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Enormous infrastructure development is among the key factors that policymakers have highlighted to portray Bangladesh’s conducive investment ecosystem to attract as much as $100 billion in diversified sectors ranging from apparel to healthcare and logistics.

A huge domestic market of 170 million people, access to the regional market of 1 billion consumers, higher rate of working age population also make Bangladesh a viable investment destination, they listed at a session on the second day of the three-day Bangladesh Business Summit 2023 organised by the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

The government is working on to establish 100 economic zones by 2030, which will provide a solid foundation for private sector growth, while the Matarbari deep-sea port, once completed in 2026, would be the real game-changer, Salman F Rahman, private industry and investment adviser to Prime Minister Sheikh Hasina, told the session.

The Padma Bridge linking the south-west of the country to the northern and eastern regions, and the establishment of 28 hi-tech and software parks, 100% electricity coverage, nuclear power plants and ongoing road and rail projects will help Bangladesh achieve foreign direct investment targets, he added.

Opening the session titled “Bangladesh: $100 billion investment opportunities in key sectors for investors to leverage”, Prime Minister’s Principal Secretary Mohammad Tofazzel Hossain Miah explained Bangladesh’s dream to become the “next manufacturing and digital hub in Asia” as he sees a lot of potentials for investment in varied sectors.

Bangladesh has had a strong track record of accelerating its GDP growth by at least 100 basis points every decade and it keeps thriving more with the help of the policies for deregulations, greater economic liberalisation and trade integration, he pointed out.

Steps have been taken to ease business and red tape, and 150 services of 34 agencies are being identified for process simplification. Once completed, clients will be able to receive these services from a single point, making it easier for businesses to operate in Bangladesh, policymakers said, elaborating on the privileges offered for investors.

According to Salman’s presentation, of the $100 billion investment opportunities in Bangladesh, $25 billion can be invested in infrastructure, over $14 billion in green investments, $24 billion in PPP investment, and $15 billion in logistics. Additionally, there is a strong appetite for foreign investments in various other sectors, including apparel industries, healthcare, digital economy, and more.

State Minister for Foreign Affairs Shahriar Alam said investors should anticipate even greater growth in the coming years as a number of mega-projects have already begun to significantly contribute to the national GDP.

In addition to its economic progress, Bangladesh has made significant strides in the areas of labour rights and human rights, he said.

Also, Bangladesh has also made significant improvements in sustainability, said the state minister. Currently, 67 of the top 100 green textile factories are located in Bangladesh, reflecting the country’s efforts to learn from past mistakes and prevent the terrible incidents that occurred a decade ago.

Additional strengths of Bangladesh

The country’s attractive geographic location enables companies secure access to the Asia Pacific market of 290 crore (2.9 billion) people who spend $8.53 trillion a year. The country has GSP facilities in 38 countries – including 28 in the EU, Australia, Canada, Japan, New Zealand, Norway, Russia, Switzerland and Turkey. In addition to Europe and USA, Bangladesh has preferential trade access in both the Chinese and Indian markets.

Meanwhile, Bangladesh, already emerging as a home to 29 million middle and affluent class consumers and set to have 34 million by 2025, thanks to the 12.3% compounded annual growth rate. The country is going to be the ninth largest consumer market by 2031, according to HSBC.

Lastly, it’s worth noting that Bangladesh offers a significant advantage in terms of cheap labour. With 68.4% of its population within working age, and a median age of 28 years for Bangladeshi citizens, the country has a younger workforce compared to India (29 years), Indonesia (31 years), Vietnam (22 years), and Thailand (39 years).

The country has bilateral investment treaties with 32 countries, double taxation avoidance treaties with 28 countries; investment here is protected by the laws against nationalisation and expropriation, while it allows 100% foreign ownership in almost every sector – all positives for FDI.

Alongside the solid macroeconomic fundamentals, Dhaka offers cost competitiveness which will help investors save hugely in worker wages, managers’ salary, water and electricity costs compared to regional peers.

What foreigners and businesses say

Calling Bangladesh the next China in his book a few years back, Jong Won Kim, the Director General of the Green Growth Department at the Korea Trade-Investment Promotion Agency, said Bangladesh is going to be a manufacturing hub.

He said Korean companies which missed the investment opportunities in Vietnam earlier and are looking to relocate factories from China or from somewhere else should consider investing in Bangladesh.

