Understanding the change we need
Mahmud Hussain | Monday, 9 March 2009
In 2008, the USA made history making 'change' by electing Barack Obama. We Bangladeshis have also made quite a history, and overwhelmingly given our mandate to one party and supported its key message of 'change'. It is thought that just like in USA, the Bangladesh voters, the young voters in particular, have really responded to the message and hope of 'change'. The Awami League has already outlined few things in their manifesto and over last few days, the analysts and the media have continuously talked about 'change'. However the key question is, 'what change do we really need'?
One can easily identify certain issues like 'law and order', 'price of essentials' and 'corruption' to name a few areas where people want to see change. However, at the end of the day the real message this election has delivered to the political parties, is that - it's the economy, stupid! The political parties in power as well as in oppositions need to understand that the best way to remain in power or go to power is by focussing on the single most important issue of 'national economic growth and meaningful development'. The economic growth and development can only take place if there is an enabling environment for the citizens to carry on with their economic activities without fear or favour and can meet their basic needs as well as aspire for a better future!
Often we have misunderstood the key roles that the government should play. The people of the country expect the government to do almost everything (which is legacy of colonial system) and the political parties promise anything and everything. It will be real change, if we can all agree that government doesn't have money at all. The government just manages 'Public Money' and is responsible for utilising it in the most productive way to maximize the collective public benefit and not the individual or small group's need. In relation to economy, the government's roles should be: 1) ensuring safety and security, 2) creating a sustainable legal infrastructure and a level playing field, where the individuals can carry on with economic activities to meet their individual needs, 3) expanding the revenue collection through a non-discriminatory transparent regime, where the level of tax on individual activity remains low and encourages further productive economic activities to enhance the revenue pool for incremental investments by the government, 4) investing in infrastructures for common use to facilitate economic activities, which have the highest collective economic benefit, and 5) the enhancement of the stock of nation's productive human capital.
Everybody in the country is aware of the current power crisis. The energy is not only important to run our factories and light our houses but also to transport people and goods, do farming and carry out almost all types of economic activities. The country needs to ensure the energy security and explore all avenues including nuclear power on a priority basis. Already, the country spends a big chunk of the foreign currency reserves to import oil/fuel of various grades at present and also in the near future as our needs grow. At the same time, the fuel price is also likely to go up once global demand picks up. Actually, the new government has a wonderful opportunity to buy all our projected oil needs of next 5 years right now in the forward oil market or hedge the price level through oil derivatives! The crude oil price has come down from US $142 to around $30 and we can now easily lock our all future oil imports at these low price levels of US$ 30-40 (but do not have to pay right now). The purchase of oil forwards will help the new government to know the exact cost of fuels for next five years and easily set a price (equal to cost level) which is going to remain at the same level for the next five years. This will help government to avoid uncertainty in budgeting, giving unnecessary subsidy, forecasting a stable price for oil/diesels/kerosene etc and, most importantly, making the unpleasant political decision of raising fuel price in the future! In the next two to three years, it is almost certain that the global demand will pick up and the crude oil price is most likely to go above $60 dollars if the oil producing countries budgeting forecasts are considered.
If 'energy' is the lifeblood of the economy, then an efficient financial market is the 'engine' of a market economy. We need to focus on building an efficient 'financial intermediation' structure (e.g. banking, capital market, insurance sectors, MFIs), which will help us in the country to cycle the savings (Bangladesh has already achieved a remarkable national savings of 27 per cent of GDP) for productive investments to boost growth. An efficient, inclusive and properly supervised financial sector is essential to grow a vibrant 'market economy'. We need a 'free market economy' but we also need a 'fairly supervised market economy', where fair competition is encouraged, consumers rights are protected, individual efforts are rewarded and regulatory policies facilitates innovations and not act as impediments.
There are other 'changes' that we need to make, if as a nation we want to make economic progress. Some of them have been discussed below.
