The dismal investment scenario
Monday, 15 March 2010
Shamsul Huq Zahid
The country has been going through a drought like situation as far as the inflow of foreign direct investment (FDI) is concerned for a variety of reasons, both domestic and external.
According to the latest central bank statistics, the FDI flow recorded a 67 per cent fall in the first half of the current financial year over that of the corresponding period of the last fiscal. A paltry net FDI, amounting to US$ 197 million, flowed into various sectors of the economy during the July-December period of the fiscal 2009-10 as against US$ 603 million during the same period of the last fiscal.
Undeniably the global meltdown has played an important role in the declining flow of foreign investment across the world since the middle part of the year 2008. The countries that experienced higher inflow of the FDI in recent years also had to take the brunt of the recession.
Bangladesh's track record relating FDI inflow has never been stable; it has fluctuated from one year to another. The energy and telecommunications sectors have attracted the bulk of the FDI. But due to foot-dragging on the part of the government to float international tenders for both on-shore and offshore hydrocarbon blocks, foreign investment to the energy sector has more or less dried up in recent years.
The inflow of any more foreign capital in the telecommunications sector, in mobile telephony in particular, is highly unlikely as some of the existing companies are already struggling for survival.
The prospects for the FDI inflow to pick up in the event of any turnaround of the global economy is not that bright since the domestic factors that have been discouraging investors, both local and foreign, from making investment are still very much in place.
A foreign investor while making investment decision takes into consideration a host of factors, political or otherwise. He or she would naturally select an investment destination that is politically stable. The cost of doing business and availability of necessary infrastructures are also two important factors that influence investment decisions.
Besides, foreign investors while coming to a country carefully watch the activities of the local investors. They usually avoid places where local investors are found to be less enthusiastic about making new investments.
For the last couple of years, domestic investment has remarkably slowed down in Bangladesh. Despite official measures to reduce the cost of doing business, domestic investors are not putting in their money in new investments, particularly in the manufacturing sector. The shortage of power and gas has emerged as major obstacle to new investments.
Why should investors go for setting up new units when the existing industries are finding it hard to continue with their day-to-day operations because of the non-availability of power and gas?
A good number of industrial units based in Chittagong are now out of operation because of gas shortage. The ceramic factories located near Dhaka have to skip their work-shifts because of erratic gas supply. There are many more such instances.
The gas supply situation has deteriorated so much that thousands of residents of Dhaka city from morning to afternoon are not getting gas supply to their homes. They have to cook their foods late in the night or in the evening only.
The power supply situation is even worse. Most industrial units are keeping their operations unhindered through captive power generators during load-shedding, thus adding to their cost. Many middle and affluent families have been forced to install instant power supply (IPS) units in their homes.
Everybody is now getting prepared for the worst days when summer heat will be at its peak. The power outage, which is already in operation in the name of load management, would soon be a routine affair.
The new government after coming to power did assure the countrymen of improvement in power and gas supply situation. But until now the latter have not noticed any tangible improvement. Rather, in some cases, the situation has deteriorated. The possibility of any improvement in gas and power supply situation within next few months is highly unlikely.
The dismal investment situation has also been hurting the banking sector. Banks are now awash with idle funds, leading to substantial cut in deposit rates. Banks are now offering unattractive rates to their depositors. The depositors are now getting negative return if the interest rates are adjusted with the current rate of inflation. Thus, deposit rates have turned out to be a disincentive to the savers.
The official circle is optimistic that FDI inflow would pick up soon after the announcement of guidelines for the much-talked-about public private partnership (PPP) initiative. It expects that the power, energy and telecom sectors would be able to attract a sizeable FDI under PPP.
All concerned would be eagerly waiting to see the response from the investors, both local and foreign, to the PPP.
However, pending implementation of the projects under the PPP, which might taken even years, the government would have to improve power and gas supply situation within the shortest possible time to help lessen the suffering of the people who have made investments in mills and factories and woo new investments.
With the gradual decline in the contribution of the country's agriculture sector, manufacturing and services sectors now hold the key to solving the unemployment problem. The dream of attaining the Millennium Development Goals (MDGs) within the stipulated time would never be met if investment does not pick up, particularly in the manufacturing sector. The government might allocate substantial amount of funds under social safety net programmes but that would only help several hundred thousand people survive for the time being. It can never be a lasting solution to their abject poverty or the problem of unemployment.
