Bangladeshi firms' investments abroad rise 19% in FY22
Outward foreign direct investment by Bangladeshi firms through legal channels increased by 19% in the fiscal 2021-22 compared to the same period in the last fiscal year owing to the liberalisation of outbound investment policy by the Bangladesh Bank.
Local firms invested a total of $70.71 million, equivalent to Tk700 crore, in FY22 – up from $59.34 million, or nearly Tk600 crore, in FY21, according to the Foreign Direct Investment and External Debt report published by the central bank.
Outbound investment increased significantly in the last six years after the government amended the Foreign Exchange Regulation Act in 2015 by adding a conditional provision which permitted such investments for export-related enterprises.
With this amendment, Bangladeshi firms have extended their business to more than 20 host countries, according to Bangladesh Bank data.
From FY17 to FY22, total investment abroad stood at $358 million – equivalent to Tk3,600 crore, according to the Bangladesh Bank.
Speaking to The Business Standard, Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said, "There is no opportunity to block investments abroad by individuals and institutions…As a result [of these investments], domestic institutions will be recognised in foreign countries. In addition, the amount of investment by foreign institutions will also increase."
Recently, a company invested Tk3,000 crore in a hotel property abroad but did not take permission from the central bank, the TBS found.
Ahsan H Mansur also said several foreign reports provide information on foreign investment of domestic companies. For this the central bank and the government should see how they are taking them and find out the real reason and take appropriate action.
The government for the first time opened outbound investment opportunities for local companies as the country's foreign exchange reserves crossed $30 billion in 2015.
The high reserves also prompted the Bangladesh Bank to liberalise its policy during 2020, allowing foreign companies to outflow remittance to their home countries without prior approval from the central bank.
The objective of the lax monitoring on outward remittance was to attract more foreign investment. However, the liberalisation stance seemed to work little as the FDI growth has not been impressive in the last two fiscal years.
Rather, foreign exchange reserves have fallen amid the huge outflow.
The foreign exchange reserve grew to $48 billion in August last year, falling below $34 billion in December amid a severe dollar crisis in the market.
The FDI inflow, which registered 50% growth in FY19, dipped to negative 39% in the FY20 during the time of the pandemic.
The FDI inflow grew slightly by 5.7% in FY21 and 37% in the last fiscal year, according to Bangladesh Bank data.
The reserves, meanwhile, stood at $35 billion in October.
Though the FDI inflow grew in the last two fiscal years, the contribution to the gross domestic product (GDP) remained unchanged.
The net FDI inflow of GDP was less than 1% in the last three years, central bank data shows.
When the forex market was under severe pressure amid faster depletion of the foreign exchange reserve, the Bangladesh Bank formed a committee to revaluate the impact of relaxed policy in FDI inflow.
The Bangladesh Bank loosened monitoring on eight types of outward remittance by foreign companies during the pandemic year aiming to attract more FDI.
The central bank waved post facto checking of remittance of dividends to non-residents shareholders, repatriation of sales proceeds of public and private limited companies, agency commission, fees and borrowing working capital loan by foreign companies.
The central bank also allowed foreign investment in alternative investment funds and open-end mutual funds.
Recently, the central bank also formed a committee consisting of nine members to review the result of such policy relaxation, according to sources in the Bangladesh Bank.
Countries Bangladeshi firms invested in
Of the net outward FDI, the highest investment by the Bangladesh firms went to the UK, amounting to $32.62 million in the last fiscal year, 46.1% higher from the previous year. Investment to Hong Kong was the second highest with $15.50 million followed by Nepal ($6.80 million), India ($5.23 million) and the United Arab Emirates ($3.26 million), according to Bangladesh Bank data.
The major sectors where these investments went were financial intermediaries ($66.09 million), mining and quarrying ($3.14 million), metal and machinery products ($1.04 million), other manufacturing ($0.33 million), chemicals and pharmaceuticals ($0.09 million) and trading ($0.02 million).