By Naima Sultana
Bangladesh experienced a notable surge in net foreign direct investment (FDI) during the January-March quarter of 2025, fuelled by a sharp increase in intra-company loans and robust equity inflows.
Despite this growth, experts emphasise the urgent need for further reforms to ease the cost of doing business, enabling Bangladesh to rise from the bottom tier of FDI destinations among its regional peers.
Net FDI rose to $865 million in Q1 2025, marking a 114 percent increase from $403 million in the same period the previous year. This figure also represents a 76 percent rise from the preceding quarter, when the country secured $490 million.
The increase indicates renewed investor confidence in Bangladesh’s potential, despite ongoing macroeconomic challenges such as currency volatility, high inflation, and mounting external debt.
However, signs of economic recovery have emerged in the current quarter, with inflation easing and the central bank resuming dollar purchases to stabilise the exchange rate and curb the appreciation of the taka.
Mohammad Lutfor Rahman, a professor of the Department of Economics at Jahangirnagar University, remarked that the rising FDI figures are encouraging. Yet, he noted that much of the inflow stems from existing investors who had previously adopted a wait-and-see approach due to prolonged economic and political uncertainties.
He added that attracting new FDI will require a comprehensive strategy from the government to lower business costs and create a conducive investment climate. Bangladesh remains hampered by long-standing structural issues that continue to act as bottlenecks.
According to the World Investment Report 2024, Bangladesh’s FDI-to-GDP ratio was just 0.31 percent in 2023, compared to Vietnam’s 4.3 percent. Vietnam attracted approximately $39 billion in FDI that year, whereas Bangladesh received around $3 billion. In terms of GDP ratio, Sri Lanka led the region with 0.8 percent, followed by India (0.79 percent), Pakistan (0.53 percent), Bangladesh (0.31 percent), and Nepal (0.18 percent).
Foreign investment is widely recognised as a key driver of economic growth—bringing capital, generating employment, facilitating technology transfer, and enhancing global market access. For Bangladesh, with its abundant labour force, FDI is vital to advancing industrialisation.
The government has prioritised making five economic zones fully operational within two years, aiming to attract $5.5 billion in investment and create over 200,000 jobs.
In a Facebook post, Ashik Chowdhury, executive chairman of the Bangladesh Investment Development Authority (Bida), reported that FDI inflows reached Tk 10,500 crore in Q1more than double the amount from the previous year. However, he admitted that Bida’s role in securing these inflows was “minimal”, as many investment decisions had been made earlier. He credited quicker approvals by Bida and the Bangladesh Bank for supporting the momentum.
To further boost FDI, the government in May established a five-member high-level committee led by Finance Adviser Salehuddin Ahmed to recommend competitive and practical incentives within a month.
Policymakers are urged to adopt a comprehensive approach to enhancing the investment climate. The ongoing US-China tariff conflict also presents a strategic opportunity for Bangladesh to attract investment diverted from these major economies.
Nonetheless, bureaucratic red tape and corruption remain substantial deterrents. Investors continue to encounter cumbersome regulatory procedures, an unpredictable and often adversarial tax regime, sluggish decision-making, and frequent policy shifts. Lengthy processes for securing permits, land, and utility connections often accompanied by demands for unofficial payments undermine investor confidence. A lack of transparency and accountability further exacerbates the problem.
Addressing these issues requires bold bureaucratic reforms, including streamlining procedures, digitalising services, and fully implementing “one-stop service centres”.
Macroeconomic instability — manifested in high inflation, exchange rate depreciation, and fiscal imbalances — poses additional risks to business viability. Therefore, ensuring policy consistency, upholding competitive neutrality, and rooting out corruption are paramount.
While progress has been made in infrastructure development, frequent power outages, inefficient port operations, and congested transport systems continue to raise operational costs. The government must fast-track critical infrastructure projects and invest in long-term maintenance.
Although Bangladesh boasts a young and expanding workforce, the quality of human capital remains a concern. Investors often struggle to find adequately skilled workers, particularly in high-tech sectors. The education system must be overhauled, vocational training aligned with industry demands, and STEM education prioritised to prepare the workforce for future challenges.
To broaden its appeal to investors, Bangladesh must diversify its economic base. This calls for targeted incentives, investment in skills development, and fostering a culture of innovation.
The persistently low level of FDI reflects deeper structural and governance deficiencies. To achieve its developmental ambitions, Bangladesh must confront these head-on. Attracting FDI is not merely about offering tax breaks; it requires building a stable, transparent, and business-friendly ecosystem.
