Ever since the Finance Minister presented the hefty budget for the financial year 2014-15, the country's media has been overflowing with comments and analyses from all conceivable quarters. Economists and experts from the financial sector are leading the show.
Businessmen and industrialists have also been taking part, although they mostly restricted themselves to discussing their own areas of interest. Academicians, researchers and scholars have been busy identifying the strengths and weaknesses of the budget.
The present scenario of the country's economy is far from encouraging. Flow of remittance has slowed down and non-resident Bangladeshis are coming back in increasing numbers. Investment, the all-important driver of economic growth, is not forthcoming.
On the contrary, infirmity in the investment sector is getting further complicated. Potential investors are coming forward to borrow, although banks have reduced their interest rates and are languishing under excess liquidity.
Lack of initiative to set up new projects on the part of investors, is causing the banks to suffer losses. Furthermore, expenditure of banks are shooting up and more so because of existing inflation.
Senior bankers are of the view that if things continue like this, the economy is in for a torrid time.
According to the latest figures released by the Board of Investment in August, there has been 82 per cent reduction in foreign investment in August 2014 compared to the preceding month, i.e., in a span of only one month, and employment fell by 19 per cent during the same period.
According to Bangladesh Bank, local private sector investment grew by 12 per cent during the last fiscal, which is actually a negative growth compared to the projected GDP and prevailing inflation. Projected GDP growth for current fiscal is 6 per cent, while the likely rate of inflation is 7.5 per cent.
Entrepreneurs and economists hold similar views as to why new investments are not forthcoming. Entrepreneurs say, although all is now quiet on the political front, many consider the present calm as a lull before the storm and consequently there is a lack of trust among the businessmen who do not consider new investments safe.
Gas and electricity are already in short supply and the situation has created a negative effect on upcoming investment. According to BOI, employment in the private sector has gone down by 26 per cent in August 2014 compared to the previous month.
In July, number of employments generated from local investment was 19 thousand 876, which came down to 14 thousand 789 in August 2014, i.e., almost 5 thousand less.
Similarly, 100 per cent foreign and joint venture investments have also gone down. In last July, 12 foreign organisations registered their investments with BOI, the number came down to 5 in August 2014.
In the same manner, the amount of foreign investments in July 2014 was $ 143.4 million, which came down to $25 millions only in August 2014.
Overall employment including foreign and local, went down by nearly 20 per cent from 20 thousand 683 in July 2014 to 16 thousand 720 in August 2014.
Many businessmen are of the view that a feeling of uncertainty has gripped the business community and potential investors at home and abroad now prefer to wait rather than venturing for new investments at the moment.
According to them, political uncertainty, deteriorating law and order, infrastructure problem and shortage of gas and electricity jointly contributed to the worsening of the situation. They also apprehend, time is fast running out.
Whereas the future of investment appears bright, policy defects or the lack of it, are acting as barriers. Japan is in the process of winding up from China and is reportedly interested to relocate its investments in Bangladesh.
Quite a few other countries are known to have expressed their interest to invest in Bangladesh. It is, therefore, imperative that we try and make best use of these opportunities. Every year we require 2.5 to 3 million new employment opportunities. It will be a social calamity if the situation does not improve.
Experts say, the banking sector had never before been in a situation like this as it is in now. On one hand, uncertainty is posing a threat to new investment, and on the other, the businessmen who were badly affected due to recent political disturbances around the country, are yet to recover their losses and repay bank loans.
Many of them have lost their investment capacity in the process. That is why, despite reduced interest rates and restoration of law & order, the infirmity in investment continues. Banks are being overburdened with increasing classified loans.
A downturn in investment trend has compelled banks to reduce interest against deposits to avoid further losses. But lower interest on deposits are driving away the depositors who are withdrawing their money and diverting the same to other areas including purchase of saving certificates.
According to Bangladesh Bank, net investment in saving certificates rose to Tk 16.80 billion in June 2014 from Tk 370 million at the end of last
fiscal, recording an increase of 44 times.
While bank deposits are falling, liquidity surplus is on the rise amid scarce investment. Banks now have about Tk.1400.00 billion in excess liquidity, although most of the money is kept in the national exchequer against credit. If things do not change for the better, bankers predict, fund management costs will rise and affect the entire economy adversely.
While recognising the impending dangers, the Finance Minister recently has put forth a set of recommendations to overcome the crisis.
In a letter to secretaries of different ministries, he put political and macroeconomic stability on top of his
agenda in order to attract new
investments.
He regretted that the country lagged way behind the desired level of investment from both local and foreign entrepreneurs.
To boost investments, he recommended, among other measures, formulating a strategy to reduce business costs, relaxing procedures and regulations to simplify foreign participation in infrastructure development, particularly, development of power and communication network.
He also recommended for setting up sea port based economic zones in order to utilise blue economics and attract foreign investment. Concerned officials informed the media that the Finance Minister's call for boosting investment has come at a time when a number of countries including China, Japan, India and Malaysia have expressed their eagerness to invest in Bangladesh.
At the same time, they have attached a few preconditions including a congenial atmosphere for investment, upon fulfilment of which they will come forward to set up manufacturing units in Bangladesh.
The countries particularly referred to the problems of power and infrastructure and paucity of suitable industrial lands alongside highlighting the inefficiency of foreign investment related agencies, like Board of Investment.
The same band of problems is responsible for negligible or no investment at home. It is quite evident now that issues like high bank interest rates, infrastructure limitation, gas and power scarcity are the stumbling blocks on way to expected growth in local investment as well.
In fact, local entrepreneurs are the worst sufferers, since they are not getting working capital from the banks. State-owned banks (SOBs) are now plagued with allegations of corruption and irregularities, as a result of which Bangladesh Bank has tightened its grip over them and debarred them from approving loans against large projects.
Private banks, on the other hand, are more watchful than ever in
extending loans against investment projects.
The Finance Minister sought support from concerned ministries in riding out the crisis and also recommended some additional measures, which include, formulating commercial policies in keeping with trade environment of the country, encouraging local investors and helping them find foreign partners effecting technology change in mills and factories, imparting appropriate training to the existing work force and enabling them to raise their efficiency through joint ownership initiatives.
He has also recommended for automation of sea and land ports to widen the export-import base.
The writer is a TV personality and writes on economic issues.
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