Foreign Direct Investment In Bangladesh Assignment Of Mortgage


We have learnt much about the International Business. But don’t now how they are applied in the real lives. To find this out i.e. how they are applied in the real lives we were given this project.

For completing this project we needed information and to extract information we have chosen secondary sources of data instead of primary sources because primary sources are very much time consuming and critical process.

This report attempts to show the emergence of policies, prospects and problems of the investors and investment in Bangladesh. It is expected that this report will help to gather knowledge about the present situation and future problems of the foreign direct investment in Bangladesh. We tried our level best to compile information as comprehensively as possible.

We tried our best to fetch all the possible information and include them in a relevant manner.   We have tried our level best to complete the paper more meaning fully but at the same time we express our regret for our failure of mentioning many other important information due to very limited space allotted for assignment. However we think this study will prove pragmatic to those who feel interested in the subject.


To find out the real problems and prospects of FDI in Bangladesh we have taken help of secondary data instead of primary data.

To work with primary data is a very time consuming task to do and so also primary data collection in this level are really a tough job to do.

Limitations of the Study

The shortage of time was the main obstacles to gain the actual result. What ever the situation was we have tried our best to accomplish the given job and we do believe that people will appreciate this tiresome effort.

It was not an easy task to accomplish. The main obstacles were the short time and the huge amount of secondary data for the assignment. It takes a huge time to find out the real condition of FDI in our country and what the prospects are in future.

We have tried our level best to complete the paper more meaning fully but at the same time we express our regret for our failure of mentioning many other important information due to very limited space allotted for assignment. However we think this study will prove pragmatic to those who feel interested in the subject.


Investment is the edition to the existing stock of capital after a fiscal year. Investments are one of the most important ways that economies are able to grow over time. Investments allow businesses to purchase factories, machines, and other capital goods, which in turn increase the production of goods and services and thus the standard of living of those who live in the economy. That is especially true when capital goods incorporate recently developed technologies that allow new goods and services to be produced, or existing goods and services to be produced more efficiently with fewer resources.

Investment means spending or setting aside money for future financial gain. For an individual, investment might include the purchase of financial assets, such as stocks, bonds, mutual funds, or life insurance. Investment can also include the purchase of durable goods, such as housing or a car. For an economist, investment refers to the increase in real capital in an economy, such as an increase in factories and machinery, or in its human capital—that is, a skilled and educated labor force. See also Corporate Finance; Economics: Keynesian Economics.

Investing in capital goods has a cost, however. For investment to take place, some resources that could have been used to produce goods and services for consumption today must be used, instead, to make the capital goods. People must save and reduce their current consumption to allow this investment to take place.

Types of Investment

  • Domestic Investment
  • Foreign Direct Investment
  • Autonomous Investment
  • Induced Investment

Foreign Direct Investment (FDI)

FDI can be defined long term investment of a “parent” enterprise from “home” economy into a subsidiary, affiliate, or branch enterprise in a foreign “host” economy. FDI flows include assets, property (e.g. parent company technology, branding, and skills) and \ or capital investment (greater than 10% of total shares in a company), reinvested earnings (retained profits in an affiliate, or intra company loan / debt transaction (long term borrowing/ lending) between firm and affiliate enterprises. FDI stocks are the value of capital and reserves (including retained profit) attributable to a parent enterprise. Other type of foreign investment is portfolio investment (shareholder investment in less than 10% of a company’s capital) and bonds/loans are obtained from foreign banks.

Determinants of Investment

  • Marginal Efficiency of Capital (MEC)

Marginal efficiency of capital can be defined as the highest rate of expected return from an additional unit of capital after covering all of its cost.

The higher the MEC the higher is the investment. The higher is the capital stock the lower is the MEC.

  • Marginal Efficiency of Investment (MEI)

Marginal efficiency of investments can be define as the highest rate of expected return from a given investment after covering the cost of the capital except the rate of interest.

  • Elements of Uncertainty
  • Rise in income level
  • Invention and Innovation
  • Existing stock of capital
  • Rate of Interest
  • Size of Population
  • Political Climate

Bangladesh in Brief 

Bangladesh’s 147,570 sq km (roughly the size of England and Wales) are situated on a fertile alluvial plain formed by large rivers, the Padma and the Jamuna. Its topography is flat with no great mountains or deserts, and its rivers are vast. Bangladesh is bordered by India to the north-east and west, Myanmar to the south-east, and the Bay of Bengal to the south.


From a mainly feudal agrarian base, the economy of Bangladesh has undergone rapid structural transformation towards manufacturing and services. The contribution of the agriculture sector to GDP has dwindled from 50 percent in 1972-73 to around 20 percent in 1999-2000. The agricultural sector is, however, still the main employment provider. The staple crop is rice, with paddy fields accounting for nearly 70% of all agricultural land.

Industrial production growth has averaged more than 6% over the last 5 years. The export sector has been the engine of industrial growth, with ready-made garments leading the way, having grown at an average of 30% over the last 5 years. Primary products constitute less than 10 percent of the country’s exports; the bulk of exports are manufactured/processed products, ready-made garments and knit wears in particular.


The climate in Bangladesh is sub-tropical, with temperatures ranging from a daytime low of 18`c in the cold season to a maximum of 40`c in the summer. Annual rainfall ranges from 200 to 400 cm. The country has four main seasons, winter (Dec-Feb), summer (Mar-May), Monsoon (Jun-Sep) and autumn (Oct-Nov).

Social Development

Bangladesh has achieved substantial progress in mass literacy, public health, reduction of population growth and self employment support for rural poor. Primary education is compulsory and female education is free through the first eight years. The strong commitment to primary education and to gender equity means that three out of four girls now enter primary education.

In the area of health, over 80% of the country’s children are immunized against the six `killer` diseases. Infant mortality has decreased significantly. There has been a sharp decline in the fertility rate.

The increased participation of women in poverty alleviation programs as well as in Bangladesh’s ready-made garments sector, which provides jobs for more than 1 million women, has helped create an awareness of women’s issues at all levels.

An unparalleled concentration of innovative and committed non-governmental organizations has brought about a micro-credit revolution and guided countless indigent women and landless households into income generating activities. The safety net programs initiated by the government in improving the condition of the poorest to a level of survival are proving effective.

Socio-Economic Introductory in Bangladesh

Vital Statistics

General Vital Statistics        

Population (Million),   2001 (Adjusted)                      130.03

                                                2004(Projected)                      137.2

Population growth rate (percentage), 2004                 1.48

Male Female Ratio, 2002                                            105.4

Population Density/Sq. Km. 2004 (Projected)           928

Income Distribution and Poverty

Rate of Poverty Based on Cost of Basic Need Method (CBN), (HIES-2000)

Based on Upper poverty Line

National                                                                      49.80

Rural                                                                           53.10

Urban                                                                          36.60

Based on Lower Poverty line

National                                                                      33.37

Rural                                                                           37.40

Urban                                                                          19.10

Employment and Labor Forces

Labor Force Survey, 2002-03

Number of Civilian Labour Force (Crore)                  4.43

Male                                                                            3.45

Female                                                                         0.98

Percentage of total Labour force

Agricultural Labor                                                      51.69

Industrial Labor (Manufacturing, Power, gas)           13.56

Other Labor                                                                34.75

Transportation (Km.) June 2004

National Highway                                                       3723

Regional Highway                                                      4832

Feeder Road Type-A                                                  13823

Railway                                                                       2854.96

Financial Statistics

Total Number of Commercial Banks                      49

Local Bank                                                                  39

Foreign Bank                                                              10

Financial Institution                                                    28








GDP in Crore Tk)






GNI in Crore Tk)






Population (in Crore)






Per capita GDP(In Tk)






Per capita GNI (In Tk)






Per capita GDP (In US$)






Per capita GNI (In US$)





GDP, GNI, per capita GDP and GNI at Market

Foreign Investment in Bangladesh ( History)

With the exception of a few reserved sectors, foreign investors are free to make investments in Bangladesh in industrial enterprise. An industrial entity may be set up in collaboration with local investors or may even be wholly owned by the foreign investors. No permission is needed to set up such enterprises if the entrepreneurs use their own funds. However, to avail of facilities and institutional support provided by the government, entrepreneurs/sponsors are advised to apply for registration with the Board of Investment (BOI). For items in the control list, the office of the Chief Controller of Imports & Exports (CCI & E) prescribes the basis and conditions of import entitlement.

Shares may be issued in favor of foreign investors against capital machinery brought into Bangladesh. For issuance of shares against foreign investment in the form of capital machinery, the exchange control copy of bill of entry evidencing clearance of the capital machinery from the Custom Authorities, copies of the relative import permit, invoice and bill of lading are required.


According to the provisional estimates of BBS, the national savings and investment reached 24.49 and 23.58 percent of GDP respectively in FY 2003-04; growth in investment, however, is the ever highest in Bangladesh. The contributions of public sector and private sector towards national investment are estimated to be 6.12 percent and 17.47 percent respectively.

Fiscal Year

Total Investment

Public Investment

Private Investment





































Investment as percentages of Gross Domestic Product

Industrial Investment Status

The economy of Bangladesh has been gradually drawing the attention of private sector investors since its opening up in early ’90s. Manufacturing is becoming increasingly vibrant claiming a significant share in the total investment. During 1991-92 to 2002-03, cumulative private investment registered with Board of Investment (BOl), the apex private investment promoting and facilitating body, totaled US$ 25,933 million. The registered investments consist of 47.65 percent as local and 52.35 percent as foreign (100 percent and Joint Venture). Table presents the time-series data during FY 1991-92 to FY 2002-03. In FY 1991-92, total private investment registered amounted US$ 116 million, whereas in 2002-03, it reached US$ 2,395 million.

