Despite the country's commendable economic progress over the past decade or so, foreign direct investment (FDI) has been frustratingly low in Bangladesh. So it is encouraging to see the renewed push for investment at the ongoing Bangladesh Business Summit in Dhaka. Welcoming foreign delegates and global business leaders, the prime minister invited them to invest as if "it is your country", and be a part of Bangladesh's development journey. Highlighting the country's economic growth, ambitions and challenges, she said the government is working on improving its investment environment by removing existing hurdles. The international business community was also invited to join its mega initiatives and to relocate their industries here.

There is already optimism that the summit could help attract a good amount of investment from abroad. For example, as per the FBCCI president, Saudi Arabia could provide investments of up to $7 billion after the signing of four agreements on the opening day. However, we need to be realistic in terms of what we can expect in the long run. While more deals and investments could be agreed upon if the right conditions are met, investors will naturally have to evaluate the opportunities on offer as well as the long-term viability of potential investments. Bangladesh will look to build on the positivity being expressed and create a more FDI-friendly environment to assuage any doubt.

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Why is foreign direct investment so low in Bangladesh and how to increase it?

To do so, Bangladesh must first take a critical look at why, despite being South Asia's fastest-growing economy, its past investment drives haven't delivered desired results. The questions are simple: What is preventing a higher inflow of FDI? And how to increase it? How we approach the first question will determine the success of our ongoing investment drive. Hurdles to FDI inflow are not unknown. As per a 2022 report by the US Department of State, corruption continues to be a major obstacle for obtaining foreign investments in Bangladesh. Moreover, slow adoption of alternative dispute resolution mechanisms and sluggish judicial processes are impeding the enforcement of contracts and the resolution of business disputes, the report said, adding that scarcity of land, depleting natural gas reserves, and inadequate power distribution also remain major impediments to investment.

To Bangladesh's credit, it has made gradual progress in reducing some of the constraints on investment, including taking steps to better ensure reliable electricity. The government also offers a range of investment incentives under its industrial policy and export-oriented growth strategy. But inadequate infrastructure, limited financing instruments, bureaucratic delays, lax enforcement of labour laws, and corruption continue to hinder not just foreign investment but also its own economic growth.

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How can Bangladesh avoid a middle-income trap?

Going forward, we must address these longstanding challenges. Only that can improve our score on the global ease-of-doing-business index and build the confidence of potential investors. The government can learn from other comparable countries, such as Vietnam, that have done that with relative success. Only offering favourable terms is not enough. For greater impact, the government must remove existing roadblocks so that Bangladesh can fulfil its vision of reaching the status of an upper middle-income country by 2031 and a developed country by 2041.