Industrial infrastructure development for sustainable economic growth

Industrial infrastructure development for sustainable economic growth

Md. Joynal Abdin

Published by the Independent on April 25, 2018

Infrastructure refers to the basic facility required to run the daily life of the citizen of a country or city like roads, bridges, tunnels, water supplies, sewers, electricity, gas, telecommunication system, cellular network, internet connectivity and broadband speed etc. Infrastructures are primarily classified into two brad heads namely, hard infrastructures like transportation networks like roads, airports, sea ports or river ports, railroads etc. and soft infrastructures like education system, healthcare system, law and order situation, financial system, form of government, financial service and government responses to the civil emergency etc. of a country. Bangladesh has primarily graduated from the LDC list this year and hopping to be sustainably graduating into developing countries list by 2024. To fulfill that mission we have to fight few socioeconomic inconveniences like providing employment to the existing unemployed as well as new comers in this category, improve infrastructure (hard and soft) facilities, transform the economy from agricultural based into industrialised one.

Transformation of Bangladesh economy from agricultural to an industrialised one has  started naturally during last couple of decades. For example contribution of Agriculture, Industry and Service Sector to Bangladesh GDP in 1972 (soon after the independence) was 59.60 6.06 percent and 34.32 per cent respectively. In the year 1980 contribution of the same sectors to Bangladesh GDP was 31.55 percent (Agriculture), 20.63 percent (Industry) and 47.81 percent (Service). Current contribution (2016) of Agriculture reduced into 14.77, Industry and Service Sectors increased into 28.76 percent and 56.45 percent respectively. From the above statistics it is clear that, Bangladesh economy is transforming from agricultural economy into industrial economy, but the transformation speed is too slow. Questions may be asked that, why this transformation is necessary. This transformation is necessary because per acre agricultural land a highest threshold of production. After that particular threshold further growth in agriculture is not possible. On the other hand productivity of the same size of industries is much higher than that of agriculture.

Secondly, there are above 3 million unemployed (workable) populations in Bangladesh, another 2 million newcomers are adding with this number as fresh job seekers. But Bangladesh is experiencing a job less growth during last couple of years. As a result burden of unemployment in mounting up day by day. Government alone is unable to create employment opportunities for such a huge number of citizens. Therefore; industrialisation is the most suitable options for employment generation, increasing GDP growth, enlarging export basket and finally sustainably graduating into a middle income developing country. To speed up industrialisation movement government initiated some initiatives like the honorable Prime Minister herself seat in a forum called National Council for Industrial Development (NCID), Ministry of Industries is providing secretarial support to this council. Among others Bangladesh Small and Cottage Industries Corporation (BSCIC) and SME Foundation are working to facilitate entrepreneurship development and industrialization in the country. But due to lack of industrial infrastructure facilities Bangladeshi industrialisation movement is not getting momentum. Now come to the points what is industrial infrastructure? And why these are important to increase industrialisation movement of Bangladesh?

Industrial Infrastructure is a set of physical facilities essential for healthy operations and further growth of the industrial operations in a country or city. Industrial infrastructure is also known as commercial infrastructure. Industrial Infrastructures of Bangladesh could be described as follows:

