PPP for building infrastructure
Syed Fattahul Alim | Tuesday, 12 August 2008
The slow pace of foreign investment in the economy, despite all the publicity campaigns to this end launched by the successive governments, has often been an issue of discomfort among the policymakers as well as the intelligentsia. That the corrupt and lax bureaucracy is a serious impediment to the accelerated level of investment, both domestic and foreign, has time and again been discussed in this column. But this discourse is also one of the oldest and longest running one in the media and among the enlightened section of society. Every government that came and went since independence has also recognised the verity of this assertion. However, what has been the outcome of all such concerns and deliberations is another matter.
The bureaucracy apart, another no less serious impediment to the growth in general and inflow of foreign investment in particular has now taken the centre stage of all such deliberations. This is about the very poor state of the physical infrastructure in the country. The generally-held view of the people about the issue of infrastructure development in the country is that it is the government that should address the issue. There is no doubt truth in this general perception of things so far as it concerns the development of infrastructure in any country of the world. In fact, the lion's share of the revenue the government collects from its citizens is used in the infrastructure building, education and various other sectors dedicated to public good. In recent times, there has been sea change in this commonly held perception of the issue. Nowadays, the private sector has joined hands with the government in a big way to build the physical and other infrastructures of a country. This has been possible after the private sector of the economy received serious push, especially after the 1990s in different parts of the world.
The finance adviser the other day was putting in a similar view at a workshop jointly orgainsed by the Board of Investment (BoI), the Private Infrastructure Committee (PiC) and the Islamic Research and Training Institute of the Islamic Development Bank (IDB), while the Infrastructure Investment Facilitation Centre (IIFC) was moderating the event. In his deliberations, the finance adviser admitted the fact that the poor condition of the infrastructure of the country is due mainly to the fund constraint faced by the government. And the reason for this state of affairs is also obvious. While the low revenue income of the country compared to its Gross Domestic Product (GDP), expressed in terms of the tax GDP ratio, has remained within the range of 8.0 to 9.0 per cent during the last two decades, all the government's efforts at improving the physical and other infrastructures remained beholden to the assistance from its bilateral and multilateral donor. However, it is another story how far the donors finally lived up to their commitments, which often fell short of the advice and criticisms heaped on the recipients of such assistance, if any. The upshot of all this has been that the physical infrastructures including power, telecommunication facilities, ports, the railways and such other ingredients of development could never present a welcome prospect before the overseas investors. The government, on the other hand, remained ever constrained by its fund shortage to create the proper environment for the investors to put in their money with delight in this part of the world. What is worse, capital has often shown its propensity to fly out of the country than flowing into it in a big way. The trend, however, has been changed by the rather less enlightened section of the populace mainly from the rural backwaters of the country. They have perennially proved themselves to be true patriots throughout history. The subject of patriotism, however, is not quite out of place when one is talking of the flight of capital and investment. This is truer at the moment when many people from the middle and upper class background are seeking citizenships of the advanced countries in exchange for their assets at home thereby depriving the country of their contribution in the economy. Oddly though, at exactly the same time, the less enlightened section of the population from the countryside that travelled abroad in search of jobs has turned the tide. Their remittance, which is growing in volume every passing month, has turned out to be fulcrum of the foreign exchange reserve of the economy. As a matter of fact, when the business is in doldrums, the import cost is soaring rapidly tilting the foreign exchange reserve alarmingly, the robust inflow of foreign remittance has come as a godsend for the economy. The foreign exchange reserve, which should at least be able to finance three months' import bill, did in recent weeks go down below the level of US$6 billion. However, the government is not perturbed seeing that the volume of foreign remittance continues to demonstrate as vigorous trend as ever.
The slight detour aims to show how the economy has managed to keep itself afloat, despite the fact that the government has remained severely handicapped due to its poor revenue profile. One needs to point out here that the poor state of the government's revenue earning should again be attributed to its own mechanism, especially to the capacity and efficiency of the National Board of Revenue (NBR).
