Investment — both domestic and foreign direct investment (FDI) — serves as the fuel that drives economic growth through job creation and the expansion of production and services. In addition to its direct contribution to capital accumulation and employment, FDI generates spillover effects by enhancing the productivity of domestic firms through knowledge and technology transfer.
Although the overall economy has shown signs of resilience, aided by prudent policy measures introduced by financial-sector specialists appointed after the regime change, Bangladesh is still struggling to attract the desired level of investment needed for sustained growth.
Private sector credit growth, an indicator of domestic investment, fell to a historic low of 6.4% in June 2025, reflecting the economic stress caused by continued deterioration in law and order alongside ongoing political uncertainty. On the foreign investment front, although net FDI inflows rebounded in the first quarter of 2025 to $864 million, they remain far below expectations — particularly given hopes that the regime change would remove long-standing investment-related barriers such as corruption, extortion and institutional weakness.
Bangladesh significantly trails behind Vietnam and India in attracting Foreign Direct Investment (FDI). In 2024, Bangladesh attracted $1.5 billion, representing 0.33% of its GDP, whereas Vietnam secured $20.2 billion (4.2% of GDP) and India received $27.6 billion (0.7% of GDP). Over 24 years, Bangladesh’s FDI increased 5.4-fold, a considerably slower pace compared to Vietnam’s 15.6-fold growth and India’s 7.7-fold expansion.
Since gaining independence, Bangladesh has accumulated a total of $34.18 billion in net FDI, with a peak of $2.83 billion recorded in 2015. In stark contrast, Vietnam garnered $38.67 billion within the last two years alone. This disparity underscores Bangladesh’s considerable underperformance in FDI attraction.
Despite advantages such as a strategic location, low-cost labour, a growing middle class and a favourable demographic dividend, Bangladesh has failed to fully capitalise on its potential to convert opportunities into tangible investment. Several performance indicators highlight the reasons for this underachievement.
According to the B-READY Index 2024 — a World Bank assessment of the business environment across the life cycle of a firm — Bangladesh ranks 29th among 50 countries, significantly behind Vietnam in areas such as public services and the regulatory framework. In the Ease of Doing Business Report 2020, regarded as the predecessor to the B-READY Index, Bangladesh ranked 168th out of 190 countries, reflecting an unfavourable business climate.
Sovereign credit ratings — issued by the world’s three most influential agencies, S&P, Moody’s and Fitch — are critical in shaping investor confidence. The latest available ratings place Bangladesh at B+ (S&P), B2 with a negative outlook (Moody’s), and B+ (Fitch). By comparison, competitors such as Vietnam and India enjoy stronger ratings. The negative outlook assigned by Moody’s is particularly concerning and should not be ignored by policymakers.
In the Economic Freedom Index 2025, published by the Heritage Foundation, Bangladesh ranks 122nd out of 184 countries, and 25th out of 39 in the Asia-Pacific region — placing it among “mostly unfree” economies. Weak rule of law drags down its scores in property rights, judicial effectiveness and government integrity. While Singapore tops the global ranking, Bangladesh performs well below Vietnam here as well.
Bangladesh’s Human Capital Index score of 0.46 places it 99th globally, compared with Vietnam’s 33rd position (0.69) and India’s 92nd (0.49). This score underlines Bangladesh’s limited capacity to mobilise human resources and realise the full economic potential of its citizens. The rising trend of unemployment, particularly among educated youth, further reflects the underutilisation of the country’s workforce.
Taken together, these indices suggest that Bangladesh’s business climate remains far less conducive and welcoming than that of peers such as Vietnam, India, Singapore and Malaysia. Vietnam offers particularly important lessons. Its Doi Moi reforms, launched in 1986, transformed it from a closed agrarian economy into an export-led, open economy that’s suitable for attracting FDI. Over time, it has moved up the value chain — from labour-intensive agriculture and textiles to electronics and machinery.
By integrating into the global trading system through free trade agreements (FTAs) with the EU, the UK, CPTPP, ASEAN and RCEP, Vietnam has secured access to major markets, boosting its appeal to investors. Political stability, stronger law and order, and consistency in investment policy have further reassured investors. More recently, Vietnam has capitalised on the “China+1” strategy — attracting global firms seeking to diversify supply chains — and has successfully courted major technology players such as Samsung, Intel and Nvidia.
Globally, developing countries captured $867 billion of the $1.5 trillion FDI market in 2024, showing that the market is vast and that Bangladesh has a significant chance to capture a greater share. With LDC graduation due in 2026, and with the looming risk of a middle-income trap amid questionable readiness, boosting FDI is more urgent than ever.
There is no single “magic mantra” for attracting FDI. The solution lies in systematically removing existing investment barriers, improving Bangladesh’s standing in international indices, and ensuring good governance. A time-bound reform agenda with clear targets, supported by consistent policies, is essential.
Immediate priorities include restoring law and order, reducing political uncertainty, making the one-stop service centre truly effective, incentivising promising sectors, and scaling up workforce readiness. In addition, Bangladesh should seriously consider entering FTAs with major trading blocs and large investor countries such as the USA, the UK, China, Singapore and South Korea.
Shifting global dynamics may also create openings. Reciprocal tariffs between the USA and other partners, evolving global priorities, and Washington’s “No China” strategy present opportunities for Bangladesh to attract both Chinese and non-Chinese investment. Promising sectors include IT and digital infrastructure, pharmaceuticals and healthcare, electronics and semiconductors, renewable energy, and climate finance.
Josef Ahmed is a corporate relationship manager at a leading private commercial bank.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.