Diversifying investment opportunities for economic growth

Short and slow diversification of investment in production, marketing, export, and the poor structure of the economy are the prime features of many low-income countries (LICs). Low productivity, sub-standard quality of products and low-tech items in the export list lead to less broad-based and sustainable growth. Realising the multifaceted benefits of diversification, the business communities around the world have opted for diversification strategies in investment, production and marketing to facilitate good returns from investment. Bangladesh as an LIC has made fascinating progress in manufacturing industries, especially in textile and ready-made garment (RMG) sectors. The present economy of the country is largely dependent on the performance of these two sectors. Textile and RMG industries are considered as the key driving forces of socio-economic development in Bangladesh.
According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), 5,600 factories are engaged in production of RMG goods in the country during the current fiscal year (FY). They provide employment to 4,000,000 workers. The RMG industry has flourished in Bangladesh because of cheap labour force, low capital-intensive and low-tech units, and the low production cost for the use of natural gas as energy. In the FY 2011-12, the RMG industry contributed 16.31 per cent of the national Gross Domestic Product (GDP). About 2,000 textile industries are available at the moment manufacturing yarn, grey fabrics and dyeing and printing fabrics to make finished textile products. Most of the textile and RMG industries are export-oriented and earn billions in foreign currency for this country.
There is a great risk in investing in one basket only. For any reasons if the basket is destroyed, the whole economy will crumble and it will take a long time to rebuild the economy. The textile and RMG industries are very much dependent on natural gas of the country which would be exhausted within a certain period of time. These industries cannot afford to generate electricity by using diesel, as the production cost would go up sharply and they would not be able to compete in the stiff competitive international markets.
It is true that Bangladesh is earning a huge volume of foreign exchange from RMG exports, but RMG industries are also spending huge foreign exchanges by way of importing raw materials and accessories, by opening Letters of Credit (L/Cs), from abroad. In the FY 2011-12, the RMG sector earned USD 19 billion from exports. The profit margin is unimpressive and many industries are making net losses, and are depending on borrowings from banks and financial institutions. The workers in the RMG industries are getting the lowest wages in the world --- varying from 20 cents to 35 cents per hour. Workers in employment in the RMG sector are caught in the sadistic cycle of poverty, as they cannot meet the basic needs of life like food, shelter, education and health by spending the meagre wages they receive.  If diversification of investment in high-tech industries and value-added product areas does not take place, Bangladesh will take a few more decades to become a medium-income country. In addition, the workers work in the RMG sector in impoverished conditions as we can see many workers are getting killed in accidents, by fire inside the sloppily-built factories, off and on. Due to worldwide recession and financial meltdown, the RMG industries are presently facing problems in marketing their products at economic prices in the saturated market. The RMG industries have grown up in the country in the most frivolous way, and a big gap in demand and supply has been created at national and international markets.
Geographical diversification of RMG industries at multinational level is extremely required. About 5,600 RMG factories in a small country like Bangladesh is a pretty big number. The RMG entrepreneurs have been in this business for more than 30 years. They have the capabilities and expertise to establish RMG industries in foreign countries like Vietnam, Cambodia and African countries and run those efficiently. It is high time to diversify investments in the local RMG market and look forward to international arena as the developed and emerging countries did.
Bangladesh's textile industry is going through one of the toughest periods in decades. The global recession, which has hit the global textile sector really hard, is not the only cause for concern. The high cost of production resulting from an instant rise in the energy costs has been the primary cause of concern for the industry. Depreciation of Bangladeshi Taka during the last few years raised the cost of imported inputs. In addition, double-digit inflation and high cost of financing have affected the growth of the textile industry. Bangladesh's textile exports have gone through challenges during the last few years as exporters cannot effectively market their products since buyers are not frequently visiting Bangladesh due to adverse travel advisory. It is getting more and more difficult for the exporters to travel abroad. Exports to the EU and the US have been downsized due to restrictions imposed by them.
In this hostile condition of the textile industries, it is highly desirable that the entrepreneurs should make plans to shift their investment from Bangladesh to other countries in Asia and Africa, which is virtually a form of diversification. Most of the textile industries are 100 per cent export-oriented. Very few textile industries are there to meet the local demand of textile products. The local fabrics' market is occupied and over-flooded with foreign-made fabrics. Local textile products fail to attract local customers and meet their demand. The textile entrepreneurs may pour their investment to produce textile products for the local customers. Economically, ours is quite a big market.  