All these constraints faced by the government have been reflected through the government's lack of capacity for investing in infrastructure. A comparison with the South Asian nations will show what a desperate plight our economic infrastructure is in, if only due to the poor level of the private sector's participation in its development. Even in India, where public sector played a major role even until early 1990s, Bangladesh, in contrast, had opened up its economy to the private sector a decade earlier. What is the present scenario in this respect? It was disclosed in the aforementioned workshop that between 1990 and 2004, private sector's participation in the country's infrastructure building was only 4.0 per cent of the total, while in India it was an astronomical 76 per cent. Even Pakistan far outstripped us with its private sector participating at 16 per cent in their infrastructure.
It is not that our private sector has remained totally aloof from investing in the private sector. The 360 MW capacity Haripur and the 450 MW capacity Meghnaghat power plants are good examples of how our private sector is contributing towards building the extremely vital areas of the infrastructure. The telecommunication is another area of infrastructure where the private sector has been participating in a big way.
But one cannot also expect that the fledgling private sector of the country would be able to share, like in India, the larger part of the infrastructure building for the country. The best solution would be, as the finance adviser suggested, for the private sector to join hands with the public sector under what is known as the Public-Private Partnership (PPP) arrangement.
Since both the government and the private sector of the country are constrained, they can complement one another and together put their shoulder to the wheel of building the country's infrastructure.
However, to avoid duplication and overlapping, the government needs to prioritise the areas where the PPP should work. Meanwhile, the government should also streamline the bureaucracy further so that the private sector might do its part smoothly without the stiff bureaucracy coming in its way from time to time throwing a spanner in the works.
Though there is no limit to how better one may develop the infrastructure of a country, it would be wise to first address the existing bottlenecks. According to an estimate, the country at the moment needs US$9 billion to develop its basic infrastructure to an acceptable level. It will not be hard for the public and the private sector together to mobilise the fund. If the PPP, as envisaged, is properly developed, the country would no more need to go from one donor's door to another for the fund to build its necessary infrastructure.
Once the objective of building the basic infrastructure of the economy is achieved, the entrepreneurs, whether overseas or domestic, would then find it more gainful to invest their money in Bangladesh. A well-developed infrastructure speaks for itself and, in that case, one does not need to go out of one's way to court the foreign investors.
The bureaucracy apart, another no less serious impediment to the growth in general and inflow of foreign investment in particular has now taken the centre stage of all such deliberations. This is about the very poor state of the physical infrastructure in the country. The generally-held view of the people about the issue of infrastructure development in the country is that it is the government that should address the issue. There is no doubt truth in this general perception of things so far as it concerns the development of infrastructure in any country of the world. In fact, the lion's share of the revenue the government collects from its citizens is used in the infrastructure building, education and various other sectors dedicated to public good. In recent times, there has been sea change in this commonly held perception of the issue. Nowadays, the private sector has joined hands with the government in a big way to build the physical and other infrastructures of a country. This has been possible after the private sector of the economy received serious push, especially after the 1990s in different parts of the world.