2002-03 experienced a 31 percent growth in the overall investment comprising of 32 percent growth in local and 22 percent in foreign investment. On the other hand, a country-wise analysis of foreign investment projects registered in FY 2002-03 shows that top five investment registering countries are Japan (28.8 percent), UK (24 percent), Netherlands (11.6 percent), South Korea (7.4 percent) and Taiwan (6.4 percent).

FDI Inflow Survey

FDI Inflow Survey 2002 was successfully conducted by BOI, for the first time in Bangladesh in February was the first-ever attempt to gather credible data on actual FDI inflow on the basis of definition given by UNCT AD.

The World Investment Report 2003 (UNCTAD-2003) mentioned that “FDI flows to Bangladesh and other countries in the sub-region declined. However, in the case of Bangladesh, FDI flows in 2002 would have been higher if investment in kind were included.










in 2002-03

Food and Allied48.89346.4719.972.410.624.3421.465.82%
Printing and Packaging9.002.000.18122.012.350580.16%
Tannery and Rubber4.0521.098.620.631.780.48%
Glass and ceramic99.3953.26142.1317.115..303.190.87%

Sector-wise distribution of foreign private investment projects register with BOI

FDI inflow by Components

  • Total FDI inflow during January-June 2003 is US$ 287.667 million.
  • Equity is the major portion of the inflow constituting 59%.
  • Reinvestment stands for about 34% of the total investment.
  • Intra-company borrowing comprises of7% of the FDI.

The highest growth has been experienced in reinvestment marking 276%. It definitely shows the confidence of the existing investors on the investment climate and performance of the economy as a whole.

Growth in the equity (49’%) was immensely contributed by increase cash inflow (78.6%) which should be reflected in the country’s Balance of Payment Statement.

Distribution of FDI inflow by components

Sectoral Distribution of FDI

In growth of manufacturing sector is evident from the findings of the survey.

Manufacturing continues to receive the highest FDI (74.6%).

A tremendous growth in the manufacturing sector indicates prospective growth of the industry in the upcoming years. It will also facilitate creating job Opportunities and SME development.

Textile is the highest recipient of FDI (33.69%) followed by chemicals (30.43%). Textile sector is largely contributed by the garments in EPZs. However, chemical sector is largely contributed by cement (60%) followed by garment accessories.

A detail study on cement sector of Bangladesh is available in BOI quarterly newsletter “Bangladesh Investment Review”, Vol. I, Issue I, published for the period April- June 2003.

Energy and gas sector has sharply declined (only 10.6%) to attract FDI during this period. Given the present utility infrastructure situation of the country and projecting taster growth of industry in coming years, energy and gas could be attractive sector for investment in future.





Value in million US$













Printing & Publication




Leather & Rubber








Glass ceramic and others








Service Industry












FDI Inflow by Sources

European Union and Western Europe; South, East and South East Asia; and North America are the main sources of FDI in Bangladesh.

 Europe as a whole is the largest source (44%) of FDI in Bangladesh during            January- June 2003. This was mainly geared up by French investment in cement sector. South, East and South East Asia is the secol1d largest source (39%) of FDI led by Hong Kong (13.94%), South Korea (1 0.62%) and Malaysia (9.28 %.).

Distribution of FDI inflows by Sources

European investments spread over manufacturing and service sectors like textile, cement, agro chemical, leather goods, drugs and pharmaceuticals, tele-communication, LPG bottling, lubricants, power generation, industrial gas etc.

Investments from South, East and South East Asian nations like China, Hong Kong, India, Malaysia, Pakistan, Singapore, Sri Lanka, Taiwan and Thailand are concentrated on manufacturing sectors.

Fiscal Year

Local Investment

Foreign Investment


Growth (in million US$)
































































Share (%)




Distribution of private investment projects (local and foreign) registered with BOI

Distribution by FDI inflow by sources

Investment in EPZs

GDP, Saving and Investment

The real GDP growth rate has been provisionally estimated at 5.52 percent in FY 04. This marginal increase (0.26 percent) is mainly caused by an increase in production in the industry and service sector. It is in tune with the Medium Term Macroeconomic Framework (MTMF) projection at 5.5 percent for the current fiscal year. According to the projection of this framework the real growth of GDP will rise from 6.0 percent in the next fiscal year FY 05 to 6.5 percent in FY 06. It is widely recognized that acceleration of the growth of GDP is largely dependent on the flow of investment in the country. Attaining projected growth of GDP as set in the MTMF would therefore require investment level to the tune of 26 percent of GDP and this is based on the assumption that the Incremental Capital Value Addition Ratio (ICVR) is around 4 percent in Bangladesh.

The importance of GDP, savings and investment is immense. It is noted that the growth of GDP is largely dependent on capital intensity as well as on the efficiency in utilization of capital. For this reason savings and investment as percent of GDP are the most important indicators.

Actual Investment Statistics

 Actual Foreign Direct Investment

The FDI Inflow Survey conducted by BOI found that during January-December 2003, total FOI inflow in Bangladesh was US$ 441.4 million. It may be mentioned here that due to the strategic policy change by the Board, the FOI target in 2003 was US $ 400 mil1ion. Table 8.6 presents the comparative statement of actual FDI inflow in Bangladesh.

Actual Local Investment

Sample surveys of the BOI on registered local investment projects found that about that 85 percent of the registered local projects are either implemented or at the different stages of implementation.

Private Investment Registration

Private investors initially register their investment proposals with Board of Investment expressing their intent to invest in the respective proposals. After detailed feasibility studies investment proposals are implemented in phases. As a result the actual investment projection could be made possible on the basis of registration statistics.

Importance of FDI

The most Heavily Indebted Poor Countries and low income countries of the world remain largely dependent on bilateral and multilateral aid for their development strategies. However, since 1990 total Overseas Development Assistance (ODA) has dropped by more than half. Much greater importance is now being placed on alternative sources of capital to finance national development (ECOSOC 2000) and Foreign Direct Investment (FDI)1 is now the largest source of foreign private capital reaching developing countries (Figure 1). Global flows of FDI have grown phenomenally over the last ten years. Total inflows rose by nearly four times, from US $174 billion in 1992 to US$ 644 billion in 1998. However, total flows to developing economies fell between 1997 and 1998 (UNCTAD 1999). Regionally, prospects look least good for Africa (Table 1.). Of the middle to low income countries, Asia has experienced the fastest rate of growth in FDI but also the greatest volatility.




























Hong Kong


































S. Korea




































Top Ten FDI (1996-97-2002-2003)


Growth Rate


Change in Consumer Prices


Balance of Trade

($ million)

International Reserves

($ million)
































Sri Lanka





A comparison between south Asia countries in terms of Economic indicators

The Secretary General’s report “Financial Resources and Mechanisms” to the eighth UN Commission on Sustainable Development indicates increased international dialogue about whether FDI is a significant source of development finance. For all its potential, there is far greater awareness of the complex nature of FDI and the possible negative impacts of rapid and large growth for least developed countries. A crucial question is how FDI might be better applied to support more sustainable forms of development, particularly in those countries with burgeoning debts and widening income disparity to the rest of the world. This briefing paper seeks to review some of the pros and cons of FDI, to broadly consider possible roles and responsibilities of institutions in order to utilize FDI in a more effective manner and suggest some key questions that will need to be faced.

How can FDI be better applied to Sustainable Development?

Accessibility and stability of FDI

If FDI is to take a greater role in building developing country economies, further assessment of the factors which influence and are influenced by FDI flows is necessary. Foreign companies are thought to be attracted to recipient countries for a whole range of factors, e.g. political stability, market potential & accessibility, repatriation of profits, infrastructure, and ease of currency conversion. Privatization and deregulation of markets are seen as central means to attract FDI, however this can leave the poorest or most indebted countries open to destabilizing market speculation (ECOSOC 2000). National legislation can support better investment security for local markets, fair competition and corporate responsibility through defining equitable, secure, non-discriminatory, transparent investment practices.

Socially Responsible Investment

Ethical and socially responsible FDI can be encouraged through national, bilateral and international investment guidelines and regulation e.g. consumer rights, information provision, commercial probity, labor standards and corporate culture (UNCTAD 1999). Several institutions have developed or are currently working on responsible practice. The ILO has 180 conventions referring to social responsibility and it also has more specific “Tripartite Declaration of Principles” (1977), concerning TNCs and social policy2. UNCTAD has developed a “Code of Restrictive Business Practices”. Eradication of poverty and reduction of gender inequality, where women make up nearly 70% of the world’s poorest, should be prioritized.

Environmental protection

Greater efforts need to be made to assess the linkages between environmental impacts and FDI, although it may be difficult to isolate FDI impacts from other activities. Authorities and businesses can apply Environmental Management Systems (EMS) to assess the potential impacts of FDI ventures, e.g. ISO 4001 which details techniques such as Life-Cycle-Analysis, Environmental Impact Assessments (EIA) and Environmental Audits. These all require investment in inspection, monitoring, regulation and enforcement to ensure effective implementation. The resources required to effectively adopt these approaches are often lacking in many developing countries, suggesting a vital need for targeted international assistance (UNCTAD 1999). Greater environmental commitment can also bring long term corporate gains e.g. greater efficiency and better quality of practice.

Legal Environment

Legal Protection

The policy framework for foreign investment in Bangladesh is based on ‘The Foreign Private Investment (Promotion & Protection) Act 1980 which ensures legal protection to foreign investment in Bangladesh against nationalization and expropriation. It also guarantees non-discriminatory treatment between foreign and local investment, and repatriation of proceeds from sales of shares and profit.

Government of Bangladesh is agreeably helping to provide proper legal facility for the foreign investors. So in the question of legal environment and FDI prospect it can be told that the legal environment is quite sound for the foreign investors.

