Enhancing business competitiveness
Competitiveness depends upon regulatory institutions, policies and factors that determine the level of productivity of a country, which, in turn, influences the level of prosperity and the rates of return obtained by investments earned in an economy. The concept of competitiveness thus involves static and dynamic components. Although the productivity of a country determines its ability to sustain a high level of income, it is also one of the central determinants of its return to investment, which is one of the key factors explaining an economy's growth potential.
Competition among countries to attract local or foreign direct investment (FDI) relies heavily on the relative strengths in business environment, source of raw materials, production facility and market opportunities. Bangladesh is one of the major economies in South Asia, and although it belongs to the group of least developed countries (LDCs), over the last decade it has shown some degree of success in addressing the economic problems and alleviating poverty. With its steady GDP (gross domestic product) growth of about 6.0 per cent, it is far ahead of most low-income countries. There is, however, a mystery about the source of invested capital for such steady growth.
Bangladesh has to see its competitive advantage in more creative terms than just to think in terms of cheap labour and garments. Lack of enough resources for investment has been considered one of the major obstacles for coming out of the underdevelopment trap. In the coming years, the country will require a considerable increase in investment - perhaps worth almost US$50 billion or 40 per cent of the GDP but the current investment is well below 30 per cent. The additional investment would require resource mobilisation by increased revenue earnings, larger inflows of foreign aid, and increased foreign and domestic investment. To attract investment, whether domestic or foreign, the country's policy makers will need to focus on how to create a good investment environment.
This environment is generally seen as having three main features: macroeconomic conditions, governance and infrastructure. Macroeconomic factors include such issues as fiscal, monetary and exchange rate policies, and political stability. Governance relates to government interactions with business, which typically mean regulation and corruption, both of which affect the cost of starting and running a business. Infrastructure refers to the quality and quantity of physical facilities (such as power, transport and telecommunications). More broadly, it can also refer to financial infrastructure or access to finance.
The basic factors underlying lower investments relate to governance issues like policy discontinuity, red tapism, administrative hassles, corruption in public services, ineffective implementation of the legal system, political turmoil, unsatisfactory law and order situation, poor state of communication, shortage of skilled labour, and trade policy-related impediments. There is also the problem of inadequate and erratic supply of power and gas, and competition with illegally imported products that evade taxation which discourage investors to invest in the country. Moreover, the nation suffers from a lack of trust: businesses do not trust officials, and officials do not trust businesses.
Bangladesh compares unfavourably with other competing countries. The net result is that cost of production is high despite the so call cheap labour. Bangladesh needs to follow a strategic game plan, invest in infrastructure, technology and skills, streamline policies, and improve quality and safety standards.
The Global Competitiveness Report 2012-13 ranked Bangladesh at the 118th position, a slide by 10 positions from the previous year (108th in 2011-12). Countries that advanced from behind are: Dominican Republic, Nicaragua, Guyana, Cameroon, Nigeria, Senegal and Paraguay. GCI (Global Competitive Index) score of Bangladesh also declined by 2.1 per cent (from 3.73 in 2011 to 3.65 in 2012-13). Scores in basic requirement such as institution, macroeconomic stability, and infrastructure dropped to 3.72 from 3.81. Efficiency enhancer i.e., education, market efficiency, financial market and technological advancement experienced a declining score of 3.62 from 3.69. Innovation and sophistication meaning research and other indicators declined from 122nd from 113th, with a reduced score to 2.98 from 3.04.
Bangladesh lost 10 positions and was placed at the 118th out of 144 countries in the Global Competitiveness Index (GCI) 2012-13. Bangladesh ranked 108 in GCI. The report was been prepared on the basis of a survey among 14,000 industrialists and businessmen and included 87 medium and large companies of Bangladesh.
The World Bank's Doing Business 2013 report, published simultaneously, revealed that Eastern Europe and Central Asia improved the most, overtaking East Asia and the Pacific as the world's second most business-friendly regions. Bangladesh's ranking is at the bottom of the list. As reflected in the ranking on the ease of doing business, the 10 economies with the most business-friendly regulation are Singapore, China, New Zealand, United States, Denmark, Norway, United Kingdom, Republic of Korea, Georgia and Australia. Singapore tops the global ranking for the seventh consecutive year. Bangladesh's rank is 127, while among the neighbours India' ranking is 132 and Bhutan 148. The ranking in starting a business in Bangladesh is 95.
In view of the increasing competition in the local market with imported goods getting the advantage, there is the need to ensure structural changes in the country's manufacturing sector to create an investment friendly environment by addressing the issues of high interest rate, high inflation, lack of the needed supply of power and gas, weak infrastructure, absence of well developed supply chain etc. Low capital and labour productivity can only be addressed through capital infusion, technology adoption and skill development.
The past decade's boom in exports, particularly in the apparel sector is very significant to the country's economic growth, but the recent GDP growth has not led to significant improvements in the living standards of most people and the social factors are still challenging.
Despite impressive economic growth and some reforms over the two decades, Bangladesh's business environment is still far from pleasant. The key issues are: poor infrastructure, particularly road networks and electricity supply, high cost of finance and limited access to long-term finance options, largely unskilled labour force etc. Political instability, safety risks and corruption, coupled with slow pace of reform and lack of alignment of policies at the various levels, undermine investor confidence.