Stagnation in investment

Stagnation in investment is lingering. Interest rates of banks have been reduced. There are investible surplus funds in banks. Even then entrepreneurs are not showing any interest in investment. They are not approaching banks for funds for setting up new projects. Banks are losing income in the absence of new ventures. If things do not change, it may not be good for the economy.

Entrepreneurs are of the view that even if there is no hartal, siege and political programme, there is lack of confidence among the entrepreneurs. There is no trust for investment. Investors want credible election with participation of all. Alongside there is power and gas shortage. Law and order situation is not satisfactory. Entrepreneurs want understanding among the politicians. Loan defaults are causing problem.

Banks have reduced rates of interest on deposits and thereby interest rates for lending. Depositors are now looking for Sanchaypatra for more profit. Investment in Sanchaypatra has increased by 44 per cent in one year.

A group of people is opening false letters of credit and using these documents for mortgage and taking out huge sums of money from the banks.    False letters of credit are opened for import of machinery, industrial raw materials and many other items. Bank officials are managed through bribes. The Bangladesh Bank has expressed concern about this. False documents are submitted to banks as mortgage. A report of the Bangladesh Bank shows that Tk100 billion have been misappropriated in the last few years through forgery of documents. Mostly state- owned commercial banks are involved in such activities. This means that banks will not be interested in productive sectors for investment. The finance minister has recently given a 14-point guideline to the Secretaries. He gave emphasis on political and macroeconomic stability. One of the issues mentioned by the minister is to adopt a strategy for reducing cost of business. He mentioned about facilitating the participation of foreign companies in infrastructure development. Blue economic zones are to be set up to attract foreign investment. Conditions of the European Union and other importers have to be met. A one-stop service is to be set up in the Investment Board.

The finance minister took the initiative to attract foreign investment at a time when India, China, Japan and Malaysia showed interest in making investment in Bangladesh. They have also given certain conditions to create an enabling situation for investment such as availability of power, transportation and lands. Registration of foreign investors has gone down. New local investors are not getting working capital from banks. The central bank has tightened the grip on state-owned banks. Their loan limits have been fixed. Private commercial banks have also become alert.

Commercial and competition policies have to be prepared to encourage local investors. Technology has to be modernised. Labour force has to be trained. Joint venture investment is to be encouraged. The WTO rules have to be carefully implemented. Bilateral and multilateral trade has to be managed in such a fashion that does not create problems for the WTO. Port operations, including those of land ports, have to be automated.

In the absence of entrepreneurs, investible funds are increasing in banks. Banks are now looking for using their funds in credit cards and consumer loans. Giving loans in such sectors will increase risks. Banks may be gainers in the short run but long-term risks will remain.

The Asian Development Bank is of the view that Bangladesh has higher growth potential, which is not possible to utilise without a jump in investment. Investment has remained virtually stagnant at between 25 per cent and 26 per cent  of the GDP (Gross Domestic Product) over the past several years. Experts said investment needs to be raised to at least 32 per cent to achieve 7.0 per cent or more economic growth.

Local and foreign investors do not consider Bangladesh safe for investment because of irregularities in bank management, political uncertainty and excessive extortion. In this situation, idle funds in banks are increasing. Unemployment is also rising and huge sums of money are going out of the country.

According to the Bangladesh Bank, there is idle money to the extent of Taka 1,400 billion. That is why interest on deposit is gradually declining. The excess money is being used in the form of government borrowing. Exports are declining in the garment sector. The Bangladesh Bank has stated that foreign investment stood at US$1,550 million last year, compared to $1,730 million in 2012-13 fiscal.    The garment sector recorded a growth of 0.7 per cent only in July as against 26.13 per cent in the same month last year.

During last one year and half, 399 garment factories have been shut down. The banking sector is passing through difficult times due to many scandals. Position of state-owned Sonali, Janata, Agrani and Rupali banks has not improved in spite of intensive supervision of the Bangladesh Bank. The Hallmark scandal had a damaging effect on 16 banks. The Bismillah Group had a damaging effect on five banks.

Political uncertainty, gas and power shortage, labour unrest and absence of proper atmosphere have acted as a drag on new investment. New factories are being shut down. There is retrenchment of staff and unemployment is rising. The ILO has reported that unemployment may go up to 60 million by next year. Prof Abu Ahmed of Dhaka University is of the opinion that the investors are expecting another political unrest.

The writer is an economist and columnist. [email protected]