Fdi and Business Environment in Bangladesh

Topics: Investment, Foreign direct investment, Macroeconomics Pages: 20 (6203 words) Published: July 18, 2013
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INTRODUCTION
The current issue of the Bangladesh Economic Update focuses on the magnitude, dynamics, sectoral distribution, and country-wise sources of FDI inflow in the country. The flow of foreign direct investment is of utmost importance in the current backdrop of overall slump in investment in the economy in recent days. If FDI falls, it will reduce investment, which in turn will shrink employment generation. These may lead to decline in consumption level and savings will face a downward trend. There would be, as a result, a contagious pressure on the GDP growth of Bangladesh.

Foreign Direct Investment (FDI) is considered as one of the crucial ingredients for fostering economic development of a developing country. Countries that are lagging behind to attract FDI are formulating and implementing new policies for attracting more investment. Even compared to other South Asian countries, FDI inflow to Bangladesh has traditionally been lower. -------------------------------------------------

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The future outlook of FDI is grim. Based on the recent years’ performance, it is predictable that the share of FDI as percentage of GDP may decline by widening gaps between the projected medium term targets by the government and the actual receipts of the inflow. The FDI inflows as percentage of total investment may decline further. -------------------------------------------------

Meaning of FDI
The term, Foreign Direct Investment (FDI) can be defined as the investment which is directly invested in a particular country (host country) by the people of the other countries (home countries) in collaboration with the local investors or alone. According to the definition given by the World Trade Organization (WTO), “FDI occurs when an investor based in one country (the home country) acquires an asset in another country (the host country) with the intent to manage that asset. The management dimension is what distinguishes FDI from Port- Folio Investment in foreign stocks, bonds and other financial instruments”. The definition of FDI will be followed in accordance with the United Nations Conference on Trade and Development (UNCTAD) and its World Investment Report 2006, which states that “FDI is an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate)”. The Bangladesh Board of Investment (2004) maintains the same definition. FDI consists of three core parts: Equity Capital, Reinvested Earnings, and Intra-company Loans. Equity Capital, as the name suggests, refers to ownership and a foreign investor’s purchase of shares of an enterprise that is in a country other than his own. Reinvested earnings refer to the investor’s share of earnings that are not distributed back to him, i.e. Profits that are not given out as dividends but are kept within the firm (or any of its affiliates) as retained earnings. On the other hand, intra-company loans involve debt transactions in the form of short and long-term lending by the foreign parent company to its affiliates (UNCTAD 2006). Basically, the concept of FDI has been developed in the study in terms of a developing country like Bangladesh. -------------------------------------------------

An overview of FDI in Bangladesh
Present FDI Status
Bangladesh has attracted USD 913 million foreign direct investments (FDI) in 2010 calendar year, a leap by 30 per cent. This upgrades the country's position to 114 from 119 out of 141 nations in the World Investment Report (WIR). During this period the telecom sector received USD 360 million FDI, the manufacturing sector received USD 238 million in investment from abroad, USD 145 million in...
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