Ensuring the 'inviolability of the contract' is the most basic element which underpins all modern economic systems. A 'contract' is an exchange of promises between two or more parties to do or refrain from doing an act, which is enforceable in a court of law. For any economy to sustain and flourish there needs to be a simple, legally binding and transparent process to form a 'contract', where the contractual obligations are met by all the parties either voluntarily or they are compelled to do so legally. There must also be an efficient and quick judicial process to settle any conflict between parties or non-performance of obligation (s) by any one or more parties. It will be very hard to find any one in Bangladesh who is not afraid of the possibility of outright non-performance of the contract or the lengthy and cumbersome remedial procedures. Unless there is a culture and a proper legal infrastructure where the 'contract' is honoured, all other efforts for rapid economic developments will largely go in vain.
For a change, we need to start to 'aspire'! It is as applicable for a nation as it is for an individual. Many of the guiding principles to earn more wealth are as important for a nation as those are important for an individual. As a nation, we need to produce efficiently (where locally manufactured goods need to increase value addition and profit margin) and earn money through trading of services and goods. We should allow our capable, profitable and export oriented companies to start investing in other countries (directly or through partially owned subsidiaries under a corporate structure). The Balance of Payment (BOP) shouldn't be an issue, as we can limit the foreign investment, say, up to 10 per cent of annual remittance and in some cases foreign currency earning companies can be allowed to invest up to a certain level of their earnings. It will help the nation to earn extra money, increase GNP and the companies to be globally competitive. It will help create a professional class of business managers and raise country's profile in the global investment community, which in turn will help to bring more FDI! Bangladeshi companies need to be encouraged to establish companies/subsidiaries in neighbouring countries and, especially, in Africa! The government must facilitate that by removing roadblocks!
The past governments so far encouraged and have been relatively successful in sending our low or semi-skilled labourers to some countries including middle-east. Now, we should also actively encourage the export of skilled manpower. Currently, the Gulf (GCC) countries are in dire need of banking, finance and insurance professionals and administrative managers. We can easily take fair share of those employment markets which are mostly occupied by the Indians and the Pakistanis. The GCC economies are going through transformations and if the Bangladeshi professionals can be employed there, the remittance will grow by billions more.
We also need to change some of our traditional way of economic policy formulation and management. Our governments have an ingrained culture of borrowing/taking money from outside (in most cases our lenders love to lump both the grant and debt in the same category). This writer is not suggesting that we will never borrow or take any grant. We will definitely borrow money or take grant if the money is needed and can be spent on strategic projects and capital investments - such as a Padma Bridge, or a Nuclear Power plant or launching a satellite but not for the so called 'capacity' building or 'poverty reduction programs'! The donors can feel free to conduct those small projects of their choice through NGOs (and the government can facilitate and monitor what part of the project amount is actually spent as administrative expense and how much actually goes to the cause) and we can welcome them. Non-participation of ministries certainly will reduce the opportunity of 'rent seeking' activities
We also need to change our understanding of 'aid dynamics'. For the lenders and donors, it is not only a process of self-actualization; actually, they also derive lot of tangible benefits out of it. For a change - we need to understand that there is a lot more to bargain and we can! Has anyone thought of-when some of these countries are in the middle of severe economic crisis-seeking money from Gulf countries? Most of these countries are sitting on billions of dollars deficit in their national 'pension schemes', when they are still keen on financing these mini projects and proposing them to our government!
Economic policies should neither be ideologically driven nor be devoid of ambition. Neither should they be populist nor based on recommendations of outsiders who have limited understanding of our issues and no stake in our national economic wellbeing. It should be practical, based on realism, short-term needs and long-term aspirations. Most importantly, informed economic decisions based on hard facts need to be made. We will probably need to wait a couple of years to really find out the 'Change We Can Believe In'. In the last 37 years, although sometime we have achieved few things but mostly failed to achieve many more important things. It is time, not only for the government but also for all of us to think sometime 'out of the box'.
