Resolving security concerns, political uncertainty to woo FDI stressed

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FE Report Economists and trade experts Saturday stressed the need for removal of security concerns, further liberalisation of trade-related policies and resolving political uncertainty to woo foreign direct investments (FDIs) for sustainable economic growth. The inward flow of FDI is awfully low in Bangladesh compared to other countries having similar status as one of the least developed countries (LDCs), they said. Country's eminent economists and researchers were speaking at a three-day seminar titled, "Bangladesh at 40: Changes and Challenges." organised by faculty of Business Studies of Jahangirnagar University (JU). Professor Abul Bayes of JU chaired the session. The Financial Express is the media partner of the event. Addressing the seminar, noted economist Dr Wahiduddin Mahmud said lack of favourable investment climate is also reflected by the fact that in spite of very liberal policies, Bangladesh is yet to become a favourite destination for FDI. The country needs to tackle several growth-related factors like poor governance, large scale tax-evasion, extremely high population density and the associated scarcity of land and natural resources to ensure sustainable growth, said the former adviser to the caretaker government. The country will also have to address low-skilled labour force and its vulnerability to natural disasters including the prospect of being one of the victims of climate change, he said. Dr Mahmud was delivering Martyr Memorial Lecture on "Bangladesh's Development Surprise: A Test Case or Showcase," at JU seminar. "After four decades of its independence it has now become a major issue of research as to how could the progress achieved so far have been possible given the country's desperate initial conditions and allegedly poor record in governance," Dr Mahmud said. "Bangladesh provides a case study of a low-income country striving to achieve sustainable democracy that is also conducive to economic development," he said. The country has had a transition to multi-party parliamentary democracy in 1991, said Mahmud. "After three elected governments having completed their tenures and the fourth one being midway in its tenure, the country still remains a 'test case' of whether economic development and democracy promotion can proceed hand in hand in such a low income country," he said. Focusing on country's export trend, Professor Mahmud said, "While most low-income countries depend largely on the export of primary or resource based products, Bangladesh has made a transition from being primarily a jute-exporting country to a RMG exporting one." The transition has been dictated by the country's resource endownment characterised by extreme land scarcity and a very high intensive manufacturers, he said. "Manufactured exports currently account for more than 90 per cent of the country's export earnings - a unique feature among countries at a similar stage of development," said Mr Mahmud. Having low wage costs can hardly compensate for its relative disadvantage in marketing skills and infrastructure, he said. Executive Director of Centre for Policy Dialogue (CPD) Mustafizur Rahman in his presentation on "Bangladesh and Regional Cooperation in South Asia: Evaluation, Prospects and Challenges," said that the country is located in strategically important place being nearer to two power houses - India and China. Both India and China are the rising stars, which will dominate overall growth in the 21st century. "We are fortunate to be located near the rising stars of the century," he said. The location itself brings us immense possibilities for growth, he said. "It is upon us, to decide whether we will be able to accelerate our growth or lag behind," said the CPD top brass. "If we do not respond properly others will take the opportunity," he said. Professor Rahman, who is the member of an official delegation to the forthcoming World Trade Organisation (WTO) conference in Geneva, also pointed out that attaining duty and quota-free access of Bangladeshi products into US market will be one of the key targets of the country. Professor Selim Rahman of Dhaka University said the country should move forward to have a good chunk of regional trades through necessary changes in policy measures and governance system. "We did liberalise our policies on ad-hoc basis, which in turn failed to attract FDIs as there are contradictions in policies," said Mr Rahman. "We are at once reducing customs duty but raising para-tariff on the other hand," he said. The country requires developing its competitiveness and diversification of export baskets to sustain export growth dominated by ready made garment (RMG) sector, he added. CPD's Senior Research Fellow KG Muazzem said country's total inward stock of FDI until 2010 was only US$6.1 billion which is accounted for only 6.1 per cent of gross domestic product (GDP) and mere 0.03 per cent of total global stock of FDI worth US$19.1 trillion. Although Bangladesh is in leading position among the LDCs, the country's FDI flow is only 3.5 per cent of the total FDI inflow to LDCs, he said in his presentation titled, 'Foreign Direct Investment.' The neighbouring India attracted $24 billion in last year alone, said Mr Muazzem. Despite having provision for full repatriation of profit and liquidated investment, fiscal incentives and other benefits, national treatment at post-establishment phase, protecting foreign investment under the bilateral investment treaty with 29 countries and provide opportunity to avoid double taxation under the double taxation treaty with 28 countries, country's FDI is awfully low, he lamented. The trend of inward flow of FDI was not consistent in Bangladesh, he said. It was almost absent in 1970s and was even negative in some years in 1980s perhaps because of adverse impact of a number of economic and political factors including weak macroeconomic condition, predominance of public sector enterprises, small domestic market, early phase of rise of export oriented RMG industry and political instability, he said. Since mid-1990s, FDI flow has started to rise mainly in energy and power and RMG sector. In 2000s, major surge in FDIs were in telecommunication, banking and lately in RMG and textile sectors. There is a huge difference between the projects registered for FDI and those which were finally in operation. "If all the registered projects at the Board of Investment (BOI) were realised since 1970s, FDI stock would as high as US$17 billion at the end of 2010," said Mr Muazzem. Dr Ismail Hossain of JU in his presentation titled, " External Sector of Bangladesh: Developments, Policy Reforms & Outlook for the Future," said one of the successes of Bangladesh in the post independence period is sustained high rate of growth of exports exceeding that of imports resulting in reduced trade deficit as a proportion of GDP. "Trade performance was, however, low in the seventies and the eighties when export was small and marked by annual fluctuations and financed about one third of imports," he said. "Sustained annual increase in export began in the later half of the eighties and in fiscal year (FY) 2010-11 it financed more than 75 per cent of imports," he said. Bangladesh underwent a shift in the trade regime from inward-looking to an outward-looking one resulting in higher integration of the economy in the global economy, he said. The external sector thus faces both opportunities and challenges from an increasingly globalized world. In this context, it is important to see how trade will evolve in the next 40 years, he added. The forecast is based on two different models which are currently in use.