Rationalising cost of doing business

The crossing of 32-kilometre Sitakundu section of the Dhaka-Chittagong highway can be likened to the crossing of the world's largest ocean, the Pacific.
This was how the head of the Bangladesh Foreign Trade Institute (BFTI) wanted to explain last Saturday the difficulties businesses face in Bangladesh. He was speaking at a function organized to mark the launching of the 'Asia-Pacific Trade Investment Report-2013' of the ESCAP in Bangladesh.
Deplorable road conditions and unending traffic gridlock have made that particular section of the highway unusually troublesome. Passenger buses as well as goods-laden trucks and trailers remain stuck up in traffic gridlock for hours together on that part of the highway.
The situation in other parts of the highway is not as bad as that of the Sitakundu section, crossing of which of late is offering a nightmarish experience due to unabated violent activities on the part a section of activists of a particular political party.
The relevant section of the ESCAP report, which was officially launched in Bangkok on November 18 last, also highlighted some hard facts about high cost of doing business in Bangladesh.
It said the cost of doing business in Bangladesh, a least developed country (LDC), is more than that of many developed countries. The cost is 100 per cent more than Malaysia and that of the world's two top resourceful countries---the USA and China.
The report has suggested increased dependence on paperless process of completing business-related formalities, lowering of lending rates by banks and beefing up of the efficiency level at the seaports would help reduce cost of doing business in Bangladesh.
One might not be ready to accept the contention that the cost of doing business here is more than China or the USA. But the report probably has taken into account the proportionate costs involved in the completion of all formalities required to start a business and also the economic costs of hassles a businessman has to undergo while starting a business.
There is no denying that with the spread of information technology, the hassles involved in completing the business-related formalities in Bangladesh are less than before. But the paper-based transactions, which also facilitate under-the-table payments, do still play an important role in government offices. If paperless transactions could be ensured in the case of business-related formalities, the cost of doing business, according to the ESCAP report, would come down by 6.0 to 7.0 per cent. But the process of automation in public sector organisations has been very slow with a motive to continue with the paper-based transactions.
Formal credit plays a very important role in trade and business all over the world and Bangladesh businesses are no exception. But the cost of credit made available by both formal and informal institutions is very high in this country. The rate of interest on credit, which is generally taken by small and medium business units, available in the informal market is exorbitant and the government, in fact, has no control over the same.
Then again credit offered by formal banking and non-banking institutions is also expensive. Banks charge interest rates between 16 per cent and 18 per cent on loans though the borrowers prefer a single digit rate of interest. The ESCAP report estimates that a single digit interest rate could help businesses to lower their operational costs by 5 to 6 per cent.
Historically, funds lent by formal institutions in Bangladesh have been far more expensive than other countries including the regional ones. It is not that high profit motive has a role in it. Rather managerial inefficiency coupled with presence of sizeable volume of non-performing loans has forced the banks to charge more on the borrowers.  
For year after year, businesses had to borrow funds from domestic banks at higher rate of interests since they had no alternative. But the situation has changed, of late. A good number of large private business houses have borrowed from sources outside the country at reasonable rates of interests. The government, which now finds itself in a very comfortable position as far as the reserve is concerned, appears to be generous in granting permission to the private sector to take foreign loans. However, small and medium businesses have no other way but to take expensive loans from banks operating in the country.
Banks, if they really mean business, can bring down their lending rates by raising their efficiency level and improving the classified loan situation. A decisive role of the banking sector regulator will also be necessary to make it happen.
Similarly, inefficiency and mismanagement at the seaports have been taking a heavy toll on businesses for long. The situation has improved in recent years but not up to the desired level.
It is not that issues that have been contributing to the high cost of doing business in Bangladesh are difficult to address. If the government is sincere and means business and other stakeholders are cooperative enough, the cost could be brought down to a tolerable level.
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