What we really need is to have a 'change' in our understanding of this sought after 'change'. We need to change our viewpoints and perceptions in identifying the key issues and in some cases means to achieve them! Maybe, that's the 'change we need.'
The author is a London-based banker. He can be reached at
mahmud.hussain@btinternet.com
One can easily identify certain issues like 'law and order', 'price of essentials' and 'corruption' to name a few areas where people want to see change. However, at the end of the day the real message this election has delivered to the political parties, is that - it's the economy, stupid! The political parties in power as well as in oppositions need to understand that the best way to remain in power or go to power is by focussing on the single most important issue of 'national economic growth and meaningful development'. The economic growth and development can only take place if there is an enabling environment for the citizens to carry on with their economic activities without fear or favour and can meet their basic needs as well as aspire for a better future!
Often we have misunderstood the key roles that the government should play. The people of the country expect the government to do almost everything (which is legacy of colonial system) and the political parties promise anything and everything. It will be real change, if we can all agree that government doesn't have money at all. The government just manages 'Public Money' and is responsible for utilising it in the most productive way to maximize the collective public benefit and not the individual or small group's need. In relation to economy, the government's roles should be: 1) ensuring safety and security, 2) creating a sustainable legal infrastructure and a level playing field, where the individuals can carry on with economic activities to meet their individual needs, 3) expanding the revenue collection through a non-discriminatory transparent regime, where the level of tax on individual activity remains low and encourages further productive economic activities to enhance the revenue pool for incremental investments by the government, 4) investing in infrastructures for common use to facilitate economic activities, which have the highest collective economic benefit, and 5) the enhancement of the stock of nation's productive human capital.
Everybody in the country is aware of the current power crisis. The energy is not only important to run our factories and light our houses but also to transport people and goods, do farming and carry out almost all types of economic activities. The country needs to ensure the energy security and explore all avenues including nuclear power on a priority basis. Already, the country spends a big chunk of the foreign currency reserves to import oil/fuel of various grades at present and also in the near future as our needs grow. At the same time, the fuel price is also likely to go up once global demand picks up. Actually, the new government has a wonderful opportunity to buy all our projected oil needs of next 5 years right now in the forward oil market or hedge the price level through oil derivatives! The crude oil price has come down from US $142 to around $30 and we can now easily lock our all future oil imports at these low price levels of US$ 30-40 (but do not have to pay right now). The purchase of oil forwards will help the new government to know the exact cost of fuels for next five years and easily set a price (equal to cost level) which is going to remain at the same level for the next five years. This will help government to avoid uncertainty in budgeting, giving unnecessary subsidy, forecasting a stable price for oil/diesels/kerosene etc and, most importantly, making the unpleasant political decision of raising fuel price in the future! In the next two to three years, it is almost certain that the global demand will pick up and the crude oil price is most likely to go above $60 dollars if the oil producing countries budgeting forecasts are considered.
If 'energy' is the lifeblood of the economy, then an efficient financial market is the 'engine' of a market economy. We need to focus on building an efficient 'financial intermediation' structure (e.g. banking, capital market, insurance sectors, MFIs), which will help us in the country to cycle the savings (Bangladesh has already achieved a remarkable national savings of 27 per cent of GDP) for productive investments to boost growth. An efficient, inclusive and properly supervised financial sector is essential to grow a vibrant 'market economy'. We need a 'free market economy' but we also need a 'fairly supervised market economy', where fair competition is encouraged, consumers rights are protected, individual efforts are rewarded and regulatory policies facilitates innovations and not act as impediments.
There are other 'changes' that we need to make, if as a nation we want to make economic progress. Some of them have been discussed below.
