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Govt. should take proper policy to ensure win-win benefits from FDI

Foreign direct investment (FDI) is increasing day by day in Bangladesh. The FDI is an investment in the form of controlling ownership in a business in one country by an entity based in another country. FDIs offer two win-win benefits- economic development for host states and profit maximization for foreign investors.

FDI in Bangladesh

Kazi Aminul Islam, executive chairman of Bangladesh Investment Development Authority (BIDA), said “Our doors are open for FDI, and foreign investments will jump by a significant margin in the coming days.”

FDI inflow in BD from FY 2015-18
Figure 1: FDI inflow in Bangladesh from Fiscal Year 2015 to 2018. Source: Bangladesh Bank

Attracting foreign direct investment for developing countries generally, contribute to the development of countries. Developing countries have many objectives for that, such as, creating new jobs and attracting more businesses.

Country wise FDI inflow in BD FY-18
Figure 2: Country-wise FDI inflow in Bangladesh in FY 18. Source: Bangladesh Bank

At the same time, these investments may have the potential of harmfully affecting the net capital flow of the economy.

FDI Net-Inflows classified by Major Sectors

Shafiul Islam Mohiuddin, President of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) said, “To attract  more FDI, the government has to first attract local investment as the foreign investors consider the trend of local investment before making any investment decision.”

EPZ Area & Component wise FDI Inflows (Net) 2015-18

The local economy might profit from the initial foreign investment, but if the investing company sends all the profits to investors in another country for years on end that could be a drag on for the host economy in the long run.

The present global order is extensively interconnected and the developing country like Bangladesh caters to the so-called developed nation’s ever-increasing demand with cheap human resources and dwindling natural resources. However, sometimes the FDI that comes from a developed country can shake up an existing industry because they’re bringing competition for the domestic companies that already exist.

Non EPZ Area & Component wise FDI Inflows (Net) 2015-18

In this regard, the government needs to be careful to protect the country’s economy from any unexpected catastrophe that can happen for unplanned FDI. To receive any FDI, the government should ensure below things:

National interest

Arriving FDIs must be in line with national interests, which should include the net economic benefit and policy compliance. A screening and approval manual with a list of criteria along the line of the regulatory directives in section 3 of FPIA to avoid dictatorial and non-transparent decision-making should be made readily available to potential investors and use to regulate net economic benefits and policy conformity. The net economic benefit must assess whether the proposed FDI would:

arriving FDI's BD must meet criteria's

FDI proposals must be compliant with the constitution and its state policies, and laws and policies on the environment, occupational health and safety, taxation, labor, security, defense, heritage, and natural resource exploitation.

Protectionism of local trade

As FDI comes with heavy finance with state of the art technology, efficient management, and squeeze out maximum efficiency from workers, in contrast, local investors, who have a limited investment, ad hock basis management, lack of leadership skill, can’t bring out standard workers efficiency, on top of that, limited knowledge on international trade, ethics and norms will surely go to peril.

In most cases, Bangladeshi businessman fight against all odds to keep afloat their business. Where scarcity of loan prevail, mediocre mid-level management with premature leadership skill, etc. small and medium businesses will be overly exposed against top-notch foreign investors.

“Most of the times we cannot delegate much to our mid-level management because we have not been able to train them up as well. So most of the times, when there are some problems or disturbance in the factory its mostly coming from the challenges of mid-level management not being able to address the concerns of the workers properly.”

Rubana Huq, President of BGMEA

“Most of the times we cannot delegate much to our mid-level management because we have not been able to train them up as well. So most of the times, when there are some problems or disturbance in the factory its mostly coming from the challenges of mid-level management not being able to address the concerns of the workers properly,” said Rubana Huq, President of BGMEA.

Keeping this grievous perspective under a magnifying glass. The government and the local trade bodies can play the life support role for the local businessmen, who are keeping the wheel of trade in motion.

  • Giving priority to a local tradesman in SEZ and EZ’s
  • Sector-wise separate policy to protect local business
  • Increasing R&D in universities and educational-technical institutions to eradicate mid-level management crisis
  • Promoting human capital transformation for maximum efficiency
  • Smooth operation of sea, air and land ports for easy export
  • Financial support with easy terms and condition
  • Encouraging local manufacturers to grab the local market in case of a global recession
  • Market diversification with the help of the government
  • Getting close to end consumers for extra edge
  • Increasing price negotiation capacity
  • Branding Bangladesh textile and apparel to the world

Reasoned incentives

Incentives to attract FDI must be subject to a cost-benefit analysis to prevent revenue losses and capital control risks.

Tax holidays are a key cause of consecutive revenue losses due to their exploitations by foreign investors taking advantage of long duration, lack of effective control, and administrative corruption. Various direct and indirect tax incentives lead to huge tax expenditure often offsetting the expected revenue.

Safeguarding workers interest

The world has a black history of exploitation of workers by the elite. As we have seen in a renaissance in Europe, the East-India company in the Indian subcontinent, etc.

Ensuring a strong liability from foreigners is a major obstacle. As foreign investors are backed by their countries, influential lobbyists, and local corrupt collaborators is a cause of great concern.

And Bangladesh has a poor track record of upholding workers’ rights, worker union, etc. and exploitation of workers by the foreign owners will add another throne in the already overburdened workers. Government has to take proper initiative to safeguard the workers from exploitation by foreign investors.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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