  1. Aviation Facilities: There are three international and seven domestic Airports in Bangladesh. These are Hazrat Shahjalal International Airport, Shah Amanat International Airport, Osmani International Airport (International), Cox’s Bazar Airport, Jessore Airport, Shah Makhdum Airport, Barisal Airport, Ishurdi Airport, Saidpur Airport, and Comilla Airport (Domestic). This number of only 10 airports is self descriptive that most of the districts of Bangladesh are out of air network. Airport facilities, security systems, cargo handling etc. capacity are very limited to offer a full sewing aviation service for tomorrows Bangladesh. About nine airlines operators are operating local and international flights in Bangladesh but the national carrier Biman is a losing concern. Bangladesh has a very small network of destinations connected by direct flight and cargo transport facility. This network has to be broadened and air cargo service destinations have to be enlarged to fulfill increasing demand of tomorrow’s industrialisation.
  1. Roads and Highways: Bangladesh has 3.33 lac kilometers of road network. Maximum lengths of this network are Upzila, Union and Village level road. Condition of only 19.46 per cent is good, 37.47 per cent is fair and rests are poor and very poor. Among 3.33 lac kilometers of roads national highways are only 3.5 thousands kilometers. But Dhaka Chittagong Highways (215 kilometer) carries above 60 per cent of Bangladesh’s commercial traffic and 27 per cent passengers of the country. Therefore traffic jam is a regular phenomenon here in this highway. An alternative roads between Dhaka and Chittagong is the necessity of time to promote hassle free transportation of export oriented goods and imported raw materials to and from the busiest port i.e. Chittagong port. Economic importance of Dhaka – Chittagong port is more than all other roads and highways of the country. Government has a plan to make Dhaka-Chittagong Economic Corridor functional. It would help to uplift living standard of the linked cities like N.Gonj, M.Gonj, Comilla, Feni etc. SEZ going to be established besides Dhaka Chittagong Economic Corridor like AMEZ, API Industrial Parks, and Mireshwrai SEZ etc. would be pieces of diamond of this economic corridor.
  1. Railway: There are only 2.87 thousands kilometers of railroads in Bangladesh. Most of the cities are out of rail network and its service. It is one of the busiest modes of transport in Bangladesh but losing concern due to some hidden reason. Railway could be a safe and quickest mode of transport for passengers as well as goods in Bangladesh. New railroads have to be constructed and operated in commercial mode. Government can open up this sector for private investment like the cellular phone sector. Private Investment can develop this sector and make it profitable. Mode of private investment in this sector could be BOO (build, operate and own) or BOT (build, operate and transfer) under the PPP modality.
  1. Land Ports: There are 23 Land Ports in Bangladesh namely Benapole Land Port, Burimari Land Port, Akhaura Land Port, Bhomra Land Port, Tamabil Land Port, Darshana Land Port, Belonia Land Port, Gobrakura-Karaitali Land Port, Ramgarh Land Port, Sonahat Land Port, Tegamukh Land Port, Chilahati Land Port, Daulatganj Land Port, Dhanua Kamalpur Land Port, Sheola Land Port, Balla Land Port, Sonamosjid Land Port, Hili Land Port, Banglabandha Land Port, Teknaf Land Port, Bibirbazar Land Port, Birol Land Port and Nakugaon Land Port to carry its import and exports from the neighboring countries through road transports. Infrastructure facilities in most of the land port are measurable. Carrying goods to or from most these land port is till horrible experience for the businessmen. Storage facilities, Road condition, Customs stations and other important institutions in these land port has to be developed to make these functional and effective.
  1. Sea Ports: There are only three functional sea ports in Bangladesh i.e. Chittagong Port, Mongla Port and Paira Port. A large number of private or specific service oriented port facilities are there in different locations. About 92 per cent of maritime trade traffic of Bangladesh goes to a single port i.e. The Chittagong Port. Therefore traffic congestion in Chittagong Port is rising day by day. It is increasing hidden cost of doing international business through Chittagong port. A deep sea port is under process to ease maritime trade of Bangladesh. But delay in decision making related to deep sea port may increase threats to Bangladeshi maritime trade i.e. import or export in near future. Because we have a target to increase our export volume to USD 50 billion in 2021. Current export of USD 35 billion is making congestions in our major ports how they can handle additional USD 15 billion trade by existing capacity? Not only sea ports, government have to go for capacity building of all the existing river ports of the country to make trade goods transportation comfortable through river channels. River ports activation could ease traffic jam in roads and highways too.
  1. Electricity, gas, coal, oil and renewable energy: Currently Bangladesh is generating about 10 thousand megawatt of electricity per day. This generation is fighting to supply adequate amount of electricity to the existing industries. But when 100 SEZs will be commissioned with full range of factories then what would be the demand for electricity, gas, coal, oil and other forms of energies. This could be a major challenge to make our dream into reality. All the renewable energy sources could be unable to supply the demanded amount of energies. Therefore before making land boundaries of all the SEZs, Industrial Parks, Industrial Areas and Clusters we should work out how much different forms of energies could be demanded by all these industrial states, SEZs, and industrial clusters. Do we have enough preparation for that?

