Keeping private sector on the investment path
Saturday, 29 November 2008
Ferdous Alam
THE smaller the role of the government in the economy, the better the prospect for efficient use of scarce resources for development goals. Following this principle, Bangladesh has been striving to achieve private sector-led economic growth over last two decades. This transformed the economy remarkably. The state sector has considerably shrunk. The economy has diversified under the private sector. Nonetheless, the private sector entrepreneurs in different fields could achieve a great deal more with better official policy support and the facilities in place.
The recent prescription by a multilateral capital donor for faster private sector led growth had nothing new. However, the government can take a fresh look at the prescription and do what needs to be done in line with the proposals. The donor agency identified poor power supply as the most important infrastructural constraint facing the private sector growth. The life-blood of any economy, power is the basic requirement for running industries or the services. But, the gap between the demand for, and supply of, power has been widening alarmingly with all its negative consequences.
Industrial investments could come to nothing unless the power generation capacity is increased. New industrial investment would remain shy until power supply improves. It is imperative for the government, now and in the future, to substantially increase the power generation capacity at the fastest. All government-sponsored plans to this end must be completed and quickly. Generation of power in any substantial amount by the private sector is yet not in sight. Notwithstanding the latest decision by the council of advisers for facilitating the entry of private sector to areas of generating power, uncertainties yet linger on, about the availability of inputs for power supply and purchase of the same by government on cost-plus basis.
Such uncertainties must go at the soonest to allow greater involvement of the private sector in power generation. The use of the other main source of energy must also increase. Gas supply to existing industrial areas needs to improve. The extension of gas supply network, to the regions not covered, will allow the private sector to go for rapid industrialisation of those areas.
Inadequacy of roads, telecommunications, acting as infrastructural bottlenecks, needs to addressed, and on an urgent basis, to support and encourage private investments. Efforts for modernisation, improvement and expansion of ports for better and faster handling of exports and imports will require to be stepped up for bettering infrastructure. A quicker progress is infrastructure improvement will motivate the investors and entrepreneurs alike.
Private initiative is encouraged when government policies are seen as favourable over the long term. Withdrawal of tax breaks, high lending rates, skewed tariffs that favour imported products over rival domestic producers, high corporate tax and other similar fiscal and monetary policies act as disincentive to investment. The government will, therefore, need to create a sustained policy environment to encourage the private sector take the path of investment.
THE smaller the role of the government in the economy, the better the prospect for efficient use of scarce resources for development goals. Following this principle, Bangladesh has been striving to achieve private sector-led economic growth over last two decades. This transformed the economy remarkably. The state sector has considerably shrunk. The economy has diversified under the private sector. Nonetheless, the private sector entrepreneurs in different fields could achieve a great deal more with better official policy support and the facilities in place.
The recent prescription by a multilateral capital donor for faster private sector led growth had nothing new. However, the government can take a fresh look at the prescription and do what needs to be done in line with the proposals. The donor agency identified poor power supply as the most important infrastructural constraint facing the private sector growth. The life-blood of any economy, power is the basic requirement for running industries or the services. But, the gap between the demand for, and supply of, power has been widening alarmingly with all its negative consequences.
Industrial investments could come to nothing unless the power generation capacity is increased. New industrial investment would remain shy until power supply improves. It is imperative for the government, now and in the future, to substantially increase the power generation capacity at the fastest. All government-sponsored plans to this end must be completed and quickly. Generation of power in any substantial amount by the private sector is yet not in sight. Notwithstanding the latest decision by the council of advisers for facilitating the entry of private sector to areas of generating power, uncertainties yet linger on, about the availability of inputs for power supply and purchase of the same by government on cost-plus basis.
Such uncertainties must go at the soonest to allow greater involvement of the private sector in power generation. The use of the other main source of energy must also increase. Gas supply to existing industrial areas needs to improve. The extension of gas supply network, to the regions not covered, will allow the private sector to go for rapid industrialisation of those areas.
Inadequacy of roads, telecommunications, acting as infrastructural bottlenecks, needs to addressed, and on an urgent basis, to support and encourage private investments. Efforts for modernisation, improvement and expansion of ports for better and faster handling of exports and imports will require to be stepped up for bettering infrastructure. A quicker progress is infrastructure improvement will motivate the investors and entrepreneurs alike.
Private initiative is encouraged when government policies are seen as favourable over the long term. Withdrawal of tax breaks, high lending rates, skewed tariffs that favour imported products over rival domestic producers, high corporate tax and other similar fiscal and monetary policies act as disincentive to investment. The government will, therefore, need to create a sustained policy environment to encourage the private sector take the path of investment.