Where is our foreign investment?

Illustration: TBS

Over the last few decades, Bangladesh has lagged behind its neighbours and other Asian economies in terms of attracting foreign investment, especially in the private sector, due to various reasons.  

It is clear that attracting more investment will require a dramatic rethinking of how this is approached, from reshaping the government strategy, to establishing more mature and liquid capital markets, to building a better educated and skilled workforce.  

Where in the past, different government agencies may have operated in silos and perhaps without much accountability, we now stand before a unique opportunity to right what is wrong.

When economies like China and Vietnam embarked on their spectacular growth paths, a lot of the growth was supercharged by foreign investment.  Foreign investment brings in foreign exchange, which can be deployed to purchase machinery and technology, as well as bring in the necessary expertise to develop high value industries.  

In the case of Bangladesh, this would allow the economy to diversify away from being a one trick pony that is overly reliant on the garments industry.  

According to Sturgeon Capital, which looks at foreign venture capital funding per capita across many markets, in the five years leading up to 2023, the numbers come in at $34 a head in Indonesia, $30 in India, $1.60 in Pakistan, but for Bangladesh, a paltry $1.00 or less.

Bangladesh has been so focused on beating its drum about its GDP growth story that statistics like this have kind of been brushed under the rug.  Notwithstanding the fact that some of the GDP numbers were perhaps doctored, focussing exclusively on the GDP numbers kind of misses the point.  

The entire government strategy of building brand Bangladesh and attracting foreign investors has been flawed.  If you put the wrong people in front of the wrong audience, you get the wrong results.  Fingers could be pointed at many different government agencies, but there was no coordinated strategy.  

Why, for example, was  the Bangladesh Securities and Exchange Commission (BSEC), which is a regulatory agency, doing a roadshow across the globe on investing in Bangladesh?  This is as absurd as the US Securities and Exchange Commission going on a road show to attract investment into the US.  

Ultimately, though, the buck has to stop at the Bangladesh Investment Development Authority (BIDA).  At the end of the day, BIDA's role is to bring in investment.  By any metric, they have failed.  BIDA should have acted as the single point of coordination across all the agencies and presented a coherent and effective strategy.

Given that a new government means starting with a clean slate, what then should the strategy be?   

To understand this, we have to look at what matters to foreign investors.  Foreign investors want simplicity of doing business, they want to be able to focus on the business rather than red tape.  They need a framework that allows them to invest their dollars and pursue it to an exit plan. 

The red tape in the government makes none of these stages easy.  In fact, a common complaint among foreign investors has been that it is very difficult to pull money out when they want to exit.  

Why would any foreign investor put money in if it will be exceedingly difficult for them to make a profit and pull it out?  This really should not be difficult.  Many of the other Asian markets have figured this out.  

Then, why has BIDA not studied each of these markets carefully, come up with a best-in-class plan for Bangladesh, coordinated across the various government agencies that need to be involved, and implemented what needs to be done?

Another common complaint among foreign investors is that there is no downstream liquidity.  What they mean is that there is not sufficient liquidity in the capital markets for them to be able to exit, whether through an IPO or otherwise.  

This is another area that requires collaboration across multiple government agencies and the private sector, once again something that ideally BIDA should have spearheaded.  The Dhaka Stock Exchange (DSE) has had various rules in place, such as the artificially imposed floor price on stocks that tend to erode liquidity.  
More importantly, they scare foreign investors away.  Once again, there should be a best-in-class study across different international markets to come up with a plan.  There is also a perception that there are many actors in the market who are actively manipulating prices through various schemes.  

In any other exchange on the planet, this is what the SEC would be monitoring and bringing the perpetrators to justice.  Rather than doing road shows, this is what the focus of BSEC should be by definition.  Eliminate the manipulation and confidence in the market grows, which should result in increased liquidity and increased investment.

The basic skill level of a workforce is a big factor in attracting foreign investment.  Historically, Bangladesh has struggled in that respect because the English proficiency level and the technical education level were low.  The proliferation of mobile phone technology has been an absolute game changer.  

Like various other economies, Bangladesh was able to leapfrog over some of the traditional time and capital-consuming development stages of a developed economy.  Instead of having to wait for the country to be wired in order to have a complete communications network, we have an instant, ready-to-use platform.  

Virtually every Bangladeshi has a mobile phone and access to the internet.  With the proliferation of almost infinite educational resources and the advent of generative AI, the very nature of how people become educated has changed.  

In order to most effectively leverage this, there has to be investment in educating the workforce on how to access these resources.  If this is done properly, the potential bang-for-the-buck is enormous.

The interim government has its work cut out.  The challenges are immense.  The banking sector liquidity alone is of utmost urgency.  It is understandable that the government is stretched very thin, especially in light of the fact that it has just been a month.  

In the rush to staff the various agencies, the emphasis has been on staffing quickly rather than on finding the best people for the best roles.  

Consequently, many of the key positions have been staffed based on personal connections rather than a solid, merit-based approach.  The Bangladesh diaspora around the world is immense, hugely talented, and in many cases impressively qualified.  

In many cases, they are also willing to help in this critical time for Bangladesh.  The interim government may be well advised to tap into this community and find the people who can tackle and deliver on many of the above, as well as the long list of difficult challenges that lie ahead.  

Otherwise, even with the best intentions, the net result may not be much improved on the story we have already seen several times.

Sketch: TBS

Dr Shakil Ahmed is a private investor and retired quant hedge fund manager. He had a long and distinguished 20-year Wall Street career, serving senior management roles at Citi and at Morgan Stanley. 
  

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.