The issue of Foreign Direct Investment (FDI) is a much-debated one with many in the industry batting against FDI in garment making while others calling for it, especially in terms of value addition and making high-end products.
Status of FDI
According to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2020, FDI inflows to Bangladesh fell by 56 per cent to US $ 1.6 billion in 2019 (compared to US $ 3.6 billion in 2018).
The decrease mirrors an adjustment from a record level in 2018.
“Inflows to Bangladesh, an important FDI recipient in South Asia, fell by 56 per cent to US $ 1.6 billion. The decline reflects an adjustment from a record-high level in 2018. The export-oriented apparel industry remains an important FDI recipient, with major investors from the Republic of Korea, Hong Kong and China,” the report said, underlining that in 2020, the garment sector is expected to be severely affected by factors like closed down factories and falling global demand for apparel goods due to the COVID-19 impact.
However, according to data from Bangladesh Bank, FDI flows rose by 5.36 per cent on the year to US $ 1.65 billion in July-October 2019. The country ranked 168th out 190 economies in the World Bank’s 2020 Doing Business ranking, rising eight spots compared to last year.
“The investment figure mentioned in the UNCTAD report does not replicate the real picture of Bangladesh’s FDI, as it did not add the investment of the last quarter of 2019. As per Bangladesh Bank data, the FDI was US $ 2.87 billion in 2019,” stated Sirajul Islam, Executive Chairman, Bangladesh Investment Development Authority (BIDA).
However, it cannot be denied that there are some issues that weigh against the country when it comes to FDI. Business environment complicated by weak infrastructure, bureaucratic hurdles, alleged corruption, lack of transparency, weakness of the financial sector, vulnerability to natural disasters (cyclones, severe floods, etc) that result in substantial income losses are to mention a few.
On the other hand, Bangladesh also has the advantage of being in a strategic geographical position between South and Southeast Asia. In addition, its domestic consumption potential and the wealth of its natural resources make the country a good candidate for investment. Also, to be taken into account in this direction is Government’s promotion of private sector-led growth, abundance of foreign currency due to remittances, etc.
Do textile and RMG sectors need FDI?
Lately, doors are opening for foreign investment in the country’s readymade garment sector, as the Commerce Ministry has recently formulated policies and guidelines keeping opportunities for the global investors to expand and facilitate the businesses of the sector.
The Commerce Ministry has formulated policies and guidelines for the sector inspiring foreign investment. There are 17 steps, and 10 recommendations have been mentioned in the policies and guidelines to expand the business of the sector. The guideline said that identifying the existing challenges of RMG sector and taking steps accordingly will reduce the lead time of exports.
At the same time, if the business process is simplified, the investment will increase and new industries will be set up. The cost of doing business will decrease and the business will expand.
Initiatives should be taken to import raw materials of the sector from alternative sources, as it takes a long time to import and increases the lead time and expenditure. Besides, backward linkage will be built to manufacture artificial and man-made fibres for woven along with the initiatives to increase local and foreign investment in the sector. Challenges of the conventional and non-conventional markets will be identified and action will be taken accordingly, the guideline said.
Some business persons of the sector, however, think that there is no need for foreign investment directly; rather, foreign investment should be allowed in man-made fibres and woven fabrics. On the other hand, economists and trade analysts believe that the country badly needs to produce high-end products and increase production capacity in the apparel industry, where FDI can play a crucial role in technology transfer from the skilled foreign professionals.
“There is no need of foreign investment in the garment sector in the present context, as we have highest capability to make the quantity RMG product. But the foreign investment should inspire only for manufacturing man-made fibres,” underlined Md. Siddiqur Rahman, Vice President, FBCCI, while Md. Faisal Samad, Senior Vice President, Bangladesh Garment Manufacturers and Exporters Association (BGMEA), on his part, stated that “foreign investment in the sector should be allowed conditionally.”
“It should be given only for manufacturing high-value products and woven fabrics, as 60 per cent of the fabrics are being imported from China,” Faisal said, adding, “It will increase skills of workers and will help local entrepreneurs in making high-quality products. So, the foreign investment should be beyond the traditional.”
Meanwhile, Ahsan H. Mansur, Executive Director, Policy Research Institute, maintained that FDI is very important for the RMG sector, as it will bring in new technology.
“Investing heavily in backward linkages should be a key priority in the post-pandemic recovery efforts. Bangladesh should strive for heavy investment in the sector,” Mansur said.
COVID-19 adds a new dimension
The onslaught of coronavirus on the garment manufacturing sector of Bangladesh, with experts suggesting reshaping of the RMG business in the given context, has added a new angle to the issue of FDI.
In a recent webinar on the impact of the pandemic focusing FDI to meet up post-COVID-19 challenges, experts recommended heavy investment in manufacturing yarns, fabrics and dying facilities with proper wastewater and chemical management for the post-pandemic recovery efforts.
Participating in the discussion, Kihak Sung, Chairman, Youngone Corporation, analysed that the importance of FDI for the RMG sector in Bangladesh as foreign investments would bring new technology.
He said that the global companies who were interested to migrate from China were considering Vietnam due to the equitable policy of the country. Bangladesh may take Vietnam’s lead on how to cope with challenges in export brought in the coronavirus fallout through more foreign direct investment, he added.
Post-pandemic, Bangladesh expects a bigger inflow of foreign direct investment as different nations plan to relocate their factories to countries like Bangladesh to bring down cost amidst a cash crunch caused by the pandemic, as per the Commerce Minister Tipu Munshi.
“We should remain prepared to grab the opportunity, as Japan, China, Vietnam, India and Indonesia have already started moving their production lines elsewhere,” the Commerce Minister underlined.
Bangladesh should assess its competitors and offer the best investment regime to the companies interested in Bangladesh, felt Sheikh Fazle Fahim, President, Federation of Bangladesh Chambers of Commerce and Industry, who suggested offering policy and tariff support such as corporate tax incentive, tax holidays, policy consistency, and efficient and professional trade facilitation to bring in more FDI.
Meanwhile, as per reports, the BGMEA President Dr. Rubana Huq reportedly underlined that the Government should set short-, mid- and long-term goals to attract more investments.
“We need tailor-made researches and powerful content to convince the investors,” underlined Dr. Rubana, while adding that in the post-pandemic era, large investment and sizeable export would be required and cheap labour was unlikely to remain as a useful tool in future.
“Hence, skills and technology upgradation are necessary,” she added, while advocating launching aggressive roadshows in strategically important places to bring in more FDI.
Now, if the Government is successful in bringing in the required FDI to help give a new direction to the economic growth and recovery post pandemic and whether the RMG and textile sector turns out to be a beneficiary of the same, remains to be seen.
