Taking the bull by the horns
Monday, 9 November 2009
Shamsul Huq Zahid
In the middle part of the current decade, newspapers very frequently carried reports on foreign investors coming in droves from Europe, India, the Middle East and South East Asia to explore possibilities of making investments in Bangladesh. Some prospective individuals and groups of investors talked about plans to make investments worth several billions of dollars.
The exit of Indian business giant, Tata, that toiled hard for over three years to make investments worth over $3.0 billion in steel, power and fertilizer production in Bangladesh must be fresh in the memory of many. The offer and subsequent retreat of a Saudi prince from buying of the government-held shares of the Rupali Bank at a cost of $450 million made headlines during the rule of the BNP-led four party alliance government.
The records maintained by the Board of Investment (BoI) would show that only a small percentage of foreign investment proposals registered with the Board are finally materialized. Despite a few unsavoury developments, foreign investors, however, continued to make investments-the actual annual size of investments nobody knows since the figures of the BoI and the central bank have been never the same, in Bangladesh until the global financial meltdown of unprecedented scale started playing havoc in the developed economies since late 2008. Naturally, it had its negative impact on the FDI flow worldwide. The flow of foreign investment remains highly inadequate until now. But the question is: will there be any major change in the FDI inflow situation here with the improvement in recession in the developed economies? Not likely.
The gas and power shortage is often blamed for investment, both foreign and domestic, not taking place in Bangladesh. It is one of the major problems, no doubt. But there are other factors that have kept Bangladesh an unattractive destination for the foreign investors. As far as incentives are concerned, Bangladesh does offer one of the most attractive packages to foreign investors. The package attracted a substantial amount of FDI between 1991 and 2005. However, there was a wide fluctuation in the annual flow of FDI during that period. Most investments flowed into the energy and telecom sectors.
The main reason for Bangladesh losing its competitive edge in attracting investments has been the rising costs of doing business. A survey conducted by the Japan External Trade Organisation (JETRO), the Japanese investment promotion body, has found all the cost components, namely, industrial estate prices, broadband Internet fee, container transportation cost and corporate tax higher in Bangladesh than those of other countries. Besides, there are other hidden costs that an investor has to meet. Official concerned in government offices very rarely demonstrate a cooperative attitude towards investors, local or foreign and they are out to squeeze some undue financial benefit in the process. Lots have been said about providing one-stop service delivery facility to the investors. But, in reality, an investor still has to move from one office to another and go round the desks of the officials to get things done. Under the circumstances, the foreign investors, the JETRO survey maintains, are not considering Bangladesh an attractive investment destination just because of its cost of labour is cheaper than that of many other countries.
The JETRO report said the Japanese investors have dropped Bangladesh from the map that they visualized recently to find out suitable destinations for their future investments. It suggested the Bangladesh policymakers to initiate immediate measures to review the advantages and disadvantages that the foreign investors face and take prompt and appropriate actions to remedy the situation. The JETRO is not alone to highlight the problems that have been discouraging the foreign investors from coming to Bangladesh. Most reports and surveys prepared recently by international organizations have pointed out the high costs of doing business in Bangladesh.
The domestic investors have learnt to live with the difficult environment. They have been making expenditure in excess of the regular ones. However, the businesses, which are meeting the needs of the domestic market, in most cases, pass on the additional costs on to the poor consumers. But the foreign investors have no reasons to go through all those troubles, particularly when the world is open for them. Lots of countries are waiting with their arms wide open to greet foreign investors.
Besides the cost components, corruption, political and labour unrest, problems with power and gas supply, lack of policy continuity etc., are other major negative factors that discourage the foreign investors from coming to Bangladesh. The solution to the power and gas problems would be found sooner or later. The improvement of infrastructures is also expected to take place in the near future if the government becomes serious enough about the public-private partnership (PPP) concept.
But will there be any solution to the problem of high-level of corruption in the near future? None would surely bet on such a possibility. The developments during the rule of the military-backed caretaker government and subsequent events should be enough to draw a conclusion that corruption would continue to be systemic in this country.
The lack of policy continuity is yet another area that needs attention of the decision makers at all levels. For the lack of policy continuity gives a negative signal to prospective foreign investors.
Foreign investors usually come to a country targeting its export market or the domestic market. Bangladesh being a least developed country offers almost a ready export-market. But the domestic market might also prove attractive provided a sizeable section of the population has enough purchasing power. FDIs have flowed in large volumes in China and India because of the emergence of a strong middleclass in those countries. Bangladesh has to maintain a higher economic growth rate in the coming years to help enlarge its middleclass population. That alone would lure many foreign investors.
There is no denying that some of the problems affecting the normal flow of investments, both foreign and domestic, though not insurmountable, would take a long time to resolve. But there should be serious efforts on the part of the government to address the same. This will, at least, give a positive signal to investors.
