Foreign investment on the rise, but is confidence back?

In 2025, foreign direct investment in Bangladesh increased. But it's still to early to say that good statistics for one year means that investor confidence has fully returned. Sustainable investment requires strong institutions, a stable financial sector, and consistent reforms.

On 7 July, the United Nations Conference on Trade and Development (UNCTAD) published the World Investment Report 2026. There was good news for Bangladesh.

In 2025, foreign direct investment (FDI) in the country increased by 45 per cent. After two consecutive years of decline, this was a significant turnaround. The growth rate was also the highest among South Asian countries.

But do these statistics really convey a sense of relief? Or is there a larger reality hidden behind the numbers?

Foreign investors don’t make decisions based on the growth of just one year. They assess how secure it is to conduct business in a country over the next five or ten years and how reliable the investment environment is.

Recent statistics convey two messages. Existing investors haven’t lost confidence yet. However, a large portion of new investors are still waiting.

The size of Bangladesh’s economy is now over half a trillion dollars, with a population exceeding 170 million. In comparison, foreign investment in 2025 is only 1. 78 billion dollars. At the same time, relatively smaller economies like Uganda, Ghana, and Congo received similar or even more foreign investment. Even Pakistan slightly surpassed Bangladesh amid the recent economic crisis.

Of course, there are limitations when directly comparing these countries with Bangladesh. The economic structures and types of investments in Bangladesh differ. Yet, it is clear that although Bangladesh holds potential for global investors, it has not yet become the most attractive destination.
Therefore, the real question is not why foreign investment has increased. Rather, it is why investment is still so low compared to the country’s economic potential.

Foreign investors do not make decisions based solely on the growth of one year. They look ahead to evaluate how secure it will be to conduct business in a country over five or ten years, how stable the policies are, and how reliable the investment environment is. In other words, trust in the future is more important to them than mere statistics.

Analysing the specifics of foreign investment in 2025 reveals an important point. A significant portion of the growth didn’t come because new foreign companies entered Bangladesh; rather, existing investors reinvested a portion of their profits back into Bangladesh.

This is positive because it indicates that existing investors still see potential in Bangladesh. However, it cannot be considered a reflection of new investors' confidence. There is no evidence from these statistics that those who have not yet come to Bangladesh have changed their decisions.

Moreover, ''greenfield'' investment plays the most significant role in setting up new factories, increasing production, bringing in technology, and creating employment. ''Greenfield'' investment is a type of foreign direct investment (FDI) where a company builds entirely new branches, factories, offices, or facilities from zero in another country or region without acquiring any pre-existing infrastructure.

However, this type of investment has not yet increased to the expected level. Foreign investment is still below 0. 4 per cent of GDP, which is very low for a developing economy like Bangladesh.

In other words, recent statistics convey two messages. Existing investors haven’t lost confidence yet. However, a large portion of new investors are still waiting. Finding out the reason for this wait is now the most urgent task.

Foreign investors consider both potential profits and risks. Their decisions are formed by policy continuity, financial sector stability, infrastructure, and the business environment of a country.

In Bangladesh, the issue is not of any single weakness; rather, it is the combined effect of several limitations.

Firstly, policy consistency and institutional effectiveness. Investors place more importance on stable regulations than additional benefits.

Uncertainty has somewhat decreased with the recent elected government coming to power. However, they want to see if policy continuity remains steadfast and contracts are honoured even if the government changes.

Secondly, the banking sector. Non-performing loans, poor governance, and financial uncertainty not only impede loan flows but also affect the entire investment environment. A robust banking system encourages investment by domestic entrepreneurs and sends a positive message to foreign investors as well.

Thirdly, the business environment. Now, only cheap labour is not enough; uninterrupted energy, efficient ports, enhanced transportation, swift administrative services, and reliable infrastructure are now the main requirements for attracting investment. Recent instability around the Strait of Hormuz has again shown how risky excessive reliance on imported energy can be.

Another important aspect is that over the last five years, foreign loans have increased much faster than foreign investment. Loans have to be repaid, but foreign investment shares the risks. It brings with it new technology, competent management, and opportunities to enter international markets. Therefore, in the long term, investment strengthens the economy more than loans.

