In a report sent to the Commerce Ministry on 2nd December, Mohammad Monsour Uddin, Commercial Counsellor at the Bangladesh Embassy in Beijing, said, “RCEP will not only boost trade and liberalise tariffs among its members but also create a conducive environment for investment and development value chains and production networks,” adding, “Therefore, countries such as China, Japan and South Korea will be inclined to invest in RCEP member countries due to the preferential market access and the common standards offered by RCEP. This would increase some challenges for Bangladesh to attract FDI from these countries.”
It may be mentioned here that as per Bangladesh’s central bank, the Bangladesh Bank, FDI of US $ 3,232 million came to Bangladesh in the fiscal year 2019-20. Of this amount, US $ 950 million came from RCEP-listed countries like Singapore, China, Japan, South Korea, Thailand, and Malaysia. This effectively means every year Bangladesh receives about one-third of its FDI from RCEP member countries, which might take a hit now in view of the RCEP.
The Regional Comprehensive Economic Partnership or RCEP, it seems is not only going to worsen Bangladesh’s losses, more so when it gets shorn off the duty-free export benefits post the LDC graduation even as its competitor Vietnam would continue to have an edge over the former thanks to it being a part of the world’s largest trade bloc, RCEP. However, it’s not just exports, Bangladesh is now also apprehensive of RCEP’s impact on another very important aspect, that is foreign investment or FDI.
Thanks to its strategically advantageous geographical position between South and Southeast Asia, in addition to its domestic consumption potential and the wealth of its natural resources, all of which combine to make Bangladesh a very good candidate for foreign investment, which it has been reaping benefits from as investment from overseas have been flowing in lately. Also, to be considered in this direction is the improvement in ease of doing business — as per World Bank’s 2020 Doing Business ranking, Bangladesh ranked 168th out 190 economies, rising eight spots compared to last year — which has added another dimension to its lure as a promising investment destination.
But ever since 15 November 2020, when the RCEP was signed at a virtual ASEAN Summit hosted by Vietnam, there are major concerns as to the inflow of FDI in the country. As per Bangladesh embassy in Beijing, Vietnam’s inclusion in the RCEP, will not only have a negative impact on Bangladesh’s exports. In addition, foreign direct investment (FDI) in Bangladesh from the major Asian economies included those in the agreement, could decrease, it apprehends.
So even as Bangladesh has been attracting foreign direct investment for many years now, competing successfully with other Asian countries like Vietnam, Myanmar, Malaysia, Cambodia, Thailand, etc. so far, since these countries now belong to a trade bloc, they will offer better competitiveness to foreign investors in their respective countries vis-à-vis Bangladesh and thereby lead to Bangladesh facing challenges in terms of trade, intra-regional and extra-regional exports and foreign direct investments.
Meanwhile, the head of a committee set up by the Commerce Ministry to assess RCEP’s impact and review Bangladesh’s inclusion in the multilateral agreement and Additional Secretary to the Commerce Ministry, Shahidul Islam, said the committee would determine the scope of work and will prepare a report with recommendations after meeting the stakeholders.
Dr Mostafa Abid, a member of the committee and the Bangladesh Trade and Tariff Commission, said, “There is a concern that the RCEP may affect our exports and FDI. After our graduation from LDC, exports may suffer more,” adding, “A comprehensive study is needed to assess the impact of the RCEP. The committee will meet with the public and private sectors and make recommendations to the Government on their views.”
He further stated that Bangladesh will not be able to join the RECP in the next 18 months, even if it wants to be included in it.
“So, we have to be fully prepared within this time. To be included in the RCEP, we need to make major changes to our trade policy,” Dr Abid added.
Considering the importance of the FDI, Foreign Minister Dr. AK Abdul Momen recently said that his Government has taken efforts to brand Bangladesh positively, which he said, would help bring more foreign investment in the country and thereby contribute towards creating new job opportunities too.
As per the Foreign Minister, the Government has taken up various programmes through its 78 missions abroad to brand Bangladesh positively. “Nobody can stop Bangladesh. We are walking towards building Sonar Bangla by 2041,” he said adding, “We want to change the wrong perception about Bangladesh…We want to help the world know that Bangladesh is a land of opportunities with its vibrant economy.”
But even as Bangladesh is gearing up to assess the impacts of RCEP on exports and FDI while also coming up with some remedial measures to counter the same like perhaps that of branding Bangladesh positively through the foreign missions, FDI seem to have already taken a hit.
As per the International Labour Organisation (ILO), FDI in Bangladesh has dropped by 84 per cent in the Jan-June period. The amount of foreign greenfield investment in Bangladesh dropped by 84 per cent in January-June of 2020 compared with that in the same period a year before amid the COVID-19 outbreak, underlined the ILO report titled, ‘Asia-Pacific Employment and Social Outlook 2020: Navigating the crisis towards a human-centred future of work’, which showed that on the whole, the region experienced a decline in foreign greenfield investment in the first half of 2020, at 34 per cent, compared with that in the same period a year before.
It found that the drop was 41 per cent for extra regional FDI, while intraregional FDI dropped by 26 per cent.
Of 25 economies for which data are available, only six including Malaysia, Australia, Myanmar, Brunei Darussalam, Indonesia and Cambodia showed an increase in greenfield investment during the same time period while China, Maldives, Pakistan, Philippines, Bangladesh and Sri Lanka reflected the largest decline in greenfield investment, ranging from 84 per cent to 89 per cent, the report showed.
A greenfield investment is a type of foreign direct investment (FDI) in which a parent company creates a subsidiary in a different country, building its operations from the ground up. The term ‘greenfield investment’ gets its name from the fact that the company — usually a multinational corporation (MNC) — is launching a venture from the ground up — ploughing and prepping a green field. These projects are foreign direct investments — known simply as direct investments — that provide the highest degree of control for the sponsoring company.
Further, the recent Bangladesh Investment Development Authority (BIDA) data also showed that the amount of the proposed local and foreign investments has declined by 72.16 per cent or Taka 36,165 crore in July-September of the current fiscal year 2020-2021 compared with that in the same period of the FY 2019-2020. According to the BIDA, foreign direct investment proposals plunged by 92.61 per cent or Taka 16,115 crore in the first quarter of FY ’21 compared with that in the same period a year ago.
It may be mentioned here that consequent to the recent fall in prices of ‘Made in Bangladesh’ apparel products (prices of Bangladeshi RMG products reportedly decreased by 5.23 per cent in September while the fall in October was 4.15 per cent and in November 4.92 per cent) clamour has also grown strong for FDI in RMG and textile sector as well, even if conditionally and in specific areas only so as to enable the industry to take some significant steps towards making high-end products and command better price points in the global market.
“…foreign investment should inspire only for manufacturing manmade fibres,” reportedly maintained Md Siddiqur Rahman, Vice-President of the FBCCI and former President of BGMEA on the issue of FDI in RMG and textile sector while Senior Vice-President of BGMEA, Md Faisal Samad, on his part stated foreign investment in the sector should be allowed conditionally and it should be given only for manufacturing high-value product and woven fabrics.
“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,” Faisal said even as Ahsan H Mansur maintained that FDI was very important for the RMG sector as it will bring in new technology, which experts maintain, is the need of the hour.
So, given the current scenario in view of the RCEP and the declining trend of FDI lately, Bangladesh would do good to ready its plans to face the RCEP challenges, before it becomes a case of too little too late.