Covid-19 and the looming disruptions in FDI frontier in Asia: A boon that Bangladesh must capitalise on

Critical Investment Need, Harsh Covid-19 Realities

Economic downfall from Covid-19 poses multidimensional challenges for Bangladesh. The world's, as well as Bangladesh's major export markets, the US and the Eurozone, are all expected to have economic contraction in the coming year, while Bangladesh's own growth is poised to fall to 3%. Major growth drivers such as  employment, exports, and remittances will take a downward turn, at least over the short term. However, it seems a major casualty of the downfall will likely be private investment, particularly Foreign Direct Investment (FDI). UNCTAD assessment suggests that the global FDI will contract by a large margin of 30 to 40 percent, the magnitude of the fall being one of the largest in the last many decades. 

Such grim forecasts come at a time when Bangladesh is in need to enhance FDI more than ever before. There are a host of compelling reasons ─ to step up the pace of growth to 8% plus, moving towards upper-middle income/developing country status, attaining much needed technology for economic diversification and market access,  and, most importantly, to create better employment opportunities for about 2 million youths who enter the labor market every year. 

These unforeseen turns also come at a time when there is consensus between the government and the private sector that  private investments growth has been sluggish, and that there exists significant room to enhance flow of FDI in Bangladesh. Private investment to GDP ratio continues to remain stagnant at around 23% while FDI remains little over 1.1%, faring much lower than FDI into comparable countries such Vietnam and India.

The Horizon has Opportunities Too 

Notwithstanding the bleak outlook, there does exist a strong silver lining which could not only help Bangladesh neutralise the downfall from Covid-19, but can actually help secure significant and sustained flow of high quality FDI in Bangladesh over the long term. Rising tensions in an already strained US-China relationship, and massive disruptions in the global supply chain have created prospects of shifts in global supply chains whereby investors who have large manufacturing investments in China are likely to shift at least some, if not all, portion of their manufacturing operations to countries in South-east and South Asia. These investors, primarily from Japan, Singapore, South Korea, European Union and USA, are already studying potential options for relocation, and some have even announced incentives for their companies to relocate. 

Need for Quick, Targeted, Out-of-the-Box Investment Promotion  Efforts

Bangladesh must capitalise on this emerging advantage, but to do so successfully, the policy makers will need to quickly, and proactively,  put in place a holistic effort integrating a targeted investment promotion strategy, rapid improvement in the policy and regulatory environment that governs the investment climate, and strengthening the institutional capabilities to respond to investor needs, both with regard to timely policy response, and investor facilitation. Such an endeavor needs to start laying out a comprehensive, targeted investment promotion strategy and its operationalisation at the soonest. Bangladesh will not be the only one making such attempts ─ strong emerging economies such as Vietnam, Indonesia, India, and the Philippines will all likely tempt the investors contemplating relocation from China. Hence, it is imperative for the Bangladesh government, particularly the Bangladesh Investment Development Authority (BIDA), to prepare and position Bangladesh as a strong candidate for hosting the investors. 

This calls for preparing and implementing a targeted, time-bound, and focused investment promotion plan that will help identification and targeting of the investors group, outreach with Bangladesh's value proposition, making rapid, sustainable improvements in its investment climate to allay concern of the targeted investor group, and putting in place an effective investors facilitation and after-care process.

Given the urgency to move fast, the competition that Bangladesh will come across, and need for tailoring value proposing to a specific set of country investors, Bangladesh must prioritise investment opportunities, be clear of its competitive strengths, and set its sight firmly on countries relevant for the potential relocation from China. The efforts, hence, needs to be very specific/tailored rather than being traditional  open-ended investment promotion efforts. Three aspects can help in this regard – i) benchmarking of sectors to identify focus sectors or sectors of interest by the target groups for attracting FDI including new sectors which have potential for growth in the context of Covid-19 disruption, ii) Profiling industrial infrastructure in the focus sectors as potential locations for new investment, iii) Identification of target countries based on focus sectors, FDI trends, relocation from China and past engagements with Bangladesh.

Broadening the Coalition and  Institutional Pre-requisites

There is little doubt that the task will be an enormously challenging one for the government. Engaging the private sector and policy experts early on in the process will help bring in synergy and will certainly raise success probabilities through their domain knowledge and strategic advice. Medium term commitment to the effort, dedicated and empowered team in BIDA to prepare, coordinate, and execute the effort, adequate financial resources, and broader political will/ownership are going to some of the much needed institutional arrangements and political economy elements that Bangladesh will require to reap the benefits of the looming opportunity.

Dr M Masrur Reaz is an economist and also the chairman at Policy Exchange