Investment realities and business confidence
Monday, 9 November 2009
The findings of the recent survey about the state of business confidence in the country do otherwise give an encouraging signal. Jointly carried out by the Bangladesh chapter of the International Chamber of Commerce (ICB) and the Bangladesh Investment Climate Fund (BICF) recently, the survey has found 'a better business confidence' in the third quarter of the year. It expects a further improvement in the situation in the current (fourth) quarter. The majority of the respondents to the survey, who included 778 big, medium and small firms, have reported the return of confidence in the third quarter. Furthermore, such respondents are confident of making higher profit in the fourth quarter, leading to increased investments and, then, creation of more jobs.
The survey is based more on 'feel good' experience of the respondents than on statistics supporting business growth in the third quarter. Yet then, the very expectation about a turnaround of the situation in the current quarter, in the backdrop of a global recession, one of the worst in the world history, and a not-so-inspiring actual domestic investment, augurs well for the economy. This expectation of the businesses is, perhaps, based on the economic data released for the past few weeks in the developed markets. The recession, as such data indicate, is losing its grip fast then. However, US Federal Reserve Chairman Ben Breanne is not yet fully convinced about it. In an address delivered at the Brookings Institution, a leading think tank in Washington, about three weeks back, he said the recession is 'technically' over but the US economy would continue to be very weak for some time.
Thus, while the world's largest economy, one of the major destinations of Bangladesh exports, is now recovering -- albeit slowly, any spectacular improvement in the demand for goods and services there is unlikely to be witnessed in next few months. The experts have been stating that the US firms would soon be requiring more workforce but the reality is that about 200,000 people lost jobs last October there. This is a 26-year high unemployment rate at the moment. If such negative economic developments in the US and other major western economies continue to persist, that would obviously hurt the Bangladesh's export-oriented manufacturing sector.
Moreover, there are a few concerns about the domestic economy, the major ones being lackluster investment activities and threat of higher inflation. The ICCB-BICF survey has also identified slacks in investment activities, particularly in large and manufacturing industries, as one of the negative aspects of the economy. The presence of high level excess liquidity and lowering of lending rates have not helped to reverse the situation. The flow of funds to the real sectors of the economy, manufacturing included, has, thus, been poor in recent times. Global recession earlier discouraged investment. But domestic factors such as shortage of power and gas have now compounded the problems.
There is no denying of a surge of entrepreneurial interest in the country's services sector and small scale firm activities. Furthermore, benchmark Dhaka Stock Exchange's General Index (DGEN) has also been going up and up, defying the regulator's caution. But there is yet no turnaround of the situation as far as manufacturing sector is concerned. The decline in capital machinery imports in recent months does amply bear this out. Therefore, notwithstanding the positive indications about stable demand for consumer goods and growth of services sector -- though at a level lower than good times -- the threat of higher inflation, as has recently been projected by the International Monetary Fund (IMF) remains a cause for wider concern. This is largely because of the presence of high level of excess liquidity and the rise in prices of fuel oil and commodities in the international market. This may adversely affect the conditions of operations for all business firms, irrespective of the size of their operations. In this context, the government will need to demonstrate some urgency, more in deeds than in words, for improving power and energy supply situation and to also be careful in dealing with all other factors, political or otherwise, so that things for facilitating private sector investments, move in the right direction at the desired speed.
The survey is based more on 'feel good' experience of the respondents than on statistics supporting business growth in the third quarter. Yet then, the very expectation about a turnaround of the situation in the current quarter, in the backdrop of a global recession, one of the worst in the world history, and a not-so-inspiring actual domestic investment, augurs well for the economy. This expectation of the businesses is, perhaps, based on the economic data released for the past few weeks in the developed markets. The recession, as such data indicate, is losing its grip fast then. However, US Federal Reserve Chairman Ben Breanne is not yet fully convinced about it. In an address delivered at the Brookings Institution, a leading think tank in Washington, about three weeks back, he said the recession is 'technically' over but the US economy would continue to be very weak for some time.
Thus, while the world's largest economy, one of the major destinations of Bangladesh exports, is now recovering -- albeit slowly, any spectacular improvement in the demand for goods and services there is unlikely to be witnessed in next few months. The experts have been stating that the US firms would soon be requiring more workforce but the reality is that about 200,000 people lost jobs last October there. This is a 26-year high unemployment rate at the moment. If such negative economic developments in the US and other major western economies continue to persist, that would obviously hurt the Bangladesh's export-oriented manufacturing sector.
Moreover, there are a few concerns about the domestic economy, the major ones being lackluster investment activities and threat of higher inflation. The ICCB-BICF survey has also identified slacks in investment activities, particularly in large and manufacturing industries, as one of the negative aspects of the economy. The presence of high level excess liquidity and lowering of lending rates have not helped to reverse the situation. The flow of funds to the real sectors of the economy, manufacturing included, has, thus, been poor in recent times. Global recession earlier discouraged investment. But domestic factors such as shortage of power and gas have now compounded the problems.
There is no denying of a surge of entrepreneurial interest in the country's services sector and small scale firm activities. Furthermore, benchmark Dhaka Stock Exchange's General Index (DGEN) has also been going up and up, defying the regulator's caution. But there is yet no turnaround of the situation as far as manufacturing sector is concerned. The decline in capital machinery imports in recent months does amply bear this out. Therefore, notwithstanding the positive indications about stable demand for consumer goods and growth of services sector -- though at a level lower than good times -- the threat of higher inflation, as has recently been projected by the International Monetary Fund (IMF) remains a cause for wider concern. This is largely because of the presence of high level of excess liquidity and the rise in prices of fuel oil and commodities in the international market. This may adversely affect the conditions of operations for all business firms, irrespective of the size of their operations. In this context, the government will need to demonstrate some urgency, more in deeds than in words, for improving power and energy supply situation and to also be careful in dealing with all other factors, political or otherwise, so that things for facilitating private sector investments, move in the right direction at the desired speed.