Whither aid and investment in Bangladesh?

Bangladesh emerged independent from its blood-drenched Liberation War in 1971. Since the very beginning, the country has been regarded as a test case for development by economists, policymakers and programme administrators of donor countries and international financial institutions. Interest in the area predated our political independence, as erstwhile East Pakistan represented the world's most extreme case of high population growth outstripping resources. Because Pakistan was a unitary state, project design and approval processes occurred at the national level. The 'centre', based in then West Pakistan, also poor, appropriated most of commodity aid, capital, and technical and project assistance. The people of East Pakistan considered the attention they received to be inadequate and inequitable.
In October 1974, the Bangladesh Aid Group was established under the aegis of the World Bank, with 26 participating governments and institutions. Aid to Bangladesh remained at a high level since the Consortium came into being although with substantial fluctuations in new commitments from year to year. In the 1980s, the value of food aid declined to around 11 to 18 per cent of new aid commitments, most of it given on a grant basis. Commodity aid, about 25 per cent of aid preferred by the large donors, because their funds are put to use in well-defined ways was related to policy objectives. From the beginning, the commitments to Bangladesh included major items for increasing productivity, such as fertiliser, cement, steel, pumps, and other equipment. Project assistance accounted for more than 50 per cent of new commitments. This form of aid was unable to be used as project funds. As a result, the pipeline of authorised but non-disbursed project funds grew bigger every year.
Because much of the funding for the development budget in the mid-1980s was financed by external donors, the government had to attract financing for high-priority sectors and projects. Coordination was carried on at all times between the government and individual donors, but the keynote point each year was a meeting organised by the World Bank as leader of the Bangladesh Aid Group. The World Bank took the lead in addressing some of the most deep-seated structural constraints in Bangladesh's economy by providing productive employment for those without assets, promoting economic opportunities for women, and addressing social and economic inadequacies of education, health, nutrition, and population programmes.
The Asian Development Bank (ADB) has been the second largest donor. About half of its financing has gone to agriculture and the agro-industry. The Bank has also supported transportation projects (development and improvement of feeder roads between local markets and primary roads, inland waterways, and railroads) and social welfare schemes for population control, health, and education.
The United Nations Development Programme (UNDP) operated its own development projects and coordinated the activities of other United Nations (UN) agencies with programmes in Bangladesh, including the World Food Programme, the World Health Organisation, the United Nations Industrial Development Organisation, and the United Nations Fund for Population Activities. Typically, these agencies provided technical assistance and training. They often functioned as catalysts by doing analytical and policy development work alongside the Bangladesh government authorities. They prepared the ground for well-conceived programmes requiring capital expenditures to be financed by other donors or even by the Bangladesh treasury.
The United States was the most important donor until the early 1980s, when the Japanese aid reached the similar level. As Bangladesh has been hospitable to foreign assistance, in addition to the programmes of Britain, Japan, and West Germany, significant aid programmes were initiated by Canada, Sweden, Finland, the Netherlands, Switzerland, Australia, and others, in which each country concentrated on areas where it possessed special expertise.
A high intensity of domestic credit expansion in the government sector resulted in a rising level of government borrowing from both the banking system and the public through the use of savings instruments.  
The new 1974 Investment Policy restored certain rights to private and foreign investors. In December 1975, the Revised Investment Policy allowed greater private sector activity and authorised joint ventures with public sector corporations in a number of previously reserved areas, provided that the government retained 51 per cent ownership.
The Dhaka Stock Exchange was reactivated in 1976, and the Investment Corporation of Bangladesh was established the same year to provide financing for bridge construction and underwriting facilities to the private sector. Investment ceilings for private industries were abolished in 1978. Then, in 1980, the government delineated a more liberal attitude toward foreign direct investment in the Foreign Private Investment (Promotion and Protection) Act. Yet the growth of investment, nonetheless, remained slow, and the industries were still dominated by 'the public'. The government transferred 650 industrial enterprises to private hands, leaving only 160 under public ownership.
Subsequent governments announced comprehensive revisions of industrial policies, setting out objectives and strategies to accelerate the pace of industrialisation. The policy also emphasised private and foreign investment in high technology, and export-oriented and labour-intensive industries. The revised policy increased the number of sectors open to private investment, liberalised the tariff structure, reduced quantitative import restrictions, and furthered privatisation of state-managed enterprises.
In 1987, an amendment to the Bangladesh Industrial Enterprises (Nationalisation) Ordinance was adopted, providing the legal basis for plans to sell up to 49 per cent of government shares in the remaining nationalised enterprises. An export processing zone was established officially at the port city of Chittagong in 1980. It actually began functioning in March 1983, when a programme of inducements was offered to investors opening up enterprises.
In addition to the broad policies encouraging foreign investment, Bangladesh inked bilateral investment treaties on such assurances as unrestricted currency transfers, compensation for expropriation, dispute settlement procedures, and taxation treatment. In addition, Bangladesh signed agreements for avoidance of double-taxation with 29 countries.
Even with a reasonably attractive framework in place, the flow of private capital to Bangladesh has been slow. As per estimates of the Organisation for Economic Cooperation and Development, foreign direct investment in Bangladesh averaged at very insignificant level. The largest amounts of foreign private investment are from Asian countries --- Japan being the foremost, with smaller amounts coming from South Korea, Singapore, Taiwan, and Hong Kong --- and from Britain and other countries in Western Europe.
 The writer is a retired Secretary and former chairman, NBR.  [email protected]