The President of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has recently said in an interview with a local newspaper that high interest rate is the main obstacle to the rise in investment. It will not be possible to reach the desired rate of investment unless the rate of interest is brought down to single digit. High interest rate is particularly difficult to bear for the medium and small investors. Many entrepreneurs have become defaulters for not being able to repay interests. Many of them had to close down industries. The amount of loan default is now about Tk 570 billion (57,000 crores) which is higher than the combined capital of the banks. Loan default is obstructing investment.
According to the FBCCI president, the current political situation is stable. This situation has to be continued and the investors will be gradually attracted to investment, he hoped. He pointed out that appropriate land is not available for investment. Economic zones will have to be created to solve this problem. He suggested to encourage association of the private sector with this process. Infrastructure and communication have to be improved to attract neighbouring countries for joint investment in Bangladesh, he added.
The President of the Foreign Investors Chamber of Commerce and Industry (FICCI) thinks that bureaucratic complexity, traffic jam, lack of adequate communication and infrastructure, gas & electricity crisis are creating obstacles to both local and foreign investment. It takes long time to complete formalities and the investors lose interest. The existing institutional facilities will have to be made dynamic. It takes 2/3 hours to come to Motijheel from Uttara and the same amount of time is taken for return. At least four hours are spent on the road out of eight working hours. It takes 8/10 hours to go to Chittagong from Dhaka. Long time is taken for movement of files from one place to another. For all these reasons investors lose interest.
Foreign investment is declining and local investors are also sitting idle and not going for investment. Local investors have identified two reasons for this. Firstly, a large number of businessmen have set up factories but can not operate for want of power and gas. Many are operating factories with furnace oil or diesel but can not compete in the market because of high cost of production. New entrepreneurs have lost interest in investment looking at the plight of the existing investors. Secondly, the main sectors of investment are burdened with excess capacity because there is decline in demand for their products. Therefore, there is no desire for investment in these sectors. Added to these problems are lack of land, debt crisis and political uncertainty.
The President of Dhaka Chamber of Commerce and Industries (DCCI) said in a meeting on October 31 that he could not start operation of his two factories for want of power connection for one and half years. He added that more than 7,000 factories in the neighbourhood of Dhaka and 3,500 factories in Chittagong can start operation immediately if gas and power connections are made available.
The Bangladesh Garment Manufacturers and Exporters BGMEA has stated that 233 factories in garment sector are facing gas problem. In the textile sector, 27 factories can not go into production for want of gas connection. Export growth has slowed down. Remittance has also declined. Falling prices of paddy had a negative impact on the rural economy. Registration in the Board of Investment has declined.
Bangladesh is unable to attract foreign investment although plenty of incentives are offered to foreign investors. GSP (generalised system of preferences) facility in Europe and other countries are not convincing the foreign investors. In 2014, net FDI (foreign direct investment) worth $1.520 billion came to Bangladesh out of which reinvestment stood at $980 million.
Highest amount of fresh FDI came to Bangladesh in 2008. It was $810 million. It abruptly came down to $220 million in 2009. Investors feel that there is political uncertainty in Bangladesh. In addition, there is no certainty of getting gas, power and water connections.
According to UNCTD report, flow of FDI to LDCs (least developed country) increased substantially last year particularly to Mynmar. FDI is increasing in Vietnam after signing the TPP (Trans-Pacific Partnership) agreement.
Bangladesh's export is concentrated in garment sector. On the other hand, Vietnam has been able to diversify export by attracting foreign investment. Vietnam is exporting machinery worth $10 billion and leather and footwear worth $3 billion to Europe. This was possible due to massive foreign investment in Vietnam. Bangladesh is lagging behind in this respect.
Washington-based research and advisory organisation Global Financial Integrity (GFI) has just published a report on 'Illegal Financial Flows from Developing Countries: 2004-2013' which shows that illegal capital flight from Bangladesh is three times the size of average foreign direct investment in Bangladesh received in recent times. This means that in reality FDI flow to Bangladesh is negative.
Economists and businessmen feel that it will be impossible to achieve the targets of the 7th Five-Year Plan without massive investment. Their recommendations to increase investment include infrastructure development, institutional reforms and improvement of the law and order. Action is needed on firm assurance for gas and power connections, lowering interest rate, stopping bribes and corruption in government offices and continuity of political stability.
The writer is an economist and columnist.
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