Foreign Direct Investment in Bangladesh.docVIP

Foreign Direct Investment in Bangladesh As a developing country, Bangladesh needs FDI for its ongoing development process. Since independence, Bangladesh is trying to be a suitable location for FDI. Special zones have been set up and lucrative incentive packages have been provided to attract FDI. However, the total inflow of FDI has been increasing over the years. In 1972, annual FDI inflow was 0.090 million USD, and after 33 years, in 2005 annual FDI came to 845.30 million USD and to 989 million USD in 2006. The magnitude of FDI played a minor role in the economy of Bangladesh until 1980, a crucial year of policy change. The Government of Bangladesh (GOB) enacted the ‘Foreign Investment Promotion and Protection Act, 1980’ in an attempt to attract FDI. Except five industries, which are reserved for the public sector: defense equipment and machinery, nuclear energy, forestry in the reserved forest area, security printing and minting, and railways, FDI is allowed in every sector of the economy. Table 1 shows total FDI inflow (including that in Export Processing Zones, EPZs) over the last 11 years, 1995-2005. Data reveals that in 1999 there was a sudden fall in FDI, and again in 2001, mainly because of serious political unrest, which discouraged foreign investment, and it took several years to regain the confidence of foreign investors. It stabilized afterwards but remained below the average reached during 1997-2000. In spite of Bangladesh’s comparative advantage in labour-intensive manufacturing, adoption of investment friendly policies and regulations, establishment of EPZs in different suitable locations and other privileges, FDI flows have failed to accelerate. However, in 2005 substantial improvement has been achieved. ? Table 1: The Aggregate and Sector-wise FDI inflow, 1995-2005 (calendar year) (USD in million) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Agriculture Fishing (Total) 0 0.3 1.4 1.4 2.9 15.2 1.1 1.6 4.1 1.7 2.3 Power, Gas Petroleum