Political Environment

Political Environment is very crucial for an economy to attract foreign investor or to increase Foreign Direct Investment (FDI). Political situation of Bangladesh are not sound enough to attract investor in a high speed. Political situation is important because the investors are not feeling secure to invest in such country where the country’s political situations are unstable.

It is very harmful for such a developing economy like Bangladesh. If the government wants to increase its FDI performances than political climate obviously have to be sound to attract the investors from the different countries of the world.


Population is another issue in the question of FDI. We have a huge number of population in a ratio with our total lands. Huge population always indicates that the huge amount of demand and which will make the foreign investors interested to invest such country.

The total population distribution and the total lobor force distribution chart are given bellow-.

Population (Million),   2001 (Adjusted)                      130.03

                                                2004(Projected)                      137.2

Population growth rate (percentage), 2004                 1.48

Male Female Ratio, 2002                                            105.4

Population Density/Sq. Km. 2004 (Projected)           928

Labor Force Survey, 2002-03

Number of Civilian Labor Force (Core)                     4.43

Male                                                                            3.45

Female                                                                         0.98

Percentage of total Labor force

Agricultural Labor                                                      51.69

Industrial Labor (Manufacturing, Power, gas)           13.56

Other Labor                                                                34.75

The following data are showing that we have a huge number of population an so also a huge number of unemployed labor force which is an important factor that attract people to in vest our country.

Government’s Visions

Investment Facilities in Bangladesh

Bangladesh offers generous opportunities for investment under its liberalized Industrial Policy and export-oriented, private sector-led growth strategy. All but four sectors-

  • Arms and ammunition and other defense equipment and machinery.
  • Forest plantation and mechanized extraction within the bounds of reserved forests
  • Production of nuclear energy, and
  • Security printing and mining

are open for private investment in Bangladesh. The government’s role is that of a facilitator which helps create an enabling environment for expanding private investment, both domestic and foreign. The Board of Investment (BOI), established by the government for accelerating private investment, provides institutional support services to intending investors.

General Facilities/ Incentives

Tax holiday

Tax holiday facilities will be available for 5 or 7 years depending on the location of the industrial enterprise. For industrial enterprises located in Dhaka and Chittagong Divisions (excluding Hill Tract districts of Chittagong Division) the tax holiday facility is for 5 years while it is 7 years for locations in Khulna, Sylhet, Barisal, and Rajshahi, Divisions and the 3 Chittagong hill districts.

Tax holiday facilities are provided in accordance with existing laws. The period of tax holiday will be calculated from the month of commencement of commercial production. Tax holiday certificate will be issued by NBR (National Board of Revenue) for the total period within 90 days of submission of application.

Tax exemption

Tax exemptions are allowed in the following cases-

  Tax exemption on royalties, technical know-how fees received by any foreign collaborator, firm, company and expert.

  Exemption of income tax up to 3 years for foreign technicians employed in industries specified in the relevant schedule of the income tax ordinance.

  Tax exemption on income of the private sector power generation company    for 15 years from the date of commercial production.

  Tax exemption on capital gains from the transfer of shares of public limited companies listed with a stock exchange.

 Accelerated depreciation

Industrial undertakings not enjoying tax holiday will enjoy accelerated depreciation allowance.  Such allowance is available at the rate of 100 per cent of the cost of the machinery or plant if the industrial undertaking is set up in the areas falling within the cities of Dhaka, Narayangonj, Chittagong and Khulna and areas within a radius of 10 miles from the municipal limits of those cities.  If the industrial undertaking is set up elsewhere in the country, accelerated depreciation is allowed at the rate of 80 per cent in the first year and 20 per cent in the second year.

Concessionary duty on imported capital machinery

Import duty, at the rate of 5% ad valorem, is payable on capital machinery and spares imported for initial installation or BMR/BMRE of the existing industries. The value of spare parts should not, however, exceed 10% of the total C & F value of the machinery. For 100% export oriented industries, no import duty is charged in case of capital machinery and spares. However, import duty @ 5% is secured in the form of bank guarantee or an indemnity bond will be returned after installation of the machinery. Value added Tax (Vat) is not payable for imported capital machinery and spares.

Foreign Investment

Private investment from overseas sources is welcome in all areas of the economy with the exception of the four reserved sectors (mentioned earlier). Such investments can be made either independently or through venture on mutually beneficial terms and conditions. Foreign investment is, however, especially desired in the following major categories of industries:

  • Export oriented industries;
  • Industries in the Export Processing Zones (EPZs)
  • High technology products that will be either import substitute or export oriented.

Facilities / incentives

 For foreign direct investment, there is no limitation pertaining to foreign equity participation, i.e. 100 percent foreign equity is allowed. Non-resident institutional or individual investors can make portfolio investments in stock exchanges in Bangladesh. Foreign investors or companies may obtain full working loans from local banks. The terms of such loans will be determined on the basis of bank-client relationship.

A foreign technician employed in foreign companies will  not be subjected to personal tax up to 3 (three) years , and beyond that period his/ her personal income tax payment will be governed by the existence or non-existence of agreement on avoidance of double taxation with country of citizenship.

Full repatriation of capital invested from foreign sources will be allowed. Similarly, profits and dividend accruing to foreign investment may be transferred in full. If foreign investors reinvest their repatriable dividends and or retained earnings, those will be treated as new investment. Foreigners employed in Bangladesh are entitled to remit up to 50 percent of their salary and will enjoy facilities for full repatriation of their savings and retirement benefits.

Foreign entrepreneurs are, therefore, entitled to the same facilities as domestic entrepreneurs with respect to tax holiday, payment of royalty, technical know-how fees etc.

The process of issuing work permits to foreign experts on the recommendation of investing foreign companies or joint ventures will operate without any hindrance or restriction.  Multiple entry visa” will be issued to prospective foreign investors for 3 years. In the case of experts,” multiple entry visa” will be issued for the whole tenure of their assignments.

Other Incentives

  • Citizenship by investing a minimum of US $ 500,000 or by transferring US$ 1,000,000 to any recognized financial institution (Non-repatriable).
  • Permanent residentship by investing a minimum of US$ 75,000 (non-repatriable)
  • Special facilities and venture capital support will be provided to export-oriented industries under “Thrust sectors”. Thrust Sectors include Agro-based industries, Artificial flower-making, Computer software and information technology, Electronics, Frozen food, Floriculture, Gift items, Infrastructure, Jute goods, Jewellery and diamond cutting and polishing, leather, Oil and gas, Sericulture and silk industry, Stuffed toys, Textiles, Tourism.

Investment Protections / International Agreements

Legal Protection

The policy framework for foreign investment in Bangladesh is based on ‘The Foreign Private Investment (Promotion & Protection) Act 1980 which ensures legal protection to foreign investment in Bangladesh against nationalization and expropriation. It also guarantees non-discriminatory treatment between foreign and local investment, and repatriation of proceeds from sales of shares and profit.

International Agreements

Bangladesh has concluded bilateral agreements for avoidance of double taxation and investment treaties for promotion and protection of investment with the following countries:

Bilateral agreements

Belgium, Canada, China, Denmark, France, Germany, India, Italy, Japan, Poland, Romania, Singapore, South Korea, Sri Lanka, Sweden, Thailand, The Netherlands, United Kingdom ( including  Northern Ireland ). Negotiations are ongoing with U.S.A, Iran, Philippines, Qatar, Australia, Nepal, Turkey, Indonesia, Cyprus, Norway, Finland and Spain.

 Investment treaty

Belgium, Canada, France, Germany, Iran, Italy, Japan, Malaysia, Pakistan, Philippines, Poland, Republic of Korea, Romania, Switzerland, Thailand, The Netherlands, Turkey, United Kingdom, USA, Indonesia. Negotiations are ongoing with India, Hungary, Oman, Moldova, DPRK, Egypt, Austria, Mauritius, and Uzbekistan.

In addition, Bangladesh is a signatory to MIGA (Multilateral Investment Guarantee Agency), OPIC (Overseas Private Investment Corporation) of USA, ICSID (International Centre for Settlement of Investment Disputes) and a member of the WIPO (World Intellectual Property Organization) permanent committee on development co-operation related to industrial property.

Incentives to Non-Resident Bangladeshis (NRB’s)

 Investment of NRBs will be treated on par with FDI. Special incentives are provided to encourage NRBs to invest in the country. NRBs will enjoy facilities similar to those of foreign investors.  Moreover, they can buy newly issued shares/debentures of Bangladeshi companies. A quota of 10% has been fixed for NRBs in primary public shares. Furthermore, they can maintain foreign currency deposits in the Non-resident Foreign Currency Deposit (NFCD) account.

Relaxation / Liberalization of Exchange Control   Regulations

Bangladesh ‘Taka’ is convertible for current external transactions. Individuals/firms resident in Bangladesh may conduct all current external transactions, including trade and investment related transaction, through banks in Bangladesh authorized to deal in foreign exchange (Authorized Dealers) without prior approval of the Bangladesh Bank. Non- resident direct investment in industrial enterprise in Bangladesh and non-resident portfolio investment through stock exchanges in Bangladesh also do not require prior approval of the Bangladesh Bank. Remittance of post-tax dividend/profit on non resident direct or portfolio investment does not require prior approval. Sale proceeds, including capital gains on non-resident portfolio investment may also be remitted abroad without prior approval. Repatriation of sale proceeds of non-resident investment in unlisted companies is allowed by Bangladesh Bank on the basis of the net asset value of the shares of the company.  Investors may obtain relevant procedural details by contacting any authorized Dealer bank in Bangladesh.

