Bilateral Investment Treaty and FDI in Bangladesh

Bilateral investment treaties (BITs) serve as fundamental instruments to promote and protect reciprocal investments between sovereign states. Globally, this kind of treaty has been popular for emerging and friendly economies to strengthen their economic ties. The first BIT was formally launched in 1959, according to UNCTAD. Over time, BITs gained significant momentum; so far, around 3,000 BITs have been signed globally. The first BIT took place in 1959 between Pakistan and Germany. Apparently, BITs are intended to ease investment, but there is a need to critically analyse whether the core goals of BITs are being achieved. We often see both the signing of treaties and their termination globally due to changing economic realities.

Bangladesh is strategically positioned to secure foreign direct investment (FDI) in diverse sectors, but the FDI inflow is not up to the mark. Our FDI has contracted to $1 billion and consistently stagnated around $1.20 billion over the last couple of years. The highest recorded FDI received was USD 3.2 billion in 2018, as per FDI stock statistics. Our FDI-to-GDP ratio is 0.45%, which is significantly lower than that of our regional peers, though the government is very adamant about scaling it up. A weak trend also persists in local investment, which has been hovering between 22% and 23% of GDP for quite a long time. Bangladesh has a total of 33 BITs with different nations, but the net inflow of FDI is not very significant relative to Vietnam and other emerging neighbours like the Philippines and Sri Lanka. The Government of Bangladesh has previously endeavoured to attract FD through various policy regimes, and this effort continues. The sharp decline in FDI began after the COVID pandemic. Although the global FDI trend has recovered in recent years, it still looks sluggish in Bangladesh. Amidst global volatility, global FDI flow in 2025 reached USD 1.6 trillion with 6% growth, while developed economies gained 11% growth, but flows were lower in LDCs and East Asian economies, with no exception for Bangladesh. We need to assess the global and sectoral concentration of FDI flow and international investment agreements to prepare and refine our investment strategies. Furthermore, it is vital to evaluate whether past BITs were optimally designed or require modernisation in line with global standards to heighten Bangladesh's net FDI position.

The BITs concluded earlier have not positively impacted our investment status, as total FDI stock reached USD 21 billion during the last three decades. Once the UK and USA were the top investing countries; later, Singapore became one of the top three investors in Bangladesh. The investment was largely limited to the textile sector, as this is our only proven sector, followed by the financial and energy sectors. These investments were channelled because our labour costs were cheaper than that in many other Asian countries, but this investment in Bangladesh was not facilitated by the BITs. Besides, Bangladesh has 36 bilateral double taxation treaties with different countries and very impressive investment incentives, which have not accelerated our investment growth immensely. Our BITs are rarely nurtured to yield optimum investment. The BITs seem largely ornamental rather than functional, considering our FDI trend. If we analyse the investment state, we find that the ratio of greenfield investment is smaller than retained earnings and intra-company transfers, as greenfield investment is low. We must acknowledge the government’s efforts to attract investment, but strategic planning must be harmonised with robust policy support and a conducive ease-of-doing-business climate. Indeed, the regulatory ecosystem falls far behind the required benchmark, and this holds back investment inflows. Off late, a 19-sector heatmap was designed, but it has limited reach globally as our investment atmosphere has extreme drawbacks. The absence of an appropriate business culture is frustrating all investment treaties. We have noticed that the BIT finalisation process is conventional, and interministerial agencies play roles where private sector voices are insufficiently reflected in the formal BIT. Since private sector trade bodies represent the major trade and investment context of the country, they have to be deeply engaged to make BITs inclusive and effective. 

In the course of time, the global multilateral trading system has changed our local economic and industrial context with new challenges. In this rapidly changing context, the typical outline of a BIT (covering expropriation, equity policy, Most Favoured Nation (MFN) treatment, general clauses, dispute settlement and termination clauses) cannot make the BIT timely, as these issues often contain generic language and terms. As a result, these treaties turn into unproductive deals. The Multilateral Agreement of Investment (MAI) follows similar contents to the BIT, but the MAI adds a sometimes sensitive products list. These clauses may protect investment in host countries but rarely motivate new investment. For instance, India has changed its BIT model and scrapped more than 60 BITs recently since they found most of the treaties to be largely ineffective. In 2017, Sri Lanka terminated its BIT with India on investment in a port terminal as concerns arose regarding the agreed terms and conditions. India has also failed to fully ensure MFN treatment with partners due to different geopolitical and economic variables. 

As an LDC, Bangladesh is exempted from certain MFN and non-discriminatory treatment; however, adherence to MFN treatment will become mandatory upon LDC graduation. Consequently, we will no longer be able to provide preferential trade benefits discretionally, as a level playing field must be ensured for both local and foreign businesses. After 2029, due to non-discriminatory or equal treatment upon graduation, our investment environment may not remain competitive for FDI. Our local dispute settlement mechanism remains underdeveloped. Nevertheless, Bangladesh is a signatory to ICSID, the Foreign Private Investment (Promotion and Protection) Act 1980, and other global TRIMs, indicating that investment protection frameworks exist. However, the Investment Protection Act needs to be modernised to fit frequently changing global dynamics.

Taking into account the current investment climate, we need to think out of the box to make upcoming BITs timely, drawing lessons from the investment treaties of neighbouring countries that have successfully attracted FDI. We must get rid of traditional BIT architecture and look forward to prioritising global practices and the improvement of the business atmosphere. The upcoming BIT design and context must be practical, aligned with our local needs, the preferences of partners, and their economic strengths.
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The writer is a macroeconomic policy researcher and analyst