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FDI inflow hampered due to low investment in apparel

Foreign direct investment (FDI) into Bangladesh has fallen sharply as the country’s economic backbone the apparel sector witnessed a low investment turnaround.

FDI-inflow-Bangladesh-2019
Figure: the garment sector is expected to be severely affected by factors like closed down factories and falling global demand for apparel goods due to COVID-19 impact.

This was revealed in the ‘World Investment Report 2020’ of the United Nations Conference on Trade and Development (UNCTAD). Where FDI into Bangladesh dropped by 56% to the US $1.6 billion in 2019 after a huge flow in the preceding year.

“Inflows to Bangladesh, an important FDI recipient in South Asia, fell by 56% to $1.6 billion. The decline reflects an adjustment from a record-high level in 2018. The export-oriented apparel industry remains an important FDI recipient, with major investors from the Republic of Korea, Hong Kong and China,” the report also said.

FDI-Bangladesh-falls-2019

In 2020, the garment sector is expected to be severely affected by factors like closed down factories and falling global demand for apparel goods due to COVID-19 impact, says the report.

As of April 2020, the Bangladesh Garments Manufacturers and Exporters Association (BGMEA) projected that more than $3 billion worth of apparel exports had been canceled or suspended, adds the UN report.

The experts and economists differed with the report.

“The investment figure mentioned in the UNCTAD report does not replicate the real picture of Bangladesh’s FDI as it did not add the investment of the last quarter of 2019. As per Bangladesh Bank data, the FDI was $2.87 billion in 2019,” said Sirajul Islam, Executive Chairman of Bangladesh Investment Development Authority (BIDA).

Policy Research Institute Executive Director Ahsan H Mansur told that it was a big disaster as the country not appeal to the FDI at the expected level in 2019.

“We have never seen such a big decline,” Ahsan Mansur said.

In the meantime, economists and experts have called for an investigation to look into the difference between the data of the Bangladesh Bank and UNCTAD.

Regional and global scenario

Amid COVID-19 pandemic, nine Asian LDCs witnessed a downward trend in FDI in eight years to $9 billion, a decline of 27%. The topmost three FDI recipients – Cambodia, Myanmar and Bangladesh – accounted for 94% of those inflows.

The COVID-19 pandemic affecting investment, global FDI flows are estimating to decline by up to 40% in 2020, from their 2019 value of $1.54 trillion. This would bring FDI below $1 trillion for the first time since 2005.

Experts suggested that in attracting higher FDI in different sectors, Bangladesh must complete a few Special Economic Zones (SEZs) and ensure a satisfactory investment climate.

“To attract more foreign investors, the government has first to make the special economic zones (SEZs) ready,” said Mustafizur Rahman, Distinguished Fellow, Centre for Policy Dialogue (CPD).

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