Of investment and development
Friday, 26 September 2008
Jahangir Bin Alam
Investment, both domestic and foreign, is vital for economic development of a country, irrespective of its development status. It is more so for a developing country like Bangladesh.
Investment and development are interdependent phenomena. One cannot flourish in absence of the other. However, much depends on the socio-economic policies of a country in general and policies relating to trade and investment in particular. A stable political environment, existence of efficient and business friendly bureaucracy, credible law and order situation and an independent judiciary capable of quick judicial dispensation and business friendly policies are the sine quo non for attracting any investment, be it from within the country or outside.
Policies like - industrial policy, trade policy, fiscal policy, monetary policy, labour policy, energy policy and laws relating to protection of investment and intellectual property rights -- are critical for any investment to take place involving either local or foreign capital. Consistency of the fiscal and monetary policies plays an important role in the decision-making process of any prospective investor. Frequent changes in these two policies in particular are discouraging for any investment decision. But, mere having investment friendly policies on paper are not sufficient for attracting investments. If the ground realities are different from the written policies of a country, no investor worth its name will be interested to invest there.
Holding road shows, organising media campaigns and showering sermons from time to time by the top functionaries of the state are not enough to convince prospective investors both domestic and foreign. Before deciding to invest in any location, it is only natural that an investor in general and foreign investor in particular, would look into the prevailing investment climate vis-à-vis the written policies of the government. Furthermore, a prospective foreign investor would also try to know from the existing foreign investors operating in the country to know the prevailing ground realities.
It is customary that prior to taking any investment decision, a prospective investor, particularly a foreign one, would look into the state of infrastructural facilities in the country, like adequate supply of gas, electricity, water, high-speed data transmission etc. and also the state of it's economy.
Bangladesh scenario: A country with a population of 150 million Bangladesh is a significantly large market for any investor, whether domestic or foreign, to come forward with investment and market one's goods and services profitably, even if 20 per cent of the total population is targeted for the purpose.
The investment and trade-related policies of the country is seemingly very liberal and by far one of the best available in the South Asian region. All foreign investments are adequately protected by the Foreign Private Investment Promotion and Protection Act, 1980. However, on careful study, one would discover some gaps between the avowed policies of the government and the prevailing ground realities. Even, there are discrepancies between policies of different ministries of the government.
For example; the Industrial Policy of the country allows hundred per cent foreign investment in any industrial venture excepting in areas like nuclear energy, security printing (mint) and armament industry, but in the recently declared policy of Bangladesh Telecom Regulatory Authority (BTRC), instead of allowing hundred per cent foreign investment in Call Center operation, it allows only joint ventures having a maximum of forty five per cent foreign equity capital in any one venture. What a contradiction! If this is the scenario, then how can a prospective foreign investor repose any trust on the country and consider Bangladesh as an investment destination? Likewise, one can find several such inconsistencies in the policies of different government ministries/agencies.
Furthermore, for the last several years, investors' confidence is on wane due to various factors like unstable political situation, lack of political will of the power-that-be, coupled with dilly dally and inordinate bureaucratic delays in the decision-making of relevant government agencies and attendant corruption involved in the process. In addition, severe shortage of power and gas supply has cropped up as a major hindrances to investment. One cannot foresee any improvement of the situation in these two vital areas in the near future unless immediate positive steps are taken to the effect. These are the precise reasons for which prospective domestic and foreign investors are currently sitting on the fences and waiting for the situation to improve. But, no one knows when it will happen and investors will regain their confidence to come forward with their investments.
Moreover, in spite of the fact that there is severe shortage of power and gas in the country, during the last seven years or so, there has neither been any significant addition of electricity to the national power grid nor any effort undertaken towards exploration of new gas fields in spite of the fact that the country still boasts of having vast deposit of gas under its soil. Likewise, government's procrastination and indecision, coupled with uncalled-for blithering of a section of the so called environmentalists, are causing inordinate delay in harnessing another vital natural resource, coal, which could be profitably utilized for generation of power and easing the situation thereby.
It may be pointed out here that during the last four years or so, a good number of foreign investment proposals worth more than seven billion U.S. dollars from some internationally reputed business houses like Tata of India, Global Oil and Energy Limited of UK (Mittal Group), Abu Dhabi Group of UAE, Essar Group of India, Azmat Corporation of Malaysia and the Italian-Thai Development of Thailand could not see the light of the day due to lack of political will of both the incumbent and immediate past governments, lack of negotiating capacity coupled with inefficiency of the bureaucracy and shemozzle created by a section of political and environmental activists for reasons best known to them.