Finally we could state that, we are running towards a very lucrative goal but have to be prepared enough to achieve it and feed its demands too. Not only the above mentioned industrial infrastructures (hard) Bangladesh has to supply required soft infrastructures too to make 100 SEZs functional, to sustain as a developing nation after erosion of all the existing trade preferences from 2024 and  onwards.

Private sector investors could be engaged actively to develop all of the industrial infrastructures (hard & soft) under PPP or BOO or BOT etc. modalities.

Government should open up all of the industrial infrastructure development relevant sectors for private investors to contribute. Otherwise government alone may not be in a position to supply resources for all these and measurable pain of bounce back to the LDCs could be the end result.

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Post-LDC Challenges for Bangladesh Economy

Post-LDC Challenges for Bangladesh Economy

Md. Joynal Abdin

The Daily Sun on 6 February 2018

Bangladesh became a member of the least developed country (LDC) club in 1975. As a newly emerged independent country Bangladesh had to face many socioeconomic as well as geopolitical challenges at that period (soon after the independence).

But gradually we achieved remarkable progress in many fields and emerged as one of the fastest growing economic power in Asia. Continuous progress of Bangladesh economy is an example to the entire world. But we are supposed to achieve even more if political chaos, greed and immaturity is not there. Frequent change of political ideology made us bound to radical shift towards multidimensional economic paradigm. Besides shortcomings of infrastructure, industrial utility, absence of united political will towards a particular system of economy, Bangladesh achieved the millennium development goals (MDGs) with significant performance in many arenas. Bangladeshi expatriate workers and women workers in readymade garment (RMG) sector are the significant contributors of this wonderful achievement.

Bangladesh reduced poverty rate into 23.2% (up to 2016) whereas it was 31.5% in 2010. At the same period extreme poverty rate declined into 12.9 % from 17.6% in 2010. Per capita income of Bangladesh increased to USD 1610 in 2016-17 fiscal years. Hopefully, Bangladesh could be considered to graduate from the list of LDC in upcoming triennial review meeting of the Committee for Development Policy (CDP) in this year. Second review of the same committee could be in 2021 then we will be observed for another 3 years i.e. up to 2024 to be finally graduated from the LDC club. This graduation is so much expected and welcoming for the whole nation. It will increase value of Bangladesh brands, Bangladeshi passport, and Bangladesh’s position in different global platforms. Therefore every Bangladeshi is expecting this graduation as soon as possible. But before going for final celebration of this achievement we should conduct an impact assessment study by an impartial body to identify possible impact of LDC graduation on Bangladesh economy during next decade. Few impact of LDC graduation on Bangladesh economy could be as follows:

  1. Loosing preferential market access / preference erosion: Bangladesh exported USD 34.83 billion in last fiscal year. About 90% of Bangladesh’s total exports go to the export markets under different preferential market access facilities in EU (under EBA), Canada, Japan and the US, under their respective GSP schemes. Bangladesh also enjoys preferential market access in such other industrialized countries as Australia and in some developing countries, such as China, India and the Republic of Korea, under RTAs and bilateral initiatives. All these schemes are non-reciprocal in the sense that Bangladesh is not expected to offer preferential access to products originating in the preference-giving countries in response to the offer made to her as an LDC. Since developed country markets account for about 90 per cent of Bangladesh’s total exports, preferential market access in these countries is of special significance to Bangladesh. Besides GSP or EBA Bangladeshi export items are enjoying duty free and quota free market access under the following trade regime:
  • Special and Differential Treatments (S&DT) for LDCs under different agreements of WTO
  • Preferential market access for LDCs under different regional trade agreements like SAFTA, BIMSTEC, APTA etc.
  • Preferential market access for LDCs under different bilateral trade agreements.

The above mentioned discussion made it clear that, Bangladesh’s export items enjoys preferential market access in different parts of the world under different trade regime. If 90% of our export items loose preference then Bangladesh’s export performance is likely to be adversely affected. Therefore fact finding studies should be conducted to identify the financial value of preference erosion in USD, what could be its spillover effects on Bangladesh’s investment environment especially to attract FDI, what could be ways forward to minimise adverse affects of preference erosion on Bangladesh economy.

