Country badly in need of having investment-friendly environment

The Asia Pacific Investment Climate Index - 2014 has ranked Bangladesh to the near-bottom place, for the second consecutive year. A Singapore-based research organisation, Vriens and Partners, prepares this index for the Asia Pacific region every year.
The investment index, released this week, says Bangladesh's economic growth is limited by low levels of human capital, poor infrastructure, corruption and cumbersome regulations. Following 'flawed' elections in January, political uncertainty and volatility cloud the outlook for foreign investors. Despite the country's economic and social gains over the past decade, political volatility undermines the country's attractiveness for foreign direct investment (FDI), it said.
It may be mentioned that the Asia Pacific Investment Climate Index examines the relationship between political and economic governance and FDI across the region. It evaluates and ranks 20 Asia Pacific countries according to six criteria: rule of law, openness to international trade and business, taxation, corruption, political stability, and fiscal and monetary administration.
As the investor interest in the Asia Pacific soars, such an index helps the entrepreneurs understand and evaluate the region's political and economic dynamics. Aside from aiding international investors in their decision making, the data from this index help policymakers identify areas for improvement to enhance the competitiveness of their countries and attract higher quality foreign investment to catalyse development and transform their economies.
However, the index pointed out that political violence in Bangladesh escalated severely in 2013 as clashes between the ruling Awami League and opposition Bangladesh Nationalist Party (BNP) resulted in one of the bloodiest years since Bangladesh's independence. A war crimes trial, in which leading opposition figures were sentenced to death for atrocities committed during the 1971 war, has "exacerbated tensions".
The index, prepared by the Singapore-based think-tank, observed that Bangladesh elections in January 2014 enabled the Awami League (AL) to retain its grasp on power, but intimidation, violence, and the BNP's boycott undermined the legitimacy of the results. The government's inability to quell the violence in time has further hampered foreign investment through 2014.
Labour issues have fuelled unrest and are a persistent source of discontent. The failure to raise wages to keep pace with inflation has fuelled a series of paralysing strikes that disrupted production at many garment factories. The increasing turbulence combined with the impact of the collapse of the Rana Plaza building that killed over 1,000 factory workers has deterred investors from making investment in Bangladesh. Several Japanese and Korean companies reportedly decided to pursue alternative sites for garment manufacturing.
The think-tank has further noted that the country lags in promoting effective rule of law, its judicial system remains vulnerable to political interference, and corruption plagues the domestic operating environment. By some estimates, bribes and other off-the-record payments paid by firms related to public procurement, tax and customs collection, and other regulatory authorities may reduce annual gross domestic product (GDP) by 3.0 per cent.
In order to stabilise the tenuous political situation and attract investment, the government of Bangladesh needs to promote good governance and an inclusive economic growth model that alleviates poverty. Unless it seriously addresses such issues, political instability, violence and weak rule of law will continue to deter investment, it said.
In this year's Asia Pacific Investment Climate Index, it has been noted that Bangladesh's neighbour Myanmar continues to improve openness to international trade and business and rule of law. Myanmar has liberalised several sectors since the passage of the 2012 Foreign Investment Law. Ahead of the 2015 presidential election, the government is anxious to show real economic and social progress.
Singapore retained the top spot while New Zealand unseated Hong Kong for the second place. As a group, the Southeast Asian economies are attracting record levels of FDI as the region increasingly opens to foreign investment ahead of the implementation of the ASEAN Economic Community (AEC) by 2015.
Overall, the relative consistency in the rankings from 2013 to 2014 reveals that high profile political events have not significantly altered the climate for foreign investment in the short term. Gains in openness to international trade and business, fiscal and monetary administration, and rule of law have largely offset losses in political stability in some markets. Such gains in openness are largely driven by greater economic integration through participation in bilateral and multilateral trade and investment agreements.
As for Bangladesh, analysts are of the view the state of insecurity prevailing in the country on real or perceived grounds, is also affecting adversely investors' confidence in undertaking new investment ventures. The situation makes it a daunting challenge to raise the level of investment to 30 per cent of the country's gross domestic product (GDP), which is critically needed for attaining its overall planned targets in different sectors.
The absence of a specific investment policy and lack of proper infrastructure facilities, especially those related to land and primary energy, are acting as major impediments to boosting the flow of FDI to Bangladesh. There is a need to bring all the services for promoting investments, both local and foreign, under one umbrella to ensure a hassle-free investment environment. Unless the level of local investment picks up, the possibilities for attracting the required level of FDI to the country will otherwise remain poor.
The country needs to put in place a specific investment strategy, embracing industrial, import and fiscal policies, to help remove the snags in implementation process. Particularly, foreign investors, according to some analysts, would be more likely to come to the country if the government could assure them of two things -- land and primary energy like power and gas.
The government needs to undertake strong reformative actions, targeting public sector enterprises and organisations, with a view to improving their operational efficiency and competitive practices.
However, the key focus of the government needs to be given on good governance, institutional strengthening and, above all, ensuring rule of law to help remove the growing sense of insecurity that is prevailing in the country. Once this is ensured, it will be possible to bring about some positive improvements in investment climate in Bangladesh.
    szkhan@dhaka.net