Shafquat RabbeeOver the last two decades, Bangladesh has achieved remarkable economic growth, at
least on paper, positioning itself as one of the leading emerging economies of the world.
Bangladesh is currently the second largest economy in South Asia and global lenders
like the World Bank and the International Monetary Fund (IMF) regularly acknowledge
Bangladesh’s robust GDP growth, export expansion, and significant strides in poverty
reduction. While much of the developed world has had to struggle through low growth or
no-growth economic prospects and myriad other crises, Bangladesh over the last
decade maintained an impressive growth rate.
According to macroeconomic indicators published by the IMF and World Bank,
Bangladesh’s GDP growth rate and export expansion, in many instances, matched or
outperformed economies like Pakistan, Nepal, and Sri Lanka. For instance, while
Pakistan and Sri Lanka have faced prolonged economic instability, Bangladesh has
maintained an average GDP growth rate of around 6-7% over the last decade, even
reaching over 8% in 2019 before the global disruptions of COVID-19. This growth rate is
on par with fast-growing economies like Vietnam and India, showcasing the resilience of
Bangladesh’s economic fortunes.
In terms of specific metrics, Bangladesh has demonstrated relatively low inflation rates,
stable foreign exchange reserves up until the onset of the Ukraine war, and a growing
export sector fueled by the garment industry, which contributes over 80% of the nation’s
almost $60 billion dollars annual export earnings. Bangladesh’s per capita income has
also grown, surpassing Pakistan in recent years and coming closer to other developing
Southeast Asian economies. According to World Bank data, Bangladesh’s GDP per
capita in 2023 stood at around $2,500, higher than that of Pakistan and Nepal. This
progress is noteworthy, given that not too far ago Bangladesh was one of the poorest
nations in the world. Its journey from being labeled a “basket case” during its birth in
1971 to an emerging “Asian Tiger” by the 2020s has been lauded as a case study for
economic upliftment.
However, while Bangladesh’s economic parameters indicated growth and relative
prosperity, the country lags significantly in attracting Foreign Direct Investment (FDI)
compared to other economies with similar or even with lower growth rates.
Despite its booming economy, Bangladesh attracted only around $2 billion of FDI in 2022, which
pales in comparison to the $15-20 billion invested annually in Vietnam or the $65-70
billion that flowed into India. Both countries have similar or slightly higher growth rates
than Bangladesh, but they have managed to draw significantly larger sums from global
institutional investors. India is now trying to attract $100 billion FDI per year. Malaysia,
which has a more diversified economy and a lower growth rate than Bangladesh,
continues to attract around $70 billion in FDI, as do other Southeast Asian nations with
stable investment environments but similar or lower GDP growth rates.
The lack of substantial FDI inflows to Bangladesh highlights a missed opportunity.
During the economic rise of India, Vietnam, and Malaysia, global institutional investors,
including private equity giants, international banks, audit firms, insurance companies,
and rating agencies, rapidly moved in, capitalizing on the growth potential. For instance,
in the early 2000s, when India was experiencing significant economic liberalization and
rapid growth, international giants like Goldman Sachs, Blackstone, and JP Morgan set
up dedicated offices in India to explore opportunities in various sectors. Vietnam’s
economic reforms and growth over the last two decades attracted significant FDI from
companies such as Intel, Samsung, Apple, and LG, which not only built production
facilities but also spurred local employment and economic diversification. Malaysia,
though not growing as quickly, has been a strong base for international investors due to
its business-friendly policies and infrastructure.
Yet, this kind of enthusiasm from global institutional investors is noticeably absent in
Bangladesh. Large asset managers, private equity firms, and multinational banks have
been hesitant to enter the Bangladeshi market with the same vigor displayed in Vietnam
or India. A review of some of the world’s top private equity firms—like KKR, Carlyle, and
TPG—shows that while they have invested billions in India, Vietnam, and Malaysia, they
have remained largely absent from Bangladesh’s economic landscape. Similarly, audit
and advisory firms like Deloitte, PwC, and Ernst & Young have expanded significantly in
Vietnam and India, reflecting the demand from multinational clients who see these
countries as viable growth hubs.
Entrance of these diverse array of international institutional businesses usher in natural
inflow of foreign direct investment in a country. For example, the entrance of a major
ratings agency builds trust around the financial markets of a country, international audit
firms ensure transparency, international insurance companies reduce business risk and
enhance confidence — all of these eventually create a virtuous circle which bring in
foreign direct investment, start-up funds, and venture capital along with various other
forms of debt and equity capital injection.
Despite solid GDP growth rates, large youth population, and growing middle class
purchasing power, Bangladesh failed to attract such systematically important,
international institutional businesses.