  1. Impact of Reciprocal Trade Regime Offerings: Currently Bangladesh is a member of nine (9) RTA or FTAs namely, Asia-Pacific Trade Agreement (APTA), Bangladesh-Sri Lanka Free Trade Agreement (Proposed), Bangladesh-Turkey FTA (Proposed), Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Free Trade Area, Pakistan-Bangladesh Free Trade Agreement (Negotiations launched: 2003), People’s Republic of China-Bangladesh FTA (Proposed), Preferential Tariff Arrangement-Group of Eight Developing Countries (D-8), South Asian Free Trade Area (SAFTA), Trade Preferential System of the Organization of the Islamic Conference (OIC PTA). An LDC country is allowed not to offer reciprocal trade preference to its counter parts. But Bangladesh has to offer it while graduating from LDC. In such case signing free trade agreement could be more costly for Bangladesh after graduating from LDC list.

  1. Paradigm shift in Official Development Assistance: Bangladesh received official development assistance from development partners 90.5 % as grant and only 9.5% as loan in 1971-1972 fiscal years. Foreign grants and soft loans played a vital role in infrastructure and other development activities in Bangladesh. Still official development assistance (ODA) is a significant source of funding in various mega project of Bangladesh. Development partners are shifting their mode of financing with the wheel of local economic development. Grant amount is decreasing and loan amount is increasing day by day. For example Bangladesh received only 12.5% grants and 87.5% loan in last fiscal year. Soon after the graduation Bangladesh will be completely out of grant assistance facility, everything has to be bearded by local resources or go for foreign loans and repayment with interest. So it may have another adverse affect on development motion of Bangladesh.

  1. Other challenges: Besides the above mentioned challenges Bangladesh may face challenges in getting aid for trade, implementing IP laws, paying more subscription fee to international platforms like UN, unavailability of technical cooperation in terms of development assistance etc.

Finally; we can state that, Bangladesh’s graduation from the list of LDC is a good news for us, but could we please recheck statistical figures that we are producing now, is there any methodological errors, could we conduct an impact assessment study to identify post graduation adverse affects on Bangladesh economy, could we please evaluate economic value of those prospective adverse affects whether we could survive and prosper further or bounced back to the LDC club again. It is better to graduate later than bouncing back to the same pavilion again. We have to develop 100 SEZ, Deep Sea Port, Increase efficiency of existing sea ports, generate more power, develop internal road networking and offer load shedding free electricity connection to the mass people. Lots of mega projects are yet to be materialised. Internal resource mobilisation, confidence building of local investors and attracting foreign investors to invest here in Bangladesh is still pending. So graduation without preparation could be more painful for us if sustainability is not sure.

Opportunities and challenges of the new industrial revolution

Opportunities and challenges of the new industrial revolution

Md. Joynal Abdin

The Independent on November 26, 2017

 

The term revolution means radical change of existing order in favor of a newer one. Industrial revolution refers to the radical improvement of manufacturing and other technologies that have completely changed the previous scenario and established a newer version with positive shift of industrialization. Experts are forecasting that 4th industrial revolution is taking place in the international arena. As a part and parcel of industrialization Bangladesh have to enter into the 4th industrial revolution to compete and gains its stake from the industrial world. Each change or shift offers something opportunistic and few challenges. Relevant policy makers have to be careful about the opportunities to grab and challenges to overcome of it. Bangladesh has a long list of industrial sectors waiting to take off. Some of the sectors are in performing level like RMG sector; some of the sectors are in growing stage like Leather and leather goods sector, some of the sectors are potential to grow like ICT and Outsourcing. In such a condition 4th industrial revolution is taking place. So we have to be careful about the opportunities and challenges of 4th industrial revolution and prepare proper policies to grab the opportunities at most and overcome the challenges efficiently.

The then latest technologies played vital role in each of the industrial revolution for example 1st industrial revolution (1760) was driven by the rise of steam power, railways and mechanized forms of production. Similarly 2nd industrial revolution (1890) was driven by the invention of electricity and new approaches to manufacturing based on assembly lines and mass production. Rapid improvement of semiconductors and the spread of computers and the internet technology were the driving forces of 3rd industrial revolution (1960s) finally 4th industrial revolution is going to be take place with the mass performance of the artificial intelligence, advanced robotics, mobile internet (available everywhere), 3D printing, autonomous vehicles, such as cars and drones etc. technologies. These technologies will offer new ways to create and consume, will transform how we deliver and access public services, and will enable new ways to communicate and govern. Almost every aspect of our lives will be touched: jobs, business models, industrial structures, social interactions, systems of governance.

