Investor confidence wavers

While the continued decline in foreign direct investment (FDI) in Bangladesh remains a cause for concern, the first quarter of 2025 showed signs of promise. It reflects growing unease about the country's investment climate and long-term competitiveness, but also presents an opportunity that can be harnessed through timely reforms and consistent, investor-friendly policy actions.

FDI in Bangladesh fell to $1.47 billion in FY24, down 8.8 percent from $1.61 billion in FY23. In the January-March quarter of FY25, FDI rose by 76.31 percent from the previous quarter and 114.31 percent year-on-year. While most of the increase came from intra-company loans and equity, the sharp drop in reinvested earnings signals deeper concerns that must be addressed. Letters of credit for machinery imports also declined by 27.46 percent year-on-year, while settlements fell by 25.56 percent. After peaking at $1.72 billion in FY22, inflows have declined, though the economy has shown resilience. GDP grew by 4.86 percent in the January-March quarter, the fastest pace in nearly two years, thanks to a rebound in industrial and service outputs.

The Bangladesh Bank have stabilised the exchange rate, but this has yet to reignite investor interest. Political uncertainty remains a key reason for caution. Many investors are waiting to see the next national elections before making major commitments. In April 2025, the interim government hosted a major investment summit, where more than 400 foreign delegates made proposals exceeding Tk 3,100 crore. Key commitments include one from China's Handa Industries, worth $150 million, alongside strong interest from DP World and other global firms. Bida is also working to improve its one-stop service platform.

Vietnam attracted $36.6 billion in FDI in 2023. Agreements such as RCEP and CPTPP have given it a seamless trade ecosystem. In contrast, Bangladesh struggles with inefficiencies. Chattogram Port ranks 337th out of 405 in the Global Container Port Performance Index. Delays in customs clearance and administrative bottlenecks remain widespread. The Matarbari Deep Sea Port is under construction, and the Rooppur Nuclear Power Plant is nearing completion. However, despite a 50 percent increase in energy capacity, outages persist. An unstable gas supply continues to trouble industrial users. Upgrades to underground grids and solar power partnerships are in progress, but faster execution is vital.

The tax and legal frameworks also require urgent reform. At 30 percent, the corporate tax rate is among the highest in the region. A reduction to 20–25 percent would send a clear signal to investors. Legal clarity in special economic zones is essential. Intellectual property protection must be strengthened to attract investment in pharmaceuticals, IT, and advanced manufacturing. High withholding taxes on dividends and capital gains tax on foreign portfolio investors remain major barriers to sustainable FDI.

Notably, more than 70 percent of Bangladesh's current FDI originates from reinvestments by existing investors. This suggests that while they still see potential, they are holding back. Their needs should be prioritised. Timely connections, quick resolution, and dedicated support for expansion should be ensured. FDI projects should have dedicated managers, and agreements should be upheld to reduce friction. Retaining current investors remains the fastest route to boosting FDI.

Bangladesh should also look beyond garments. Pharmaceuticals, electronics and technology, agro-processing, and green manufacturing are promising areas.

Global perception matters. To regain investor confidence, Bangladesh must show policy consistency, professionalism, and transparency. The interim government has shown early promise. The next must act more decisively and effectively.

Bangladesh stands at a crossroads. Investors are watching with interest but remain unconvinced. Delivering energy, logistics, regulatory clarity, and skills development will be key to reviving momentum and attracting FDI through credible, coordinated reforms. The resources are there. Now is the time to realise the country's full potential.

The writer is president of the AmCham Bangladesh and former president of the FICCI