Is Bangladesh's 19% FDI growth in FY25 a true reflection of economic progress? Let's dive in and uncover the reality behind the numbers.
Unveiling the Truth: FDI Growth in Bangladesh
Following the July 2024 mass uprising, Bangladesh witnessed a remarkable 19.13% growth in Foreign Direct Investment (FDI) during the fiscal year 2024-25. However, this growth story has a twist - it's not solely due to fresh external investments but a surge in reinvested earnings and intra-company loans from existing players.
According to Bangladesh Bank data, equity capital inflow, which represents initial investments, declined by a staggering 17% year-on-year in FY25. In contrast, reinvested earnings, the profits kept within businesses, soared by 23.30%, and intra-company loans, funds transferred within multinational companies, skyrocketed by 180.66%.
The share of equity capital in total FDI took a hit, dropping to 33% in FY25 from 45% in FY24. Total FDI inflow reached $1.7 billion at the end of FY25, up from $1.4 billion in FY24.
Equity capital is the lifeblood of any enterprise, providing the initial funds for ownership stakes. Reinvested earnings, on the other hand, are profits generated from these investments, retained within the business instead of being distributed as dividends. Intra-company loans are funds transferred within the same multinational corporation, from the parent company to its local subsidiary.
Chowdhury Ashik Mahmud Bin Harun, the executive chairman of the Bangladesh Investment Development Authority (Bida), shared his insights on Facebook, highlighting the continued investor confidence in Bangladesh's economy despite political uncertainties.
He credited key institutions, including the National Board of Revenue (NBR), Bangladesh Bank, and investment promotion agencies, for their role in fostering this growth through sound economic policies.
But here's where it gets controversial... Zahid Hussain, a former lead economist at the World Bank's Dhaka office, cautions against claiming victory just yet. He argues that the FDI data doesn't support such optimism, as reinvested earnings are non-repatriated profits kept as retained earnings, and their actual investment destination remains unclear.
Zahid Hussain emphasizes that the size of foreign investment is still relatively small compared to the country's economic scale. He urges caution, stating that a small inflow can result in high growth figures, which may not accurately reflect the true investment landscape.
He further highlights that Bangladesh has yet to attract significant interest from foreign investors, despite its strong land and sea connectivity. While the efforts of key institutions post-uprising are commendable, they need to be sustained.
BIDA's chief, Ashik Mahmud Bin Harun, posted about the FDI growth but failed to provide a clear explanation for the source of these investments. He compared Bangladesh's FDI performance to other countries facing political or civil unrest, showcasing its resilience.
He attributed Bangladesh's ability to bounce back to sound economic policies and the commitment of key institutions. The private sector's determination and coordinated government support have also played a crucial role in creating a favourable investment environment.
Looking ahead, Ashik Chowdhury predicts a temporary slowdown in FDI before the upcoming national election but expects stabilization afterward. He urges stakeholders to adopt a long-term perspective, recognizing the country's overall economic recovery and potential, despite short-term fluctuations.
"We have strived to support investors, and while not all problems are solved, our goodwill remains intact," Ashik Mahmud Bin Harun said. Bida plans to release an annual report summarizing the year's investment performance soon.
Where is Foreign Investment Flowing?
The textile and apparel sector, traditionally the top foreign investment-attracting sector, has seen a continuous decline over the past three years, dropping from $530 million in FY23 to $403 million in FY25. Its share of total FDI also decreased to 24% in FY25 from 30% in FY24.
Surprisingly, the food products sector witnessed a significant jump in FY25, becoming the second-highest attracting sector. Food Products, which wasn't even in the top 10 investment sectors in FY24, accounted for 22% of total FDI in FY25 with an investment of $379.36 million.
Banking emerged as the third-highest FDI attracting sector with $319.58 million in investment, accounting for 19% of the total. The power sector followed closely with $292.24 million, representing 17% of total investment. The leather and leather products sector attracted 4% of the total investment with $60.16 million, according to central bank data.
The Netherlands: Top Investor in FY25
In a surprising turn of events, the Netherlands, which wasn't even in the top 10 investors list in FY24, became the highest investing country in FY25, surpassing the UK. Investment from the Netherlands surged to $453.65 million in FY25, a remarkable 20-fold increase from just $23 million in FY24.
The Netherlands invested the majority of its funds in the food and beverage sector, with $365 million in FY25, followed by $66.7 million in the power sector. Investment from the UK, on the other hand, experienced a drastic fall, declining by nearly 41% to $300 million in FY25 from over $506 million in FY24. The UK invested primarily in the textiles and clothing sector in FY25.
The UK's share in total investment dropped to 17.81% in FY25 from 34.5% in FY24. China maintained its position as the third-highest investor country with $274 million in investment in FY25, slightly lower than $283.55 million in FY24.
Interestingly, the US, which was the top investor country in FY22 with $426 million, didn't even make it to the top 21 investor list in FY25. The country's investment stood at only $89 million in FY24, making it the seventh-highest investor in Bangladesh.
Other top 10 investor countries in FY25 included Korea, Singapore, India, Hong Kong, Malaysia, Japan, and Sri Lanka.
As we unravel the complexities of Bangladesh's FDI growth, what are your thoughts? Do you agree with the economist's cautious approach, or do you see signs of a thriving investment landscape? Share your insights and let's spark a discussion on the future of foreign investment in Bangladesh!
