Bangladesh's economy is at an inflection point, ready to move to a higher growth trajectory. But it is falling short of a critical ingredient -- foreign direct investment (FDI). FDI is recognized as a catalyst for economic progress of developing countries like Bangladesh. This is because FDI is a stable and lasting form of capital inflow, unlike portfolio investment (hot capital) that ebbs and flows in and out of our equity market. FDI enables a developing country to attain higher rates of economic growth by increasing its capacity to acquire more financial resources in the form of capital infusion, thus bridging its savings-investment gap. FDI also facilitates the transfer of modern management approaches, advanced technologies and production techniques from developed countries.
Most importantly for Bangladesh, FDI instills skill development of the labour force, and creates significant employment opportunities by linking domestic manufacturing with vast global markets, infusing knowledge and skills about product standards, patterns of consumer demand, and international rules of trade. If the quantum of FDI is significant, it can make a substantial contribution to the nation's output or its gross domestic product (GDP) through job creation, exports, and income generation. Since Bangladesh is aiming to reach the 8.0% GDP growth trajectory in the medium term, one of its main policy focuses should be to create a favourable investment climate that is conducive to attract and welcome the inflow of FDI within the country.