Investment dives amid COVID-19 in Bangladesh

Jasim Uddin  | Published: 00:17, Jan 03,2021 | Updated: 15:43, Jan 15,2021


Investment, both domestic and foreign, nosedived in 2020 with little hope of recovery before the second half of 2021 amid the COVID-19-induced global economic slowdown and the fear of a second wave of the pandemic.

A persisting stagnation in domestic and foreign direct investment caused by long-standing constraints worsened in 2020 due to the COVID-19 shutdown in the first half of the year and the slow pace of recovery in the second half for low demand and restrictions on physical movement across the world.

The performance of all private investment-related indicators, including net FDI inflow, registration of new investment proposals, private sector credit growth and capital machinery import, has so far remained negative as businesses refrained from making fresh investments and taking business expansion decisions.

Investors and experts predict that the situation may start improving by April if the consequence of the second wave of COVID-19 doesn’t become deadly and vaccination is effective.

If everything remains under control, the global economy will regain its momentum, restrictions on international movement will end and the demand for products will rise normalising the investment situation, they hoped.

They, however, feared that it might take another few months, until June, to have a desirable investment pace in in the country depending on the overall progress of the coronavirus control measures, including vaccination.

The net FDI in the country declined by 33 per cent or $696 million to $1.44 billion in January–November of 2020 from $2.14 billion in the same period of 2019, according to Bangladesh Bank data.

Bangladesh Investment Development Authority data shows that the amount of proposed local and foreign investments declined by a staggering 72.16 per cent to Tk 13,952 crore in July–September of the current 2020–21 fiscal year compared with Tk 50,117 crore in the same period of the FY2019–20.

The number of FDI proposals plummeted by 92.61 per cent and that of local investment proposals by 61.28 per cent in the period.

The private sector credit growth came down to 8.21 per cent in November from 8.4 per cent the previous month due to lower a demand for bank loans for investments and business expansion, according to the latest central bank data.

Capital machinery import, the major indicator of private investment, declined by 41.68 per cent in the July–October period of the FY21 compared with that of the same period of the FY20.

Foreign Investors’ Chamber of Commerce and Industry president Rupali Haque Chowdhury last week told New Age that the investment situation recovery would depend on internal and external factors like reopening of western markets, availability and effectiveness of COVID-19 vaccine and success in containing the infections in coming months.

Investment may see an up to 70–80 per cent recovery after March and then the situation would gradually become normal if the second pandemic wave does not become deadly, she said.

Public spending and expected GDP growth will also prop up private investment to some extent, she added.

Planning ministry data, however, shows a dismal situation in public expenditure as the implementation of the annual development programme stood at a five-year low at 17.93 per cent in July–November of the current FY21.

A restoration of consumer confidence is also important for the domestic market, Rupali said, emphasising proper fiscal and policy support to small and medium enterprises.

The FDI to GDP ratio is 1.1 per cent in Bangladesh, much lower than in its competitor countries, including Vietnam where the ratio is over 6 per cent, mainly due to long-standing problems over ease of doing business.

Bangladesh will have to expedite reform processes to draw a portion of the FDI amount to be relocated from China, and funds from other countries to its economic zones, she added.

Policy Research Institute executive director Ahsan H Mansur said that the current investment situation was not unexpected at all as investors were still waiting for a favourable environment for taking decisions about business expansion and fresh investments.

The COVID-19-induced uncertainty is lingering with the fear of a second wave of infections and it is natural that entrepreneurs usually don’t go for expansion or new investment in such uncertain situations, he said.

Income losses suffered by people have also shrunk the demand for products on both domestic and international markets forcing manufacturers to cut production.

‘The first half of the new year will remain a bad time for Bangladesh in terms of investment. There is little possibility of the problem easing before July,’ he said.

The situation may start improving earlier if the government can vaccinate the majority population by this time, he added.

While FDI has declined globally due to COVID-19, Bangladesh is also facing some long-standing problems — including low score in the ease of doing business index, corruption, costly and time-consuming commercial dispute settlement, lack of reliable electricity, lack of reforms and inefficient bureaucracy — in attracting FDI, he mentioned.

These problems should also be addressed to have a boost in investment, he added.

BIDA executive chairman Md Sirazul Islam noted that investors were keeping an eye on the COVID situation.

No investors will bet on millions of dollars without visiting the proposed investment sites and having a favourable environment, he said.

The global FDI declined by 49 per cent in the first half of 2020 amid COVID-19 and Bangladesh is no exception, the BIDA chair said.

‘The year 2021 in general will be a good year for industrial investment in Bangladesh as it is expecting huge investments from Japan, China and other countries at Araihazar Economic Zone in Narayanganj and Mirsarai Economic Zone at Bangabandhu Sheikh Mujib Industrial City in Chattogram,’ he said.

Everything, however, will depend on the impact of a second wave of COVID-19, improvement on the western markets, the major export destinations of Bangladeshi products, in near future, he went on.

Regarding the country’s existing investment environment, he said that the BIDA was working to implement reforms to create a favourable environment in the absence of which attracting both domestic and foreign investment was impossible.

The BIDA is now working to improve enforcing contract and commercial dispute settlement wherein Bangladesh’s position is the worst one, 189th among 190 countries, in the EoDB index. 

Business Initiative Leading Development chairman, also former president of Dhaka Chamber of Commerce and Industry, Abul Kasem Khan said that the global economic slowdown, the waning demand, suspended or restricted movement and fear of a second wave of infections made the last year the worst one for investment and the first quarter of the new year will also remain dismal.

‘It’s tough to make fresh investment and business expansion decisions at a time when the world has entered into a fresh wave of coronavirus infections,’ he said.

He stressed fiscal and non-fiscal policy measures in the next budget to raise domestic consumption, boost investors’ confidence and revive economy and investment.

The domestic economy, which is 88 per cent of the country’s GDP, is a key to economic revival, he observed.

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