It is no wonder that according to the recently (September 3, 2008) released World Bank's hassle-free environment for "Doing Business Report", Bangladesh's ranking has gone down by six steps to 110 this year from 104 in the last year.
However, in spite of various constraints stated above, there have been significant investments (both domestic and foreign) in almost all sectors of the economy of Bangladesh over the last two and a half decades with resultant economic development which is also remarkable. This was possible mainly due to the resilience and determination of the people of the country in general and entrepreneurship of the investors in particular. Had there been continuity and consistency of policies relating to investment and commitment of the incumbent and immediate past governments and also adequate infrastructure support, the country could have seen more investments and development that could have helped it to attain a much better position in the comity of nations than it has now.
Way forward: In order to come out of the existing morass, immediate measures will have to be undertaken to ensure policy continuity, remove existing contradictions between policies of various government ministries. To this end, the government should also undertake administrative reforms by shunning the age-old system of recruitment and try to appoint officers at the policy and decision-making levels of, at least, in those ministries and agencies that are concerned with investment, trade and providing utility services by taking highly educated and skilled personnel from outside the cadre services on contractual basis for which special compensation packages based on their market values have to be ensured.
Further, for improvement of power and gas supply situation in the country, an immediate action plan must be devised with a view to encouraging prospective private domestic investors in the power sector to set up as many small-and medium-sized power plants as possible, especially in various industrial zones of the country. To this end, duty free import of plant machinery should be allowed and the hassle of going through mandatory bidding process must be done away with. But in their turn, the private power producers must offer to sell their generated electricity to the relevant government agencies like PDB, DESA, REB etc., at a reasonable unit price. And towards improvement of natural gas supply situation, Bangladesh Petroleum Exploration Company (BAPEX) should be entrusted to undertake new exploration projects in prospective locations for which necessary fund should be provided by the state. Fund for the purpose could be allocated fro wage earners remittances.
(The writer is a former Secretary, Bangladesh Foreign Investors' Chamber of Commerce and Industry or FICCI)
Investment, both domestic and foreign, is vital for economic development of a country, irrespective of its development status. It is more so for a developing country like Bangladesh.
Investment and development are interdependent phenomena. One cannot flourish in absence of the other. However, much depends on the socio-economic policies of a country in general and policies relating to trade and investment in particular. A stable political environment, existence of efficient and business friendly bureaucracy, credible law and order situation and an independent judiciary capable of quick judicial dispensation and business friendly policies are the sine quo non for attracting any investment, be it from within the country or outside.
Policies like - industrial policy, trade policy, fiscal policy, monetary policy, labour policy, energy policy and laws relating to protection of investment and intellectual property rights -- are critical for any investment to take place involving either local or foreign capital. Consistency of the fiscal and monetary policies plays an important role in the decision-making process of any prospective investor. Frequent changes in these two policies in particular are discouraging for any investment decision. But, mere having investment friendly policies on paper are not sufficient for attracting investments. If the ground realities are different from the written policies of a country, no investor worth its name will be interested to invest there.
Holding road shows, organising media campaigns and showering sermons from time to time by the top functionaries of the state are not enough to convince prospective investors both domestic and foreign. Before deciding to invest in any location, it is only natural that an investor in general and foreign investor in particular, would look into the prevailing investment climate vis-à-vis the written policies of the government. Furthermore, a prospective foreign investor would also try to know from the existing foreign investors operating in the country to know the prevailing ground realities.
It is customary that prior to taking any investment decision, a prospective investor, particularly a foreign one, would look into the state of infrastructural facilities in the country, like adequate supply of gas, electricity, water, high-speed data transmission etc. and also the state of it's economy.
Bangladesh scenario: A country with a population of 150 million Bangladesh is a significantly large market for any investor, whether domestic or foreign, to come forward with investment and market one's goods and services profitably, even if 20 per cent of the total population is targeted for the purpose.
The investment and trade-related policies of the country is seemingly very liberal and by far one of the best available in the South Asian region. All foreign investments are adequately protected by the Foreign Private Investment Promotion and Protection Act, 1980. However, on careful study, one would discover some gaps between the avowed policies of the government and the prevailing ground realities. Even, there are discrepancies between policies of different ministries of the government.