The finance adviser the other day was putting in a similar view at a workshop jointly orgainsed by the Board of Investment (BoI), the Private Infrastructure Committee (PiC) and the Islamic Research and Training Institute of the Islamic Development Bank (IDB), while the Infrastructure Investment Facilitation Centre (IIFC) was moderating the event. In his deliberations, the finance adviser admitted the fact that the poor condition of the infrastructure of the country is due mainly to the fund constraint faced by the government. And the reason for this state of affairs is also obvious. While the low revenue income of the country compared to its Gross Domestic Product (GDP), expressed in terms of the tax GDP ratio, has remained within the range of 8.0 to 9.0 per cent during the last two decades, all the government's efforts at improving the physical and other infrastructures remained beholden to the assistance from its bilateral and multilateral donor. However, it is another story how far the donors finally lived up to their commitments, which often fell short of the advice and criticisms heaped on the recipients of such assistance, if any. The upshot of all this has been that the physical infrastructures including power, telecommunication facilities, ports, the railways and such other ingredients of development could never present a welcome prospect before the overseas investors. The government, on the other hand, remained ever constrained by its fund shortage to create the proper environment for the investors to put in their money with delight in this part of the world. What is worse, capital has often shown its propensity to fly out of the country than flowing into it in a big way. The trend, however, has been changed by the rather less enlightened section of the populace mainly from the rural backwaters of the country. They have perennially proved themselves to be true patriots throughout history. The subject of patriotism, however, is not quite out of place when one is talking of the flight of capital and investment. This is truer at the moment when many people from the middle and upper class background are seeking citizenships of the advanced countries in exchange for their assets at home thereby depriving the country of their contribution in the economy. Oddly though, at exactly the same time, the less enlightened section of the population from the countryside that travelled abroad in search of jobs has turned the tide. Their remittance, which is growing in volume every passing month, has turned out to be fulcrum of the foreign exchange reserve of the economy. As a matter of fact, when the business is in doldrums, the import cost is soaring rapidly tilting the foreign exchange reserve alarmingly, the robust inflow of foreign remittance has come as a godsend for the economy. The foreign exchange reserve, which should at least be able to finance three months' import bill, did in recent weeks go down below the level of US$6 billion. However, the government is not perturbed seeing that the volume of foreign remittance continues to demonstrate as vigorous trend as ever.
The slight detour aims to show how the economy has managed to keep itself afloat, despite the fact that the government has remained severely handicapped due to its poor revenue profile. One needs to point out here that the poor state of the government's revenue earning should again be attributed to its own mechanism, especially to the capacity and efficiency of the National Board of Revenue (NBR).
All these constraints faced by the government have been reflected through the government's lack of capacity for investing in infrastructure. A comparison with the South Asian nations will show what a desperate plight our economic infrastructure is in, if only due to the poor level of the private sector's participation in its development. Even in India, where public sector played a major role even until early 1990s, Bangladesh, in contrast, had opened up its economy to the private sector a decade earlier. What is the present scenario in this respect? It was disclosed in the aforementioned workshop that between 1990 and 2004, private sector's participation in the country's infrastructure building was only 4.0 per cent of the total, while in India it was an astronomical 76 per cent. Even Pakistan far outstripped us with its private sector participating at 16 per cent in their infrastructure.
It is not that our private sector has remained totally aloof from investing in the private sector. The 360 MW capacity Haripur and the 450 MW capacity Meghnaghat power plants are good examples of how our private sector is contributing towards building the extremely vital areas of the infrastructure. The telecommunication is another area of infrastructure where the private sector has been participating in a big way.
But one cannot also expect that the fledgling private sector of the country would be able to share, like in India, the larger part of the infrastructure building for the country. The best solution would be, as the finance adviser suggested, for the private sector to join hands with the public sector under what is known as the Public-Private Partnership (PPP) arrangement.
Since both the government and the private sector of the country are constrained, they can complement one another and together put their shoulder to the wheel of building the country's infrastructure.
However, to avoid duplication and overlapping, the government needs to prioritise the areas where the PPP should work. Meanwhile, the government should also streamline the bureaucracy further so that the private sector might do its part smoothly without the stiff bureaucracy coming in its way from time to time throwing a spanner in the works.
Though there is no limit to how better one may develop the infrastructure of a country, it would be wise to first address the existing bottlenecks. According to an estimate, the country at the moment needs US$9 billion to develop its basic infrastructure to an acceptable level. It will not be hard for the public and the private sector together to mobilise the fund. If the PPP, as envisaged, is properly developed, the country would no more need to go from one donor's door to another for the fund to build its necessary infrastructure.
Once the objective of building the basic infrastructure of the economy is achieved, the entrepreneurs, whether overseas or domestic, would then find it more gainful to invest their money in Bangladesh. A well-developed infrastructure speaks for itself and, in that case, one does not need to go out of one's way to court the foreign investors.