In the middle part of the current decade, newspapers very frequently carried reports on foreign investors coming in droves from Europe, India, the Middle East and South East Asia to explore possibilities of making investments in Bangladesh. Some prospective individuals and groups of investors talked about plans to make investments worth several billions of dollars.
The exit of Indian business giant, Tata, that toiled hard for over three years to make investments worth over $3.0 billion in steel, power and fertilizer production in Bangladesh must be fresh in the memory of many. The offer and subsequent retreat of a Saudi prince from buying of the government-held shares of the Rupali Bank at a cost of $450 million made headlines during the rule of the BNP-led four party alliance government.
The records maintained by the Board of Investment (BoI) would show that only a small percentage of foreign investment proposals registered with the Board are finally materialized. Despite a few unsavoury developments, foreign investors, however, continued to make investments-the actual annual size of investments nobody knows since the figures of the BoI and the central bank have been never the same, in Bangladesh until the global financial meltdown of unprecedented scale started playing havoc in the developed economies since late 2008. Naturally, it had its negative impact on the FDI flow worldwide. The flow of foreign investment remains highly inadequate until now. But the question is: will there be any major change in the FDI inflow situation here with the improvement in recession in the developed economies? Not likely.
The gas and power shortage is often blamed for investment, both foreign and domestic, not taking place in Bangladesh. It is one of the major problems, no doubt. But there are other factors that have kept Bangladesh an unattractive destination for the foreign investors. As far as incentives are concerned, Bangladesh does offer one of the most attractive packages to foreign investors. The package attracted a substantial amount of FDI between 1991 and 2005. However, there was a wide fluctuation in the annual flow of FDI during that period. Most investments flowed into the energy and telecom sectors.
The main reason for Bangladesh losing its competitive edge in attracting investments has been the rising costs of doing business. A survey conducted by the Japan External Trade Organisation (JETRO), the Japanese investment promotion body, has found all the cost components, namely, industrial estate prices, broadband Internet fee, container transportation cost and corporate tax higher in Bangladesh than those of other countries. Besides, there are other hidden costs that an investor has to meet. Official concerned in government offices very rarely demonstrate a cooperative attitude towards investors, local or foreign and they are out to squeeze some undue financial benefit in the process. Lots have been said about providing one-stop service delivery facility to the investors. But, in reality, an investor still has to move from one office to another and go round the desks of the officials to get things done. Under the circumstances, the foreign investors, the JETRO survey maintains, are not considering Bangladesh an attractive investment destination just because of its cost of labour is cheaper than that of many other countries.
The JETRO report said the Japanese investors have dropped Bangladesh from the map that they visualized recently to find out suitable destinations for their future investments. It suggested the Bangladesh policymakers to initiate immediate measures to review the advantages and disadvantages that the foreign investors face and take prompt and appropriate actions to remedy the situation. The JETRO is not alone to highlight the problems that have been discouraging the foreign investors from coming to Bangladesh. Most reports and surveys prepared recently by international organizations have pointed out the high costs of doing business in Bangladesh.
The domestic investors have learnt to live with the difficult environment. They have been making expenditure in excess of the regular ones. However, the businesses, which are meeting the needs of the domestic market, in most cases, pass on the additional costs on to the poor consumers. But the foreign investors have no reasons to go through all those troubles, particularly when the world is open for them. Lots of countries are waiting with their arms wide open to greet foreign investors.
Besides the cost components, corruption, political and labour unrest, problems with power and gas supply, lack of policy continuity etc., are other major negative factors that discourage the foreign investors from coming to Bangladesh. The solution to the power and gas problems would be found sooner or later. The improvement of infrastructures is also expected to take place in the near future if the government becomes serious enough about the public-private partnership (PPP) concept.
But will there be any solution to the problem of high-level of corruption in the near future? None would surely bet on such a possibility. The developments during the rule of the military-backed caretaker government and subsequent events should be enough to draw a conclusion that corruption would continue to be systemic in this country.
The lack of policy continuity is yet another area that needs attention of the decision makers at all levels. For the lack of policy continuity gives a negative signal to prospective foreign investors.
Foreign investors usually come to a country targeting its export market or the domestic market. Bangladesh being a least developed country offers almost a ready export-market. But the domestic market might also prove attractive provided a sizeable section of the population has enough purchasing power. FDIs have flowed in large volumes in China and India because of the emergence of a strong middleclass in those countries. Bangladesh has to maintain a higher economic growth rate in the coming years to help enlarge its middleclass population. That alone would lure many foreign investors.
There is no denying that some of the problems affecting the normal flow of investments, both foreign and domestic, though not insurmountable, would take a long time to resolve. But there should be serious efforts on the part of the government to address the same. This will, at least, give a positive signal to investors.