Political stability key to improving investment climate

Political stability key to improving investment climate

 

Md. Joynal Abdin

The Financial Express on February 03, 2014

Bangladesh is a country with enormous potential to grow faster than any other least developed countries (LDCs) of the world. Its strategic geographic location has made it an attractive destination for the ancient merchants as well as the modern multinationals. This is because Bangladesh is located at the middle point of two fastest growing economic superpowers China and India. These two countries have about 2.6 billion populations having increasing purchasing power.

Bangladesh has a domestic market of about 15 million consumers. It would be very much cost-effective to produce a product in Bangladesh and market it to India, China, and other countries under the SAARC and other international duty-free arrangements. Besides, all Bangladeshi products (other than armaments) enjoy complete duty and quota-free access to developed countries including the member-states of the European Union Japan, Canada and Australia. Bangladesh is a signatory to the Multilateral Investment Guarantee Agency (MIGA), the Overseas Private Investment Corporation (OPIC), the USA, the International Center for Settlement of Investment Disputes (ICSID), and the World Intellectual Property Organization (WIPO). It has bilateral agreements with 28 countries to avoid double taxation.

Foreign investment in Bangladesh has been made 100 per cent safe and secure by the Foreign Private Investment (Promotion & Protection) Act 1980. We have a large number of young and energetic people with about 59.3 per cent economically active people. According to a recent study conducted by the Japan External Trade Organisation (JETRO), factors of production like land, labour, fuel, vehicle rental and hiring skilled management people, etc. are very much competitive in Bangladesh, compared to other countries of Asia.

Bangladesh offers hassle-free remittance of earnings by foreign professionals, repatriation of dividend and capital after departure of foreign investors. It also offers permanent resident permits on investing US$ 75,000 and citizenship on investing US$ 500,000. The government has ensured five-year tax holiday package for investment in Dhaka and Chittagong divisions and seven-year tax holiday package for investment in other divisions of the country. There are eight functioning Export Processing Zones (EPZs) namely, Adamjee, Chittagong, Comilla, Dhaka, Ishwardi, Karnaphuli, Mongla, and Uttara with all sorts of infrastructural, managerial, utilities and other relevant facilities. Already 32 countries have invested in these EPZs and are operating businesses successfully. The BEPZA is a trust-worthy organisation to facilitate any FDI in the EPZs.

Bangladesh has diversified potential sectors like agro-based and agro-processing industry, human resource export, ship-building, renewable energy, tourism, basic chemicals/dye and chemicals, Information and communications technology (ICT) and ICT-based service, readymade garment industry, innovative and import substitute industry and cosmetics and toiletries, etc. for local/foreign investment.

Time has come to analyse how much Bangladesh could attract foreign direct investment (FDI) in the last five years with all these attractive facilities. What is the trend of local investment at the same time? It is to be noted here that FDI flow to Bangladesh has traditionally been lower, even compared to other South Asian countries. Considering FY 1996-97 as the base year, the statistics reveals that in FY 2011-12, Bangladesh received net FDI to the tune of US$ 806.52 million. Statistics shows that Bangladesh received $1.29 billion inward FDI in 2012.  After FY 2008-09, FDI as a percentage of GDP (gross domestic product) started to decline sharply. In FY 2010-11, the amount of FDI and GDP were Tk. 55.45 billion and Tk. 7874.95 billion respectively against Tk. 63.16 billion and Tk. 6943.24 billion of FY 2009-10. The FDI as a percentage of GDP has started to decline. It means our economy is growing based on local investment. It has both positive and negative effects. But the FDI brings technical knowledge, technological advancement and managerial excellence into a country.

The Bangladesh Economic Review 2013 shows that the current growth rate of public investment is higher than that of the private sector. Does it mean that the private sector has limited capacity to invest? Many experts say that the private sector is taking time to take decisions regarding investment due to current political instability, unrest and violence in the country. Without a stable democratic environment, it is quite difficult to ensure expected return on investment. Therefore, both local and foreign investors are observing the situation before investing in Bangladesh. Cost of wages and other factors of production in many developing countries, including China, India, Singapore and Korea, are rising rapidly. As a result, investors are considering relocation of factories in a suitable destination. Bangladesh could be the best option if we could overcome a few barriers of investment existing in the economy.

The first and most difficult barrier to investment in Bangladesh is political instability. Absence of dialogue and compromising tendency among the parties has made the situation more complex. Without a stable and truly democratic situation, the investment climate will not improve. At the same time, local investors will go for investment of their money abroad.

Corruption is the second biggest barrier of investment in Bangladesh. Recent corruption cases like Hall-Mark, Bismillah, Destiny, etc. have damaged confidence for investment in the country. Bureaucratic complexities in getting regulatory permission and required certification are frustrating the small and medium entrepreneurs. Big entrepreneurs could manage bureaucracy through political pressure or offering bribes but small and medium entrepreneurs are facing trouble in this regard. Law-enforcement agencies, regulatory agencies, including police and Customs, have to be pro-business. Currently, small businesses are being hampered by a dishonest section of these agencies.

The government has to be proactive to overcome other barriers of investment. These are irregular/ inadequate supply of power, high rate of interest on bank loans in comparison with our major competitor countries, inadequate availability of raw materials, absence of clear-cut government policies regarding many sectoral and cross-sectoral issues, shortage of skilled technicians and workers, limited research and development facilities, poor physical infrastructure and high transportation costs, unavailability of information about market opportunities and requirements etc.

Finally, we have to remember that Bangladesh is competing in a global free market. It has to negotiate and maintain a congenial relationship with its major and potential export destination countries to ensure smooth flow of exports. Remittance is the second highest source of foreign exchange earnings by Bangladesh. It is another most important role of our government to maintain friendly relations with major and potential manpower-importing countries to ensure proper placement of our manpower in those markets. There are a number of business sectors in Bangladesh waiting to take off like readymade garment. But such opportunities have to be seized.

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Published by

Md. Joynal Abdin

Development Researcher, Columnist and Author

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