Political violence has emerged as the biggest hindrance to improving the country's trade and investment, already weighed down by regulatory and infrastructure constraints, analysts said yesterday.
“Political turbulence is now the number one impediment to attracting both foreign and local investments,” said Abdul Haque, a director of the Federation of Bangladesh Chambers of Commerce and Industry, the apex trade body.
He spoke at a seminar on regulatory challenges for trade and investment, co-organised by the Policy Research Institute of Bangladesh and the Department for International Development of the UK, at the PRI office in Dhaka.
Many foreign investors have already cancelled their planned visits to Bangladesh mainly due to the volatile political environment, Haque said.
A group of Japanese investors, who had a schedule to visit Matarbari island near Maheshkhali in Chittagong, has cancelled their trips due to unfavourable political environment, said Haque, who is also the managing director of Haq's Bay Automobiles.
“Global apparel retailers are worried about our political crisis,” said Atiqul Islam, president of Bangladesh Garment Manufacturers and Exporters Association.
Eleven big clothing retailers have so far expressed concern over political instability in Bangladesh, he said, adding that garment exports will be hampered if the situation does not improve.
The ongoing political turbulence has already started affecting the financial sector, said Anis A Khan, managing director of Mutual Trust Bank.
“2014 was a good year for the country's economy as more long-term and SME loans were disbursed thanks to a relatively stable political environment,” he said. “But we are now worried about how this year will turn out.”
Bangladesh has to improve its regulatory environment for attracting more foreign and private investment, said Sadiq Ahmed, vice chairman of the PRI.
Complex regulations and bureaucratic hurdles tend to increase the costs of doing business and thereby hurt the growth of investment, he said.
Bangladesh received relatively low amount of FDI compared with other developing countries, Ahmed said.
In 2013, FDI inflow to Bangladesh was $1.6 billion, for China the figure was $124 billion, India $29 billion, Indonesia $18 billion and Vietnam $9 billion, he said.
The growth scenario suggests that the current private investment should grow from 21 percent of gross domestic product to at least 27 percent, while public investment should climb to 9 percent of GDP from 6 percent now, to achieve a GDP growth rate of 8 percent by 2020, he said.
Bangladesh has failed to receive the desired level of FDI mainly due to three big constraints related to access to electricity, enforcement of contract and land registration, Ahmed said.
On average, it takes 1,442 days to enforce a contract and the financial cost of enforcement is as high as 67 percent of the claim in Bangladesh, he said.
But, it takes only 400 days in Vietnam and 453 days in China to enforce a contract; the financial costs are 29 percent and 16 percent of the claims respectively, he said.
The difficulty of getting access to electricity is equally telling. It takes 429 days to get access to electricity in Bangladesh, compared with 91 days in Indonesia, 104 days in Sri Lanka, and 106 days in India, Ahmed said.
For property registration, Bangladesh takes 244 days while it is only 20 days in China, 27 days in Indonesia and 47 days in India.
Such bottlenecks also encourage local investors to launder money from the country despite presence of lots of initiatives of the central bank to prevent it, he said.
Zaidi Sattar, chairman of PRI, stressed facilitation of trade to increase competitiveness of exports.
Bangladesh's customs is responsible for high trade cost due to excessive manual procedures and documentation requirements, which cause delays in customs clearance, he said.
Uniformity of product and regulatory standards is another challenge to lure more FDI and enhance trade, Sattar said.
“Mutual recognition agreements can resolve the problems related to variability of standards and certification. For this, the country must pursue economic diplomacy, especially in South Asian countries.”
Uzma Chowdhury, director for corporate finance at Pran Group, stressed more collaboration with neighbouring countries to enhance trade.
“We can grab a big portion of the market, especially in India, if the two countries go for more collaboration.”
SA Samad, executive chairman of the Board of Investment, also agreed that the country is not getting the desired amount of FDI.
Considering its potential, Bangladesh should get at least $5 billion of FDI a year, he said.