Bangladesh needs large investments, especially in agriculture, industry and infrastructure sectors, for raising the per capita income and creating more jobs. Without meeting this need, it will in no way be possible to achieve the national goal of graduation into a mid-level economy, shedding the LDC (least developed country) tag.
According to reports published in the media recently, global economic downturn is making foreign direct investment (FDI) in Bangladesh more difficult. The newly elected government is set to face difficulties in some areas especially in financing domestic investment and attracting FDI due to global recession. Indeed, the implementation of the economic manifesto of the new government requires significant increase in both public and private investment.
Finance Minister AMA Muhith sounded upbeat about, at least, getting external assistance. Addressing a recent meeting, he said there was no possibility of any fall in the availability of such assistance. Rather the utilisation of overseas aid remains grossly inadequate because of inefficiency of the concerned ministries, he added. Yet all indications suggest that things are not easy as was before. Global economic recession has hit most of the vibrant economies of the world hard. The industrialised nations are failing to disburse their committed aid to the developing nation. Bangladesh is unlikely to be an exception to that.
Data relating to the inflow of Foreign Direct Investment (FDI) shows that last year (2008) only 13 projects worth $60 million were registered with the Board of Investment (BoI). But in reality, such proposals do not necessarily turn into actual investments. Reports say in 2007 Bangladesh received $666 million in FDI and in 2008 $793 million. The BoI had registered 141 projects worth $327 million in 2007. How could then the actual investment come to $666 million for that very same year? The country received $483.6 million FDI during the first six months of 2008. The figure for the rest six months is not available. While Asian emerging economies have benefitted from significant foreign investments, Bangladesh has been trailing behind them because of poor infrastructures, instability, weak governance and corruption.
While scenario for FDI flows during the past few years are not that much encouraging, many so-called investors are coming to Bangladesh with 'ill motive'. With little investment of their own, they are taking syndicated loans from banks and other financial institutions and doing flourishing business creating a few jobs for the local people. But they are sending a substantial amount of foreign currency to their native countries. Such allegation was brought to light by none other than the chief of National Board of Revenue (NBR), Abdul Mazid. At a recent meeting with ICT-related professionals, he said such business could not be termed as FDI. Such type of FDIs, he indicated, will not be encouraged in future.
Many foreign investors are closely monitoring country's law and order situation. While overall law and order situation was making a slow but steady improvement following restoration of democracy in the country, the recent BDR mutiny at Peelkhana is likely to cast some negative impact in restoring investors' confidence. Added to this, Bangladesh is yet to adopt national coal policy which is important for attracting FDIs. More explorations of hydrocarbon, both in offshore and onshore blocks, are considered vital for meeting large energy demands of the country. Energy is a number one factor for both local and foreign private investments. And the prevailing power situation that has made operations difficult for existing industrial and other related economic activities will not help attract new investments, both local and foreign, no matter what the policy attractions are there for the same.
All concerned expected that with the restoration of democracy, local private investment would pick up. Amid fears, many entrepreneurs did not invest in many thrust sectors during the tenure of the last caretaker government. They are otherwise likely to come up again. Construction sector and stock exchanges have already demanded that the government should allow tax-free investment of undisclosed legal money for at least a year. But such policy measures, even if adopted, will not by themselves facilitate investments without improvements in supplies of infrastructural facilities particularly that of power.
During the tenure of the caretaker government, the BoI initiated a move to formulate its first ever comprehensive, long-term strategic plan as the agency moved to fight off a slowdown in investment inflow. It was scheduled to sit with private sector entrepreneurs, foreign investors, chamber leaders and experts to help finalise the three-year plan. Such consultations would help the BoI identify its problems and set 'right' priorities in view of the competitive global environment for investment. The International Finance Corporation (IFC), the private lending arm of the World Bank, has also been assisting the BoI in drafting a realistic plan including its possible restructuring. BoI is to act on such a strategic plan to promote Bangladesh as a lucrative investment location. The progress of such an initiative is not known.
Besides steady improvements in power supply situation, there are needs for doing away with excessive bureaucratic interference, overcoming the problems of alleged irregularities in processing papers, and also streamlining things that cause inordinate delays in selecting projects for feasibility studies to help attract investments.
Furthermore, it is important to avoid policy flip-flops and ensure stable and predictable policies relating to duty structure. Overlapping administrative procedures and absence of a transparent system of procedural formalities often confuse not only investors proposing projects, but also staff and personnel assigned for discharging related responsibilities.
The country has otherwise an advantage in labour costs that can be converted into an exportable product, but that advantage has also many difficulties. The factories in the country have to deal with exogenous constraints -- the factors that are beyond their control.
The economic situation has now turned out to be all the more difficult and more challenging all over the world. This extra-ordinary situation calls for extra-ordinary efforts, if the country is to move steadily ahead for graduating itself into a middle-income country sooner than later.
szkhan@thefinancialexpress-bd.com
