Sluggish investment — an unwelcome development for emerging economy

We are one of the ten newly emerging countries as identified by the Coface, a French credit insurer firm. Bangladesh is also listed among top twenty-five countries in terms of per capita income by the year 2050. Many economists are hopeful about Bangladesh's ability to reach the World Bank threshold of per capital income of USD 1,130 in 2016 and to attain the status of a middle-income country (MIC), maintaining a growth rate of 5.4 per cent. Our Prime Minister, however, wishes for the high income country (HIC) status, for which she will soon turn her Vision 2021 into Vision 2041. But, it depends on the least gap of potential and actual economic progresses.
The base of our economic potential includes demographic opportunity, non-interventionist orthodoxy and macroeconomic stability. We have USD 20 billion foreign exchange reserves equivalent to 12.8 per cent of the gross domestic product (GDP). Moreover, the economic freedom index shows that our trade-openness also increased from 20 to 50 per cent of the GDP during the last two decades.
Moreover, a 14 per cent export growth over a few years and a negative import growth in the last year have kept the government far from any external debt burden, which is now only 20 per cent of the GDP. Fiscal management is also getting stronger with a gradual increase of revenue collection from 8.3 to 13.4 per cent of the GDP during 1991-2013. In addition, the economy has experienced over 6 per cent growth and stepped up in poverty and some social indices.
Still, we are far below the targeted growth. Investment-GDP ratio is also quite below the target of Vision 2021. Now, the question is whether it would be possible to lift investment, the private part of which declined from 19.7 to 19 per cent of the GDP during 2009-2013. The Finance Minister is anxious because of such downtrend as it is the lifeline of our economy accounting for more than three-quarter of total investment. However, the government has lifted its portion to 7.9 per cent of the GDP in 2012-13, beyond its projected figure for the next year.
It is true that private investments began to pour in after a long confusion with capitalistic transformation from a socialistic policy taken to break peripheral capitalism just after independence. It was not easy to transfer our state-owned-enterprises to the private sector even with incentive-oriented denationalisation policy. However, some politician-cum-investors became opportunist industrialists to gain from incentives in the late 1970s. Subsequent to rigorous open-market policies, private sector started to invest in a few industries, businesses and services in the early 1990s. Foreign direct investment (FDI) was virtually zero in the 1980s that increased to over USD 300 million in the late 1990s and recorded its highest at USD 1.47 billion in 2012-13. Much of the investments went to a few high-return services like telecommunication, banking, education and health-care in the 2000s. Lately, FDI inflow has also been shifted to our mono-centric readymade garments (RMG) industry but the industrial sector as a whole lagged behind. The RMG, the major employer of our indigent labour force, has lifted its export to USD 20 billion.
Our goods market is more efficient with its higher global competitiveness index (GCI) of 4.1 compared to 3.8 for labour market efficiency. Notwithstanding our bad governance and political instability, the low wage reflects deficient skills but we are proud of using it as a trump card for expansion of our RMG industry. Shouldn't we make our large labour market equipped with proper skills? Despite being a large RMG and knitwear producer in the world, we are yet to brand ourselves.
The government is happy with the macroeconomic benefits from double-digit export and remittance growths but is far from taking into account the pains of the RMG workers and expatriate work force. Isn't it necessary to invest on skill development of our youths to enable them to contribute in a commendable manner to domestic economic activities and also compete in global labour market?
Our economy demands huge investment to raise production capacities for value-added diversified products. Our investment policies are supportive with incentive packages and the government tried to set a single-digit interest rate. Meanwhile, our private investment crossed our domestic saving in 2008-09 but reversed last year, perhaps due to political turmoil. There is a roundabout fall in investment due to a fall in credit growth and a large fall in import of capital machinery from USD 2.32 to 1.1 billion during 2010-2013. The government may put a weak rationale on the trade-off between low imports and high reserves.
Given where things stand now, it is difficult to term our emerging market as an emerging economy. The government needs to take real care of curbing corruptions, conflicts, bureaucratic inefficiencies, infrastructure deficiencies and illegal trades in order to uplift investment.
Dr. M Aminul Islam Akanda is Associate Professor and Chairman, Department of Economics,
Comilla University.
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