To facilitate investment, prior approval of the Bangladesh Bank is no longer required for-

  • Remittance of profits to their head offices by foreign firms and companies operating in Bangladesh.
  • Issuance of shares to non-residents against investment for setting up industries in Bangladesh.
  • Remittance of dividends on such shares to the non-resident investors.
  • Portfolio investment by non-residents including foreign individuals/enterprises in shares and securities through stock exchanges in Bangladesh.
  • Remittance of dividends on portfolio investment by non-residents through stock exchanges in Bangladesh.
  • Remittance of sale proceeds, including capital gains of portfolio investments of non-residents  through stock exchanges in Bangladesh.
  • Remittance of principal and interest installments on loans/suppliers credits obtained by industrial units from foreign lenders with approval of the BOI. 100% foreign owned (Type A) industrial units in the EPZs (Export Processing Zone) do not require prior permission of BOI for such foreign borrowing.
  • Remittance in repayment of principal and payment of interest of such loans.
  • Remittance of technical fees and royalties against technical assistance/royalty agreements in conformity with BOI guidelines.
  • Remittance of savings of expatriate personnel at the time of their leaving Bangladesh, out of the salaries and benefits stated in their employment contracts as approved by BOI.
  • Extension of term loans by banks on normal banking considerations to foreign firms operating in Bangladesh.
  • Extension of working capital loans to all foreign owned/controlled industrial and trading firms/companies by banks on the basis of bank customer relationship and normal banking practice.
  • Obtaining of interest-free repatriable short-term foreign currency loans by foreign firms investing in Bangladesh from their head offices or any other sources through any authorized dealer.

Investment in shares/securities by non-residents:

i.    Non-residents are free to invest in shares / securities quoted in the stock exchanges, with   foreign exchange sent or brought into Bangladesh.

ii.   They may also invest in new, yet-to-be-listed public issues of Bangladeshi shares/securities. In such cases investors are not required to transact through any registered broker/member of stock exchange.

5% shares of Initial Public Offering (IPO) of a company is reserved for Non-Resident Bangladeshi (NRB). Non-Resident Bangladeshi (NRB) can purchase/subscribe securities in foreign currency through “Foreign Currency Account for IPO” opened for the purpose only by the issuing company. Over subscription can be repatriated after completion of formalities.

iii.  Permission of Bangladesh Bank is not required for issue and transfer of shares in favor of non-residents against their investments in joint ventures in Bangladesh.

iv.  Non-resident share holders can freely transfer their shares to other non residents.

Remittance of profits:

Branches of foreign firms/companies including foreign banks, insurance companies and financial institutions are free to remit their post-tax profits to their head offices through banks authorized to deal in foreign exchange (Authorized Dealers) without prior approval of Bangladesh Bank.

Remittance of dividend/capital gain

Prior permission of Bangladesh Bank is not required for- 

—        Remittance of dividend income to non-residents in respect to their  investments in Bangladesh;

—        Remittance of dividend declared out of previous year’s accumulated reserves; and

—        Dividend and sale proceeds (including capital gains) of shares of companies listed in a Stock Exchange in Bangladesh. Such remittance may be affected prior to actual payment of taxes provided that the amount payable to the tax authorities at the applicable tax rate is withheld by the company. Remittance of sale proceeds of shares of companies not listed in Stock Exchange requires prior Bangladesh Bank permission, which is accorded for amounts not exceeding the net asset values of the shares.

Foreign and Local Borrowings

Foreign loans

Industrial enterprises in Bangladesh (local, foreign or joint venture) may borrow abroad with prior Board of Investment (BOI) approval. Remittances towards payment of interest and repayment of principal as per terms of BOI approved borrowing may be made through ADs without prior Bangladesh Bank approval.

Local borrowings

Banks in Bangladesh may extend working capital loans or term loans in local currency to foreign-controlled or foreign-owned firms/companies (manufacturing or non-manufacturing) operating in Bangladesh on the basis of normal banker-customer relationship, without reference to Bangladesh Bank

Banks in Bangladesh are free to grant local currency loans to joint venture industries in EPZ up to the amount of short term foreign currency loans obtained from abroad.

Convertibility on Trade Account

Bangladesh Taka is fully convertible for settlements of trade related transactions. Import license is not required for import of items not in the control list. An importer has automatic access to foreign exchange for import of all items outside the control list, and also for import of control list items as per general or specific authorization of the office of the Chief Controller of Imports and Exports.

Exchange Facilities for Exporters

New Exporters

Annual foreign exchange quota for business travel abroad for new exporters has been set at US $ 6000. Bonafide requirement beyond US $ 6000 is accommodated by Bangladesh Bank upon written request submitted with supporting documentation.

Retention Quota for merchandise exporters

Merchandise exporters may retain up to 50% of realized FOB value of their exports in foreign currency accounts in US$, Euro, Japanese Yen. For export items with high import contents (such as naphtha, furnace oil, bitumen, readymade garments etc.), the retention quota is 10%. The computer software and data entry/processing service exporters may also retain up to 50% of realized export proceeds in foreign currency accounts. Funds from these accounts may be used to meet bonafide business expenses, such as business visits abroad, participation in export fairs and seminars, import of raw materials, machineries and spares etc. Funds from these accounts may also be used to set up offices abroad without prior permission of Bangladesh Bank. Exporters may, at their option, retain the foreign currency in interest bearing renewable term deposit accounts in Bangladesh with a minimum amount of USD 2,000 or Pound Sterling 1,500 equivalent.

Retention quota for service exporters

Service exporters may retain 5% of their repatriated income in foreign currency accounts. Funds may be drawn from these accounts to meet expenses for bonafide business expenses abroad. This quota may also be kept in interest bearing renewable term deposit accounts. However, foreign exchange earnings on account of indenting commission or agency commission for export from Bangladesh may not be credited to such accounts since these incomes originate from Bangladesh sources.

Declaration of Foreign Exchange on Form ‘FMJ’

Incoming passengers may bring in amount of foreign exchange with declaration on form FMJ at the time of arrival. No declaration is necessary for amounts up to US$ 3,000. For non-residents, the entire amount brought in with declaration, or up to US$ 3,000 brought in without declaration may be freely taken out at the at the time of departure. Up to US$ 3,000 brought in without declaration may also be retained and taken out freely by a person ordinarily resident in Bangladesh.

Foreign currency accounts

NFCD Accounts

Non-resident Foreign Currency Deposit (NFCD) accounts may now be maintained as long as the account holders desire. Amounts brought in by non-resident Bangladeshis can be deposited in foreign currency account any time after return to Bangladesh

F.C Accounts of non-resident Bangladeshis

Foreign currency accounts opened in Bangladesh in the names of Bangladesh nationals or persons of Bangladesh origin working or self employed   abroad can now be maintained as long as the account holders’ desire.

RFCD Accounts

Persons ordinarily resident in Bangladesh may maintain foreign currency accounts with foreign exchange brought in at the time of their return to Bangladesh from visits abroad. These accounts are termed as Resident Foreign Currency Deposit (RFCD) accounts. The amount brought in with declaration to customs authorities on form FMJ and up to US $ 5000 brought in without declaration may be credited to this account. However, proceeds of export of goods or services from Bangladesh and commission earnings arising from business deals in Bangladesh cannot be credited to such accounts. Balances of such accounts are freely remittable abroad. Balances of RFCD accounts may also be used by the accounts holders for their travel abroad in the usual manner. RFCD accounts may be opened in US Dollar, Euro, Pound Sterling, Deutsche Mark or Japanese Yen and may be maintained as long as the account holders desire. Interest may be paid on these deposits if these are for a term of not less than one month and the balance is not less than US $ 1000 or Pound Sterling 500 equivalent.

F.C Accounts of other entities

ADs do not require prior permission of Bangladesh Bank for opening of foreign currency accounts of :

–           Non-resident foreign persons/firms;

–           Diplomatic missions in Bangladesh and their expatriates;

–           Diplomatic bonded warehouses (duty free shops);

–           Local and joint venture contracting firms employed to execute projects financed by foreign donors/international donor agencies;

–           Bangladesh nationals working in the international bodies in Bangladesh and drawing pay and allowances in foreign currency.

Maintaining of bank accounts abroad

Bank accounts outside Bangladesh opened by Bangladesh nationals while working abroad may now are maintained even after their return to Bangladesh.

Miscellaneous Remittances

  • Remittance of membership fees
  • Evaluation and Visa Processing Fee
  • Visa fee
  • Family maintenance

Government to Increase FDI

Economic Growth

Over the past two decades, particularly during the 1990’s, the economic growth in Bang1adesh registered a remarkable progress. The average growth rate of Gross Domestic Product (GDP) was around 5 percent in this decade. Implementation of a wide array of reforms during the early 1990 s made it possible to achieve this higher rate of growth. Four percent growth rate on an average over a period of the last two decades brought an opportunity for transition to a higher grow path. Attaining of per capita GDP growth at 3.3 percent during the 1990’s is an impressive achievement.

Fiscal Sector Developments

The prudent fiscal policy pursued by the present government restored discipline in fiscal sector. As a result, the fiscal deficit in FY2002-03 declined to 3.5 percent of GDP from 4.7 percent in FY2001-02. The budget deficit in FY2003-04 has been estimated at 4.2 percent of GDP. According to preliminary estimates, recurrent expenditure during FY2003-04 is well within the target .Up to June 2004 of current fiscal year, the ADP expenditure stood at Tk. 16976 crore (88 percent).

Foreign Trade and External Sector Development

The previous government stalled trade liberalization reforms initiated in early nineties. Indeed this had perceptible negative impact on external trade. The present government has resurrected the process and intensified it further; As a result, there was turnaround in export trade in FY2002-03 posting a growth of 9.39 percent from a negative growth in 2001-02. The amount of export in FY2003-04 substantially increased by 16.10 percent to US$ 7603 million compared to the export earnings of FY 2002-03. Import trade also grew remarkably. During FY 2003-04, it registered a growth around 12.9 percent that reflects a strong pick up of domestic demand including investment and consumption.

