The private sector has long been recognised as a strong and active partner in economic growth and development. It provides the goods and services, jobs and also the sources of income to improve the people's standard of living and keep them out of the vicious cycle of poverty in developed and developing countries alike. The Fourth High Level Forum on Aid Effectiveness in Busan, Korea, emphasised importance of the private sector in economic development as: "We recognise the central role of the private sector in advancing innovation, creating wealth, income and jobs, mobilising domestic resources and in turn contributing to poverty reduction". The Group of Twenty (G20) has also recently emphasised the role of the private sector in development, particularly from the standpoint of resources. At the G20 Summit in France in 2011 the leaders welcomed a report that had been prepared for them by Bill Gates on financing for development. In so doing, they recognised "the importance of the involvement of all actors, both public and private, and the domestic, external and innovative sources of finance."
In broad terms, four groups of private sector actors play vital role in economic development, locally and internationally: (a) multinational, small, medium and large enterprises, (b) locally-based small, medium and large enterprises, (c) individuals including self-employed, diaspora groups, volunteers, experts, etc. and (d) non-governmental organisations (NGOs). In most of the developed and developing economies, the private sector is the all-encompassing component of national income and the major employer and creator of jobs. Over 90 per cent of jobs in developing countries are in the private sector. The pace of growth in jobs and the quality of employment in the private sector are thus central to development. Poor people acquiesce to the importance of jobs as they see employment as their best prospect for escaping poverty. The private sector and the employees in the sector are providers of most of the taxes that support government operations. This leads to a natural synergy between the public and private sectors. A key catalyst for economic growth is higher productivity and technology transfer, and the private sector can be the main facilitator in this process. Private firms and entrepreneurs invest in new technologies and new production facilities that help enhance economic growth.
While the private sector plays a very important role in the economic growth and development process, it cannot act alone without support from the government, the public sector and the banks and financial institutions. The public sector and the government play an essential role in providing public services in areas such as health and education, safety nets, transfer programmes and environmental stewardship. They also play a big role in supporting economic growth and the private sector. When the government and the private sector are effective, essential complementarities can grow, with the public sector enabling a stronger private sector through appropriate regulations, rule of law, institutions, public investment, fiscal policy support and security, while the private sector generates employment, wealth and taxes, and additional services that can help the public sector better fulfill its mission. The private sector can be most effective and achieve more equitable results when aided by good governance and transparency.
A country's policy, legislative, regulatory and governance conditions have a tremendous bearing on its ability to attract investment in the private sector, facilitate business start-up and expansion and transform those activities into economic growth. The 2005 World Development Report states: "A good investment climate provides opportunities and incentives for firms - from microenterprises to multinationals - to invest productively, create jobs, and expand. It thus plays a central role in growth and poverty reduction."
The private sector in developing and underdeveloped economies encounters whopping gridlock on the way to development and expansion. Unpredictable and rigid policies, corruption, red tape, lack of good governance, unfavourable investment environment, poor and impoverished infrastructure are the major hurdles faced by the private sector in the underdeveloped and developing economies. High corporate tax, VAT complexities, frequent changes in the tax rates and rules and arbitrary interpretation of tax rules have been identified as deterrents to private sector industries and businesses.
Malaysia, an emerging economy in Asia, has given the top priority to the private sector, including Foreign Direct Investment (FDI). It has drawn up a 5-year plan to make the private sector the locomotive of economy, leading Malaysia to become a high income and developed economy by 2020. According to the government plan, Malaysia will set up a Facilitation Fund of 20 billion Ringgits (USD 6.13 billion) to encourage and boost private investment in nationally strategic areas. South Korea will focus its policy efforts next year on boosting the private sector to make more people feel the impacts of the recovering economy in their daily life.
The private sector in Bangladesh is doing much better than the public sector. The performance of private banking companies is better than the public sector banking companies in terms of performance, loan recovery and profitability. The recent colossal loan scams of some public sector banks are really alarming. Economists and analysts expressed disappointment about the performance of the public sector banks and suggested quick privatisation and good governance. The private sector has not yet developed satisfactorily due to many factors including poor FDI flow into the country. Bangladesh failed to attract FDI to help the private sector flourish. Bangladesh's position in FDI inflow is 86, much lower than India, Malaysia, the Philippines and Pakistan.
Poor infrastructure, shortage of energy, lack of fiscal support from the government, high income tax rate, sky-high corporate tax rates for private sector companies, political instability and confrontational politics are the main impediments to the private sector.. Many export-oriented private sector industries have been established in Gazipur, Sreepur, Savar and Ashulia areas. These industries face severe transport and communication problems as the roads of these areas are the worst and very narrow. Bangladesh's corporate tax rate, especially 45 per cent for private banks and financial institutions, is one of the highest tax rates in the present world.
Profligate financing cost is a formidable impediment to the private sector investment in developing countries including Bangladesh. The financing charges, including the rate of interest on borrowings from banks and financial institutions, are abnormally high in comparison to developed and emerging countries. Borrowing procedures are very lengthy and cumbersome- one has to cross 26 steps before getting any loan from a commercial bank. In addition, the SMEs (small and medium enterprises) in the private sector do not get easy access to local commercial banks or face unfavourable conditions for borrowings.
Bangladesh needs to prioritise its private sector for driving its economic growth. The private sector needs government's support, especially budgetary support for industrial growth. Reduction of high finance charges and abnormally high corporate tax and simplification of the procedures of setting up private sector industries and borrowing money from banks and financial institutions can act as a strong catalyst for the growth of the private sector.
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