Investment in Bangladesh-both domestic and foreign-has plunged to its lowest point in over a decade, as ongoing political instability, widespread uncertainty, and a deteriorating law and order situation continue to cast a long shadow over the economy.
In the aftermath of the mass uprising in July 2024, Bangladesh has been undergoing an extended period of unrest, marked by political transformation, public protests, and mob violence. This has had a profound impact on investor sentiment, resulting in a dramatic decline in both foreign direct investment (FDI) and domestic capital deployment.
Unrest, Mob Violence and Eroding Confidence: At the root of the investment crisis is the political upheaval that began with the fall of the Awami League government in August 2024. Since then, widespread public protests, grassroots movements from various classes and professions, and dissatisfaction among workers in factories and industries have contributed to an environment of instability.
The law and order situation remains fragile, with authorities struggling to contain violence and unrest. The police force's morale is low, and mob violence has not been fully brought under control. This continuing unrest has left the business community jittery and foreign investors increasingly cautious.
FDI Falls to Lowest Level in 14 Years: According to recent data from Bangladesh Bank, foreign direct investment dropped to $910 million in the first 10 months (July-April) of FY2024-25, compared to $1.27 billion in the same period the year before. For the entire FY2023-24, FDI had totaled $1.415 billion-already a decline from $1.605 billion in FY2022-23.
The current year's figures represent the lowest level of foreign investment in Bangladesh since FY2011-12, when FDI had also fallen to around $1.2 billion. The situation is even more dire when compared to pre-pandemic levels, such as FY2018-19, when Bangladesh attracted $3.48 billion in FDI.The downward trend is also reflected in foreign reinvestment, which has been higher than new direct investments. In the first six months of FY2024-25, reinvestment stood at approximately $400 million, while direct investment was a meager $210 million-a 37% drop from the same period last year.According to economists, this signals that even existing foreign investors are hesitant to expand operations, choosing instead to maintain the status quo until the situation stabilizes. Domestic Investment Falters Too: The bleak investment scenario isn't limited to foreign sources. Domestic investors have also become increasingly reluctant to pour capital into new ventures. Business confidence has been shaken by high inflation, a dollar shortage, import restrictions, and high interest rates.As industrial production slows, businesses are laying off workers instead of hiring, exacerbating unemployment in a country already grappling with economic recovery post-COVID-19.The private sector credit growth from July to May in FY2024-25 was only 6.95%, significantly lower than the typical rate of over 10%-indicating businesses are not borrowing for expansion or new investments.
Furthermore, letters of credit (LCs) for importing capital machinery and equipment-a key indicator of future investment-have plummeted. From July to April of the last fiscal year, the opening of LCs for capital machinery dropped by 27%, and the settlement of LCs fell by 22% compared to the same period the previous year.
Investment as Share of GDP Falls: In macroeconomic terms, investment is often evaluated as a proportion of gross domestic product (GDP). According to the latest available data, private investment as a share of GDP fell to 23.51% in FY2023-24, down from 24.18% in the previous year. The figures for FY2024-25 are yet to be finalized, but early indicators suggest a further decline.
This fall in the investment-to-GDP ratio indicates a shrinking role of private enterprise in driving economic growth-a trend that economists find concerning, especially given the high demand for employment in a young, rapidly urbanizing population.
Job Creation Slows, Unemployment Rises: One of the most direct consequences of declining investment is unemployment. Historically, investment has been the main engine of job creation in Bangladesh. When investments rise, so do production and employment opportunities.
According to data from the Bangladesh Investment Development Authority (BIDA), $7.99 billion in investment in FY2020-21 created employment for 180,786 people. However, despite large-scale expectations following the mass movement in July 2024, job creation has slowed down as new investments have failed to materialize.Business leaders now warn that widening unemployment could further destabilize the economy and increase social tensions.
Root Causes: Inflation, Instability, and Poor Governance: The sharp downturn in both domestic and foreign investment is the result of multiple structural and situational issues:High interest rates (currently around 16%) make borrowing expensive and discourage business expansion.Currency volatility and a shortage of US dollars have hampered trade and import-based manufacturing.Frequent policy changes and regulatory uncertainty deter long-term planning.Corruption and red tape remain significant barriers, as highlighted in a recent International Finance Corporation (IFC) report.Electricity and energy shortages, especially in industrial zones, create disruptions and raise costs.The IFC also notes that a large informal sector, along with inconsistent enforcement of tax laws, continues to hinder transparent business operations.
Investor Sentiment: Wait-and-See Mode: Leading figures in the investment community stress that the crisis of confidence must be addressed urgently.Rupali Chowdhury, former president of the Foreign Investors Chamber of Commerce and Industry (FICCI), said:"Not only foreign but also domestic investors are reluctant to commit. There is a policy vacuum and a lack of political clarity. As long as this continues, investors will follow a wait-and-see approach."
She also noted that despite high hopes following the April 2025 Investment Conference, actual investments are yet to be realized. "Everyone is watching the situation. They are not prepared to take risks in such an uncertain environment," she added.
M Masrur Riaz, Chairman and CEO of Policy Exchange Bangladesh, echoed these concerns:"The macroeconomic crisis, inflation, and lack of political resolution have severely impacted investor sentiment. With political uncertainty dragging on, investor confidence-both domestic and foreign-has eroded."
Hope for the Future: Political Resolution and Reforms: Economists and policy experts agree that a credible and stable political transition is key to reversing the investment downturn. If an elected government is installed and long-term policies are introduced, they believe investor sentiment can be restored.
M Masrur Riaz, said:"Investment will pick up once political stability returns. If foreign companies regain confidence, key infrastructure sectors such as ports and energy could also attract significant capital inflows."However, experts caution that quick fixes will not be enough. Structural reforms, including digital governance, better contract enforcement, efficient tax collection, and corruption control, are required to improve the overall business climate.
At a Crossroads: Bangladesh's investment landscape is currently at a critical juncture. While the nation has a track record of rapid growth and industrialization, the current political and economic turbulence threatens to undo years of progress.With FDI at a 14-year low, domestic investment paralyzed, and job creation stalling, the government faces an urgent challenge: restore investor confidence or risk prolonged economic stagnation.Unless stability is restored-both politically and economically-experts warn that the investment drought could continue, further damaging the country's development prospects.
