Investment climate: Prospects and challenges

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Offline Md. Anwar Hossain

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Investment climate: Prospects and challenges
« on: June 01, 2016, 12:05:23 AM »
Investment (both foreign and domestic) is a key determinant of economic growth and development. It is also considered an engine for job creation. Currently, investment is facing a pitiable situation in Bangladesh. According to a report of the UN Conference on Trade and Development (UNCTAD), the country received $1.53 billion in foreign direct investment (FDI) in 2014 as against $1.6 billion in 2013. It also said the lion's share of the FDI in 2014 came in the form of reinvestment of profits earned by the foreign enterprises. In another report, Bangladesh Bureau of Statistics (BBS) estimates that in fiscal 2015-16, private investment as a proportion of gross domestic product (GDP) stood at 21.78 per cent, down 0.29 per cent from FY 2014-2015.

Government agencies in Bangladesh often claim that they are sincere and very keen on promoting investment. They have taken various liberal policies and implemented a number of policy reforms and incentives designed to promote a competitive climate for private investment and also pursue various promotional activities such as investment summits, road shows, etc. for promoting investment. However, government claims do not often reflect ground reality.

At the moment, Bangladesh is well poised to achieving success in many sectors of development and has the potential to attract FDI from a wide range of countries, including relocation away from China. It need not be mentioned that Bangladesh is one of the few countries that have been consistently growing at 6.0 per cent over the last decade and is now trying to break the 7.0-per cent barrier. It offers the most low-cost workforce in the region with monthly minimum wage of only around $70. But unfortunately, despite our globally acclaimed socio-economic achievements, sound macro-economic indicators, attainment of Millennium Development Goals (MDGs) targets, impressive social indicators, women's empowerment, neither the foreign investors nor the local investors do not seem to feel confident to invest in Bangladesh. Many see political instability as the biggest obstacle to the country's business environment. Insecurity in the minds of the people has endangered the investment climate. But we think beside political instability there are other factors and barriers that are discouraging foreign and local investors.

The deterrents  that discourage investors include time-consuming bureaucracy, poor socio-economic and physical infrastructure, unreliable energy supply, corruption, low labour productivity, undeveloped money and capital markets, high cost of doing business,  complicated tax-system, frequent changes in policies on import duties for raw materials, machinery and equipment, delays in decision making, etc. There are allegations that some investors have gone back to their country after finding long periods of waiting and hassles of overcoming many obstacles a bit too much. Then there are hidden costs in matters related to procedure, policy, law and infrastructure that seriously tell upon the cost of doing business. In the World Bank report "Doing Business 2016: Measuring Regulatory Quality and Efficiency", Bangladesh dropped two positions to 174 in the ranking of the ease of doing business due to regulatory reforms. Only Afghanistan (177) comes after Bangladesh amongst South Asian countries. The business community says that although the Board of Investment (BoI) is supposed to be the focal point of the investment process as well as the single point of delivery for all services to investors, it does not meet the requirements of investors. BoI is not provided with sufficient power to influence or control situations; it is unable to overcome the powerful bureaucratic hierarchy.

Poor infrastructure of the country also hinders the prospect of local and foreign investment. The World Economic Forum evaluated and rated Bangladesh's infrastructure at 127th amongst 144 countries. Because of weak infrastructure, entrepreneurs have to wait for many years for connectivity of gas and electricity after setting up their industries. Latest information suggests that about 2000 factories are waiting to get the electricity connection and the energy ministry cannot say when they will be able to provide the same. 

Beside poor infrastructure, lack of land, acute shortage of power and gas for new industries, finding the right people and getting them to work productively are the biggest problems of Bangladesh today. We have made remarkable progress in expanding primary education, especially in raising enrolment of students and reducing gender disparity. But our education system and curriculum do not serve the goals of human development. There is a lack of communication and collaboration between the government, academia and industry, and as such we are not producing quality or skilled persons for modern industry. Last year, Bangladesh earned $14.6 billion as remittance from the expatriates who are working as unskilled and low-skilled labourers in the Middle East, Singapore and Malaysia. On the other hand, around $4.0 billion is being remitted out by high-skilled foreign nationals working in technical and mid-level managerial positions in Bangladesh's ready-made garment (RMG) and telecom industries. This goes to show our inability to provide required educational and skills enhancing resources to youngsters to develop themselves for skilled jobs within the country.

'The next two years are going to be the best time for investment as the interest rate on loans has come down to a single digit', said Finance Minister AMA Muhith  at a discussion meeting on the upcoming budget for fiscal 2016-17, jointly organised by the Federation of Bangladesh Chambers of Commerce and Industry and private broadcaster NTV. Undoubtedly, never in recent history interest rate was so low. But there are many other factors beside the low interest rate on loan which directly or indirectly influence investment decisions. When investors intend to come to a country, they first look at the rate of return on their investment, and whether they will be able to repatriate their profit or funds, and most importantly, whether there is sufficient security for their investments. Therefore, just providing low interest rate on loan and offering an incentive package or formulating policies for liberalisation are not likely to improve the level of FDI.

To attract more FDI and local investment, the government needs to address and remove the impediments that are responsible for the high cost of investment. Expert says, to encourage private investment, public sector investment is an important prerequisite. Government's lacklustre moves regarding the implementation of mega infrastructure projects such as Padma bridge, nuclear power plants, Payra seaport and deep sea port, elevated expressways, etc. deter private investment. Therefore, to make the country's investment climate more attractive, the government needs to implement the proposed 'capital budget' along with raising the overall quality of infrastructure, including uninterrupted supply of electricity and gas, quality roads, railways and port services, skilled labour supply, and business-friendly tax and VAT rates.

Bangladesh needs investment in terms of money and technology transfer in sectors such as infrastructure, energy and power, leather, apparel, food processing, pharmaceuticals, tourism, agro business, ICT and labour-intensive industries. The country needs to adopt an expansionary economic policy so that increasing productivity and consequent employment generation for future workforce through higher investment would be possible.
Md. Anwar Hossain
Sr. Administrative Officer.
Daffodil International University (DIU)
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