Mollah Amzad Hossain
As Bangladesh prepares for LDC graduation, rising domestic demand and an increasingly competitive global manufacturing landscape, foreign direct investment (FDI) has never been more important. Large infrastructure projects, capital-intensive industries and oil and gas exploration require steady inflows of long-term capital, technology transfer and institutional know-how. Yet, while the economy continues to grow, Bangladesh still struggles to attract the scale of FDI seen in regional peers such as Vietnam, Indonesia, Malaysia or the Philippines.
In the most recent fiscal year, Bangladesh attracted under USD 2 billion in net FDI inflows, while Vietnam received over USD 18 billion and Indonesia more than USD 20 billion—despite Bangladesh’s comparable labour cost advantages and market potential.
Investors today compare regulatory environments, not marketing slogans. Vietnam has secured strong and consistent FDI inflows for two decades largely because investors understand the rules of engagement and can rely on stable, predictable labor and fiscal regimes. Malaysia and Indonesia have followed a similar pattern. Bangladesh, on the other hand, has a large and young labor force, a strong RMG and textile export legacy, and a valuable geographic position between South and Southeast Asia. But the concern raised repeatedly by foreign investors is that our policies do not provide adequate clarity or predictability, particularly when it comes to labor compliance obligations for wholly foreign-owned companies.
One of the most prominent examples is the Workers’ Profit Participation Fund (WPPF) under Section 232 of the Bangladesh Labor Act 2006. The WPPF was designed as a mechanism to ensure that a small portion of corporate profits is shared with workers. This is a fair principle in a labor-intensive economy. Yet, for 100% foreign exchange-investing companies, the Labor Act was amended in 2013 with an important acknowledgement: these companies need a tailored system “in lieu of WPPF.” More than a decade later, the specific rules that were proposed under Section 232 have still not been issued. While the amendment recognized the unique characteristics of wholly foreign-exchange investing businesses, the absence of implementing rules has left a legal vacuum.
The effect is tangible. Investors repeatedly point to ambiguity in labor obligations, as well as the risk that interpretations can change after investment decisions have been made. A multinational energy or technology investor might already provide above-market salaries, global benefits, private health insurance, international training costs or performance-based compensation to workers. From their perspective, WPPF obligations without clear rules appear to be an overlapping labor cost and a poorly defined compliance risk, particularly if interpretations vary from agency to agency or change over time. No international investor wants to make a 20-year capital commitment without knowing exactly how the law will be interpreted five years down the line.
The impact is not limited to a single sector. Several capital-intensive industries today—including the energy sector, pharmaceuticals, petrochemicals, ports, technology parks and even RMG backward linkages—require substantial long-term investment from groups with international balance sheets. Yet foreign investment in Bangladesh’s RMG and apparel ecosystem has remained modest compared to Vietnam, Cambodia or China’s extended manufacturing belt.
The last major offshore bidding round failed to attract the level of international oil company participation that policymakers had anticipated. While geological complexity, global energy prices and contract terms were key considerations, industry feedback indicates that unresolved regulatory issues—including uncertainty around labor obligations such as WPPF treatment for 100% foreign-exchange investing companies—also featured among the broader risk considerations assessed by potential bidders.
For the government, clarifying Section 232 is not about weakening worker welfare. In fact, it can strengthen it. One practical model is to mirror the existing regime for 100% export-oriented enterprises: instead of firm-level WPPF requirements, a clear, fixed annual contribution could be made to a national workers’ welfare fund. This protects predictability for investors and also expands welfare benefits to a wider pool of workers.
Our policymakers have an opportunity to turn ambiguity into assurance. A time-bound, tripartite process that brings together government representatives, worker groups and foreign-exchange investing companies, could finalize a transparent and durable rule.
The world is changing. Capital is more cautious, and energy security is more urgent. Bangladesh cannot afford to lose investment opportunities because of avoidable ambiguity. Clarifying Section 232 is not merely a labor-law housekeeping exercise; it is a strategic signal that Bangladesh intends to compete seriously and sustainably for the next generation of global investment.
