Expenditure in some sectors under appropriate policies in line with a budgetary plan provides an opportunity for maximising income generation for the countrymen. The sectors, namely agriculture (A), readymade garments (R), manpower (M) and the second-best sectors (S), can be termed ARMS. The ARMS ensure income, employment generation, an increase in per capita income and improvement of the living standard. Expenditure in some other sectors under appropriate policies in line with a budgetary plan helps build the basement or ground on which a nation stands. The sectors are Liberty and democracy (L), Education (E), Governance (G) and Seminal needs and infrastructure (S) that can be termed LEGS. The LEGS help build the image of a nation in the field of investment and also in the field of resource distribution. Forty-two years on, is Bangladesh in a strong position, when it comes to its ARMS and LEGS? ARMS are the sectors that have the potentiality to be stronger and LEGS are the ground on which the performance of ARMS depends. The national budget should focus on the ARMS and LEGS strategically to build a better nation.
A review of ARMS
Agriculture: The allocation for agriculture and rural development is 7.6 per cent of the national budget and approximately 1.42 per cent of the GDP (gross domestic product), the 5th largest for the fiscal year 2014-15. The traditional subsidy in the form of seeds, fertiliser, irrigation, agricultural equipment etc has been earmarked at Tk 90.0 billion (9,000 crore), equal to the allocation in the fiscal year 2013-14. This leads to a big question over proper distribution of resources. The Bangladesh Bank has also taken extensive initiatives to ensure target-based agricultural financing, which will continue in the FY 2014-15 as well. Only proper distribution of subsidy and financing will not ensure sustainable development of farmers and increase productivity in the agriculture sector. The media and research reports of experts highlight different issues that can address development of agriculture. The issues include adoption of technology like the use of fertiliser after soil test, specialised research-based cultivation, availability of inputs, proper marketing and market linkage, insurance, fair pricing and government purchase and warehousing to protect the farmers from selling their produce under compulsion. Often we see an unusual fall in prices of produce like vegetables, milk, salt, rice etc. The price is far below their production costs, though in the market the end-users buy them at much higher prices. To ensure fair prices, the government has the capacity to buy and store 1.938 million (19.38 lakh) tonnes of foods in godowns. The capacity will increase to 2.5 million tonnes by 2020.
The purchase policy and strategy fail to ensure fair prices in many cases. The government strategy is not perfect enough to increase productivity and protect the farmers. We have sequenced the genome of jute and water buffaloes with initiatives of the government and a private institution concerned respectively. We need to implement and promote the research findings and obtain the intellectual property right. Considering all the issues, the budget should focus specifically on (a) technical and technological support from the government, (b) promotion of research and development and implementation of research findings with obtaining the intellectual property right from the World Intellectual Property Organisation (WIPO) under the United Nations, (c) availability of inputs, especially modern and research-based inputs, (d) backward and forward linkage, (e) cluster financing, (f) crop and livestock insurance, (g) formation of an agriculture fund with support from development partners and it will be managed by any private equity fund manager, (h) engaging venture capitalists in cluster financing, (i) crop specifications, (j) pricing, (k) government buying and warehousing.
In the budget for the FY 2014-2015, the plan on fisheries and livestock is more specific than the plan on crops. As per statistics of the ministry of agriculture, about 62 per cent of the total labour force is engaged in agriculture and the contribution of agriculture to GDP is 23.50 per cent while the contribution of only crops to the GDP is 13.44 per cent. The figure can be far higher, if the government focuses on agriculture more in terms of proper budgetary allocation and its effective implementation.
Readymade garments: Bangladesh is the second largest garment exporting country in the world. Eighty per cent of export proceeds of the country come from readymade garments. Considering its growth every passing year, policy supports including easy access to credit, export incentives and tax incentive have been given to the sector. Such supports will continue this fiscal year as well. The sector fetched US$ 23.5 billion in the last fiscal year and employed 4.4 million workers. No other sector is there to fetch that amount of foreign currency and employ the 4.4 million garment workers. So, it is very important to ensure sustainability of the sector by providing proper policy support and taking initiatives to resolve any crisis. Some issues like minimum wages and compliance with the requirement of workplace safety and job security are of utmost importance. The government should have an action plan to resolve any crisis and thus attract buyers and get the GSP (generalised system of preferences) facility revived in the US market and also retain the buyers in the European Union (EU). In this connection the budget focuses on two points: (I) a work plan by the government, owners and workers has been initiated to decide on minimum wages and (ii) an accord has signed between BUET and the EU at the initiative of the ILO (International Labour Organisation) and the alliance has been established at the initiatives of importers to identify the factories having deficiencies. An immediate compliance with the requirements and review of the compliance are necessary for implementation of the steps. The budget could focus on the following issues for sustainable development of the sector and making it more vibrant: (i) a strategy to resolve any crisis based on the action plan, (ii) establish a welfare fund for workers with contribution from the government, factory owners and buyers with a view to ensuring welfare of workers' families under certain conditions and establishing health clinics for garment workers for providing health services free of costs and/or at a subsidised rate under certain terms and conditions, (iii) to set up an institute for the garment sector to explore markets, ensure safe investment and return and training for officials and workers, (iv) to impose penalty tax/surcharge on any factory found with deficiencies and gradually increase the rate to keep pressure on the factory for addressing the deficiencies.
