As a developing nation, Bangladesh has yet to achieve the desired level of foreign direct investment (FDI). Despite its strategic geographical location, abundant raw materials, accessible labour force, and large consumer market, foreign investors remain hesitant. This reluctance stems from factors such as domestic governance, political instability, judicial inefficiencies, and overarching economic challenges, all contributing to the deterrence of foreign investment.

FDI refers to an economic activity where a country allocates its financial resources to invest in another nation. Through such investments, companies or individuals aim to establish or expand their businesses in foreign markets to enhance income.

FDI plays a pivotal role in Bangladesh's economic progress. It aids in physical capital formation, job creation, technology transfer, and integrating the economy with global markets. FDI is particularly effective in addressing capital shortages and enhancing labour skills within the country.

In Bangladesh, foreign investment is predominantly concentrated in the garment industry, with significant investments also in banking, energy, and food production sectors. However, there is a notable over-reliance on the garment sector for foreign investment.

Several factors contribute to the reduction in foreign investment in Bangladesh, including foreign exchange reserve deficits, weaknesses in the banking sector, high interest rates, instability, limited export product diversification, and risks associated with political and natural disasters. These challenges hinder the attraction of foreign investment and adversely affect the country's overall economic growth.

Following independence, Bangladesh began attracting foreign investment, with gradual increases over time. However, fluctuations have been observed due to various reasons, notably during the post-COVID-19 period and the 2022-2023 fiscal year, where a significant decline was evident.

It is estimated that foreign investment decreased by approximately 16% during the 2022-2023 fiscal year, with elections being a primary factor. International investors typically suspend investments before and after elections due to potential unrest. In 2022-2023, an investment reduction of about 480 million USD was primarily attributed to election-related uncertainties.

Dr. Ahsan H. Mansur, Executive Director of the Policy Research Institute of Bangladesh, notes that the current economic environment is unfavourable. Pressure on exchange rates, reserve deficits, and inflation concerns are diminishing foreign investment inflows. He also highlights that during election periods, foreign investment tends to decline. Additionally, global trends indicate a reduction in FDI flows to developing countries, impacting Bangladesh. Post-COVID-19, increased interest rates in Western nations, particularly the United States, have redirected substantial investments away from countries like Bangladesh.

Reserve deficits, lack of transparency, and corruption in the banking sector are deterring foreign investment. Recent banking sector turmoil, highlighted in international media, has eroded investor confidence. Political instability poses risks to export sectors, further hindering foreign investment. Despite geographical advantages, weak economic infrastructure and natural disaster risks discourage investors. The export industry's dependence on a limited range of products underscores the need for diversification and comprehensive economic and infrastructural development.

The primary reasons for declining foreign investment include reserve deficits, lack of transparency in the banking sector, political instability, weak infrastructure, and natural disaster risks. Changes in global interest rates and limited export diversification also contribute to reduced investment.

Addressing existing challenges can rekindle foreign investors' interest in Bangladesh. By tackling these issues, implementing appropriate policies and strategies to ensure political stability, transparent economic systems, and infrastructural development, Bangladesh can create a conducive environment for foreign direct investment.

The article was published on the occasion of the 15th founding anniversary of the popular Bengali daily Kaler Kantho. The writer is a Student, Economics Discipline, Khulna University.