Lack of confidence main reason as identified
Abu Sazzad: Expert expressed their deep concern for poor foreign direct investment (FDI) in capital market as the recent net FDI inflow is not satisfactory. At the same time, the foreign investors are withdrawing their investment from the capital market which is disappointing for country’s economy.
During the first five months (July to November) of the ongoing fiscal 2019-20, country’s capital market received only Tk 440 crore FDI from overseas investors. On the other hand, the foreign investors withdrew around Tk 941 crore in the last nine months (January to November) from the capital market.
Lack of confidence on capital market is hindering the FDI inflow as well as forcing them the withdraw investment, said market operators.
Experts said the volatility in the financial sector and capital market are the major reasons for poor investment and withdrawal of investment.
Actually, the volatility in the capital market began at the end of January last year and it did not improve since.
The depreciation of taka against the US dollar is one of the major reasons for poor investment, said experts. Expert said the foreign investment portfolio plays a vital role in any capital market.
Capital market operators said a string of banking scandals along with lack of good governance in the capital market also discouraged investment.
The liquidity crisis in banking sector had made foreign investors wary of investing in Bangladesh’s capital market, they added.
Talking to Daily Industry, Abu Ahmed, honorary professor of Dhaka University’s told that most of the listed companies are suffering from lack of good governance. Companies’ sponsor directors often trade shares anonymously, violating securities laws.
“They tend to make false financial reports. In this case, foreign investors will not invest in capital market,” he said.
“Soaring non-performing loans coupled with falling foreign portfolio investment triggered further sell-offs,” he explained.
Aftabul Islam, former president of American Chamber of Commerce in Bangladesh (AmCham) said though return on investment is quick in Bangladesh, the higher rate of corporate tax is discouraging foreign investors to invest. The corporate tax rate is one of the highest in Asia, he mentioned.
The average corporate tax rate is 35 per cent in Bangladesh while it ranges between 17 and 25 per cent in countries like Thailand, Indonesia, Vietnam and India, the business leader mentioned.
Some of the big foreign investors in the country are in tax-related disputes with the government which is discouraging them to invest in capital market. He further said.
Dr AB MirzaAzizul Islam, former adviser to a caretaker government said the overseas investors could not regain confidence as the local investors were not showing confidence in the capital market.
Moreover, most of the listed companies were suffering from lack of good governance. The rising non-performing loans coupled with falling foreign portfolio investment triggered further sell-off, he explained.
Exerts claimed the foreign investors are running for exit from capital market which is not good for attaining a sustainable economy as Bangladesh needs higher FDI inflow to achieve sustainable development goals (SDGs).