Manpower: Unemployment has been a burden for the nation. It can be a good resource, if the government takes a plan to turn the manpower into a skilled workforce through different programmes at different levels. About 8 million people work in different countries and most of them are unskilled. They do low-paid jobs and sometimes lose their jobs because of having little or no skill. International standard education systems and appropriate training by the government on specified professions can make the manpower skilled and capable of working inside and outside the country efficiently. The educated people are job-oriented rather than getting self-employed on proper training. The budget for the fiscal year 2014-2015 has focused on different issues like expansion of manpower export, setting up training centres and institutes, the process of manpower export including the G2G (government to government) arrangement, the draft Overseas Employment Policy 2014 etc. A nation will be empowered, when men and women will be on the same dais. Keeping this in mind the government focused on a policy for women's empowerment in 2013. But in the budget for this fiscal year nothing has been specified as to programmes or strategies for women's empowerment excepting a work plan. So, the budget should specify programmes to turn the population into a human resource. To that end the budget could have a plan on (i) proper education, (ii) technical education and skill-based training, (iii) professional training, and (iv) agriculture and SME-based training.
Second best sectors: The highest contributor to GDP is the service sector. Its contribution is about 50 per cent of the GDP while the industrial sector's contribution is around 30 per cent of the GDP. The growth trend of the industrial sector is slightly upward. The manufacturing units in the industrial sector have a record of consistent growth and need a robust growth to increase its share of the GDP. In addition to readymade garments and textiles, we have some potential sectors like jute and jute products, leather and leather goods, tea, information and communication technology (ICT), handicrafts, ceramic products, plastic industry, ship-building, light engineering, frozen foods, pharmaceuticals, fruits and flowers, vegetables etc. The budget continues to offer tax incentives for some of the sectors and needs to provide policy support based on research findings.
There are about 6 million small and medium enterprises (SMEs) in Bangladesh and venture capitalists and private equity funds can play a vital role in corporatising them and help them flourish. The SMEs are still underserved financially by banks, financial institutions (FIs) and microfinance institutions (MFIs). The SMEs are too big for the MFIs and have also limited access to banks and FIs due to (i) lack of collateral, (ii) requirement of longer-term capital, (iii) repayment mismatch, i.e. not matching the cash inflow, (iv) risk perception of banks and FIs, (v) lack or non-credibility of financial information and controls, (vi) higher costs of funds for banks and FIs for setting up offices in areas where SMEs exist substantially. Under the circumstances, venture capital and the private equity fund model may be the best option to promote SMEs in Bangladesh. Private equity investors may be attracted by adopting a better policy. Corporate Social Responsibility (CSR) funds also could be used as the private equity to develop SMEs. The budget could focus on an SME Venture Fund with proper policy support for venture capitalists and private equity investors and fund managers.
When it comes to ICT, apart from digitalisation, it also offers opportunities to increase exports and dominate the export market like readymade garments. Income from ICT is tax-free. The government needs to encourage research at the private level research and development of newer software to penetrate the world market.
Tourism may be another emerging subsector. Most attractive tourism spots and attributes represent our historical precedence and values. We should go for branding in tourism and ensure infrastructure development at tourist spots and launch a promotional campaign internationally. The budget contains initiatives to develop exclusive tourist zones under the Public Private Partnership (PPP) initiative. Its implementation is necessary to make Bangladesh a brand in tourism.
The second best sectors need policy support, a consistent investment-friendly tariff plan, tax incentives, easy capital repatriation process, access to finance, political and democratic stability, good infrastructure and good governance. Each of the second best sectors as stated above needs supports and initiatives for development. The budget spells out efforts to provide policy support, access to finance, tariff and tax incentives to facilitate growth of manufacturing units. But it needs to focus more specifically and extensively on the priority areas of development.
