Bangladesh seems stumbling at a low equilibrium level of private- investment growth, amid a crucial transition in its economic status, says a finance-ministry report while economists raise stagnation alarms.
Economists note that unless the rate is raised above 49 per cent, the vision of Bangladesh becoming a high-income country (HIC) by 2041 will remain as a "chimera".
The report, prepared by a think-tank for a division of the finance ministry, suggests that Bangladesh should have a decade-long high spell of private investment, as experienced by the East Asian comparators, to break out of 'middle-income-country trap' and move ahead to high-income-country status.
Commenting on the situation renowned economist Dr Mustafa Kamal Mujeri told the FE that for several years private-investment ratio "has been stagnant in our country".
Terming private investment key to attaining the desired growth to face post-graduation challenges and to be a middle-income country (MIC), Dr Mujeri said although on paper government policies assure enabling environment, in practice the investors are facing hurdles in doing business.
He also notes that since socioeconomic growth is driven by the public sector in countries like Bangladesh, raising the private investment-GDP ratio is imperative to achieve post-graduation goals.
Bangladesh's private sector grew moderately, at a rate of 13.9 per cent, between 2011 and 2022.
According to a statistics, private investment had steadily increased from 12.5 per cent of GDP in 1981 to 17.3 per cent in 2000, reaching a high of 25.3 per cent in 2019.
However, the Covid-19 pandemic dented private-sector investment in 2020 and 2021, as the scourge upended normal life and business with people caged in lockdowns.
In the neighbouring competitor countries the total investment growth was accompanied by robust private-sector growth. For example, in South Korea, private-sector investment grew at a rate of 28 per cent in the 1970s and over 20 per cent in the 1980s, says the analysis.
A similar trend is observed for Singapore, Thailand, and Hong Kong.
Such decade-long rapid and robust growth in private investment resulted in higher private-investment share in GDP for these Asian countries in the later periods.
Unlike the East Asian countries, such a "big push" in investments is not observed in the case of Bangladesh.
According to the think-tank report, several factors limited the robust growth of the private sector.
Investors face challenges such as limited land availability, unreliable energy supply, inadequate transport connectivity, burdensome regulatory processes, regulatory unpredictability, high corporate taxes, restricted access to long-term financing, and a shortage of skilled labour supply, says the confidential report submitted to the ministry.
It recommends that for rapid industrialisation in the context of LDC graduation, Bangladesh would need further targeted policies, and certain "Big pushes" to break this low-equilibrium status quo.
Bangladesh's investment-GDP ratio had increased from 17.2 in 1991 to 32 in 2022, but a large proportion of the total investment has always been constituted by public investment amounting to almost a quarter of the total investment.
In 2022, public investment as a share of GDP stood at 7.5 per cent. Such a large quantum of public investment can be attributed to higher expenditures on development projects under the annual development programme.
"In most cases, public investment serves as a catalyst for private investment. In other words, it crowds in private investment by increasing trade facilitation with better transport and logistics capacities," says an economist, adding whether public investment causes a crowding-out or crowding-in effect on private investment depends on the quality of public investment.
In the presence of better institutional capacities, public investment ensures higher-quality infrastructures and trade logistics facilitating a robust growth of the private sector. However, in the presence of weaker institutions, such as higher corruption, the quality of public investment falls as public investment is used as a vehicle of rent-seeking.
Despite increase in total investment ratio over the years, it is noteworthy that Bangladesh's decadal total investment growth remained almost stymied around 8.0 per cent since the 1980s.
When compared to the other countries which attained newly industrialized country (NIC) status, such as South Korea, Malaysia, Singapore, Thailand, Vietnam, Hong Kong and Indonesia, each of them had episodes of very high investment-growth rates.
For instance, in South Korea, the decadal average investment growth was around 25 per cent in the decades of 1960s and it remained higher than 13 per cent in the 1970s and 1980s.
For the East Asian countries, these are the episodes when government and private sectors heavily invested in diversified industries.
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