In a video message, Yasutoshi Nishimura, the Minister of Economy, Trade and Industry of Japan, revealed that approximately 70% of Japanese companies operating in Bangladesh are keen to expand their investment by establishing one to two more units.

The UK’s Indo-Pacific Minister, Anne-Marie Trevelyan, anticipates increased British investment in sectors such as higher education and financial services.

Bjarke Mikkelsen, CEO of Daraz, noted that investing in Bangladesh has become more predictable, whereas a decade ago, it was akin to gambling.

Khalid Quadir, founding managing partner of Brummer & Partners (Bangladesh), said Bangladesh can be the mini-China as it can attract foreign investors due to having cheap labour.

He said the global private capital market size is $8 trillion, of which 20% allocated for emerging countries. But Bangladesh is still not focusing on the private capital market and running after traditional funding from multilateral donors like the World Bank and the IMF.

Challenges

Inadequate infrastructure, red tape and corruption, poor immigration and customs and lack of skilled labour are the main challenges investors pointed out at different sessions of the summit on Sunday.

Takeshi Mamiya, Managing Executive Officer of Marubeni ASEAN Pet. Ltd, presented a paper at a session where he said Bangladesh is set to graduate from LDC status by 2026, and entering into the Economic Partnership Agreement (EPA) with Japan is crucial for the continued development of its textile industry.

“Attracting FDI is the common goal of most countries in order to create local employment and economic growth; however, it is not something achievable overnight,” he said.

Arif Khan, vice chairman of Shanta Asset Management, said foreign investors are not willing to come because they want a predictable policy for at least five years about remitting money, stable exchange rate and interest rate.

Source: The Business Standard

As per the Unctad report, the decrease was evident in both greenfield project announcements and international project finance deals.

Greenfield investment projects announced in Bangladesh dropped by 59% during the first eleven months of 2022, according to a report by the United Nations Conference on Trade and Development (Unctad).

In 2022, Bangladesh received greenfield investment projects worth $376 million representing a 59% decline from the previous year despite it being considered a reliable indicator of future foreign direct investment (FDI) trends.

Furthermore, the report revealed that international project finance deals announced in 2022 also fell drastically, by 97% to $117 million. The number of project finance deals fell by 93%, from 14 deals in 2021 to just 1 deal in 2022.

Globally, the number of international project finance deals in 2022 was 42% lower than in 2019, with a 76% reduction in value. The number of greenfield project announcements by multinational enterprises decreased by 55% over the same period.

The report released on 6 March highlighted that the impact of the ongoing global crises was evident across all types of investment flows. This is a major concern for the least developed countries (LDCs), as greenfield investments and project finance deals are crucial for developing productive capacity and essential infrastructure, thus supporting sustainable development prospects.

FDI flows to LDCs showed a decline of about 30%, compared to a marginal increase in developing countries as a group. The report notes that the succession of global crises, including floods, energy crises, financial distress, and debt, has disproportionately affected investment flows to the poorest countries.

Despite this, extractive industries remain among the top sectors for international project finance deals and greenfield investments, highlighting the continued dependence of LDCs on these sectors and resource-driven FDI. However, several LDCs are now diversifying their sectors.

Investment in LDCs in sectors relevant to the attainment of the Sustainable Development Goals (SDGs), including infrastructure, renewables, water and sanitation, food security, health, and education, suffered a significant blow in 2021-2022.

Compared to 2015, when the SDGs were adopted, project numbers in most sectors, except for renewables and water and sanitation, were significantly lower in the last two years.

The decrease was evident in both greenfield project announcements and international project finance deals, highlighting the challenges that LDCs face in attracting foreign investment.

What are greenfield investments and the impact of decline on Bangladesh?

Greenfield investment projects in Bangladesh refer to new investment projects that are initiated by foreign companies or investors to establish their presence in Bangladesh. These projects involve setting up new facilities, factories, or production units from scratch, without acquiring or merging with any existing local business.

Some examples of greenfield investment projects in Bangladesh include the establishment of new manufacturing plants, such as textile mills, pharmaceutical factories, and automobile assembly plants.

Additionally, foreign investors have also set up greenfield investment projects in Bangladesh in the energy and infrastructure sectors, including power plants, renewable energy projects, and the construction of highways and bridges.

These investments aim to tap into Bangladesh’s growing economy and its large domestic market, as well as its strategic location as a gateway to South Asia.

