Feeling the investment crunch
Wednesday, 17 March 2010
Engr. Khondkar A. Saleque
Bangladesh, which needs massive investments in almost all sectors, is now experiencing a serious investment crunch. It is sheer irony that the situation persists at a time when the nation after two years of military backed rule of interim government returned to parliamentary democracy. A large amount of money is reportedly lying idle in the country's commercial banks. Investors are not feeling confident mainly due to lack of infrastructures, poor gas and power supply and protracted decision making process. Banks cannot encourage investors even after offering soft term loans at lower interest rates.
The excess liquidity is almost turning chronic for the banks now. Banks consider it appropriate now to keep their money with Bangladesh bank at lower interest. Bangladesh bank also has reduced interest rate of its bills-bonds to almost half. Even after drastic reductions in interest rates commercial banks are eager to provide loans to the government.
Economists, business community and leading bankers opine that gas and power crisis and lack of confidence are the main impediments to investment. Business community wonders how investors will dare to invest in new ventures while existing industries are struggling for survival from energy crisis.
Non transparency of government policies is also considered another major impediment. Business community is developing a feeling that the present government instead of solving problems is adding more to the crisis. Investors are loosing confidence due to various government actions. Mr Alamgir Kabir, Chairman of Private South East Bank, informed that they are not getting investors even after drastically reducing interest rates. Mr Mamunur Rashid of Citi Bank narrated his bitter experience to the media. He said of an initiative of organising a syndicated loan of Tk 2 billion to a project. But he is apprehensive whether that project on completion would get gas-power supply.
Leading economists Dr Wahiduddin Mahmud feels that apart from initiatives to tide over gas and energy crisis the government must announce a transparent comprehensive plan to overcome all prevailing impediments for investment. Investors are hesitant now whether the government will continue with the existing incentives or what will be the policy of the government for sustained industrial production and encouraging new investment. The mid-term policies of the government for disinvestment of state owned industries, lending, protection of local industries and export incentives are not yet clear. The type and nature of private public partnership is also not clear. There exists serious doubt about its success.
Stalemate situation now prevails in Bangladesh in foreign as well as local investment. No significant investment has been recorded over the past one year of the present government. People had high expectations that situation would take a positive turn with the formation of the democratic government. Moreover, many existing industries, particularly export oriented industries, are facing closure for power and gas crisis. These have created untenable situations for the commercial banks. They cannot invest despite taking various initiatives. Stagnancy exits in investment over the last three years. Investment during 2007-08 was 24.94% of the GDP, which went down to 14.62% in 2008-09. The rate of opening LC for import of capital machinery decreased by 29.58% during the last financial year. During the same period import of raw materials dropped by 5.15%.
The impact of the investment crunch will get more acute if the government cannot expedite actions to improve power and gas supply situation. This, in turn, will adversely impact on economic development. Achievement of desired GDP growth will become impossible.
A relatively new government has come to power. It has not yet done enough to earn confidence of investors. On the other hand investment in export oriented industries is also not happening due to global economic melt down. Chairman of South East Bank also thinks lack of enabling infrastructure is the reason for investors not risking further investment through bank borrowing. There is huge idle fund in the bank for investment. Banks are now planning to invest in small manufacturing enterprises (SMEs) and not in larger projects.
It is obvious that energy crisis or power and gas supply crisis is one of the main reasons for the investment crunch. Even to improve the energy situation huge investment and mostly foreign direct investments (FDIs) are essential. But the present government policies, investment climate and unfriendly attitude of a section of civil society are discouraging investors to invest here. Huge untapped natural resources -- coal and gas -- can not be explored until the government creates enabling environment. Three billion tonnes of high quality coal remains untapped as the government is groping in the dark with unnecessary policy considerations. The government itself cannot explore its petroleum resources and on the other hand a certain section of civil society is opposing International Oil Companies (IOCs) to explore and develop our resources.
The nation must come out of cheap slogans. We have our back to the wall. Bangladesh desperately needs huge FDIs. Countries like Malaysia and Thailand were behind us in 1970s. Now they are well ahead. Even countries like Vietnam, Laos and Cambodia are marching ahead. They do not create barriers and impediments to investment as we do. All parties need to come to a common stand for investor friendly national policy for energy sector development.