The review of LEGS
Liberty and democracy: The budget for the current fiscal stipulates continuation of programmes to preserve the history of Liberation War by indentifying battle fields, slaughter grounds and mass graves and establishing museums and libraries at war memorials. Of course, it is a very good attempt to present the history to the nation. In addition to the numerical presentation, in the budget there should be a political commitment to liberty of the people and democracy. How far a nation is historically enlightened and free from corruption depends on the liberty and appropriate democratic practice of the state.
Education: Development of the education sector does not mean only to increase the rate of literacy and passing the exam. In order to ensure quality education we should reform the existing education system to match the international standard. Our education and technology get the 2nd highest allocation, which is 13.1 per cent of the budget and approximately 2.43 per cent of the GDP. As per the UNESCO standard, the allocation for education should be 20 per cent of the budget and 6 per cent of the GDP. The budgetary allocation for education here is far below the UNESCO-set standard. In order to make the education system commensurate with the international standard it should be upgraded at all levels from primary schools to universities and from villages to divisional cities. Development of this sector needs a well-thought out plan and the required budget.
Governance: Good governance can lead a nation to the peak of development and the absence of it can put the wheel of development in back gear because of corruption. As per an estimate of the World Bank, about 2-3 per cent of GDP growth is lost each year to corruption. The per capita income could be doubled, if the government could curb corruption, the TIB estimated. Over the last 10 years Bangladesh saw an average growth rate of 6.0 per cent that could reach a double-digit figure, if corruption could be tamed by ensuring total good governance. The budget should detail necessary steps to fight corruption and ensure accountability at all levels of the state machinery despite the firm commitment expressed in this connection. Allowing investment or spending of black money year after year in some specific sectors like purchasing flats, as allowed this year on payment of a certain percentage of tax, will just create a scope for others to pocket more black money.
The budget focuses on strengthening the Anti-Corruption Commission (ACC). A lot of initiatives taken and to be taken including strengthening revenue sector, insurance sector, financial sector, capital market, business environment, parliamentary activities and rule of laws for combating corruption have been stated in the budget. The country has only 5,000 people paying surcharge on wealth. A significant number of well-off people are outside the surcharge tax net and they evade tax by abusing the laws. They should be brought under the tax net. Some issues are there in the budget about good governance. But we miss implementation strategies in many cases, including enhancing efficiency of the authority in mobilising tax. The nation wants a firm commitment and a strategy about good governance.
Seminal needs and infrastructure: The seminal needs and infrastructure include health and family welfare, food security and safety, power and energy, physical infrastructure, digitalisation, social protection, sports and culture etc. If these are not developed gradually, the ARMS will miss the required foundation to build on.
The budget allocation for the health sector is Tk 111.46 billion. It is 4.4 per cent of the budget and 0.82 per cent of GDP. These are just the traditional updates. The healthcare programmes are very few like immunisation, birth control, maternal and child care programmes etc. The government-run hospitals provide healthcare services on a very limited scale. The hospitals lack modern equipment and the required workforce including doctors. The community clinics stated in the budget may be very good basic healthcare service providers. Their capacity and quality may not increase overnight, unless reform measures are taken. But it should be ensured through good governance that they deliver at the full capacity.
What is needed most for development of the industrial sector is the power and energy. The government has a plan to increase the generation of electricity as well as make available alternative and renewable energy and explore more gas fields. The allocation for the power and energy sector is 4.6 per cent of the budget against 3.4 per cent last fiscal. The proper implementation of the projects in the power and energy sector will add an impetus to industrialisation, if other related factors are favourable.
Though the budget is a financial blueprint, it is not a traditional presentation of numbers only. It is a mirror of the government's outlook. A budget is a development plan of a country. The budget with an outlay of Tk 2.5 trillion is achievable despite the resource limitation. We need to ensure skill and efficiency in its implementation. Our ARMS are becoming weaker due to misleading policies and the lack of necessary steps. The LEGS are weak as well, when it comes to attaining a completive advantage over other countries. The government is working on these undoubtedly, but it will be more effective, if we do not spend our time on the streets simply bickering for power and if we can work together irrespective of political affiliation.
Goldman Sachs ranked Bangladesh as one of the "Next Eleven." In April 2010, Standard & Poor's, an American financial services company, awarded Bangladesh the "BB- Stable/B", the sovereign credit rating, for the long term. It is below that of India but well above Sri Lanka and Pakistan in South Asia. We have the strength to overcome the limitation with what we are achieving now. Where are we blocked? Analysts and experts say we are not poor, but poorly managed.
The writer is an Associate Member of ICAB and Head of Finance of Venture Investment Partners Bangladesh Ltd (VIPB). Email: roy_dipok@yahoo.com
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