The other day, Prime Minister Tarique Rahman reaffirmed his government’s commitment to transforming Bangladesh into a $1 trillion economy by 2034. While the ambition is welcome, there is a policy puzzle that needs to be encountered: how will the economy double in size when domestic private investment has weakened, foreign direct investment remains modest, and many existing businesses are reluctant to expand? Private investment fell to 22.03 percent of GDP in FY2024-25, its lowest level in 11 years. Net FDI recovered to $1.77 billion in 2025, but this was less than 0.4 percent of an economy estimated at around $510 billion. Even the recovery deserves to be viewed with caution, since it was driven mainly by reinvested earnings and intra-company loans, while new equity investment increased only marginally.
The real concern is not a shortage of investment conferences, policy declarations, or promotional agencies and measures. Over the years, successive governments have announced economic zones, one-stop services, tax incentives, and sectoral priorities. The current government has also invited investors to become long-term partners, and promised stronger legal protection, simpler taxation, easier profit repatriation, better infrastructure, and a rules-based business environment. These are all positive commitments. But investors make decisions on the basis of what government agencies do, not what political speeches promise.
To deliver accordingly, domestic and foreign investment must be viewed as part of the same institutional problem. A country is unlikely to attract foreign investors if its own entrepreneurs lack the confidence to undertake long-term investments. Local firms, as we know, face high borrowing costs, weak demand, uncertain access to foreign exchange, unreliable energy, customs delays, and arbitrary regulatory interpretation. Many are maintaining existing capacity rather than investing in new factories or product lines. Foreign investors observe these signals, too. Both groups require predictable rules and confidence that the state will not change the terms after capital has been committed.
A recent assessment by the Foreign Investors’ Chamber of Commerce & Industry has, unsurprisingly, highlighted an interconnected set of familiar barriers: weak competitiveness, policy uncertainty, logistics bottlenecks, infrastructure deficits, financial fragility, institutional fragmentation, skills shortages, tax complexity, and reputational concerns. Some investors reportedly have to wait up to a year for basic approvals and must deal with 23 government agencies. Port waiting times also remain significantly longer than those of regional competitors. These are not minor inconveniences. They directly affect production schedules, financing costs, inventory management and, ultimately, Bangladesh’s credibility within global supply chains.
Energy insecurity has become particularly damaging. A factory cannot plan output, meet an export deadline, or calculate its unit cost when gas and electricity supply remain unreliable. The problem worsens when tariffs rise without a corresponding improvement in service quality. Bangladesh has often treated energy shortages as temporary and manageable. But they are now a structural investment constraint. To counter this, the government must develop a credible medium-term energy plan, disclose supply projections, improve fuel procurement and transmission, and create transparent rules for industrial connections. Realistically, investors can manage high costs better than they can deal with unpredictable costs.
The financial sector serves as a constraint as well. Years of politically influenced lending, weak supervision, and repeated concessions to defaulters have damaged the allocation of credit. Productive firms face high interest rates and limited access to long-term finance, even though influential borrowers have often received repeated rescheduling. This changes the structure of investment by favouring connections over productive capability. Banking sector reform must, therefore, be treated as an investment reform, too. Without credible asset-quality recognition, stronger governance, effective resolution of weak banks, and regular action against wilful defaulters, new refinancing schemes may provide liquidity but will fail to restore confidence.
Taxation and regulation require an equally fundamental change. Investors do not necessarily demand the lowest tax rate. Rather, they want certainty in terms of what they owe, how rules will be interpreted, how disputes will be settled, and how long the process will take. Bangladesh’s system too often combines a narrow tax base with high effective burdens on compliant firms. Repeated audits, discretionary assessments, delayed refunds, and prolonged disputes create incentives for negotiation instead of compliance. Therefore, effective reform should reduce discretion, publish binding interpretations, introduce time limits for audits and appeals, and ensure that major policy changes are preceded by consultation and reasonable transition periods.
The recent creation of a single investment promotion agency—the Invest Bangladesh Authority—through the merging of Bangladesh Investment Development Authority (Bida), Bangladesh Economic Zones Authority (Beza), Bangladesh Hi-Tech Park Authority (BHTPA), and Public-Private Partnership Authority (PPPA) could improve the institutional entry point for investors. An integrated platform, statutory approval deadlines, and a genuine single window has the potential to reduce duplication. But a merger will not solve the problem unless the new authority can compel action from the NBR, customs, environmental regulators, land offices, and utility agencies. Invest Bangladesh, therefore, needs appropriate legal authority, publicly reported service standards, and an escalation mechanism for unresolved cases.
The reform agenda should begin with a limited number of measurable commitments. Approvals should be clearly listed, digitised, and time-bound. Silence or absence of a response after a statutory deadline has passed should, where legally possible, amount to deemed approval. Tax and customs disputes should be resolved through specialised, independent mechanisms. Industrial land records must be digitised. Utility agencies should publish connection timelines and service reliability indicators. Commercial courts and arbitration need faster enforcement. The government should establish an investor aftercare system, because retaining and expanding existing investors usually lends more credibility than announcing large pipelines of prospective investment.
Bangladesh also needs to be more selective about the investment it seeks. FDI should support technology transfer, export diversification, productivity, and job creation, rather than merely serving a protected domestic market. Having priority sectors such as pharmaceuticals, electronics, agro-processing, advanced textiles, renewable energy, logistics, and digital services makes sense, but incentives should be conditional on performance. Domestic firms must also be linked to foreign investors through supplier development, skills programmes, and technology partnerships. Otherwise, foreign investment may remain an enclave with limited spillovers.
The question now is not only whether Bangladesh can attract more investment, but also whether the government can create a predictable environment in which productive firms, local or foreign, are willing to remain, expand, and take risks. A trillion-dollar ambition may inspire confidence. But sustained confidence will depend on whether we can turn administrative promises into enforceable rules, institutional coordination, and reliable public services.
Dr Selim Raihan is professor in the Department of Economics at the University of Dhaka, and executive director at South Asian Network on Economic Modeling (Sanem). He can be reached at [email protected].
Views expressed in this article are the author's own.
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