All indicators point to significant shortfall in growth, investment performance

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Offline fatema nusrat chowdhury

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All economic and non-economic indicators are pointing to significant shortfall in growth and investment performance for fiscal year (FY) 2012-13, compared with the Sixth Plan targets.

This was noted in a paper on 'Investment and Growth -- Why Bangladesh is Missing the Target?', prepared by the Policy Research Institute (PRI) of Bangladesh, one of the country's think-tank bodies. The paper was the third of four policy briefs of the PRI.

Presenting the paper at a policy briefing on the Bangladesh economy at the PRI in the city on Saturday, Ahsan H. Mansur, its executive director, said domestic demand growth has been dampened by a number of factors such as lower agriculture income for farmers due to lower rice and wheat prices, bursting of the stock price bubble, ongoing deflation of land and real estate prices; slower construction activity and lower export growth.

He said monetary policy should not be relied upon excessively to boost investment. While the economy needs liquidity, injection of its excessive amount is counterproductive, he noted.

He observed: "We must take a hard look at the real issues of infrastructure, institutions dealing with dispute resolution, skill development for the workers and quality of health and education to attract investment including foreign direct investment."

He asked where credit during the expansionary monetary policy is going. The answer naturally lies in observing the developments in some usual culprits. These are surge in inflation since FY09 from low single digit to double digit levels, the stock market bubble, other asset price inflation in real estate and land prices and macro-economic problems as manifested through tensions in the balance of payments and a sharp depreciation of Bangladesh Taka.

"To an investor, Bangladesh, as an attractive investment destination, would depend on the competitiveness of the economy and general business environment," he added.

PRI chairman Dr Zaidi Sattar presented a paper on trade policy for boosting the manufacturing sector on the occasion.

He said trade policy orientation needs to change in order to support high manufacturing growth.

The growing wedge between output and input tariffs, he went on, has to be contained and reduced over time in order to scale down ERPs (effective rate of protections) for domestically-produced consumer goods.

"Otherwise, anti-export bias will remain high and discourage production for exports in those firms that produce for sale in the domestic market as well as for exports," Dr Sattar added.

He said it is high time for the top tariff rate, along with para-tariffs, to be scaled down, to give domestic consumers some relief.

Accelerating manufacturing growth will require a trade policy regime that is globally competitive and a dynamic manufacturing sector that is also export-oriented, he said.

Studies reveal, the current trade policy stance, while allowing a free trade regime to the readymade garment (RMG) sector, essentially perpetuates high degree of protection support to domestic (import substituting) industries, at the expense of emerging and potential export industries, Dr Sattar said.

But, he noted, import-substituting production catering to the domestic market cannot create jobs for the two million people being added to the workforce each year. Export production can, he said.

Quoting findings of a survey of some 130 enterprises, he said ERP for exports is typically zero or marginally positive; or marginally negative.

He said, ERP for domestic sales increases with higher tariffs on output or lower tariffs on inputs, and decreases with lower tariffs on outputs or higher tariffs on inputs.

He said, for most import-substituting industries producing for domestic market, output tariffs have been rising, and inputs tariffs, falling.

PRI vice chairman Dr Sadiq Ahmed presented a paper on 'Boosting the Role of Bangladesh's Small and Medium Enterprises (SMEs) in the Manufacturing Sectors.'

He said a large volume of subsidised and un-subsidised financing has been targeted to SMEs. But there is no follow-up to learn about the success of such financing schemes.

He said the lack of a proper monitoring and evaluation (M&E) framework is a serious obstacle to determining the efficacy of policy and financial support to SMEs.

"In the absence of a baseline data and follow-on data focused on outcomes, it is impossible to even know if the financial support is reaching the targeted beneficiaries and achieving the intended results," he added.

In the absence of a results-based SME, giving financing in the name of SME is almost tantamount to dropping money from helicopter, he noted.

He said a top policy priority is to institute a proper M&E framework that will review the effectiveness of all financial support programmes to SMEs.

PRI's Ahsan H Mansur presented yet another paper styled 'Challenges and Strategies for Food Security.'