The country has been going through a drought like situation as far as the inflow of foreign direct investment (FDI) is concerned for a variety of reasons, both domestic and external.
According to the latest central bank statistics, the FDI flow recorded a 67 per cent fall in the first half of the current financial year over that of the corresponding period of the last fiscal. A paltry net FDI, amounting to US$ 197 million, flowed into various sectors of the economy during the July-December period of the fiscal 2009-10 as against US$ 603 million during the same period of the last fiscal.
Undeniably the global meltdown has played an important role in the declining flow of foreign investment across the world since the middle part of the year 2008. The countries that experienced higher inflow of the FDI in recent years also had to take the brunt of the recession.
Bangladesh's track record relating FDI inflow has never been stable; it has fluctuated from one year to another. The energy and telecommunications sectors have attracted the bulk of the FDI. But due to foot-dragging on the part of the government to float international tenders for both on-shore and offshore hydrocarbon blocks, foreign investment to the energy sector has more or less dried up in recent years.
The inflow of any more foreign capital in the telecommunications sector, in mobile telephony in particular, is highly unlikely as some of the existing companies are already struggling for survival.
The prospects for the FDI inflow to pick up in the event of any turnaround of the global economy is not that bright since the domestic factors that have been discouraging investors, both local and foreign, from making investment are still very much in place.
A foreign investor while making investment decision takes into consideration a host of factors, political or otherwise. He or she would naturally select an investment destination that is politically stable. The cost of doing business and availability of necessary infrastructures are also two important factors that influence investment decisions.
Besides, foreign investors while coming to a country carefully watch the activities of the local investors. They usually avoid places where local investors are found to be less enthusiastic about making new investments.
For the last couple of years, domestic investment has remarkably slowed down in Bangladesh. Despite official measures to reduce the cost of doing business, domestic investors are not putting in their money in new investments, particularly in the manufacturing sector. The shortage of power and gas has emerged as major obstacle to new investments.
Why should investors go for setting up new units when the existing industries are finding it hard to continue with their day-to-day operations because of the non-availability of power and gas?
A good number of industrial units based in Chittagong are now out of operation because of gas shortage. The ceramic factories located near Dhaka have to skip their work-shifts because of erratic gas supply. There are many more such instances.
The gas supply situation has deteriorated so much that thousands of residents of Dhaka city from morning to afternoon are not getting gas supply to their homes. They have to cook their foods late in the night or in the evening only.
The power supply situation is even worse. Most industrial units are keeping their operations unhindered through captive power generators during load-shedding, thus adding to their cost. Many middle and affluent families have been forced to install instant power supply (IPS) units in their homes.
Everybody is now getting prepared for the worst days when summer heat will be at its peak. The power outage, which is already in operation in the name of load management, would soon be a routine affair.
The new government after coming to power did assure the countrymen of improvement in power and gas supply situation. But until now the latter have not noticed any tangible improvement. Rather, in some cases, the situation has deteriorated. The possibility of any improvement in gas and power supply situation within next few months is highly unlikely.
The dismal investment situation has also been hurting the banking sector. Banks are now awash with idle funds, leading to substantial cut in deposit rates. Banks are now offering unattractive rates to their depositors. The depositors are now getting negative return if the interest rates are adjusted with the current rate of inflation. Thus, deposit rates have turned out to be a disincentive to the savers.
The official circle is optimistic that FDI inflow would pick up soon after the announcement of guidelines for the much-talked-about public private partnership (PPP) initiative. It expects that the power, energy and telecom sectors would be able to attract a sizeable FDI under PPP.
All concerned would be eagerly waiting to see the response from the investors, both local and foreign, to the PPP.
However, pending implementation of the projects under the PPP, which might taken even years, the government would have to improve power and gas supply situation within the shortest possible time to help lessen the suffering of the people who have made investments in mills and factories and woo new investments.
With the gradual decline in the contribution of the country's agriculture sector, manufacturing and services sectors now hold the key to solving the unemployment problem. The dream of attaining the Millennium Development Goals (MDGs) within the stipulated time would never be met if investment does not pick up, particularly in the manufacturing sector. The government might allocate substantial amount of funds under social safety net programmes but that would only help several hundred thousand people survive for the time being. It can never be a lasting solution to their abject poverty or the problem of unemployment.