Various facilitation measures for augmenting inflow of remittances helped to grow remittance at the rate of 32.89 percent in FY2001-02 and 22.42 percent in 2002-03 exceeding US$ 3 billion mark. In FY2003-04, it registered a robust growth of 10.12 percent compared to preceding fiscal year and remittances stood at US$ 3.4 billion.


According to consumer price index, constructed on the basis of 1985-86 as the base year, the rate of inflation in FY 2002-03 stood at 5.14 percent. In food and non-food sectors, inflation stood at 4.94 and 5.52 percent respectively. In a growing economy such inflationary trend is considered tolerable. It is however to be noted that, the rate of inflation remained low ill Bangladesh since the 1990s. Maintaining this low rate of inflation has largely been possible due to rise in food production and downward trend in prices of consumer goods in the international market.




























Food (%change)

















Non-food (%change)












 Introductory part:

Investment has acquired considerable emotive force in any country. It is viewed as beneficial on employment creator-as it brings about economic development. It can termed capital flowing from a firm or individual within the country or in one country to a business or businesses in another country involving a share of at least 10%. So the significance of investment in a country is:

  1. It increases the economic growth: sustain increase in real, per capita, national product. This brings -National income effect, Balance of payment effect& Public revenue effect.
  2. Accelerate the industrial innovation this develops in integrations take a variety form which is not necessarily mutually exclusive.
  3. Political modernization: sustain increase in the degree to which political functions are effectively collectively oriented, universalistic specific and achievement oriented.
  4. It also brings infrastructural development & modern nationalism.

From discussing the significance on investment it is two forms:

  1. Local (Domestic) investment.
  2. Foreign Investment.

Investments come from a firm or individual within the country is domestic or local investment. Investment or capital come from a firm in one country to a business or businesses in another country is called foreign investment.

The investment situation in Bangladesh is consisting of Private vs. Public and Local vs. Foreign investment. The economy in Bangladesh has been gradually drawing the attention of private sector investors since it’s opening up in early 90’s manufacturing is becoming increasingly vibrant Claiming a significant share in the total investment. During 1991-92 to 2002-07, cumulative private investment registered with Board of Investment (BOI), the apex private investment promoting and facilitating body, totaled US$ 25,933 million. The registered investments consist of 47.65 percent as local and 52.35 percent as foreign.

 Rational of the Study:

Foreign investment carries enormous significance in a developing country like Bangladesh. Realizing the importance of foreign investment Bangladesh formulated its first industrial investment policy in 1973, revised it again in 1974, 1975, and in 1978. Foreign private investment (Promotion and protection) act, 1980 and the Bangladesh Export Processing zones authority act 1980 were enacted. To make the foreign investment more attractive new industrial policy was announced in 1982. However, the industrial policy 1999 is by far the most comprehensive document. Bangladesh has ever made for investment including foreign investment.

From the inception of the independence Bangladesh has been in the center of economic investment incentive for many countries and institutional bodies of the world. With the passage of time Bangladesh reform its regulatory structure in regard to the FDI to open up the new avenue and to dislodge the compliances related to the FDI. But the effort of this structural progress has back warded by sudden and unexpected political influence and changes. The situation becomes worse one in the September attack on US. During this period flow of FDI all over the world shrunken at a greater extend. Bangladesh had also severely affected by that unwanted changes in the world scenario. Before going for in depth analysis the flow of FDI in Bangladesh we have the privilege to have a look on the regional and worldwide flow of FDI in the recent period.

 Objective of the study:

This study is conducted with the objective to get an overall insight in the flow of FDI in Bangladesh. The total objective is decomposed into several parts to get idea about the factors affecting the flow of FDI. The specific objectives of this study are:

 To give an insight into the theoretical issues relating to Foreign Direct investment.

To highlight the role of multinational corporation in FDI.

To give an overview of FDI in Asian Countries.

To focus on the administration of FdI in Bangladesh.

 To evaluate the status of FDI in  Bangladesh

To identify the problem of FDI V & prescribe some issues for their solution.

 Scope of the study:

The primary scope of this thesis paper is to get acquainted with the flow of foreign direct investment. The study will cover the scenario of FDI flow currently in Bangladesh. Comparative analysis of statement of sector wise distribution of FDI in Bangladesh and sources of FDI has been presented. The findings will be strictly structured upon the data provided by the Directorate of Board of Investment (BOI).

Sources of Information:

Primary & secondary sources are used for preparing this thesis paper. For collecting primary data the personnel in the Directorate of Board of Investment (BOI) were interviewed. For collecting secondary data various papers supplements like the Financial Express, the Daily Star etc newspapers, internet and books are studied. Exchange of views from different people also played a significant role to do the Study.

Methodology of the study:

Throughout the report I presented historical background of the flow of FDI and to get insight about the possible changes in the coming years. I have gathered information and data relevant to this analysis from several sources. The collected data are highlighted in the tabular analysis and trend analysis. This analysis helps me to know about the movement of FDI flow over the year. I also tried to find out the possible causes and factors that shaped the trend line of the flow. In a particular year the flow is upward moving at another time this is downward moving. So what are the reason behind that is the objective of the study as a whole. The analysis of the report is supported by some theoretical arguments that enhance the overall findings and guide towards a reasonable recommendation.

Limitations of the study:

Although I tried to find and set the causes that determine the shape of the flow of FDI, I believe I’m not at the best peak. I have relied extensively on published data and other secondary sources to precede the report. But some of those sources were not approachable and we lacked from data of that sources. In analyzing the report I have presented some factors that determine the shape of the flow of FDI. But these are not surely the only factors and many important factors may be omitted from the analysis. And another thing is that the underlying factors are mostly in qualitative factors in nature and therefore cannot be measured in numerical way. The consequences are that we failed to provide absolute guideline about restructuring policy and some other decisions. The finding of the report is based on some assumed scenario and changes on those scenarios may reshape the future flow of FDI. That is the analysis is situation and time based. The biggest problem we faced in the reporting period is the paradoxical data set. I have three sets of data in regard to the FDI, but all that provides us contradictory result. Board of Investment and UNCTD do not confirm what the Bangladesh bank published and vice versa. On the other hand the recording of FDI data is almost a new concept in our country. As a result we have FDI data for two periods only that is for the year 2006 and 2007.

Theoretical issues:

Foreign Direct Investment:

Foreign Direct Investment (FDI)isthe acquisition of managerial control by a citizen or corporation of a home nation over a corporation of some other host nation. Corporations that widely engage in FDI are called multinational companies, multinational enterprises, or transnational corporations. FDI traditionally implies export of real capital from home to the host nation, but even when economic investment results from FDI, capital may not be transferred from the home nation to the host one. Rather, multinational corporation may acquire/utilize real capital from local (or a third-nation) sources foreign capital” means capital invested in Bangladesh in any industrial undertaking by a citizen of any foreign country or by a company incorporated outside Bangladesh. In the form of foreign exchange, imported machinery and equipment, or in such other form as the government may approve for the purpose of such investment;.Bangladesh invites FDI for industrial growth, in particular welcoming establishment of manufacturing firms and service sector enterprises that would sell their products within the country and also export outside it.

Factors Affecting Foreign Direct Investment:

Because Foreign Direct Investment can significantly affect a country’s economy, it is important to identify and monitor the factors that influence it. The most influential factors are:

  • Inflation
  • National income
  • Government restriction
  • Exchange rates

Impact of Inflation:

If a country’s inflation rate increases relative to the countries with which it invests, its capital account would be expected to decrease, other things being equal. Consumer and corporations in that country will most likely purchase more goods or invest more in overseas (due to high local inflation), while the country’s exports to other countries & flow of investment from foreign will decline.

Impact of National Income:

If a country’s income level (national income) increases by a higher percentage than those of other countries, its capital account is expected to decrease, other things being equal. As the real income level (adjusted for inflation) rises does consumption of goods. A percentage of that increase in consumption will most likely reflect an increased demand for foreign investment.

Impact of Government Restrictions:

A country’s Government can prevent or discourage investment from other countries. By imposing such restrictions, the Government disrupts investment flows. Among the most commonly used investment restriction are bureaucratic tangles, projection of intellectual property right and f\fiscal policy changes. In addition to these, a Government can reduce its country’s investment by enforcing laws, or a maximum limit that can be invested.

Impact of Exchange Rates:

Each country’s currency is valued in terms of other currencies through the use of exchanges rates, so that currencies can be exchanged to facilitate international transaction. The values of most currencies can fluctuate over time because of market and government forces. If a country’s currency begins to rise in value against other currencies, its capital account balance should decrease, other things being equal. As the currency strengthens, Investment by that country will become more expensive than the receiving countries.

 Necessity of FDI for a country:

The world has seen a spectacular wave of global corporate activity particularly during the second half of the last decade. This has been facilitated by advances made in the information technology. This trend, strengthened with the direction toward border less-economies, is drawing more and more TNCs(Trans national corporation) into the global operation.FDI is no longer only a strategic option of corporations, it also plays a key role in the national economic development strategies. Various countries are attempting to attract foreign investors through a variety of measures, i.e. liberalization of investment environment, fiscal reforms and a package of incentive offers. FDI can transform a country’s economic scenario within shortest possible time. It is not merely access to fund, but also provide transfer of technical know-how and management expertise. It is also a stabilizing factor in any economy, because once TNCs have made an asset-based direct investment, they can not simply pull out overnight like in the case of portfolio investment. Normallythe benefits accruable from FDI are inclusive of

(a) Transfer of technology to individual firms and technological spill-over to the wider economy,

(b) Increased productive efficiency due to competition from multinational subsidiaries

(c) Improvement in the quality of the factors of production including management in other firms, not just the host firm,

(d) Benefits to the balance of payments through inflow of investment funds,

(e) Increase in exports

(f) increase in savings and investment and

(g) faster growth and employment.

