Removing constraints to attracting investment

In spite of some progress in removing a number of constraints on way to attracting investment, the country has failed to make a big headway in getting overseas funds so far. The impediments are inadequate infrastructure, financial constraints, bureaucratic delays, corruption and political violence.
 In its updated Investment Climate Statement 2015 on Bangladesh, the US State Department said corruption remains a serious impediment mostly to its investment activities and economic growth. The country however offers many opportunities for investment. It has achieved over 6.0 per cent annual growth sustained over the past two and a half decades, having a large, young and hard-working workforce, and vibrant private sector. All these have been noted in the afore-mentioned statement.
There is no denying that there are great scopes for investment in Bangladesh, especially in sectors like energy, power, pharmaceutical, information technology, telecommunications as well as in labour-intensive industries such as readymade garments, household textiles, and leather. Yet the entrepreneurs are often discouraged by slow and incomplete implementation of works for removing the bottlenecks relating to the regulatory regime and rule of law.
Bangladesh received $1.5b as foreign direct investment (FDI) in the fiscal year (FY), 2013-14, up from $990m in the previous year. This is a quite a nominal amount of investment compared to the total foreign investment that the entire South Asia region attracted. India, to mention, continues to the main beneficiary of FDI inflows to the whole region.
In Bangladesh, a weak and slow legal system does make the enforceability of contracts uncertain and its judicial system does not provide for interest to be charged in tort judgments, which means there is no penalty for delaying the proceedings.
The country's land registration is historically prone to disputes over competing titles. Scarcity of land is also a significant constraint to attracting or promoting investment. While the efficiency of its main seaport, Chittagong, has improved, the construction of a four-lane highway to connect Chittagong with the capital city of Dhaka is making a very slow progress.
Dispute settlement is mostly hampered by shortcomings in accounting practices and in the registration of real property. With the exception of those conducted by a few internationally affiliated accounting firms, audits of balance-sheets and profit and loss statements often follow clients' instructions and fail to conform to international standards.
Meantime, moves to ease public procurement rules and a recent constitutional amendment that 'reduced' the independence of the Anti-Corruption Commission (ACC) are likely to undermine institutional safeguards against corruption. Graft, including bribery, raises the costs and risks of doing business. Reports say off-the-record payments by firms result in an annual reduction of 2.0 to 3.0 per cent of gross domestic product (GDP). Certainly it deters investment, stifles economic growth, distorts prices, and undermines the rule of law.
On the other hand, private investment did not pick up to the expected level throughout the fiscal year mainly due to infrastructure deficit and political uncertainty. A sound political environment and an inclusive politics are seen as the key determining factors for stimulating private sector investment and regaining the GDP growth momentum.
The US State Department report furthermore underlined the need for ensuring political consensus and inclusive politics, expressing the hope that moves to such efforts would generate confidence among entrepreneurs and increase predictabilities so that investors could go for medium- and long-term investment in the country.
The capital flight is taking place in the forms of money laundering, manipulation in trade pricing and remittance outflow from the country. The amount of money being laundered from Bangladesh was surprisingly more than total inflow of foreign aid.
Reports say many countries including India, China and Japan are very serious about relocating their industries to Bangladesh. But the scarcity of land and gas is a major barrier to cashing in on such opportunities. A World Bank estimate shows if Bangladesh can provide 40,000 acres of land to the Chinese investors, around 1.5 million new jobs will be created. The government needs to give serious thought on searching left-over land for them.
Regrettably, reforms which could help the government boost domestic and foreign investment could not be implemented properly. For example, the public-private partnership law is yet to be finalised although 42 projects have been listed in the Annual Development Programme (ADP) for fiscal 2015-16. On the other hand, the Privatisation Commission (PC) remains inactive for long and is now expected to be merged with the Board of Investment (BoI). This was indicated by Finance Minister in his last budget speech on June 04.
All concerned will agree that large and lumpy investments from foreign sources should help expand the productive capacity of the country's economy, if reforms can be carried out properly. This will then offer a variety of new goods and services which would further promote sustained economic growth and social development.
Removal of physical infrastructure-related major impediments to investment promotion, concerned utilities, economic and legal infrastructure, and proper enforceability of laws and regulation is important. If such issues are effectively addressed, then attracting FDI will become a real possibility and not remain merely on the wish-list.
For this to happen, the overall environment of doing business has to be structurally made easier, cost effective and investment friendly. For a substantial increase in economic growth of a country, the aggregate domestic investment needs to be raised to the level of plus 30 per cent of the country's GDP.
    szkhanfe@gmail.com