Trend in industrial output, investment
Sunday, 13 July 2008
The level of capital machinery, raw material, and intermediate goods import and the credit flow to the private sector do generally reflect the investment and industrial production situation in an import-dependent country like Bangladesh. And these are the areas directly linked to employment generation, export earning and import-substitution. Unfortunately, the progress in both investment and industrial output was well below the expected levels in the last fiscal (2007-08), belying the official portrayal of a rosy picture of the macro-economy, barring the inflation.
The import of capital machinery, according to a report published in this paper last Friday, declined by 27.5 per cent in the fiscal 2007-08 over that of the previous fiscal (2006-07). What is more frustrating is that this was for the first time in last 10 years the capital machinery import had witnessed a negative growth. The trend came in contrast to substantial growth of the same in three preceding years, between 2004-05 and 2006-07. The import of capital machinery stood at US$ 786 million dollar in 2003-04 and it soared to about $2.0 billion in 2006-07, reflecting more than 150 per cent growth over a period of three years. Similarly, the investment scenario had been disappointing in the last fiscal. This paper, quoting a Board of Investment (BoI) source, reported a couple of days back that foreign and local investments declined by 63.7 and 6.0 per cent respectively in the immediate past fiscal.
Put together the developments relating to industrial production and investment are, actually, ominous signs for the economy, particularly when creation of additional employment opportunities remains a priority to help raise the buying capacity of the poor in the face of their soaring cost of living. The negative effects, in terms of both production and employment, of the depressed investment scenario in the last fiscal would also be felt this fiscal. The situation calls for a dispassionate assessment by the authorities concerned as to why investment and industrial production had declined last fiscal despite improvement in port facility and other administrative support to the private sector.
There is no denying that external factors such as hike in the prices of most commodities in the international market and depressed demand for goods and services in the domestic market are major disincentives to higher production and investment. A sense of panic triggered by the anti-graft drive of the incumbent caretaker administration had also created a negative impact on production and investment in the early part of 2007. But that fear is now on the wane due to some damage- control measures taken up by the government in recent months. In addition, attractive incentives, in terms of duty and taxes, have been offered in the national budget for the current fiscal to the import of capital machinery, raw materials and intermediate goods.
Theoretically, all these actions should lead to higher production and investment. But one cannot ignore the disincentive such as persistent short supply of power and gas. The existing industrial units are counting losses in billions of taka every year due to gas and power crises and the new ones are failing to start production due to non-availability of gas connection. What is more worrying is that no official assurance is available about the improvement in the situation in the near future. None can expect investors, local or foreign, to put in their money in new ventures in such a dismal power and gas supply scenario. The government has to come up with a crash programme to beef up power and gas supply if it really wants to ensure higher industrial output and investments, particularly in the manufacturing sector.
The import of capital machinery, according to a report published in this paper last Friday, declined by 27.5 per cent in the fiscal 2007-08 over that of the previous fiscal (2006-07). What is more frustrating is that this was for the first time in last 10 years the capital machinery import had witnessed a negative growth. The trend came in contrast to substantial growth of the same in three preceding years, between 2004-05 and 2006-07. The import of capital machinery stood at US$ 786 million dollar in 2003-04 and it soared to about $2.0 billion in 2006-07, reflecting more than 150 per cent growth over a period of three years. Similarly, the investment scenario had been disappointing in the last fiscal. This paper, quoting a Board of Investment (BoI) source, reported a couple of days back that foreign and local investments declined by 63.7 and 6.0 per cent respectively in the immediate past fiscal.
Put together the developments relating to industrial production and investment are, actually, ominous signs for the economy, particularly when creation of additional employment opportunities remains a priority to help raise the buying capacity of the poor in the face of their soaring cost of living. The negative effects, in terms of both production and employment, of the depressed investment scenario in the last fiscal would also be felt this fiscal. The situation calls for a dispassionate assessment by the authorities concerned as to why investment and industrial production had declined last fiscal despite improvement in port facility and other administrative support to the private sector.
There is no denying that external factors such as hike in the prices of most commodities in the international market and depressed demand for goods and services in the domestic market are major disincentives to higher production and investment. A sense of panic triggered by the anti-graft drive of the incumbent caretaker administration had also created a negative impact on production and investment in the early part of 2007. But that fear is now on the wane due to some damage- control measures taken up by the government in recent months. In addition, attractive incentives, in terms of duty and taxes, have been offered in the national budget for the current fiscal to the import of capital machinery, raw materials and intermediate goods.
Theoretically, all these actions should lead to higher production and investment. But one cannot ignore the disincentive such as persistent short supply of power and gas. The existing industrial units are counting losses in billions of taka every year due to gas and power crises and the new ones are failing to start production due to non-availability of gas connection. What is more worrying is that no official assurance is available about the improvement in the situation in the near future. None can expect investors, local or foreign, to put in their money in new ventures in such a dismal power and gas supply scenario. The government has to come up with a crash programme to beef up power and gas supply if it really wants to ensure higher industrial output and investments, particularly in the manufacturing sector.