The reluctance of these global institutions to invest in Bangladesh is rooted in a
complex web of factors, chief among them the country’s governance issues and
pervasive corruption that existed in the country for far too long. Bangladesh’s reputation
for corruption, weak rule of law, opaque regulatory climate and business practices have
created a challenging environment for institutional investors who prioritize political
stability, legal protections, and transparent business operations – all of which were
absent, particularly during the family run kleptocracy of recently ousted dictator Sheikh
Hasina’s reign over the last fifteen years.
Not just during Sheikh Hasina’s tenure, according to Transparency International’s
Corruption Perceptions Index, Bangladesh ranked among the more corrupt nations
globally for the most part of the last three decades, which deterred institutional
investors. For investors, the risk of losing capital due to corrupt practices or political
interference is a serious deterrent, one that Bangladesh has yet to adequately address.
Reputations for corruption create another specific hurdle, which is the Foreign Corrupt
Practices Act (FCPA) in the United States. FCPA prohibits U.S.-based companies and
individuals from engaging in bribery or corrupt practices in foreign countries. This
regulation has made companies and investors wary of entering markets like
Bangladesh, where corruption is often seen as an unavoidable part of doing business.
Many institutional investors have compliance departments dedicated to assessing and
mitigating such risks, and Bangladesh’s weak record on corruption is a red flag.
Similarly, the Foreign Corrupt Practices Act is echoed by other countries’ anti-bribery
laws, creating a near-universal concern among global investors regarding Bangladesh’s
business environment. FCPA is a specific risk for highly regulated, systematically
important institutional businesses like banks and insurance companies.
Beyond corruption, Bangladesh’s political risk is another menace that prohibits large
institutional investors from taking meaningful exposure to the country. Bangladesh’s
political landscape has been riddled with political risk, even when Sheikh Hasina’s brutal
regime ensured relative stability and political continuity for over a decade. That relative
stability and continuity masked the fact that the Sheikh Hasina regime was fraught with
allegations of electoral manipulation and human rights abuses – the type of allegations
that sap the appetite of large institutional investors and scare internal risk officers.
Bangladesh’s FDI climate, in the end, contrasts sharply with the relatively stable
environments in communist-on-paper Vietnam and business friendly, yet-at-times semi-
autocratic Malaysia, where governments have succeeded in actively pursuing FDI by
fostering policies that somehow created investor confidence. Vietnam, for instance, has
implemented a range of pro-business policies, including tax incentives, land-use rights,
and investment guarantees, all designed to attract FDI. Malaysia’s government has
similarly prioritized policies that welcome foreign investors, creating a stable framework
that investors can rely on. Bangladesh failed to create such ease of doing business
parameters as well. The country ranks one of the worst when it comes to repatriation of
business dividends or profit out of the country. Stringent legal outflow of remittance,
even when illegal outflow of foreign currencies always remained pervasive, made
Bangladesh an unattractive destination for FDI.
A lack of infrastructure, particularly in sectors such as energy, transport, and logistics,
further compounded Bangladesh’s challenges. Although Bangladesh has improved its
infrastructure over the past decade, it still lags other countries like India, Vietnam,
Malaysia, or even Sri Lanka, where better infrastructure supports the demands of global
investors. Companies seeking to establish manufacturing facilities or large-scale
operations often require reliable electricity, transport networks, and logistical
support—amenities that are often taken for granted in other emerging economies but
are still inconsistent in Bangladesh.
Bangladesh is now going through a post-revolutionary period after the sudden
overthrow of Sheikh Hasina’s tyrannical rule owing to a student-led mass upsurge. The
country, where 66% of the population are below the age of 35, has entrusted its faith
and fortunes in the hands of 84 years old Nobel peace prize winner Muhammad Yunus.
Expectations are high that the Nobel laureate, with all his international connection and
goodwill, will be able to bring large sums of foreign direct investments to Bangladesh.
The country usually attracts large debt-investments, often requiring sovereign guaranty.
The hope this time is that Yunus may be able to bring in equity investors.
However, while Bangladesh’s economic progress has been commendable over the last
decade, and the recent victory of pro-democracy activists over authoritarianism is a
great leap forward making Bangladesh attractive to foreign investment in the future,
nothing is likely to happen immediately. Bangladesh’s lack of foreign direct investment is
structural, therefore, mere change of governance is not enough. The new interim
administration is better off focusing on removing Bangladesh’s internal impediments for
FDI, e.g., arbitrary remittance control, poor property rights, reducing red tapes in foreign
business permitting processes, and improving overall law and order. Given the interim
nature of the Yunus government, continuity of whatever pro-business reforms it
implements will be a hard sell to international investors.
Therefore, the interim administration should work with established political parties in
terms of building consensus around the business reforms it is going to implement. As a
temporary government with a short tenure, the Yunus administration’s immediate goal
should be to quickly go for a permanent political settlement with the political parties,
which in this will be a free, fair, and participatory election within the shortest time frame
possible. Electoral democracy is not just good for the people, but also a major magnet
for attracting FDI.