Sustainable and Renewable Energy Development Authority (Sreda), an organisation under the Power Division of the Ministry of Power Energy and Mineral Resource, works to promote renewable energy development to reduce dependency on fossil fuels to ensure energy security.

Agreeing with the Unctad report, Sreda Chairman Munira Sultana, said that solar is a prospective area for Bangladesh among all renewable resources.

“But, despite there being a big scope for investment in the renewable sector of the country, foreign investors are not coming to Bangladesh, as land scarcity is a big barrier to developing solar projects,” she said.

Masrur Reaz, chairman of Policy Exchange Bangladesh, said that the ongoing power and energy crisis, the volatile exchange rate, and uncertainty surrounding raw materials due to import restrictions are causing new investors to postpone their decisions.

He said that the decline in foreign investment is understandable due to the global economic instability in the post-Covid-19 reality. However, the amount of decline illustrated in the Unctad report is alarming.

Over the course of the last year, the value of the taka has decreased by approximately 20% in 17 phases. This decline has been accompanied by a range of challenges, including the need to address macroeconomic factors such as balance payments, as well as fuel availability, he noted.

“Potential investors are wary of investing until they have a clear idea of the future trajectory of the value of the taka. Furthermore, there are concerns regarding the availability and cost of raw materials, which could create obstacles for those looking to establish new industries.”

Additionally, investors will want assurances about the reliability and affordability of gas and electricity in the country. These uncertainties have contributed to a general sense of hesitation among investors, the chairman of Policy Exchange Bangladesh further said.

The dollar steadied on Monday as investors awaited testimony from Federal Reserve Chair Jerome Powell ahead of the February jobs report at the end of the week that will likely influence how much more the US central bank will raise interest rates.

The dollar index, which measures the performance of the US currency against six others, was last flat on the day at 104.63, having lifted off a session low of 104.34. The index clocked a weekly loss for the first time since January, last week.

After delivering jumbo hikes last year, the Fed has raised interest rates by 25 basis points at its last two meetings. But a slew of resilient economic data has fed a belief among investors that the central bank might have to switch back to half-point rises.

Futures imply a 76 per cent chance the Fed will raise interest rates by 25 basis points at its meeting on March 22, with a 24 per cent chance of a 50 bps increase. The spotlight will be firmly on the February jobs report scheduled for Friday and Powell’s testimony to Congress on Tuesday and Wednesday.

“Of all this week’s events, it will be payrolls that will be the most important one,” Rabobank currency strategist Jane Foley said.

“Are we going to have a continuation of the February outlook of higher for longer or are the markets going to come back to January payrolls is going to be a bit of an outlier and maybe the economy is slowing,” she said.

In early February, the January monthly employment report showed blisteringly fast job growth and sustained wage inflation, which was enough to convince investors that the US central bank won’t have any reason to cut rates this year.

The dollar has risen by around 2 per cent since then, largely at the expense of the Japanese yen, which has lost over 5 per cent in value against the US currency in that time.

The euro, which has lost around 3 per cent against the dollar since early February, was last flat on the day at $1.0635, while sterling was down 0.4 per cent at $1.200.

Weekly futures data on Friday showed money managers are holding the largest bullish euro position in over two years, which drove the currency to nine-month highs in February. But now that’s leaving it looking vulnerable to a steep sell-off, especially if investors’ outlook for U.S. rates does not shift and euro zone economic data doesn’t show a material improvement.

“At this stage, people probably extended those positions assuming a recovery story and what they’re getting instead is a technical recession followed by some resilience and that’s not good enough,” Rabobank’s Foley said.

Powell’s remarks, meanwhile, will be under scrutiny too.

“He may provide clues as to what employment and inflation numbers need to do to make the Fed act in a particular way, especially how it pertains to whether 50-bp hikes are back on the table,” Deutsche Bank strategist Jim Reid said.

The yen was last down 0.24 per cent on the day at 136.15 per dollar, ahead of the final policy meeting on Friday for Bank of Japan Governor Haruhiko Kuroda.

Elsewhere, China’s yuan fell against the dollar, after Beijing set a modest target for 2023 economic growth of around 5 per cent. The offshore yuan fell as much as 0.8 per cent to 6.949 per dollar, while the Australian dollar, often traded as a liquid proxy for the yuan, fell 0.7 per cent to $0.672.

Source: The Daily Star