How to attract FDI?
Md. Joynal Abdin
The Daily Independent on April 09, 2010
Transnational Companies (TNCs) and Multinational Companies (MNCs) are the main engines of globalization. It is easy to understand that these TNCs and MNCs are supplying fuel in the movement of tariff cut and trade liberalizations around the world. 75 per cent innovations come from their arena. Foreign direct investment (FDI) is a result of the global expansions of TNCs and MNCs. But recent global financial crisis made international area more competitive; as a result, profit of these global giants reduced up to a considerable level. Investors are rethinking to expand new avenues and to reduce expenditures to avoid any uncertain difficulty. As a result, FDI reduced 39 per cent globally in 2009 compared to that in 2008.
Though total FDI reduced in 2009, a new web of FDI is coming to the developing countries and LDCs due to the crisis. Now question may arise: how FDI is the inflow towards the developing countries increasing? The answer is: financial crisis made the world trade environment more competitive and people throughout the world are willing to reduce consumption expenditure. As a result, TNCs & MNCs are bound to reduce production cost. In developed countries, even in the upper developing countries, factors of production are costly which leads to a high rate of per unit production cost. So to reduce production cost and to manufacture competitive products as well as delivering competitive services, global investors are relocating their industries into a competitive location.
At the same time, multilateral trade negotiation under WTO regime results into a tariff cut but LDCs are still enjoying some special facilities in case of duty free market access. As a result, investors are keen to avail these special facilities by exporting products from an LDC country. Finally, all these motives lead the inwards FDI flows of LDCs and developing countries to a quick momentum.
Similarly, least developed countries have a thrust to attract FDI to increase GDP growth, ensure higher employment rate, updating infrastructure facilities, ensuring technology transfer, acquiring managerial know-how, increasing labor productivity, increasing market competition, pushing for further innovation, efficiency, and greater consumer choices at lower price. Due to all these reasons, Bangladesh government is working hard to attract more FDI for moving the wheel of development faster than ever before. But do we have sufficient preparation to attract FDI on a massive scale? Statistics shows that Bangladesh achieved USD 1.09 billion FDI in last fiscal year which is 63 per cent greater than the previous fiscal year. It indicates that we are getting increasing amount of FDI but if we compare our achievement with the neighboring countries then the picture will be clear. In the stated period India got FDI of an amount of USD 41.56 billion, even an unstable country like Pakistan got FDI of USD 5.4 billion. Now it is that our FDI performance is very poor.
Our government is working to attract FDI, but the policy they are using is insufficient. The following three main preparations are required to attract FDI:
a. Policy framework.
b. Infrastructure development.
c. Investment promotion.
In policy framework, we are offering some facilities to the foreign investors like Tax holiday up to 12 years, allowing 100 per cent foreign ownership, permanent resident ship for foreign nationals investing more than US $75000 or equivalent amount, concessionary financial benefits similar to the local investors, wide range of tax exemptions, facilities for repatriation of invested capital, profits and dividends, multiple entry visa facilities for visiting foreign investors, reinvestment of reportable dividend treated as new investment, etc.
But in case of infrastructure development, we may get a negative marking if we answer to the following questions: how much electricity generation has increased in last ten years? How many new ports were developed? How many new lanes have been added to our roads? How much gas and coal supply increased? All answers are either negative or insufficient. In case of the third one i.e. investment promotion-we are completely empty handed because till now it is contentious how many investment promotion exhibitions have been organized abroad. A very little light is visible in front of us that current government organizes some road shows to attract investment to our power sector, branding Bangladesh.
Question arises: who will promote investment in Bangladesh? Which agency will take the lead? In Bangladesh, we have an Export Promotion Bureau (EPB) but till now we are missing an Investment Promotion Agency. Somebody may argue that we do have the Board of Investment (BoI) but it is a regulatory agency. Till date they are busy with mastery rather than promotion. So, we are very much in need of an Investment Promotion Board (IPB).
To attract more foreign investment we have no alternative but to be professional in investment targeting by approaching as well as practically establishing an investment friendly environment from all aspects. For successful investment targeting following home works are essential for us:
1. Conducting a rapid evaluation of national economy at sectoral level.
2. Selecting promising and executable number of priority sectors.
3. Targeting TNCs and MNCs of the prioritized sectors globally.
4. Matching above three level findings.
5. Developing specific projects
6. Collecting more information about the targeted TNCs & MNCs for investment approach.
7. Organizing investment generation campaign.
In the very first step, government should take initiative to study our existing and potential sectors to know strength, weaknesses, opportunities, threats, depth, world market size, free space in world market, and resilience power during any crisis period. In Bangladesh, we do not have such national studies ever before though some organizational or academic surveys and studies have been conducted by a limited number of experts with their limited resources, but there is no alternative of in-depth analysis on the same.
Secondly, we should select a few promising sectors for a certain period to develop by ensuring all sorts of support under PPP. PPP is a new concept in Bangladesh, initiated by the honorable Finance Minister during last budget but till now a single project under PPP did not take place. Why? We have eleven thrust sectors in last industrial policy probably this list has been enlarged in current one. But which sectors will be developed within which periods? It hasn’t been mentioned anywhere. So statistically proved promising sector having absolute advantage can be selected and nursed up for three to five years for successful flourishing.
In third phase, TNCs and MNCs can be targeted who invest in our selected sectors abroad. Today collecting data about the companies investing in any particular sector in any given country is very easy from ITC investment map.
In fourth round, we must cross check the findings of first three assignments and ensure justification for each task.
Preparation of specific projects to seek investment is a very important task of the investment promotion agency. In absence of a credible project it is quite difficult for a foreign firm to identify and invest in a country whereas they are getting specific project proposal from other one. For example, currently government is showing their keen interest in attracting FDI to power sector of Bangladesh. But I do not know whether they have prepared any specific project proposal by highlighting local demand, available lands, identifying specific region and financial involvement. In this connection government can identify coastal areas to establish windmill power plant and calculate required financial involvement and expected return from the project. Then they can initiate the primary preparation to ensure logistic support and approach TNCs invested in different countries in power sector.
Before approaching any TNC/MNC, we must have enough knowledge about the company. An investment generation campaign is a congregation of intellectual personalities of the concerned sector, so before facing them on the table our homework must be sufficient to influence them into a positive decision about our approach. In this case prominent Bangladeshi personnel having in-depth knowledge on the sector may be used in case of traditional bureaucrats. As global investors may not like to see a raw hand presentation from a complicated bureaucrat, a resourceful lecture from a sector specialist or world famous personality may work. We may ask help from our renowned persons like, Nobel Laureate Professor Yunos, Sir Fazle Hasan Abed, Dr. M. Shamsher Ali, and other distinguished ones. One stop service center at BoI is not working till date, so an effective One Stop service center and dedicated efficient officers in the desks are required.
We hope that these initiatives will promote our FDI performance better than ever. At the same time we must remember that FDI is not always risk-free. It possesses some risks of trade diversion rather than trade creation- isolated investment without any link with domestic economy, unethical repatriation after a certain period may harm our economy in long run. So, prior investigation and analysis is required to welcome positive FDI inflow for economic development of Bangladesh.