Pharmaceutical industries in Bangladesh have been well-developed and are doing pretty well in meeting the local demand and also by exporting small quantities of pharmaceutical items abroad. The local pharmaceutical industrialists may take the marketing of their products to international destinations, especially in Asia, Africa and Latin America. They can expand their investments to these vast areas by manufacturing pharmaceutical products in cooperation with foreign countries and can maximise their rates of return. We notice that many seminars, symposiums, workshops and road-shows take place off and on in Bangladesh and abroad on Foreign Direct Investment (FDI). The FDI here means inviting foreign investors to investment in Bangladesh. It also means investing in foreign countries. But this perception is totally missing in the country and that is why we do not find any industry built by Bangladeshi industrialists abroad, barring a few.  It is becoming common practice that whenever our leaders and representatives of trade bodies visit any foreign country, they always 'explore' FDI for Bangladesh. They never propose making investment in the country they visit. Recently, we have noticed that one of our leaders and the president of an apex trade body visited Vietnam and they urged the Vietnamese business communities to invest in Bangladesh. When the developed and emerging countries are busy investing in Vietnam, Bangladeshi leaders are urging Vietnam to invest in Bangladesh. Doesn't it look eccentric? Why don't our industrialists and business people plan to make their investment in Vietnam?  Wherever our leaders and business representatives go abroad, they always seek for FDI knowing the fact that the industrial infrastructure in Bangladesh is not congenial for a massive FDI like other emerging and developed countries. A UN economist, addressing a seminar in Dhaka recently, said that FDI should not be considered indispensable for economic progress. Countries like Taiwan, Korea, Japan, China, and even western economies, did not rely much on foreign investment. Economic progress there was always accelerated by domestic ventures. Foreign investment is necessary to gain access to certain foreign markets or certain fast-changing technology.
Many lucrative and cost-effective areas are there to invest in Bangladesh. Investments can be made in marketing high value-added items and in setting up high-tech industries like electronics, telecommunication, automobiles, chemicals, dairy products, professional service providers in the field of engineering, construction and so on. In addition, investments can be bolstered in low-tech profitable industries like assembling and manufacturing air conditioners, refrigerators, television and water-coolers. Bangladesh spends huge volumes of foreign exchange for import of high-tech and low-tech items annually. Huge foreign exchange is used every year by importing dairy products from abroad, whereas this country is best suited for dairy industries.
Most of the developed and emerging economies have already diverted their investments to different segments nationally and internationally, and are getting the economic benefits of diversification. Germany in Europe has a strong economic foundation because it has globally diversified investments. The Deutsche Bank Research report in July 2012 states: "The share of German passenger car exports going to other euro-area countries dropped from 48 per cent in 2000 to just fewer than 31 per cent in 2011; in H1 2012 it even fell below the 30 per cent mark. In parallel, the share of German car exports accounted for by the BRIC countries raised from just over 1 per cent in 2000 to more than 17 per cent in 2011, even though local production of German-brand vehicles in these countries was also on the rise during that period." Some emerging economies are also planning to divert investments. The GCC countries are in the plan to divert their investments keeping in mind that their oil resources are depleting and in later years would be exhausted. To secure the stability and the sustainability of income levels in the future, the GCC countries unanimously agreed to diversify themselves in various types of investment within borders and beyond. The East Asian emerging countries are diversifying their investments from traditional low-tech to high-tech areas and from Asia to Europe to North America. Very recently, Malaysia has entered into a contract for investments in Canada for establishing LNG projects. The politicians of some emerging countries, as we have noticed, have come up with some specific election campaign agenda for changing the economy from low-tech to high-tech, raising the country from the status of middle-income to high-income, and thus reducing unemployment and illiteracy rate.
The Bangladesh situation is different. Here, the squabbling political leaders come up with some uneconomic and political agenda which are highly damaging to industrial growth and diversity, creating social unrest, thus dividing the nation based on political enmity and other hostilities. The UN and research reports of various organisations have pinpointed the pre-eminent stumbling blocks for the country in the way of investment and its diversification. They include below-average qualities of leaders in the LICs, impoverished infrastructure in the industries, inadequate and limping energy supply, high finance costs, corruption, rigid bureaucratic system and lack of high-spirited entrepreneurs.
National planning and policy for diversification is most urgent. Joint and coordinated efforts by the government, manufacturers, buyers, suppliers and other stakeholders are highly required to accomplish the process of 'diversification'. The loan-giving agencies like commercial banks and financial institutions can play an important role in this venture, while they sanction loans to industries. As the RMG and textile sectors have plenty of unplanned and uncontrolled industries, facing multi-faceted problems locally and internationally, loans for further establishment of these industries should be carefully reviewed and analysed. It is observed with concern that RMG and textile sector industries are growing up without proper feasibility studies, without analysis of market demand and supply, and in many cases these industries are facing serious problems marketing the products. Some industries are selling their products below the cost of production for temporary survival. The FDI in these sectors should be discouraged and FDI in high-tech industries for manufacturing value-added items and infrastructure development should be encouraged by state policy supports.
The writer is Group Financial
Controller of a private group of industries.
 [email protected]