Thus ,Foreign direct investment is viewed as a major stimulus to economic growth in developing countries. Its ability to deal with two major obstacles, namely, shortages of financial resources and technology and skills, has made it the centre of attention for policy-makers in low-income countries in particular.

 Foreign investment opportunity:

Private investment from overseas sources is welcome in all areas of the economy with the exemption of five industrial sectors (arms, production of nuclear energy, forest plantation and mechanized extraction within the bounds of reserved forests, security printing and minting, air transportation and railways) reserved for public sector. Such investments can be made either independtly or through joint venture on mutually beneficial terms and conditions. In other words, 100% foreign direct investment as well as joint venture bothwith local private sponsor and withpublic sector is allowed. Foreign investment, however, is specially desired in the following categories:

–         export-oriented industries;

–      industries in the Export Processing Zones;

–         high technology products that will be either import-substitute or export-oriented;

–         undertaking in which more diversified use of indigenous natural resources is possible;

–          basic industries based mainly only on local raw materials;

–         investment towards improvement of quality and marketing of goods manufactured and/or increase of production capacities of existing industries; and

–         labour intensive/technology intensive/capital intensive industries.

An objective assessment of environment by a foreign investor for his decision making process:

In attracting investment, countries must recognize the main reasons that firms invest in developing countries:

firms locate in a specific country because of the natural resource wealth that can be exploited

Market access: firms set up production in a country because of its large domestic market or its preferential access to regional or global markets

Operating efficiencies: firms locate in a country because of competitive unit costs (typically labour and transportation costs)

Firms consider different options when selecting an investment site. Hence, countries compete to attract direct investment. The critical question for developing countries is:

What are the factors that determine where firm set up direct investments?

 The determinants of investment are unique to each circumstance; nonetheless, there are common themes. Some of the questions that investors ask when considering investing in a developing country follow:

Are government policies supportive of investment?

Is there a well-managed economic framework?

 Does the legal framework protect property rights and foreign investors?

 How is the relevant industry regulated and structured?

 Is the local work force sufficiently trained and healthy?

 Is there adequate infrastructure in place?

Are there significant natural resource deposits?

 How is the quality of life?

 These nine issues are explored in greater detail in the Investment Checklist in Figure 13. This checklist contains questions that potential investors will consider. With each individual investment, there is a shifting emphasis as to which are the key factors, hence, the checklist does not rank the importance of each issue.

Role of Multinational Corporation of FDI

A review of MNCs activities related to FDI:

MNCs commonly consider direct foreign investment because it can improve their profitability and enhance shareholder wealth. In most cases, MNCs engage in DFI because they are interested in boosting revenues, reducing costs, or both.

Revenue – Related Motives:

The following are typical motives of MNCs that are attempting to boost revenues:

Attract new sources of demand:

A corporation often reaches a stage when growth is limited in its home country, possibly cause of intense competition. Even if it faces little competition, its market share in its home country may already be near its potential peak. Thus, the firm may consider foreign markets where there is potential demand. Many developing countries, such as Argentina, Chile, Mexico, Hungary and China, have been perceived as attractive sources of new demand. Many MNCs have penetrated these countries since barriers have been removed. Because the customers in these countries have historically been restricted from purchasing goods produced by firms outside their countries, the market for some goods is not well established and offer much potential for penetration by MNCs.

Enter profitable markets:

If other corporations in the industry have proved that excessive earnings can be realized in other markets, an MNC may also decide to sell in those markets. It may plan to undercut the prevailing, excessively high prices. A common problem with this strategy is that previously established sellers in a new market may prevent a new competitor attempts to break into this market.

 Exploit monopolistic advantage: 

Industrial organization theory states that firms may become internationalized if they possess resources or skills not available in competing firms. If a firm possess advanced technology and has exploited this advantage successfully in local markets, the firm may have a more distinct advantage in markets that have less advantage technology.

 React to trade restrictions  :

In some cases; MNCs use DFI as a defensive rather than aggressive strategy. Specially, MNCs may pursue DFI to circumvent trade barriers.

 Diversify internationally :

Since economies of countries do not move perfectly in tandem over time, net cash flow sales of products across countries should be more stable then comparable sales if the products were sold in a single country. By diversifying sales (and possibly even production) internationally, a firm can make its net cash flows less volatile. Thus, the possibility of a liquidity deficiency is less likely. In addition, the firm may enjoy a lower cost of capital as shareholders and creditors perceived the MNCs risk to be lower as a result of more stable cash flows.

Cost – Related Motives:

MNCs also engage in DFI in and effort to reduce costs. The following are typical motives of MNCs that are trying to cut costs:

 Fully benefit from economies of scale  :

A corporation that attempts to sell its primary product in new markets may increase its earnings and shareholder wealth due to economies of scale (lower average cost per unit resulting from increased production). Firms that utilize much machinery are most likely to benefit from economics of scale.

 Use foreign factors of production  :

Labor and land costs can vary dramatically among counties. MNCS often attempt to set up production in locations where land and labor are cheap. Due to market imperfections (discussed in Chapter 1) such as imperfect information, relocation transaction costs, and barriers to industry entry, specific labor cost do not necessarily become equal among markets. Thus, it is worthwhile for MNCs to survey markets to determine whether they can benefit from cheaper costs by producing in those markets.

Use foreign raw materials :

Due to transportation costs, a corporation may attempt to avoid importing raw materials from a given country, especially when it plans to sell the finished product back to consumers in that country. Under such circumstances, a more feasible solution may be to develop the product in the country where the raw materials are located.

 Use foreign technology:

Corporations are increasingly establishing over seas plants or acquiring existing overseas plants to learn the technology of foreign countries. This technology is then used to improve their own production process and increase production efficiency at all subsidiary plants around the world.

React to exchange rate movements – When a firm perceives that a foreign currency is undervalued, the firm may consider direct foreign direct foreign investment in that country, as the initial outlay should be relatively low.

Comparing Benefits of FDI among countries:

The optimal way for a firm to penetrate a foreign market is partially dependent on the characteristics of the market. For example, direct foreign investment by U.S. firms is common in Europe but not so common in Asia, Where the people are accustomed to purchasing products from Asians. Thus licensing arrangements or joint ventures may be more appropriate when firms are expanding into Asia.

 Host Government views of FDI:

Each government must weigh the advantage and disadvantage of direct foreign investment in its country. It may provide incentives to encourage some forms of DFI, barriers to prevent other of DFI, and impose conditions on some other forms of DFI.

Barriers that protect local firms or consumers:

When MNCs consider engaging in DFI by acquiring a foreign company, they may face various barriers imposed by host government agencies. All countries have one or more government agencies that monitor mergers and acquisitions. The acquisitions activity in any given country is influenced by the regulations enforced by these agencies.

 Barriers that restrict ownership:

Some governments restrict foreign ownership of local firms. Such restrictions may limit or prevent international acquisitions.

“Red Tape” Barriers – An implicit barrier to DFI in some countries is the “Red Tape” involved, such as procedural and documentation requirements. A MNCs pursuing DFI is subject is subject to a different set of requirements in each country. Therefore it is difficult for MNCs to become proficient at the process it concentrates on DFI within a single foreign country. The current efforts to make regulations uniform across Europe have simplified the paperwork required to acquire European firms.

Impact of the FDI decision on an MNC value:

An MNC’s foreign direct investment decision affects its value. Decisions on which countries to target for expansion affect the revenue generated by the foreign subsidiaries and the operating expenses of the foreign subsidiaries. Thus the FDI decisions determine determine the expected foreign currency cash flows that will be earn by each foreign subsidiaries and therefore affect the expected dollar cash flows ultimate receive by the U.S. parent.

 Since the FDI decision by the U.S. parent determine the types of new operations and locations of foreign operations, they can affect the perceived risk of these operations that are supported by the parent’s FDI.Therefore FDI can affect the MNC’s cost of capital, which also affects the MNC’s value.


V= Value of the U.S.- based MNC

E(CFi,t)= Expected cash flows denominated in currency j to be received by the U.S. parent in period t.

E(ERi,t) = expected exchange rate at which currency j can be converted to dollars at the end of period t.

k = Weighted average cost of capital of the U.S. parent.

m = Number of currencies

n = Number of periods.

FDI: Bangladesh & World scenario Statement

Significance of foreign investment in Bangladesh:

Foreign investment carries enormous significance in a developing country like Bangladesh. Realizing the importance of foreign investment Bangladesh formulated its first industrial investment policy in 1973, revised it again in 1974, 1975, and in 1978. Foreign private investment (Promotion and protection) act, 1980 and the Bangladesh Export Processing zones authority act 1980 were enacted. To make the foreign investment more attractive new industrial policy was announced in 1982. However, the industrial policy 1999 is by far the most comprehensive document. Bangladesh has ever made for investment including foreign investment.

The major incentives for foreign direct investment in Bangladesh are:

Projection of Foreign investment from nationalization and expropriation

Abolition of ceiling on investment and equity share-holding by foreigners

Tax holiday between 5 – 10 years power generating companies

  Accelerated depreciation in lieu of tax holiday on certain simple conditions

Concessionary duty and VAT on capital machinery and spares

 Rationalization of import duties and taxes

  Six month multiple visa for prospective investors

 Citizenship by investing USD 500000 or transferring USD 1000000

Permanent relationship by investing USD 75000

   Tax exemption on capital gains under certain simple conditions

  Bonded warehouse and back to back L/C for exporting industries

  Avoidance of double taxation with certain countries

  Facilities for repatriation of capital, profit, royalty, technical fee etc.