For example; the Industrial Policy of the country allows hundred per cent foreign investment in any industrial venture excepting in areas like nuclear energy, security printing (mint) and armament industry, but in the recently declared policy of Bangladesh Telecom Regulatory Authority (BTRC), instead of allowing hundred per cent foreign investment in Call Center operation, it allows only joint ventures having a maximum of forty five per cent foreign equity capital in any one venture. What a contradiction! If this is the scenario, then how can a prospective foreign investor repose any trust on the country and consider Bangladesh as an investment destination? Likewise, one can find several such inconsistencies in the policies of different government ministries/agencies.
Furthermore, for the last several years, investors' confidence is on wane due to various factors like unstable political situation, lack of political will of the power-that-be, coupled with dilly dally and inordinate bureaucratic delays in the decision-making of relevant government agencies and attendant corruption involved in the process. In addition, severe shortage of power and gas supply has cropped up as a major hindrances to investment. One cannot foresee any improvement of the situation in these two vital areas in the near future unless immediate positive steps are taken to the effect. These are the precise reasons for which prospective domestic and foreign investors are currently sitting on the fences and waiting for the situation to improve. But, no one knows when it will happen and investors will regain their confidence to come forward with their investments.
Moreover, in spite of the fact that there is severe shortage of power and gas in the country, during the last seven years or so, there has neither been any significant addition of electricity to the national power grid nor any effort undertaken towards exploration of new gas fields in spite of the fact that the country still boasts of having vast deposit of gas under its soil. Likewise, government's procrastination and indecision, coupled with uncalled-for blithering of a section of the so called environmentalists, are causing inordinate delay in harnessing another vital natural resource, coal, which could be profitably utilized for generation of power and easing the situation thereby.
It may be pointed out here that during the last four years or so, a good number of foreign investment proposals worth more than seven billion U.S. dollars from some internationally reputed business houses like Tata of India, Global Oil and Energy Limited of UK (Mittal Group), Abu Dhabi Group of UAE, Essar Group of India, Azmat Corporation of Malaysia and the Italian-Thai Development of Thailand could not see the light of the day due to lack of political will of both the incumbent and immediate past governments, lack of negotiating capacity coupled with inefficiency of the bureaucracy and shemozzle created by a section of political and environmental activists for reasons best known to them.
It is no wonder that according to the recently (September 3, 2008) released World Bank's hassle-free environment for "Doing Business Report", Bangladesh's ranking has gone down by six steps to 110 this year from 104 in the last year.
However, in spite of various constraints stated above, there have been significant investments (both domestic and foreign) in almost all sectors of the economy of Bangladesh over the last two and a half decades with resultant economic development which is also remarkable. This was possible mainly due to the resilience and determination of the people of the country in general and entrepreneurship of the investors in particular. Had there been continuity and consistency of policies relating to investment and commitment of the incumbent and immediate past governments and also adequate infrastructure support, the country could have seen more investments and development that could have helped it to attain a much better position in the comity of nations than it has now.
Way forward: In order to come out of the existing morass, immediate measures will have to be undertaken to ensure policy continuity, remove existing contradictions between policies of various government ministries. To this end, the government should also undertake administrative reforms by shunning the age-old system of recruitment and try to appoint officers at the policy and decision-making levels of, at least, in those ministries and agencies that are concerned with investment, trade and providing utility services by taking highly educated and skilled personnel from outside the cadre services on contractual basis for which special compensation packages based on their market values have to be ensured.
Further, for improvement of power and gas supply situation in the country, an immediate action plan must be devised with a view to encouraging prospective private domestic investors in the power sector to set up as many small-and medium-sized power plants as possible, especially in various industrial zones of the country. To this end, duty free import of plant machinery should be allowed and the hassle of going through mandatory bidding process must be done away with. But in their turn, the private power producers must offer to sell their generated electricity to the relevant government agencies like PDB, DESA, REB etc., at a reasonable unit price. And towards improvement of natural gas supply situation, Bangladesh Petroleum Exploration Company (BAPEX) should be entrusted to undertake new exploration projects in prospective locations for which necessary fund should be provided by the state. Fund for the purpose could be allocated fro wage earners remittances.
(The writer is a former Secretary, Bangladesh Foreign Investors' Chamber of Commerce and Industry or FICCI)