Why Does Bangladesh Have Lower Foreign Direct Investment Than Vietnam Despite Economic Growth?

Despite economic growth and awareness of its limitations, Bangladesh continues to lag behind Vietnam in attracting Foreign Direct Investment (FDI).

1. Infrastructural Gaps: A Major Barrier

Bangladesh faces a severe shortage of essential infrastructure, hindering its attractiveness as an FDI destination. Key aspects include:

Road and Highway Congestions: Pakistan and borders often struggle with traffic congestion, leading to inefficiencies in transportation and logistics. Port Overcapacity: Ports are often at full capacity, leading to delays and increased costs. This can negatively impact foreign investors, who prefer a stable and efficient supply chain. Limited Railways: The railway system is almost non-existent, making land transportation unreliable and expensive for goods and passengers. Power Shortage: Although Bangladesh has recently become surplus in electricity production, it largely relies on costlier oil and gas, which is less attractive to foreign investors seeking more sustainable and cost-effective energy solutions. Telecommunications and IT Infrastructure: Internet speeds remain some of the lowest in the region, which can hinder technological advancement and overall business efficiency.

2. Economic Disparities Impact Market Attractiveness

While Bangladesh has seen remarkable growth in per capita income, significant disparities within its population reduce its market attractiveness for foreign investors:

Low Per Capita and Disposable Income: More than 20% of Bangladesh’s population lives below the poverty line, while 70% live a hand-to-mouth existence. The middle class, though significant within urban centers, still struggles with low disposable income. India’s Comparison: India, with a similar per capita income, is receiving substantial investments due to the presence of a large affluent middle class, particularly in urban centers like Mumbai, Delhi, Bangalore, and Chennai. States like Gujarat, Maharashtra, Karnataka, and Tamil Nadu have even higher per capita incomes, making them more attractive for FDI.

3. Legal and Regulatory Hurdles: A Burden on Business

Bangladesh’s legal and regulatory framework presents additional challenges for foreign investors:

Exchange Control Laws: Bangladesh’s exchange control laws are outdated and burdensome, complicating the process of new investments and profit repatriation. Inefficient Bureaucracy: Similar to India, Bangladesh inherited colonial-era bureaucracy, which hinders efficiency and modern business practices. Courts take a long time to resolve disputes, and laws related to income tax and business can be conflicting.

Prospective Solutions

Bangladesh is aware of these challenges and is working on several mega projects aimed at overcoming them:

Strategic Infrastructure Investment: Bangladesh plans to invest at least USD 50 billion over the next decade to address infrastructural gaps. Aiming for Middle-income Country Status: By 2024, Bangladesh aims to become a middle-income country, laying the groundwork for further economic development. Developing into a Developed Economy: By 2041, Bangladesh’s goal is to achieve developed economy status, showcasing its promise and potential to the world.

Conclusion

The primary challenges faced by Bangladesh today include infrastructural gaps, economic disparities, and legal and regulatory hindrances. While these challenges persist, Bangladesh is proactive in addressing them through strategic infrastructure investments and economic reforms. However, climate change poses a significant long-term threat that must also be considered.