  Tax exemption on royalty, technical know-how and expatriates’ salary

  Protection of intellectual property rights

   Taka convertibility in current account

   Treating reinvestment of repatriable dividend as new  investment

 FDI and Bangladesh:

Foreign Direct Investment (FDI) generates economic benefits to the recipient country through positive impacts on the real economy resulting from physical capital formation, transfer of technology and increased domestic completion. Bangladesh stands to gain from these inflows provided it is able to allocate and manage these resources efficiently keeping in view the concomitant liabilities of profit and income payments. in the Bangladesh context, the recent surge in FDI in energy and telecom sectors appear to have heavy import content with little impact on foreign exchange reserve  accumulation. The concern that logically emerges is whether the real economy would be able to generate sufficient foreign exchange to finance the remittance of profits and income originating from the foreign investment. Further more, the private sector has been incurring foreign debt obligation of short, medium, and long term maturity to the tune of USD 60-70 million a year. These give rise to interest and principal payments in foreign exchange over and above the official debt obligations to bilateral and multilateral agencies.

Sect oral Distribution of private capital inflows into Bangladesh

(Foreign Direct Investment in Bangladesh)

Profile of Capital inflows (5 years average)

Million USD

SectorsFY 1996-00FY 2001-05FY2006-10
















Other FDI




Total FDI inflow




Debt inflow




Total inflow: FDI+debt




Source: Portfolio: A Review of Capital market and national economy by Chittagong stock Exchange.

(Foreign Direct Investment in Bangladesh)

Profile of Capital Outflows (5 years average)

Million USD

SectorsFY 1996-00FY 2001-05FY 2006-10












Other FDI




Total profit & Income Remittance




Payment on Debt




Total profit &  & outflow FDI+ debt




Source: Portfolio: A Review of Capital market and national economy by Chittagong stock Exchange.

The main question is, can the economy sustain the foreign exchange payments that will be needed to cover the profit repatriation, interest payment sand amortization of private debt? Clearly, in the Bangladesh context, the nature of private capital inflows has implied little augmentation of foreign exchange reserves. Thus three critical issues emerge from the nature of these capital inflows:

■ First, the high import intensity of FDI inflow and subsequent profit repatriation and interest payments, implies a worsening current account deficit associated with FDI.

■ Second, there is no discernible accumulation of foreign exchange reserves and consequently, no upward pressure on exchange rates (essentially ruling out the prospects of” Dutch Disease”)

■ Third this FDI together with private sector borrowing in foreign currency, which has risen to an estimated USD 600 million a year between FY 01-FY 05, and over a billion USD a year for the next 5 years.

Bangladesh Status:

From the inception of the independence Bangladesh has been in the center of economic investment incentive for many countries and institutional bodies of the world. With the passage of time Bangladesh reform its regulatory structure in regard to the FDI to open up the new avenue and to dislodge the compliances related to the FDI. But the effort of this structural progress has back warded by sudden and unexpected political influence and changes. The situation becomes worse one in the September attack on US. During this period flow of FDI all over the world shrunken at a greater extend. Bangladesh had also severely affected by that unwanted changes in the world scenario. Before going for in depth analysis the status of Of Bangladesh from different aspects are discussed. Bangladesh could be an attractive place of FDI. It is located between the growing markets of south Asia.

  • Economic Status: The macroeconomic situation of the country is by large, stable, characterized by a manageable fiscal deficit and low current account deficit. In external trade, it has steady export growth. Foreign Exchange reserve is not bad.
  • Political Status: Bangladesh is a developing country having a republic type democratic government. It has British style parliamentary system. After liberation in 1971 the then government nationalized all the key industries. As a result, aid from wesrn world remains as the means of survival. But development of Bangladesh through aid seems to have failed. We see hat Bangladesh is still poverty-ridden. As the effectiveness of aid declined very much demand arose about market access to the developed countries of the product & services of developing countries. But the market access of developed countries is faced with several problems of which politics seems to be prominent. A free trade policy other wise called globalization is seen as a lively remedy to solve both the problems of developed and developing countries.
  • Investment Status: The present democratic government concentrates on more local & foreign investments in oil, gas, cement, infrastructure, textile sectors of Bangladesh to face the challenges of the twenty first century. Though prospects are there in Bangladesh, due to insufficiency of capital & technology greater investment is no taking place. However the recent trends o administrative, banking and infrastructure reform process, low rate of inflation compared to the neighboring countries( in Pakistan 11.2%, in India 8.5%, Srilanka 16.7 % and Bangladesh 5%) and separate export processing zones are some of the indicators of the countries development process. That may help in attracting local and foreign investors from developed countries.

Besides, the most important tasks is to revive the rural economy so that the migration of rural people will come down, because a country like Bangladesh has poor resources to meet the bargaining demand of the citizens already settled in the urban areas.

 Investment Registration Statistics in Bangladesh:

Before going for full-length analysis of the FDI flow in recent period I have a short look on the industrial investment status. The industrial investment mainly consists of private versus public, and local versus foreign investment. The analysis of industrial investment status will provide us good information as to how we are using the FDI. The economy of Bangladesh has been gradually drawing the attention of private sector investors since it’s opening up in early ’90s. Manufacturing is becoming increasingly vibrant claiming a significant share in the total investment.

Table: Distribution of Private Investment Projects (Local and Foreign) Registered with BOI from FY 1994-95 to FY 2006-2007.

(In million US$)

Fiscal year

Local investment

Foreign investment

Total investment






























– 20%










– 32%










– 22%





– 32%










Share (%)




Source: IIMC Board of Investment, June 2003

During 1994-95 to 2006-07, cumulative private investment registered with Board of Investment (BOI), the apex private investment promoting and facilitating body, totaled US$ 25,933 million. The registered investments consist of 47.65 percent as local and 52.35 percent as foreign (100 percent and Joint Venture). Table 8.3 presents the time-series data during FY 1994-95 to FY 2006-07. In FY 1994-95, total private investment registered amounted US$ 116 million, whereas in 2006-07, it reached US$ 2,395 million.

2004-05 experienced a 31 percent growth in the overall investment comprising of 32 percent growth in local and 22 percent in foreign investment. See table in above for more information.

Foreign Private Investment Projects Registrar with Bangladesh:

As per registration data, agro-based and chemical are the two most growing sectors in FY 2006-07. Manufacturing sector recorded 39 percent growth in FY 2006-07 compared to FY 2001-02.Simultaneously, total share of manufacturing grew from 55 percent to 62 percent in 2006-07..

Table: Sector-wise Distribution of Foreign Private Investment Projects register with BOI from FY 1999-00 to 2006-07.

(In million US$)









Share in 2006-07

Agro based
Food & allied48.89346.4719.972.410.624.3421.465.82%
Printing & packing9.002.000.18122.012.350.580.16%
Tannery & Rubber4.0521.098.620.631.780.48%
Glass & Ceramic99.3953.26142.1317.115.303.190.87%

Source: IIMC Board of Investment, June 2003

Table depicts the time-series data during FY 1999-00 to 2006-07. See table  in above for more information. Registration of local industries also grew substantially by 32 percent. Engineering, printing and packaging, agro-based and food and allied sectors have led the growth .The share of manufacturing in local investment registration is 95 percent of the total investment proposals in 2006-07 that grew by 37 percent over 2005-06.

The present investment trend indicates that the industrial growth would rise to 7 percent in the FY 2003-04. It may be noted here that the manufacturing sector maintained an average of 8.2 percent growth during 1999-00 to 2002-03, which however, sharply decelerated to 5.6 percent during 2003-04 to 2004-05. Because of market-oriented fiscal measures and restructuring of various facilitating agencies, the industrial growth in the FY 2006-07 has again increased to 6.62 percent.

Comparative statement of sector wise distribution

Table: Comparative Statement of Sector-wise Distribution of Local Private

Investment registered with the BOI from FY 2001-02 to 2002-03.

Sectoral Local Investment (In million Taka)


FY 2001 – 2002

FY 2002 – 2003


Agro based




Food and allied







– 15%

Printing and packaging




Tannery and rubber







– 48%

Glass and ceramic



– 79%








– 21%










From the above table we can see that engineering sector got the priority over other sectors. Agro based, and printing and packaging got the attention of the investors. The higher percentage investments in the engineering sector indicate that industrial sector got the priority over others.

Recent FDI flows over the world:

Asia, for some time now, has been a major influence in the global economy. South Asia, however, lags far behind in comparison despite its huge potential. Opportunities abound in terms of prospective investment in the South Asian countries since they offer different sorts of incentives. Many countries do not show any discriminating attitude towards foreign investors and they are allowed to take home their profits. In fact, over the last few years, countries in South Asia have come to adopt Foreign Direct Investment (FDI)-specific regulatory frameworks to support their investment-related objectives. These have been reflected in recent trends of the FDI inflows in South Asia, which increased by 32% as a whole and amounted US$ 4 billion in 2001 while global FDI inflows plunged by 51%. South Asian countries received US$ 3 billion as FDI in 2000. UNCTAD’s World Investment Report (WIR) 2002 revealed that global FDI inflows, after reaching US$1492 billion, record high in 2000, declined sharply to US$ 735 billion in 2001. Such a plunge, for the first time in a decade, was mainly the result of weakening of the global economy, notably in the world’s three largest economies, all of which went into recession. A consequent drop in the value of cross-border merger and acquisitions, US$ 594 billion, completed in 2001, was only half of that in 2000 happens to be another reason as well. As a result, the downturn in FDI in developed countries was 59% against a 14% drop in developing countries.

Ranking of FDI Recipient and Donors
FDI RecipientFDI Donors
DevelopdDeveloping1. USA

4.8     Flow of FDI in South Asia:

FDI Inflow by south Asian countries
CountryFDI Inflow
India$2300 million
Pakistan$308 million
Sri Lanka$217 million
Bangladesh$170 million
Nepal$13 million
Maldives$12 million
BhutanNot Recorded
Source: Internet

 FDI inflows into South Asia went up by 32% as a whole and amounted US$ 4 billion in 2001 while South Asian countries received US$ 3 billion as FDI in 2000. According to the WIR 2002, FDI inflows to India went up from US$ 2319 million in 2000 to US$ 3403 million in 2001, which is a 47% increase. Pakistan, too, experienced an increase in FDI inflow, where it reached US$ 385 million in 2001, a 26% increase over US$ 305 million in 2000.

