FDI: Mismatch between expectation and ground realities

Finance Minister AMA Muhith and the leaders of the Foreign Investors' Chamber of Commerce and Industry (FICCI) spoke on issues of foreign direct investment (FDI) late last week. However, despite the subject of discussion being the same, their focus was different. The Finance Minister, while speaking to Indian and foreign journalists stationed in New Delhi on February 25, said his country would welcome FDI, particularly in energy and transport sectors. He, quite rightly, also said Bangladesh needed bigger FDI flow to achieve economic self reliance. Only a day before, in Dhaka, the FICCI leaders taking part its regular monthly luncheon meeting listed a host of factors that, according to them, had been discouraging the FDI. They maintained that uninterrupted availability of utility services, particularly those of power and gas, reduction in the cost of doing business and improvement in law and order were necessary to attract more FDI to Bangladesh. The Finance Minister's special emphasis on FDI in areas of power and transport sectors, in fact, complements the FICCI's demand for uninterrupted availability of utility services. The successive governments have been trying to woo foreign investment in power and transport sectors. Yet response has been lukewarm. As far as power sector is concerned, the incumbent government has organized a couple of road-shows abroad. But until now no power company of international repute has shown interest. A good number of locally-sponsored cost-intensive rental power plants have come up to help meet, to some extent, the ever-increasing mismatch between the demand for, and the supply of, power. But these power plants have given rise to enough of headache for the government for a couple of reasons. Firstly, the government would have to import an additional volume of diesel and furnace oil for these plants. The rising cost of fuel oils in the international market has rather heightened the government's worries. The other factor is the possible pressure on the budgetary resources from the increased volume of subsidy to be provided on account of purchase of power from these private sector rental power plants. So, foreign investment in power plants having greater generation capacity would, obviously, create more pressure on whatever resources that the government generate every year unless and until the power tariffs are rationlised, in relation to the cost of generation. This particular issue should be a matter of concern for the government and also for any prospective foreign investor in the power sector. But as far as FDI in transport sector is concerned, there should be no reason for the investors to be worried about except for the delays caused by the bureaucratic complexities. A good number of donor-funded large projects in the transport sector are likely to be taken up soon. But the flow of FDI in the sector has not been that big. The gas supply situation is unlikely to improve anytime soon. It might take years to discover a major gas reserve and beef up the supply. So, the problem of power and gas supply would continue for some more time. There could be some improvement in power situation by end of this year or next year. But the same would not happen in the case of gas supply. Besides the problem of power and gas, there are a few other factors that are responsible for increasing the cost of doing business in Bangladesh. The efficiency of the port is one and the bureaucratic inertia and legal lacuna are two other major impediments. The situation at the country's main seaport at Chittagong improved considerably during the two-year rule of the army-backed caretaker government. But it has again deteriorated in recent months with the turnover time going up. The bureaucracy, it seems, would traverse in own circle and the government of the day, like its predecessors, is unlikely to make any move to bring about the much-needed change in the attitude of the bureaucracy. The present bureaucracy is not only non-responsive to the needs of the time and economy, it, to be honest, is largely incompetent. The government officials and section of our political leaders do not have the knowledge and vision to go on with the present-day world. Another area that has been failing to draw the attention of the government is the reform of the age-old business laws and rules. Instead of making a conscious effort to effect changes in these laws, the government has dissolved the Regulatory Reforms Commission (RRC). It was expected that the government would constitute a similar body to make necessary changes in the laws concerning business and investment activities. But that has not happened, unfortunately. The other issue mentioned by the FICCI was the improvement in law and order situation. This is a job that the government can accomplish within a short time if it intends so. So, a situation conducive to greater inflow of FDI is unlikely to be ensured very soon. But the government and other stakeholders concerned do need to put in their greater efforts to achieve that as early as possible.