FDI in Bangladesh: A Supplement to BIDA’s recent Investment Summit

The Bangladesh Investment Development Authority (BIDA) recently hosted an Investment Summit to attract Foreign Direct Investment (FDI) to the country. The initiative was widely praised, with particular commendation for the Executive Chairman, Mr. Ashik Chowdhury, whose presentation raised expectations for a substantial influx of foreign capital. However, in a post-Summit media briefing, Mr Chowdhury took a pragmatic stance, clarifying that the Summit was merely an effort to promote Bangladesh as a potential investment destination, encouraging investors to overcome their previous negative perceptions of the country's investment environment and ensure that Bangladesh remains on their menu of investment destinations. During the same media briefing, he further acknowledged that no foreign investor would immediately commit to investing in the country simply because they attended the Summit.

Mr Chowdhury's post-Summit briefing sounds reasonable, as foreign investors typically evaluate several critical factors, including legal, economic, political, and operational aspects, before investing in a developing economy like Bangladesh. This piece will focus on certain legal aspects, particularly investment protection, to supplement BIDA's efforts in promoting FDI in Bangladesh.

Foreign investors generally enquire about two tiers of legal mechanisms: the international investment protection mechanism and the domestic judicial mechanism. Regarding the international investment protection mechanism, Bangladesh offers impressive substantive and procedural protection. It has signed around 33 Bilateral Investment Treaties (BITs) and five Treaties with Investment Provisions (TIPs) to ensure substantive and procedural investment protection standards. All these treaties commit to ensuring the most common substantive investment protections, namely, Minimum Standard of Treatment (MST), Fair and Equitable Treatment (FET), National Treatment, Full Protection and Security (FPS), and protection against expropriation. Additionally, the country's Foreign Private Investment (Promotion and Protection) Act 1980 ensures similar substantive protection standards, allowing investors to bring claims under this law in the absence of enabling investment treaties between Bangladesh and the investor's home state.

On procedural protection, most of the investment treaties Bangladesh has signed allow investors to sue Bangladesh in an international arbitral forum, most commonly before the International Centre for Settlement of Investment Disputes (ICSID). Furthermore, Bangladesh is a member country of the ICSID and the New York Convention (NYC), which provides investors access to ICSID arbitration against Bangladesh and the enforcement of the arbitral award in the territory of Bangladesh under the NYC.

However, Bangladesh's domestic judicial mechanism may not seem impressive in investors' pre-investment assessments. Investors typically engage with the domestic judiciary in various ways. For instance, upon investing in the country, they may enter into contracts with local traders, suppliers, individuals, and even the government, and resort to the local judiciary, mainly the civil courts, in case of any breach of these contracts. Consequently, before investing, they primarily enquire about the effectiveness of the judiciary in terms of trial length, litigation costs, case management, court automation, e-judiciary, Alternative Dispute Resolution (ADR), and so on. To develop an overall perception of judicial effectiveness, they usually depend on some globally recognised indices, such as the Ease of Doing Business, the Index of Economic Freedom, and the World Justice Project - Rule of Law Index.

Unfortunately, the Bangladesh judiciary does not maintain a good ranking in those indices. For example, it was ranked, mainly for the enforcement of contracts, at 189th out of 190 countries in the index of 'Ease of Doing Business'. The Index of Economic Freedom scored judicial effectiveness in Bangladesh as below the world average. A similar ranking has been revealed by the World Justice Project, where the country's judicial effectiveness has been ranked at 127th out of 142 countries.

Although Bangladesh offers robust international investment protection standards, as previously noted, its reputation in this regard has been undermined by the inefficiency of its domestic judicial system in supporting these protections. In particular, an international arbitral award is required to be submitted before the Dhaka District Judge Court for recognition and enforcement. The court proceeds to enforce the award following the Arbitration Act 2001 and the Code of Civil Procedure (CPC) as if it were its own judgments. Therefore, such enforcement of arbitral award depends upon the effectiveness of the civil justice system in the country, which always struggles to survive amid inadequate logistical support, including technological one, amid intricate procedural requirements under the CPC. Sometimes, the award-debtor misuses CPC's provisions to delay the enforcement for an indefinite period. As a result, the court cannot provide prompt and effective support for the enforcement of the awards. Moreover, in some instances, judicial interference in the investment arbitration proceeding and enforcement has further undermined Bangladesh's reputation. A well-cited example is the Saipem v. Bangladesh arbitration, where the Bangladeshi court's intervention in the arbitral proceedings and enforcement process drew substantial international criticism.

To address the issues of judicial effectiveness, the Judicial Reform Commission has proposed, among others, improvements in trial length reduction, ADR promotion, and e-judiciary implementation. Additionally, the government is reportedly preparing to amend the CPC too, easing procedural hurdles.

However, legal amendments alone may not sufficiently restore investor confidence, given the existing case backlog and an inadequate number of judges in our civil courts. Besides continuing the current reforms, Bangladesh should consider introducing dedicated, technology-driven special courts, perhaps Commercial Courts, across judicial tiers. These courts should be staffed by specially trained judges with expertise in IT, ADR, Investor-State Dispute Settlement, and arbitration law, and operate under simplified procedural rules. Additionally, the current interim government, along with the next elected government, should make a clear and specific commitment to continue judicial reforms, ensuring that investors receive the necessary legal protection by the time they commence business operations. Such targeted interventions would significantly complement BIDA's initiatives and could serve as a meaningful step toward ensuring that Bangladesh is both an attractive and secure investment destination.

The writer is investment law researcher at City St George's, University of London and an Additional District Judge in Bangladesh.