In 2001, south Asian Countries received $3 billion in FDI, which is $100 million below that of the previous year.

 Administration of FDI in Bangladesh:

Since market economy concept is accepted in Bangladesh and foreign exchange controls are relaxed, the international community has taken a keen interest in this region. When somebody intends to initiate joined venture in Bangladesh, he should look for regulatory support. That is here the Board of Investment (BOI) come in, this is a government agency.

 Structure & Objectives:

Board of Investment (BOI) was established by the investment board Act 1989 to promote and facilitated investment in the private sectors both from domestic and overseas sources with a view to contribute to the social economic development of Bangladesh. It is headed by the Prime Minister and is a part of the Prime minister’s office. It’s membership included representatives (at the highest level) of the relevant ministries- industry finance, planning, textiles, foreign, commerce, telecommunications, energy power, science and information & communication technology As well as others, such as Governor of Bangladesh Bank, precedents of FBCCI and BCI.

Objective of BOI:

Broadly, the objective of BOI is to encourage and promote investment in the private sector both from domestic and overseas sources and to provide necessary facilities and assistance in the establishment of industrial sectors with a view to contribute to the socio-economic development of Bangladesh.

Functions & Facilities:

Broadly, BOI is responsible for facilitating private investment in the country. According to the BOI Act, its functions are:

  1. Providing all kinds of facilities in the matter of investment of local and foreign capital for the purpose of rapid industrialization in the private sector;
  2. Implementation of the government policy relating to the investment of capital in industries in the private sector;
  3. Preparation of investment schedule in relation to industries in private sector and its implementation;
  4. Preparation of area-schedule for establishment of industries in the private sector and determination of special facilities for such areas;
  5. Approval and registration of all industrial projects in the private sector involving local and foreign capital;
  6. Identification of investment sectors and facilities investment in industries in the private sector and giving wide publicity thereof abroad;
  1. Invention of specific devices for the purpose of promotion of investment in industries in the private sector and their implementation;
  1. Creation of infrastructural facilities for industries in the private sector;
  1. Determination of terms and conditions for employment of foreign officers and experts and others employees necessary for industries in the private sector in the private sector;
  1. Preparation of policies related to transfer of technology and phase-wise local production in the private sector and their implementation;
  1. Providing necessary assistance in the rehabilitation of sickly industries in the private sector;
  1. Financing and providing assistance in the financing of important new industries in the private sector;
  1. Adoption of necessary majors for creation of capital for investment in industries in the private sector;
  1. Collection, compilation, analysis and dissemination of all kinds of industrial data and establishment of  data-bank for that purpose; and
  1. Doing such other acts and things as may be necessary for the performance of the above functions.

In addition to the above, recently BOI has been entrusted to give approval of foreign offices i.e. brunch, liaison , representative and buying houses.

Facilities Available from BOI:

To summarize, facilities and services available to the investors from BOI could be described in three stages.

Stage 1: Pre-investment Information and Counseling

At this stage, BOI provides all sorts information required by an investor to undertake initial investment move. Professional investment and business counselors provide cordial assistance upon visit to the BOI office over phone, by email & fax and express mailing. It also assists in company formation.

Stage 2: Special Welcome Service to Foreign Investors

BOI has a welcome service desk Zia International Airport (ZIA) operating round- the-clock. It assists in obtaining necessary immigration and Visa on Arrival / Landing Permit, hotel accommodation and counseling arrangement.

Stage 3: Investment implementation and Commercial Operation

Once the investor decides to invest and forms a company, BOI provides following specific facilities and comprehensive services upon confirmation of the first one i.e. / registration of the company with BOI.

  1. Registration of the company
  2. Obtaining Industrial plot
  3. Obtaining Utility Connections
  4. Registration / Approval for foreign loan, Suppliers’ Credit, PAYE
  5. Scheme etc.
  6. Import of Machinery & Raw Materials
  7. Obtaining Work Permit
  8. Remittance of Royalty, Technical know-How and Technical

Assistance Fees.

Business set up at a Glance:

Implementing a 100% foreign-owned or joint venture industrial project in Bangladesh is a rather simplified process. The entire Process is divided into 5(five) major steps as presented the following diagram. BOI supports are available in step 1 through 4.

Major Steps to set up a Plant in

 Bangladesh & BOI Assistance:

Terms and Condition of BOI:

1)    Investors shall have to take necessary safety measures as Factory Act, 1965;

2)    Investors shall have to arrange sufficient fire fighting equipment as safety measures of the project;

3)    Investors shall have to import the machinery, spare parts and raw materials as per existing Import Policy Order of the Government;

4)    Investors shall have to obtain necessary clearance from the Deptt. Of Environment to ensure that the manufacturing process do not pollute the environment;

5)    Investors shall have to arrange preservation of rain water for using in the factory to reduce pressure on ground water;

6)    Investors shall have to should have to submit the quarterly report to BOI (IIMC) regarding progress of implementation of the project in every quarter till the unit goes into commercial production. After going into commercial production, half-yearly performance report regarding production and employment of the project shall have to be submitted ;

7)    Investors shall have to take prior permission from BOI in case of any amendment of this registration letter including ownership or location of the project;

8)    Any effluent of the industrial unit should not be discharged into the nearby river connecting lake or general water reservoir without proper treatment.

9)    Investors shall have to provide/ create the following facilities, if applicable;

(1)Day care center;

(2)Maternity leaves;

(3)Low cost and safe housing facilities for the low paid female workers, near & around the factory;

(4)Equal space and allowances for male & female workers in the organization;

(5)Low prices canteen;

(6)Enact effective rules of conduct to enable favorable working atmosphere among the male and female workers;

10)                       All other terms and conditions the registration letter No. IP/ P&P / 9(1639)/ 243 dated 02-02-1998 will remain unchanged..

The Board of Investment reserves the right to cancel the registration of an investment if any of the above conditions or any part of the condition is violated

Trends OF FDI  in Bangladesh

FDI Inflow survey in Bangladesh:

Foreign private capital flows into Bangladesh have taken three forms: FDI, portfolio investment, and foreign currency loans (supplier credit or commercial loan).  But liberalization of the investment regime, while making foreign investment procedures simpler, has also made it difficult for the central bank to mobilize information on capital flows. The Bangladesh Bank has been experiencing difficulty reporting FDI accurately as private capital flows emerge as a significant component in the balance of payments.

FDI Inflow Survey 2002 was successfully conducted by BOI, for the first time in Bangladesh in February 2003.It was the first-ever attempt to gather credible data on actual FDI inflow on the basis of definition given by UNCTAD. The World Investment Report 2003 (UNCTAD-2003) mentioned that ”FDI flows to Bangladesh and other countries in the sub region declined. However, in the case of Bangladesh, FDI flows in 2002 would have been higher if investment in kind were included.

The FDI census in Bangladesh:

The Bangladesh Board of Investment (BOI) conducted a census of foreign direct investors in February 2003 to gather comprehensive primary data and actual FDI inflows based on projects registered with BOI and the Bangladesh Export Processing Zones Authority.

Actual FDI Inflow in Bangladesh in 2002 and 2003



















3.Intra-Company Borrowing










Source:       1. Bangladesh Bank Enterprise Survey

2. Provisional of FDI inflow Survey by BOI and EPZA

•FDI inflows in 2002 were $328 million (compared with $ 58 million on a balance of payments basis reported by the Central Bank of Bangladesh). Half of it was financed by equity, 31% by reinvested earnings and 19% by intra-company loans. This is an example of how careful FDI statistics need to be interpreted, given the different ways in which they are compiled.

 Summary of FDI inflow by components:

According to the commitments made in the Mid-term Strategic Promotional Plan 2003-04 of BOI, the first half yearly FDI Inflow survey of 2003 was undertaken by BOI in cooperation with BEPZA. This Report, the second of its kind, presents the findings of the survey in detail.

Distribution of FDI inflow by Components:

  • Total FDI inflow during January-June 2003 is US$ 287.667 million.
  • Equity is the major portion of the inflow constituting 59%.
  • Reinvestment stands for about 34% of the total investment.
  • Intra-company borrowing comprises of 7% of the FDI.

Equity capital is the foreign direct investor’s purchase of shares of an enterprise in a country other than its own.

Reinvested earnings comprise the direct investor’s share (in proportion to direct equity participation) of earnings not distributed as dividends by affiliates, or earnings not remitted to the direct investor. Such retained profits by affiliates are reinvested.

Intra-company loans or intra-company debt transactions refer to short- or long-term borrowing and lending of funds between direct investors (parent enterprises) and affiliate enterprises.

Table: Summary of FDI inflow in Bangladesh during January – June 2003

FDI ComponentBOI RegisteredBEPZA RegisteredTotal
In million US $In million US $In million US $
1. Equity126.31642.339168.655
a. Capital machinery 52.21929.52881.747
b. Cash 74.09712.81186.908
2. Reinvestment72.83325.06097.893
3. Intra Company borrowing6.81914.30021.199
Total 205.96881.699287.667

Source: 1. Bangladesh Bank Enterprise Survey

2. Provisional of FDI inflow Survey by BOI and EPZA

  • FDI in the form of equity is significantly higher in BOI registered projects (61%) in comparison to BEPZA projects (51%).

In the above graph foreign Direct investment interns of component is higher increase of Equity is 59% and Re-investment is the 34% and third is enter company Borrowing 7% in year 2003.

Some more parts:

Report On Foreign Investment In Bangladesh(Part 1)

Report On Foreign Investment In Bangladesh(Part 2)

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