For these reasons, many investors still consider Bangladesh a promising but somewhat risky destination. Thus, foreign investment does not face a single major hurdle; rather, it is the collective impact of multiple issues.

When discussing foreign investment, our focus often shifts to multinational companies. Yet in Bangladesh's economy, the largest investors are not foreigners but local entrepreneurs.

About a quarter of GDP comes from private domestic investment. On the other hand, foreign investment is less than 0. 4 per cent of GDP. Therefore, the main driving force of the economy is still domestic investment.

Local entrepreneurs know the nation's reality best. Their experience regarding policy changes, bank loans, energy, administrative complexities, or market potential is much greater than that of foreign investors. So when they are cautious about new investments, foreign investors also wait.

Recent years' trends also convey the same message. The rate of private investment has remained relatively steady. The growth of loans to the private sector has significantly slowed down. This doesn't just mean a slight slowdown in the economic pace; rather, many entrepreneurs are not as confident as before to make long-term investment decisions.

The most significant impact is on employment. The overall unemployment rate is rising, particularly the unemployment rate among educated youth is alarming. Every year, a large number of students graduate from universities, but new jobs suitable for them are not being created at that rate.

Therefore, it is not enough to only talk about increasing foreign investment. It is necessary first to restore the confidence of domestic entrepreneurs. Because when domestic entrepreneurs step forward with new investments, it sends the strongest positive message to foreign investors.

If Bangladesh’s investment crisis is primarily a crisis of confidence, then the solution is not just to announce new incentives or organise investment summits abroad. Investors place more value on real changes than promises. Therefore, focusing on three key areas is now imperative.

Firstly, institutions related to investment need to become more efficient and reliable. In recent years, the Bangladesh Investment Development Authority (BIDA) has taken several initiatives to facilitate investment. But in reality, many entrepreneurs still have to visit multiple offices and wait a long time to get approvals. More urgent than announcing new policies is ensuring that existing regulations are implemented quickly, transparently, and equitably for everyone.

Secondly, the financial sector must be strengthened. Reducing non-performing loans, ensuring governance in banks, enhancing the capacity of regulatory agencies, and restoring stability in the foreign exchange market are now essential. A strong financial system encourages domestic entrepreneurs to invest, reaching a positive message to foreign investors.

Thirdly, the competitiveness of the economy must be enhanced. It is no longer possible to attract investment merely through low labour costs.

Uninterrupted energy, efficient ports, improved transportation, digital government services, and a business-friendly regulatory environment are now equally important. At the same time, diversifying energy sources and increasing investment in renewable energy is the demand of time.

Confidence doesn’t return overnight. An investor’s long-term decisions cannot be changed by a single favourable economic indicator or new announcement. They look at how consistent the reforms are, how impartial the application of policies is, and how effectively institutions operate in reality.

Bangladesh was supposed to graduate from the LDC category by November 2026. The government has sought an additional three years. This extra time is an opportunity for the country—but it will only be meaningful if it is utilised to reform the banking sector, develop the investment environment, strengthen energy security, and enhance the capabilities of government institutions. Simply extending the time will not increase investment.

There is still no doubt about Bangladesh's potential. A large domestic market, a young population, a strong export sector, and a favourable geographical location—all combine to make the country's foundation robust. However, investment doesn’t come on potential alone. It comes when investors believe that policy continuity will remain, institutions will be effective, and the business environment will be stable.

Therefore, the real challenge for Bangladesh is not just to attract more foreign investment but to restore confidence among both domestic and foreign investors. Because if confidence returns, investment will increase, new jobs will be created, productivity will rise, and the structural transformation of the economy will accelerate.

Thus, the positive statistics of foreign investment in 2025 are undoubtedly promising. But this is not the final word; rather, it indicates an opportunity. The question now is whether Bangladesh can transform this opportunity into a foundation for sustainable investment.

Ultimately, investment comes not from good statistics alone; it comes from trust in the future. Building that trust is now Bangladesh's most crucial economic priority.

●Golam Rasul is a professor, Department of Economics, International University of Business, Agriculture and Technology, Dhaka.

E-mail: golam. grasul@gmail. com

*Opinions expressed here are the author's own.

#This article, originally published in Prothom Alo print and online editions, has been rewritten in English by Rabiul Islam