FDI in Bangladesh

TREND AND IMPACT ANALYSIS OF FOREIGN DIRECT INVESTMENT:A CASE OF BANGLADESH

Student presentation in the module INTMAN

Winter semester 2012/2013

Rifat Ibne Jamal

10/01/2013 1/15

FDI in Bangladesh

Introduction

Why is today’s Presentation important?

• Bangladesh - a potential FDI destination with interesting developing scenario

• A scope for matching theoretical knowledge

Objective/Learning Target

• To give audience a bird’s eye view about FDI in Bangladesh

• To generate discussion:

in order to explain the impact of FDI trend in light of theoretical knowledge of

Spillover Effect

To brainstorm furnishing any suitable recommendation that might be helpful in

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Outline

Key Economic Indicators

Incentives Offered for the Foreign Investors

FDI Trend –Bird’s Eye Views

Components of FDI inflow

Export Processing Zone (EPZ)

Sectors for Prospective FDI

FDI Inflows by sectors

Factor Affecting FDI Growth

Spill over Effect of FDI

FDI in Bangladesh

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FDI in Bangladesh

Location of Bangladesh

(source: BOI,BD)

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Key Economic Indicators

GDP Growth Rate- 6.3% ( 2011) GDP Per Capita Income- 772 USD (2011-12) Inflation Rate- 7.41% (Nov, 2012) Investment Contribution to GDP- 19.3% ( July 2011-May

2012) FDI- 1136.38 Million (Jan-Dec 2011), 462.77 million

(Jan-June 2012) Export- 24.287Billion (2011-12) Import- 35.44 Billion (2011-2012)

Source: BOI

FDI in Bangladesh

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FDI in Bangladesh

Incentives Offered for the Foreign Investors

Tax Exemptions

Generally 5 to 7 years.

For power generation exemption is

allowed for 15 years

Double taxation can be avoided on the basis of

bilateral agreements.

Duty

No import duty for export oriented industry

For other industry it s @ 5% ad valorem

Remittance and Exit

Full repatriation of invested capital, profit

and dividend

Wind up on investment either through a

decision of the AGM or EGM

Repatriation of the sales proceeds after securing

proper authorization from the Central Bank

Export Processing Zone (EPZ)

Four EPZ so far

Directly supervised by Prime ministers office

Specially allocated for FDI of manufacturing

sectors

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UnemployedIn thousends

FDI in Bangladesh

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in Bangladesh (1971-2010), Board of Investment.

FDI inflow of Bangladesh (1996-2010)

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UnemployedIn thousends

FDI in Bangladesh

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in Bangladesh (1971-2010), Board of Investment.

GDP Growth in Different Years(1996-2010)

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UnemployedIn thousends

FDI in Bangladesh

Source:Bangladesh Economic Update ,Vol. 3, No. 2, February 2012

FDI Trends as Percentage of GDP

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UnemployedIn thousends

FDI in Bangladesh

Source: Bangladesh Economic Update ,Vol. 3, No. 2, February 2012

FDI Inflows (in million USD) by components in Bangladesh during 1996-2010

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UnemployedIn thousends

FDI in Bangladesh

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in Bangladesh (1971-2010), Board of Investment.

Export Processing Zone (EPZ)

- export oriented industrial enclaves

- administered by Bangladesh Export Processing Zones Authority (BEPZA)

- provide the infrastructures and administrative facilities -support services for a wide variety of enterprises

- primary objective is to provide special areas for congenial investment climate, and location free from cumbersome procedures

- So far 8 EPZs

- Investors from 32 different countries

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UnemployedIn thousends

FDI in Bangladesh

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in Bangladesh (1971-2010), Board of Investment.

Overhead Costs- EPZ

Cheap Utility Services : Water Supply : Tariff :  22.43 euro cents / cu-m.

Gas Supply : Tariff :  6.45 euro cents / cu-m.

Power Supply : Tariff :  6.11 euro cents / kwh.

• Good ranking in FDI magazine by CTG EPZ (2010/11) among 200 out of 700 global economic zones

-cost effectiveness category (3rd position)

-Best economic potentials (4th position)

•

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UnemployedIn thousends

FDI in Bangladesh

Source:

FDI Inflows by EPZ and non EPZ area in Bangladesh

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in Bangladesh (1971-2010), Board of Investment.

