A. Context: Critical Investment Need, Harsh COVID-19 Realities, Bright Opportunities in the Horizon, Need for Targeted efforts.
The economic fallout from COVID-19 poses multidimensional challenges for Bangladesh, spanning over the medium and long term time horizon. The world, as well as Bangladesh’s major export markets, the US and the eurozone, are all expected to have economic contraction in the coming year while Bangladesh’s own growth is poised to fall to a much lower than anticipated rate. Major growth drivers such as employment, exports, and remittances will all take a downward turn, at least over the short term. However, it seems a major casualty of the fallout will likely be private investment, particularly Foreign Direct Investment (FDI). An UNCTAD assessment suggests that the global FDI will contract by a large margin of 30 to 40 percent, the magnitude of the reduction being one of the largest in many decades.
Such grim forecasts come at a time when Bangladesh needs to enhance FDI more than ever before. There are a host of compelling reasons – to step up the pace of growth to 8% plus, moving towards upper-middle income/developing country status, attaining much needed technology for economic diversification and market access, and, most importantly, to create better employment opportunities for about 2 million youths who enter the labor market every year.
This unforeseen situation also comes at a time when there was consensus among government and private sector that private investment growth has been sluggish, and that there exists significant room to enhance flow of FDI into Bangladesh. Private investment to GDP ratio continues to remain stagnant at around 23% while FDI remains at little over 1.1%, faring much lower than FDI into comparator countries such Vietnam and India.
Notwithstanding the bleak outlook, there seems to exist a strong silver liningwhich could not only help Bangladesh neutralize the detrimental economic effects of COVID-19, but canactually help to secure significant and sustained flows of high quality FDI into Bangladesh over the long term. Rising tensions in an already strained US-China relationship and massive disruptions in the global supply chain have created prospects of shifts whereby investors who have large manufacturing investments in China are likely to shift at least some, if not the whole, portion of their manufacturing operations out of China and in to countries in South-east and South Asia. These investors, primarily from Japan, Singapore, South Korea, European Union and USA, are already studying potential options for relocation, and some have announced incentives for relocation.
Bangladeshmust capitalize on this emerging advantage but will require to put in place a targeted investment promotion strategy and ensure its operationalization at the soonest. We will not be the only country that will be competing to lurethe investors contemplating relocation from China. Countries such as Vietnam, Indonesia, India, and Philippines are all expected to put in a strong effort. This makes it imperative for the Government of Bangladesh (GOB), particularly the nodal investment agency Bangladesh InvestmentDevelopmentAuthority (BIDA), to prepare and positionBangladesh as a strong candidate for hosting at least some of the investors. This calls for preparing and implementing a targeted, time-bound, and focused investment promotion plan that will help identification and targeting of the investor group, reaching out with Bangladesh’s value proposition, and putting in place an effective investor facilitation and aftercare process.
B. Indicative Roadmap for Preparation of a China+1 Investment Promotion Strategy (CIPS)
- Brainstorming with the authors of this note on the emerging opportunity and the way forward (May 12, 2020)
- Form a small core group of experts who advise BIDA leadership on strategic and tactical aspects for preparation of the CIPS. Resurgent Bangladesh, a private sector recovery initiative by a core group of private sector leaders and economists, stand ready to provide this support to BIDA (May 19, 2020)
- Form a high-powered task team at BIDA entrusted with the responsibility to prepare, coordinate, and execute the development of the CIPS. Provide clear workplan, timeline, and success matrix for this team (May 19, 2020)
- Two meetings with the core group+ BIDA Task Team to fully discuss the context, opportunities, and finalize the roadmap to CIPS development. During these meetings, broad plan of actions and timelines, as well as budgets of various activities towards preparation of CIPS can be worked out (June 1, 2020)
- Convene meeting(s) with select investors representing potential countries who seek to diversify their manufacturing base beyond China e.g. Japan, South Korea, Singapore, EU, USA. This meeting should also include investors/stakeholders who possess an intimate understanding of the sentiments of the targeted investor groups. This could involve local and foreign investors who have network operations in East Asia, professional service groups such as big-four companies (e.g. Deloitte, PWC, KPMG), and selected economicpolicy experts who study global supply chain developments (June 10, 2020)
- Meet with the local embassies/missions of the countries who expect a shift of their investors out of China. This will help put the message in the radar that Bangladesh is positioning itself as a viable destination to welcome the investments moving out of China (June 10, 2020 and continuing)
- Convene meeting(s) with local investors who have trade and investment (e.g. joint venture) relationships with countries in East Asia including China, and with target countries planning to move beyond China (June 15, 2020)
- Convene meeting(s) with relevant government agencies (e.g. Ministry of Foreign Affairs, Bangladesh Missions, Ministry of Commerce, PMO, BEZA, Hi-tech Authority, ICT Divisions etc.) to tap into their understanding of the evolving scenario and to give a sense of how they can help in mobilizing market intelligence and outreach to the relevant foreign governments (June 15, 2020)
- Core Group+BIDA task team finalizes objectives, contours, timelines, and key focus areas of the CIPS (June 20, 2020)
- BIDA appoints one or more professional agency(ies) (e.g. big four firms) with global investment promotion advisory experience and global network to assess developments on the ground in China and the target investor countries, mobilize data, reach out to potential investors, provide comprehensive recommendations, and thereby prepare a comprehensive investment promotion strategy , and implementation plan for a period of two years. BIDA will also need to ensure that local experts are deployed to help the global agency contextualize the findings, recommendations, and design of the plan (Appointment by July 5, 2020, and draft submission by August 31, 2020)
- Consultation with private sector and government stakeholders in Bangladesh and abroad, and finalization of the CIPS (September 15, 2020)
- Cross country comparison/analysis. Thisshould be a continuous process of information gathering and analysis as to what sector specific policy support is given by all other countries in this competition to attract FDI. A country benchmarking framework will be developed and kept updated periodically on an ongoing basis. (September 15, 2020)
C. Indicative Coverage of Investment Promotion Strategy
- Vision, Objectives and Goals for investment targeting. This will set the context for all activities to be undertaken as part of investment promotion initiative.
- Benchmarking of sectors to identify focus sectors for attracting FDI including new sectors which have potential for growth in the context of COVID-19 disruption.
- Profiling industrial infrastructure in the focus sectors as potential locations for new investment.
- Identification of target countries based on focus sectors, FDI trends, relocation from China and past engagements with Bangladesh.
- Benchmarking of competing countries based on information gathering and analysis as to what sector specific policy support is being given by all other countries in this competition to attract FDI.
- Promulgation of targeted policies/initiatives towards improving investment climate in the country.
- Launch of special package incentive scheme for select few sectorswith relatively larger potential for investments.
- Institutionalization of dedicated Investment Promotion teams to carry out the initiatives towards outreach, facilitation and aftercare country-wise and/or sector-wise.
- Development of mass outreach plan through use of technology, social media campaigns, conferences, roadshows and business conclaves.
- Leveraging network of country’s international missions to reach out to potential industries in identified countries with sector-specific value-propositions.
- One-on-one engagements with interested industries followed by handholding leading to n-ground implementation of projects.
Prepared by: Nihad Kabir,Barrister
Dr. M Masrur Reaz,
Abul Kasem Khan,
Syed Nasim Manzur, and