industrialisation, vibrant rural economy, and steady development outcomes. In February 2021, Bangladesh secured final nod to graduate from a least-developed country to a developing country which will take place in 2026.

The economic downturn from the coronavirus pandemic poses multidimensional challenges for Bangladesh that may span over the medium and long-term horizon. However, it seems a major casualty of the downfall will likely be private investment, particularly foreign direct investment (FDI). An UNCTAD assessment suggests that the global FDI contracted by a large margin of 42 per cent in 2020, the magnitude of the fall being one of the largest in last many decades.

Such challenges emerge at a time when Bangladesh is in need to enhance its FDI more than ever before. There are several compelling reasons for this. First, according to the 8th Five Year Plan, Bangladesh needs to step up the pace of growth to more than 8 per cent if it has to move towards upper middle-income country by 2031.

It is important for the economy to have increased levels of FDI because it can’t only help create the much required employment for Bangladeshi youths but also support in augmenting domestic capital, help in transfer of new technology and products, facilitating access to new and large foreign markets, and provide training of local workforce by upgrading their technical and managerial skills, hence making them more efficient and productive.

Impressive economic and human development gains provide strong headroom for growth in FDI

The importance of Bangladesh raking in higher levels of FDI is paramount, especially when the country aspires to become an upper-middle-income country by 2031 and a developed country by 2041. For this to materialise, private investment-to-GDP ratio needs to rise to 27 per cent. However, the last decade has witnessed this ratio being stagnant at 22 to 23 per cent.

Additionally, FDI over the last decade has averaged 1.1 per cent of GDP, whereas comparator countries like Vietnam and Malaysia have fared better with 6 per cent and 3.4 per cent, respectively.

Building on its economic and human development strengths, Bangladesh has ample headroom to bring in more diversified sectors as candidates for FDI as the lion share of FDI is concentrated within a narrow spectrum of industries such as power, banking, food, telecommunications and textile and weaving over the past several years. FDI can provide much-needed impetus to growth drivers

The impressive economic and social progress Bangladesh secured had much to gain from increasing number of higher-waged jobs, exploitation of international market through increasing exports, spill-over effects in manufacturing from the RMG sector, and improvement in rural and energy infrastructure.

In the recent years, some of these growth drives have come under pressure. Job-drivers such as exports are decelerating and FDI can help provide employment to over 20 million youths that are expected to enter the labour force in the next decade.

One of the prerequisites to Bangladesh attainting sustained 8 per cent growth trajectory is a higher degree of economic diversification. However, diversification remains elusive and one key reason is a lack of adequate infrastructure.