Bangladesh, which needs massive investments in almost all sectors, is now experiencing a serious investment crunch. It is sheer irony that the situation persists at a time when the nation after two years of military backed rule of interim government returned to parliamentary democracy. A large amount of money is reportedly lying idle in the country's commercial banks. Investors are not feeling confident mainly due to lack of infrastructures, poor gas and power supply and protracted decision making process. Banks cannot encourage investors even after offering soft term loans at lower interest rates.
The excess liquidity is almost turning chronic for the banks now. Banks consider it appropriate now to keep their money with Bangladesh bank at lower interest. Bangladesh bank also has reduced interest rate of its bills-bonds to almost half. Even after drastic reductions in interest rates commercial banks are eager to provide loans to the government.
Economists, business community and leading bankers opine that gas and power crisis and lack of confidence are the main impediments to investment. Business community wonders how investors will dare to invest in new ventures while existing industries are struggling for survival from energy crisis.
Non transparency of government policies is also considered another major impediment. Business community is developing a feeling that the present government instead of solving problems is adding more to the crisis. Investors are loosing confidence due to various government actions. Mr Alamgir Kabir, Chairman of Private South East Bank, informed that they are not getting investors even after drastically reducing interest rates. Mr Mamunur Rashid of Citi Bank narrated his bitter experience to the media. He said of an initiative of organising a syndicated loan of Tk 2 billion to a project. But he is apprehensive whether that project on completion would get gas-power supply.
Leading economists Dr Wahiduddin Mahmud feels that apart from initiatives to tide over gas and energy crisis the government must announce a transparent comprehensive plan to overcome all prevailing impediments for investment. Investors are hesitant now whether the government will continue with the existing incentives or what will be the policy of the government for sustained industrial production and encouraging new investment. The mid-term policies of the government for disinvestment of state owned industries, lending, protection of local industries and export incentives are not yet clear. The type and nature of private public partnership is also not clear. There exists serious doubt about its success.
Stalemate situation now prevails in Bangladesh in foreign as well as local investment. No significant investment has been recorded over the past one year of the present government. People had high expectations that situation would take a positive turn with the formation of the democratic government. Moreover, many existing industries, particularly export oriented industries, are facing closure for power and gas crisis. These have created untenable situations for the commercial banks. They cannot invest despite taking various initiatives. Stagnancy exits in investment over the last three years. Investment during 2007-08 was 24.94% of the GDP, which went down to 14.62% in 2008-09. The rate of opening LC for import of capital machinery decreased by 29.58% during the last financial year. During the same period import of raw materials dropped by 5.15%.
The impact of the investment crunch will get more acute if the government cannot expedite actions to improve power and gas supply situation. This, in turn, will adversely impact on economic development. Achievement of desired GDP growth will become impossible.
A relatively new government has come to power. It has not yet done enough to earn confidence of investors. On the other hand investment in export oriented industries is also not happening due to global economic melt down. Chairman of South East Bank also thinks lack of enabling infrastructure is the reason for investors not risking further investment through bank borrowing. There is huge idle fund in the bank for investment. Banks are now planning to invest in small manufacturing enterprises (SMEs) and not in larger projects.
It is obvious that energy crisis or power and gas supply crisis is one of the main reasons for the investment crunch. Even to improve the energy situation huge investment and mostly foreign direct investments (FDIs) are essential. But the present government policies, investment climate and unfriendly attitude of a section of civil society are discouraging investors to invest here. Huge untapped natural resources -- coal and gas -- can not be explored until the government creates enabling environment. Three billion tonnes of high quality coal remains untapped as the government is groping in the dark with unnecessary policy considerations. The government itself cannot explore its petroleum resources and on the other hand a certain section of civil society is opposing International Oil Companies (IOCs) to explore and develop our resources.
The nation must come out of cheap slogans. We have our back to the wall. Bangladesh desperately needs huge FDIs. Countries like Malaysia and Thailand were behind us in 1970s. Now they are well ahead. Even countries like Vietnam, Laos and Cambodia are marching ahead. They do not create barriers and impediments to investment as we do. All parties need to come to a common stand for investor friendly national policy for energy sector development.