He said food security concept is often mixed with self-sufficiency in cereal or rice production.

"If domestic food production is a bit less than demand, that should not imply food insecurity," he added.

Adequate production does not imply food security for all either. It is the purchasing power, which is the most important determinant of food security, he said.

He said even if due to crop diversification, "we fall short of rice in certain years, we can use beefed-up stocks (which should be about 2.5-3.0 million tonnes) and resort to imports."

Establishment of a regional food bank or agreements with neighbouring countries can insure us against international price and supply constraints, he added.

"Bilateral strategic agreements to ensure uninterrupted import of 3.0-5.0 million tonnes from India and 1.0 million tonne from Myanmar will be enough to meet all conceivable domestic production shocks," he added.

Participating in the discussions on the papers presented, a senior economist at the Dhaka office of the World Bank (WB) attributed slow pace of investment in the country to institutional weaknesses and 'myopia' in leadership.

Dr Zahid Hossain, the senior economist of the WB also blamed inefficient and also politicised administration for it.

His observations came at the policy briefing on the Bangladesh economy.

WB senior economist Dr Zahid Hossain said, "We've lands at export processing zones (EPZs), energy roadmap, national education policy and skill development project."

He said investment scope in East Asia is expensive; in India, it is cumbersome; Pakistan is too risky and Nepal is badly located.

"Investment should be here (Bangladesh), considering the above-mentioned problems in many countries. Wages in Bangladesh are one fifth of those in China," he pointed out.

Former finance minister M Syeduzzaman was moderator at the policy brief unveiling programme held at the PRI's office.

Speaking on the occasion, former commerce minister Amir Khosru Mahmud Chowdhury said, "All institutions have now been politicised failing to deliver the desired services to the nation."

He said appointment of directors in the state-owned banks is also politicised.

He said: "As a politician, I disagree with this kind of appointments."

He questioned: "What is their background to appoint them in many key positions in the financial sector?"

He said: "We should devise a mechanism on how to fill up the key positions of the institutions."

There should be a transparent mechanism like public hearing to appoint persons to the key positions including those in Bangladesh Securities & Exchange Commission (BSEC) and Anti-Corruption Commission (ACC), he added.

BRAC's executive director Dr Mahbub Hossain said idea of cereals import from India is not acceptable. "We saw in the past that India did not keep its words during our crisis."

Dr Hossain said fruits and vegetables are the two key areas of agriculture that remain much potential. "There are many investment opportunities in processing of fruits and vegetables now," he added.

He urged the government to provide policy support to promote sub-sectors of agriculture.

Pisciculture is yet another area that still remains underutilised, Dr Hossain noted.

He said: "We've good scope for making a balanced diet and food security in the country."

Professor Syed M Ahsan said: "The story of anaemic growth of employment in small and medium enterprises (SMEs) has been repudiated by now-established resilience of steady growth in manufacturing, e.g., in garments, pharmaceuticals, textiles, energy and leather enterprises."

Mr Ahsan, a professor of economics at the Concordia in Canada, said for going forward, one needs to start with a census of select regions, select industries (e.g., RMG, leather and pharma) luring industries of both fast and relatively slow growth.

He called for matching these with similar groups, and randomly selecting a few from each for a deeper analysis.

He said analysis should explore the roles of elements, such as technology adoption and diffusion and impact on unit costs of production, financing innovations; and workers' incentives (performance bonus, gratuity, pension, if any).

Managing director of Palli Karma Sahayak Foundation (PKSF) Dr Mesbah Uddin said governments in Bangladesh and other countries in South Asia give much attention to production and stock of cereals historically.

"Governments including ours feel troubled when food production falls and stock of cereals is depleted," he noted.

Mr Mesbah said income inequality is rising in the country while consumption inequality remains constant.

"This is a paradox and we studied it," he said.

Mr Mesbah said: "Our study has found that marginal propensity to consume (MPC) is rising among those at the higher strata of the society while at the lower level, it is decreasing leading to constant inequality