Improved connectivity imperative to bolster rural growth: IFC
Sunday, 9 November 2008
Naim-Ul-Karim
Better connectivity with markets, in terms of transportation, telecommunications, finance, and use of cutting edge technology are imperative to bolster growth in businesses in the country's small towns, villages and hinterland areas, a top International Finance Corporation (IFC) official said on Friday.
Syed Akhtar Mahmood, senior programme manager of the Bangladesh Investment Climate Fund (BICF) of the IFC, said there is also urgent need for measures to improve the risk management capacity of banks and introduction of newer financial products, especially for Small and Medium Enterprises, enhanced coverage of the credit information bureaus, and effort to move away from the current heavy dependence on land based collateral.
Referring to the World Bank's second Investment Climate Assessment (ICA) for Bangladesh released recently, he said: "Access to finance remains an important constraint."
Bank loans are typically short-term, about 70 per cent of the loans obtained by the survey respondents had a term less than three years, the bulk of these were in fact of less than one-year term. About 90 per cent of the loans required collateral and in most cases the collateral demanded was land, he added, referring to the ICA.
Mr. Mahmood also an economist said: "We need to address the hurdles if we are to move away from the current situation where an inordinately large proportion of economic activity is carried out in and around Dhaka, putting enormous pressure on the resources and environment in this area while the rest of the country lags behind."
He said the ICA indicates that smaller and younger firms are more productive in spite of a difficult investment climate.
Poor connectivity of the smaller towns and semi urban areas with large markets are seemed as serious obstacle in doing businesses. Infrastructure bottlenecks, and limited subcontracting due to poor contract enforcement, and low quality of production compound these problems for these businesses, he added.
The senior official of the IFC, a private sector arm of the World Bank, said in addition to the much talked-about infrastructure improvements, particularly in the energy sector and the port, greater attention needs to be put in developing the skill base of the country and in easing the supply of industrial land.
Productivity growth in Bangladesh, recorded at a steady rate of around 6 per cent growth in the past five years, were below potential, with inefficient allocation of resources even within the most potential sectors, Mr. Mahmood said.
He said weak financial markets are a major reason for this - they prevent resources from flowing to more productive smaller firms. However, inadequate competition, whether from imports or domestic production, is another factor. This reduces the incentives for larger firms to innovate, become more efficient and exploit the economies of scale.
"On land, we need an overall land use policy, a land database, a modern economic zones regime, and radically improved land administration, he said, adding, "There is a need to develop a sense of urgency in addressing these problems."
In addition to improving the overall educational system, he said there is a need to revamp the vocational training system in the country, especially through public-private partnerships.
Better connectivity with markets, in terms of transportation, telecommunications, finance, and use of cutting edge technology are imperative to bolster growth in businesses in the country's small towns, villages and hinterland areas, a top International Finance Corporation (IFC) official said on Friday.
Syed Akhtar Mahmood, senior programme manager of the Bangladesh Investment Climate Fund (BICF) of the IFC, said there is also urgent need for measures to improve the risk management capacity of banks and introduction of newer financial products, especially for Small and Medium Enterprises, enhanced coverage of the credit information bureaus, and effort to move away from the current heavy dependence on land based collateral.
Referring to the World Bank's second Investment Climate Assessment (ICA) for Bangladesh released recently, he said: "Access to finance remains an important constraint."
Bank loans are typically short-term, about 70 per cent of the loans obtained by the survey respondents had a term less than three years, the bulk of these were in fact of less than one-year term. About 90 per cent of the loans required collateral and in most cases the collateral demanded was land, he added, referring to the ICA.
Mr. Mahmood also an economist said: "We need to address the hurdles if we are to move away from the current situation where an inordinately large proportion of economic activity is carried out in and around Dhaka, putting enormous pressure on the resources and environment in this area while the rest of the country lags behind."
He said the ICA indicates that smaller and younger firms are more productive in spite of a difficult investment climate.
Poor connectivity of the smaller towns and semi urban areas with large markets are seemed as serious obstacle in doing businesses. Infrastructure bottlenecks, and limited subcontracting due to poor contract enforcement, and low quality of production compound these problems for these businesses, he added.
The senior official of the IFC, a private sector arm of the World Bank, said in addition to the much talked-about infrastructure improvements, particularly in the energy sector and the port, greater attention needs to be put in developing the skill base of the country and in easing the supply of industrial land.
Productivity growth in Bangladesh, recorded at a steady rate of around 6 per cent growth in the past five years, were below potential, with inefficient allocation of resources even within the most potential sectors, Mr. Mahmood said.
He said weak financial markets are a major reason for this - they prevent resources from flowing to more productive smaller firms. However, inadequate competition, whether from imports or domestic production, is another factor. This reduces the incentives for larger firms to innovate, become more efficient and exploit the economies of scale.
"On land, we need an overall land use policy, a land database, a modern economic zones regime, and radically improved land administration, he said, adding, "There is a need to develop a sense of urgency in addressing these problems."
In addition to improving the overall educational system, he said there is a need to revamp the vocational training system in the country, especially through public-private partnerships.