Frontier markets: Bangladesh's path forward

Written by Peter Kohli, this article was published in the Nasdaq

 

 

 

In the current edition of Global Finance is an article written by Al Emid titled, “Bangladesh: Full Of Potential” with the subheading, “The fast-growing nation is actively seeking FDI, but foreign investors must contend with endemic corruption and layers of bureaucracy.” Unfortunately, we now have to add to those two caveats, terrorism. The recent attacks on a popular restaurant frequented by foreigners has marred all the positive news coming out of Bangladesh and caused investors to take a step back and regroup.

 

This wasn’t a one-off beheading or stabbing, as if that wouldn’t be bad enough, but this was a meticulously planned and carried out full blown terrorist attack. The common thought was that these terrorists must have come from undesirable backgrounds, but in this case, they were from good homes. Be that as it may, the bottom line is that this has now definitely increased the risk premium of doing business in Bangladesh.

 

According to the Dhaka Tribune, Moody’s has said that these terrorist attacks will have a long term adverse impact on the country’s ability to attract FDI, and that is a shame. GDP growth has been rising in the past few years from a low of 5.05% in 2009 to 7.05% year on year in the nine months of the 2015/2016 fiscal year. However, I would venture to say that the next GDP report will not be as rosy.

 

The first half of 2016 attracted a total of $795 million in FDI, with a great deal of that coming from Japan. But FDI is likely to slow down. At least one business has suspended all travel to the country and has asked their employees to stay indoors. Not a good sign.

 

As reported by Benar News, Bangladeshi businessmen are very worried that foreign manufacturers will eventually close their operations there. 

 

And even though a group of U.S. fashion retailers has pledged to continue operating there, the recent terror incidents may be cause to reconsider, especially if the situation doesn’t appear to improve.