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As Bangladesh strives to attract more FDI it may want to work harder with countries that are important investors globally while ensuring that those who already have a strong presence do not leave our shores
They come from many places – from the US, UK, Japan, and China, but also from unlikely places such as Macao or the British Virgin Islands. I am talking about foreign investors investing in Bangladesh.
In this article, I look at the changing pattern of FDI inflows to Bangladesh in terms of where they originate.
In a follow-up article, I shall analyze where the investments go, i.e., the sectoral distribution of FDI in Bangladesh.
Let us start by looking at the two charts below.
These show the geographic origins of FDI inflows into Bangladesh for two different time periods: 1996/97- 2001/02 and 2014/15 -2019/20.
The charts are based on Bangladesh Bank data on net FDI inflows by countries. In the charts, each bubble or circle corresponds to a country with the size of the bubble reflecting the average annual value of net FDI inflow (in mil. US $) during the period depicted.
The colors represent the regions the countries belong to. The use of such colors provides a vivid depiction of the regional breakdown of FDI inflows to Bangladesh.
During 1996/97-2001/02, Bangladesh received foreign investment from 38 countries, although the numbers were negligible for many of these.
As we can see from the preponderance of green in the first panel of Figure 1, European countries dominated the FDI scene in Bangladesh, followed by East Asian countries.
The top five countries were UK, USA, South Korea, Netherlands, and Japan.
The scenario evolved considerably in the following two decades. Thus, during the period 2014/15 to 2019/20, the number of countries from which Bangladesh received investment increased to 91, two and a half times the number during 1996/97-2001/02.
As we can see from the color composition of the second panel of Figure 2, East Asia is now as important as Europe as a source of FDI in Bangladesh.
This is also reflected in the changing composition of the top five investing countries. While UK and USA remain in the top five, China has now replaced UK as the top investor in Bangladesh.
Japan and South Korea’s place in the top 5 have now been taken by two other East Asian countries/jurisdictions, i.e., Singapore, and HongKong.
These trends suggest increased diversification in terms of the origin of FDI inflows into Bangladesh.
This is more evident in Figure 2 which shows the trends in the share of the top 5 and top 10 countries in FDI inflows to Bangladesh.
In the mid-1990s, the top five sources of FDI accounted for 90% of all FDI inflows to Bangladesh while the top 10 accounted for almost all FDI inflows (98%).
By the middle of the last decade, the top five were accounting for just under half (47%) of all FDI in Bangladesh while the top 10 accounted for two-thirds (67%).
However, the trends have reversed a bit in the last five years.
It should not be a great surprise that, despite the increased diversification in the geographic origin of FDI inflows, the top five countries account for about half of all FDI inflows to Bangladesh.
This merely reflects the global pattern of foreign investment. UNCTAD is a comprehensive source of data on foreign investment.
When we use these data to rank countries according to the value of their outward FDI flows in during 2014-2019, we can see that the top five, i.e., USA, Japan, China, Netherlands, and Germany together accounted for 46% of all outward FDI flows while the top 10 accounted for 67%- proportions remarkably similar to that for FDI in Bangladesh.
There is some difference, though, between a country’s relative position in Bangladesh as a source of investment vs. its relative position in the world.
For example, during 2014-2019, Japan ranked second in the world, after the US, as a source of foreign investment, accounting for 11% of global outward investment during that period.
However, during the same period, Japan ranked 12th among the foreign investors in Bangladesh accounting for only 2.16% of net FDI inflows to Bangladesh.
On the other hand, UK accounted for 12% of FDI inflows to Bangladesh, making it the second largest investor after China, while its share in global outward FDI flows was only 1.15% during the same period.
Only four countries/jurisdictions, i.e., USA, China, Hong Kong and the Netherlands, are among the top ten investors both globally and in Bangladesh.
The fact that there are differences between the global and Bangladesh-specific patterns should not be puzzling because different dynamics drive these two patterns.
Thus, it should not be a surprise that neighboring countries such as India and Malaysia have a higher FDI presence in Bangladesh than what would be suggested by their relative shares of global outward FDI.
The fact that FDI flows into Bangladesh are still very modest also mean that idiosyncratic factors would play a greater role in shaping variables such as the one discussed in this article.
Thus, Norway’s relatively more prominent FDI presence in Bangladesh is largely due to one investment, i.e., in Grameenphone, where the Norwegian investor has been reinvesting on a regular basis.
Nonetheless, it is worth noting the low share of Japan in Bangladesh’s FDI inflows relative to its dominating role as a source of foreign investment on the global level.
The same is true of two other countries with which we have close relations, i.e., Germany and Canada, both of which rank among the top 10 sources of FDI globally but are relatively modest investors in Bangladesh.
So, the question is why are countries, such as Japan, Germany, and Canada, not investing much in Bangladesh even though they are important investors globally?
As Bangladesh strives to attract more FDI it may want to work harder with countries that are important investors globally while ensuring that those who already have a strong presence do not leave our shores.
The author is an economist, previously with an international development agency
(DT)
