Wooing investment in a period of uncertainties

Economic stagnancy and political uncertainty in Bangladesh are well-known. Even the planners and experts dealing with the state of the economy and economic policies are also concerned about how to face the challenges of stagnancy and uncertainty in the field of investment sector of the economy and how to face those. There are apprehensions and forecasts expressed by many that the sluggish investment trend may lower the growth rate of the economy from 6.7 per cent to 5.5 per cent even though the Finance Ministry has assured that the growth rate will not dwindle below 6.3 per cent. But the realities do not support the assurance of the Finance Ministry. Recent statistics indicates that domestic investment proposals have declined by 15.5 per cent in comparison to the previous year's (2012). The updated statistics of the Board of Investment (BoI) shows that in the year 2013 investment registration of domestic entrepreneurs was slightly more than Tk 424.49 billion and the number of the registered industrial projects was 1,197. In 2012, the number of registered industrial projects was 1,655 and the domestically invested amount was Tk 507.86 billion. This means investment registration declined by 16 per cent in the year 2013. It is presumed that the real investment is less in 2013 than that in 2012 because of political instability and accompanying mayhem that prevailed in later part of 2013.
The level of investment in the country is not up to the mark although there is sufficient liquidity for investment in the banking sector. As per the Bangladesh Bank statistics, the liquidity reserve lying with the banking sector surpassed the limit of Tk 900.0 billion by the end of November 2013 and the rate of this growth was 73.84 per cent within the last one year. The reason behind the accumulation of such a huge amount of liquidity in the banking sector is presumed to be that the wheels of the economy have alarmingly slowed down resulting in a sluggish investment climate. New investments are not coming. This has resulted in failure to create fresh job opportunities. Finally, this situation will lead to low propensity to save.
The economy already suffered a lot because of the political turmoil in the last few months of 2013 causing a havoc in the economy. The people from all strata, ranging from the commoners to the investors, passed alarming days in political uncertainty in that period. The situation deteriorated to such an extent that the business community was in fears and doubts as to whether it would be possible for them to keep their business establishments afloat.
At present, an uneasy calm prevails in the country. Confidence has not yet been restored in businesses and industrial circles. Uncertainty still prevails in the economy, and the environment for new investments is yet to be created. The investors are observing the situation.
The banking sector has made its investments in the share market. Previously, the banks used to earn profits by investing excessive amounts of money beyond their prescribed limit in the share market. The money invested by the banking sector in the share market used to play a big role in the heating of this market. Presently, the banks can invest in the share market up to 25 per cent of their paid-up capital. But the failure to bring into investments the huge amount of liquidity lying with the banks may reasonably be considered a hindrance to the national economic development. It is necessary to understand that in this underdeveloped country there is a huge section of the population living below the poverty line. Investments and job creation are very urgent in a country of about 37.5 million unemployed people. There is no alternative to increasing investments and establishing discipline in the financial sector. And side by side, the long-standing problems relating to the fragile infrastructural sector need also to be overcome. It is natural that the investors will not be encouraged to invest if there remain supply inadequacies like the dearth of electricity, gas and other infrastructural facilities. There are many such examples in Bangladesh that foreign investors left the country because of weak infrastructural facilities, and procrastination in taking decisions on the part of the relevant authorities.  
Moreover, there are also allegations that the investors do not get sufficient bank loans to invest. And a problem of excess liquidity problem has been created in the banking sector at a time when the central bank has adopted a 'contraction monetary policy'. Since the Bangladesh Bank is now following a controlled monetary policy after the contraction policy, it does not mean that there is much more flow of money in the economy. The excess liquidity in the banks is a result of less demand for money to invest; side by side, excess liquidity in the banks is there also because of the caution on the part of the banks in disbursing loans resulting from their experiences of deceits by some of their clients and increases in loan default with different banks. As a result, to keep the economy moving on the right track what is needed by the government is to create environment to increase new investments together with encouraging the banks to increase loans for investments. And the banks, on their part, ought to remain alert as regards their disbursable loans to the investors.        
The writer is a retired professor of economics, BCS General Education Cadre. [email protected]