Foreign Direct Investment And Economic Diplomacy In Bangladesh

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Foreign direct investment (FDI) is a crucial factor in promoting economic growth and development as it provides avenues for the creation of employment opportunities, transfer of technology, and enhancement of productivity.

In recent years, Bangladesh has emerged as an attractive location for foreign investors owing to its proficient governance, well-defined foreign policy, robust economic growth, and advantageous geographical position. In the past decade, Bangladesh has effectively utilised its budget to attract a multitude of investment opportunities and enhance its collaborative relationship with major global economic players.

The allocation of the government’s budget has been directed not only towards bilateral relationships between governments, but also towards non-governmental entities, with considerable emphasis. The implementation of an inclusive approach has resulted in the establishment of a harmonious milieu conducive to both developmental and investment activities. In contemporary times, the international economy has encountered escalated strain, and for Bangladesh, the obstacles are particularly formidable as the nation strives to achieve the classification of a developing country by the year 2026. Thus, the alterations in these conditions have impacted the fiscal preferences of the government in recent times.

However, the budget has consistently adhered to principles that are geared towards the attraction and retention of foreign investors, the enhancement of economic relations with other countries, and the advancement of sustainable development. The aforementioned cautious strategies emphasise the standing of Bangladesh in the progressing worldwide economy and emphasise the nation’s dedication to advancement and collaboration via economic diplomacy.

Bangladesh’s budgets in promoting seamless inflows of foreign direct investment (FDI)

Initially, Foreign Direct Investment (FDI) plays a crucial role in augmenting the economic development of Bangladesh. This phenomenon plays a pivotal role in fostering economic growth by facilitating greater investment, expanding employment prospects, and promoting technological innovation. The influx of overseas investment facilitates the advancement of pivotal industries such as manufacturing, infrastructure, and services, ultimately propelling comprehensive productivity and competitiveness. During the last ten years, the government of Bangladesh has implemented fiscal policies that encourage the growth of export-oriented industries and facilitate the inflow of remittances. As a result, there has been an increase in foreign capital and structural development, which has made the country more attractive for foreign direct investment.

As a result, Bangladesh has experienced a sustained growth in its budgetary allocation as well as a consistent rate of foreign direct investment inflow. The year 2022 witnessed a surge of 12.9% in foreign direct investment in Bangladesh, resulting in a total of $2.9 billion, as compared to the preceding year. Furthermore, there was a threefold increase in the quantity of global project finance transactions, totalling $4.7 billion during the corresponding year. The most significant undertaking was the establishment of a container terminal worth $2 billion in Ananda Bazar, Halishahar, Chattogram. Moreover, the foreign direct investment (FDI) outflow from Bangladesh witnessed a substantial surge of almost seven times, amounting to $92 million in the year 2021.

In addition, the influx of foreign investors can introduce novel technologies, management methodologies, and competencies that have the potential to augment productivity and efficacy within local industries, thereby facilitating technology diffusion and innovation. Foreign Direct Investment (FDI) enables Bangladesh to acquire cutting-edge technologies, thereby promoting innovation and the growth of high-value sectors. In addition, the growing trend towards digitalization of worldwide production calls for intelligent economic strategies and collaboration to guarantee strong alliances.

The budgetary allocations for education and technology have experienced a substantial increase under the “Development First” and “Digital Bangladesh” strategies. As exemplified in the budget of 2009-2010, the designated amount for the sectors of education and technology amounted to 1832 kr taka. The budget for the year 2023 prioritised the advancement of technology with the aim of establishing a “Smart Bangladesh” in the foreseeable future. The Ministry of Science and Technology has been allocated a significant amount of Tk13,607 crore in the proposed budget for the 2023-24 fiscal year, indicating the crucial role of technology in the development of Bangladesh.

Furthermore, foreign direct investment (FDI) assumes a pivotal role in the process of expanding a nation’s range of exported goods and services. The attraction of foreign investors can facilitate the development of export-oriented industries in Bangladesh, thereby reducing reliance on conventional sectors and augmenting its competitiveness in the global market. Throughout the last ten years, the national budgets have consistently prioritised the establishment of a framework for expanding exports into diverse markets. Budgets have been instrumental in facilitating the diversification process by promoting projects within Export Processing Zones (EPZs) and ensuring smooth connectivity.

Economic Diplomacy as a Catalyst for Increased FDI and Global Partnerships

The utilisation of economic diplomacy has acted as a stimulant for the augmentation of Foreign Direct Investment (FDI) in Bangladesh and the exploitation of international collaborations. Bangladesh has established an appealing atmosphere for foreign investors and has positioned itself as a strong contender in the global economy by means of diplomatic endeavours, enhanced relationships, dedicated agencies, infrastructure expansion, skill development schemes, educational initiatives, and research and development programmes.