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Sectors for Prospective FDI

• Textile

• Frozen Foods

• Leather

• Agro-based Industry

• Information Technology

• Power and renewable energy

FDI in Bangladesh

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UnemployedIn thousends

FDI in Bangladesh

Source:

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in Bangladesh (1971-2010), Board of Investment.

FDI Inflows (in million USD) by sectors in Bangladesh during 1996-2010

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UnemployedIn thousends

FDI in Bangladesh

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in Bangladesh (1971-2010), Board of Investment.

FDI Inflows (in million USD) by sectors in Bangladesh during 1996-2000.

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UnemployedIn thousends

FDI in Bangladesh

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in Bangladesh (1971-2010), Board of Investment.

FDI Inflows (in million USD) by sectors in Bangladesh during 2001-2005.

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UnemployedIn thousends

FDI in BD

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in Bangladesh (1971-2010), Board of Investment.

FDI Inflows (in million USD) by sectors in Bangladesh during 2006-2010

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UnemployedIn thousends

FDI in Bangladesh

Source: Board of Investment,Bangladesh.

The country-wise FDI inflows in Bangladesh from top 10 investing countries during 1996-2010

[

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UnemployedIn thousends

FDI in Bangladesh

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in Bangladesh (1971-2010), Board of Investment

The country-wise FDI inflows in Bangladesh during 1996-2000

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UnemployedIn thousends

FDI in Bangladesh

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in Bangladesh (1971-2010), Board of Investment

The country-wise FDI inflows (in million USD) in Bangladesh during 2001-2005

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UnemployedIn thousends

FDI in Bangladesh

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct Investment in Bangladesh (1971-2010), Board of Investment

The country-wise FDI inflows (in million USD) in Bangladesh during 2006-2010

23/[Enter sum]

Trend of GDP, GDP Growth, FDII/GDP and FDII/GDP, Export, Export/GDP, FDI Inflow and Domestic investment over time

Source of data: Bangladesh Board of Investment (BOI)

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FDI in Bangladesh

Source:BOI,Bangladesh

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FDI in Bangladesh

Political culture

Bureaucracy

Inadequate infrastructure

Sloth information flow

Sluggish administrative

bodies

Corruption

Power crisis

Inefficient port handling

Factor Affecting FDI Growth

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FDI in Bangladesh

Ranking of Bangladesh:Doing Business

Overall ranking: 107 out of 183 countries (2010)

Subcategories:

Starting a business: 79 out of 183 countriesRegistering property: 172 out of 183 countriesPaying Taxes: 93 out of 183 countriesGetting credit: 72 out of 183 countriesProtecting investors: 20 out of 183 countriesTrading across border: 112 out of 183 countriesEnforcing Contracts: 179 out of 183 countries

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FDI in Bangladesh

Spill over Effect of FDI

Demonstration effect : by way of imitating industry-specific technology (food, cement )

Competitive effect: Cost reduction ( telecommunication) Scale economies, crowding out (textile and

garments) Via foreign trade

-Exports: reduction in foreign market entry costs by way of imitation or cooperation with foreign affiliates; ‘learning-by-exporting’(light engineering)

-Imports: import capital goods with embedded technology (telecommunication, cement, mining)

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FDI in Bangladesh

Spill over Effect of FDI in Graph

Source: Stephan, J. (2012), The Technological Role of Foreign Direct Investments in Central East Europe, forthcoming

FDI in Bangladesh

Sources:

• http://www.doingbusiness.org/rankings• http://www.bangladesh.gov.bd/• http://boi.gov.bd/• https://www.cia.gov/library/publications/the-world-factbook/geos/

bg.html• Bangladesh Economic Update ,Vol. 3, No. 2, February 2012• http://www.populstat.info/Asia/bangladc.htm• http://www.fdiintelligence.com/• Rahman,A.,(2012): Foreign Direct Investment in Bangladesh,

Prospects And Challenges, And Its Impact On Economy • Mottaleb, K.A., 2007, Determinants of Foreign Direct Investment and

Its Impact on Economic Growth in Developing Countries, MPRA Paper 9457, University Library of Munich

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FDI in Bangladesh

Research/Discussion Question

Considering yourself as CEO of an MNC, if you choose any preferable sector for entering in the market of Bangladesh through FDI mode,

then how do you justify your motivation of strategy from the perspective of OLI paradigm?

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Thank you for your attention!