Ensuring the 'inviolability of the contract' is the most basic element which underpins all modern economic systems. A 'contract' is an exchange of promises between two or more parties to do or refrain from doing an act, which is enforceable in a court of law. For any economy to sustain and flourish there needs to be a simple, legally binding and transparent process to form a 'contract', where the contractual obligations are met by all the parties either voluntarily or they are compelled to do so legally. There must also be an efficient and quick judicial process to settle any conflict between parties or non-performance of obligation (s) by any one or more parties. It will be very hard to find any one in Bangladesh who is not afraid of the possibility of outright non-performance of the contract or the lengthy and cumbersome remedial procedures. Unless there is a culture and a proper legal infrastructure where the 'contract' is honoured, all other efforts for rapid economic developments will largely go in vain.
For a change, we need to start to 'aspire'! It is as applicable for a nation as it is for an individual. Many of the guiding principles to earn more wealth are as important for a nation as those are important for an individual. As a nation, we need to produce efficiently (where locally manufactured goods need to increase value addition and profit margin) and earn money through trading of services and goods. We should allow our capable, profitable and export oriented companies to start investing in other countries (directly or through partially owned subsidiaries under a corporate structure). The Balance of Payment (BOP) shouldn't be an issue, as we can limit the foreign investment, say, up to 10 per cent of annual remittance and in some cases foreign currency earning companies can be allowed to invest up to a certain level of their earnings. It will help the nation to earn extra money, increase GNP and the companies to be globally competitive. It will help create a professional class of business managers and raise country's profile in the global investment community, which in turn will help to bring more FDI! Bangladeshi companies need to be encouraged to establish companies/subsidiaries in neighbouring countries and, especially, in Africa! The government must facilitate that by removing roadblocks!
The past governments so far encouraged and have been relatively successful in sending our low or semi-skilled labourers to some countries including middle-east. Now, we should also actively encourage the export of skilled manpower. Currently, the Gulf (GCC) countries are in dire need of banking, finance and insurance professionals and administrative managers. We can easily take fair share of those employment markets which are mostly occupied by the Indians and the Pakistanis. The GCC economies are going through transformations and if the Bangladeshi professionals can be employed there, the remittance will grow by billions more.
We also need to change some of our traditional way of economic policy formulation and management. Our governments have an ingrained culture of borrowing/taking money from outside (in most cases our lenders love to lump both the grant and debt in the same category). This writer is not suggesting that we will never borrow or take any grant. We will definitely borrow money or take grant if the money is needed and can be spent on strategic projects and capital investments - such as a Padma Bridge, or a Nuclear Power plant or launching a satellite but not for the so called 'capacity' building or 'poverty reduction programs'! The donors can feel free to conduct those small projects of their choice through NGOs (and the government can facilitate and monitor what part of the project amount is actually spent as administrative expense and how much actually goes to the cause) and we can welcome them. Non-participation of ministries certainly will reduce the opportunity of 'rent seeking' activities
We also need to change our understanding of 'aid dynamics'. For the lenders and donors, it is not only a process of self-actualization; actually, they also derive lot of tangible benefits out of it. For a change - we need to understand that there is a lot more to bargain and we can! Has anyone thought of-when some of these countries are in the middle of severe economic crisis-seeking money from Gulf countries? Most of these countries are sitting on billions of dollars deficit in their national 'pension schemes', when they are still keen on financing these mini projects and proposing them to our government!
Economic policies should neither be ideologically driven nor be devoid of ambition. Neither should they be populist nor based on recommendations of outsiders who have limited understanding of our issues and no stake in our national economic wellbeing. It should be practical, based on realism, short-term needs and long-term aspirations. Most importantly, informed economic decisions based on hard facts need to be made. We will probably need to wait a couple of years to really find out the 'Change We Can Believe In'. In the last 37 years, although sometime we have achieved few things but mostly failed to achieve many more important things. It is time, not only for the government but also for all of us to think sometime 'out of the box'.
What we really need is to have a 'change' in our understanding of this sought after 'change'. We need to change our viewpoints and perceptions in identifying the key issues and in some cases means to achieve them! Maybe, that's the 'change we need.'
The author is a London-based banker. He can be reached at
mahmud.hussain@btinternet.com