In addition to budgetary provisions, economic diplomacy has exerted a noteworthy influence on Bangladesh’s recent years, contributing to the country’s firm standing in the global economy. The process has been facilitated by Bangladesh’s noteworthy economic growth and favourable GDP performance. The correlation between a nation’s economic stability and its equitable standing in the global political economy is of paramount importance for comprehensive advancement. Bangladesh has successfully attained this feat by establishing a well-balanced stance in the geopolitical sphere and fostering seamless relationships with key stakeholders.

Over the course of the past decade, Bangladesh has consistently worked towards enhancing its bilateral and multilateral relationships, with a particular emphasis on the economic sphere. Economic diplomacy functions as a means of fostering and strengthening international relations with other nations. Bangladesh engages in diplomatic endeavours to enhance its investment prospects, engage in trade negotiations, and foster conducive business environments to entice foreign investors. The distribution of budgetary resources also indicates a favourable climate for initiatives that are conducive to investment.

Furthermore, the government of Bangladesh has effectively established the nation as a favourable location for investment by means of economic diplomacy. Investment forums, trade exhibitions, and business summits are organised to raise awareness about Bangladesh’s economic potential and investment-friendly policies, with the aim of showcasing its strengths, attracting potential investors, and fostering international partnerships.

Moreover, the government has instituted specialised agencies to facilitate investment and trade promotion, serving as a comprehensive resource for foreign investors. These organisations offer guidance, information, and aid in navigating regulatory procedures, promoting transparency, and minimising obstacles to entry. An example of this can be seen in the allocation of budgetary resources towards the advancement of small and medium enterprises (SMEs), export processing zones (EPZs), and initiatives such as the establishment of 100 EPZs. This has resulted in a favourable environment that is increasingly appealing to foreign investors. The 2023-2024 budget places significant emphasis on the development of infrastructure and connectivity as a means of maintaining a favourable diplomatic approach. The underlying rationale is that the creation of appealing investment areas or sectors with seamless connectivity serves as a cornerstone for fostering a positive impression.

The allocation of financial resources towards the development of infrastructure has brought about significant changes to the physical and organisational framework of Bangladesh within the last ten years. Sufficient allocation of funds towards transport, energy, and communication infrastructure is imperative in establishing a conducive atmosphere for Foreign Direct Investment (FDI). The increased connectivity and decreased transaction costs have rendered Bangladesh a more attractive destination for foreign investors. The transport and communication sector has been allocated 87,629 kr taka in the 2023-2024 budget, representing around 11.5% of the overall budget. By way of comparison, the budget for the roads and highways department in 2009-2010 was earmarked at 4,128 kr taka. The augmented allocation has enabled significant improvements in Bangladesh’s communication infrastructure and has brought about a transformation in the investment scenario.

The allocation of financial resources towards skill development programmes and educational initiatives serves to augment Bangladesh’s human capital, thereby bolstering its capacity to attract foreign investment and enhance its competitiveness. The budget proposal aims to bridge the skill gaps and facilitate the availability of a competent workforce for potential investors by promoting vocational training and aligning education with industry requirements. Budget allocation has been a significant factor in this specific field, as it has consistently contributed to the growth in volume.

Furthermore, Bangladesh has facilitated innovation and technological progress by promoting research and development (R&D) endeavours through budgetary provisions in digitalization procedures. The aforementioned circumstance has rendered Bangladesh a desirable location for industries that are propelled by technology. In addition to its regulatory functions, the government offers various forms of support such as incentives, grants, and funding to facilitate research and development (R&D) initiatives. This approach fosters cooperation and partnership between both local and international entities.

To summarize, Bangladesh has effectively utilised economic diplomacy and budgetary allocations to attract foreign direct investment (FDI) and leverage global partnerships for its economic development and growth. Bangladesh has successfully showcased its economic capabilities and investment-friendly policies to a global audience through the implementation of sound financial strategies and diplomatic initiatives, positioning itself as an attractive investment destination.

Furthermore, the deliberate allocation of financial resources within the budgetary structure has played a crucial role in creating a favourable environment for the inflow of foreign direct investment (FDI). However, the implementation of economic diplomacy has served as an enabler for increased inflow of foreign direct investment and global partnerships. By continuing to prioritise economic diplomacy, sustainable development, and the improvement of infrastructure, education, and technological advancements, Bangladesh can continue to attract foreign investors, promote economic growth, and ultimately achieve its goal of becoming a developed nation.

– S. M. Saifee Islam is a Research Associate at the KRF Center for Bangladesh and Global Affairs (CBGA).

Published in Eurasia Review [Link]