In comparison to the 4th generation manufacturing / production technologies most of the Bangladeshi sectors are lagging behind. As a result there performance and product’s quality, productivity is very low in comparison to the competing countries technologies. Therefore challenge of losing market share by Bangladeshi companies in upcoming competitive world is becoming prominent day by day if we failed to adopt the sophisticated technologies and machineries in every sector. Study found it out that, new technologies are emerging faster, being adopted more quickly and delivering greater impact than ever before. For example fixed-line telephones (1878) took 75 years to reach 100 million users. On the other hand mobile phones (1979) took only 16 years to reach 100 million users. Similarly internet (1990) took 6 years to reach 100 million users. On the other hand Apple App Store (2008) took just 3 years to reach 100 million users. So it is proved that the technologies pushing the reality into 4th industrial revolution will be adopted faster and change the reality of human society even faster ever before.

Opportunities of 4th industrial revolutions could be wealth maximization through continuous improvement of GDP growth, inclusive growth, improved performance of the SMEs, jumping into advanced stage of development, connecting disconnected people, improve environment management system, automation of agriculture and transformation of agro production technologies, more access to healthcare and use of modern technology to forecast about natural calamities etc.  Bangladesh shall start its wholehearted preparation to avail all of these above mentioned opportunities of 4th industrial revolution. For example we have highest priority to economic growth, SME development, digitization of processes etc. but till now we are lagging behind in terms of inclusive growth, improved environment management system, access to healthcare by all etc. parameters. Preparation to avail an opportunity could be our strengths and vice a versa.

Challenges of the 4th industrial revolution includes losses of jobs and disruption by the lower educated people, inequality and political instability, end of low-cost and low-skilled labor based industrialization due to artificial intelligence and robotics technology, more market access to the global giant companies through offering more value to the customers, vulnerability of LDC countries to fight with cyber crimes and cyber attacks etc. Shift of technology causes losses of job by the people dependent on the previous technology for any reason. For example light engineering enterprises of Bogra light engineering cluster used to produce sallow machine, tube well and rickshaw etc. with shift these technology into deep tube well, tractor, battery driven auto-rickshaw and CNG driven auto-rickshaw many of them losses their job there in Bogra light engineering cluster. Because most of them have no access to the technologies relevant to the deep tube well, tractor, battery driven auto-rickshaw and the CNG driven auto-rickshaw due to many reasons. So they lost their livelihood from that profession. Similarly 70 coconut oil mill reduced into 4-5 during last couple of years in Bagherhat coconut oil cluster. Therefore government and relevant agencies have to be careful about the negative impact of 4th industrial revolution on many sectors in Bangladesh.

Finally we can state that, advancement of technology could not be controlled by any society. We have to adopt it today or tomorrow by our own willingness or unwillingly. But we must have to be prepared ourselves to minimize diverse negative effect of it into the society and rehabilitate the victim society like Bogra light engineering and Bagherhat coconut oil cluster. Otherwise new industrial revolution will give us a missed result. Few people will be reached again and rest will be losing respective profession without any rehabilitation facilities. Again it will not be an inclusive development in the society.

Merits and Demerits of Foreign Direct Investment

Merits and Demerits of Foreign Direct Investment

Md. Joynal Abdin

The Daily Sun on May 26, 2017

 

There are significant reserves of foreign currency in Bangladesh. It is mounting up during the last few years. At the same time, we have a good amount of unutilised money in the banking system. It seems good to listen that we are becoming a wealthy nation with handsome cash in hand. But till now our investment in percentage of GDP is about 29%. It is 56% in Bhutan, 33.25% in India. Bangladesh’s investment in percentage of GDP is increasing day by day but the growth rate is too slow.

It is a matter of investigation whether foreign currency reserve and unutilised cash in banking system is mounting because of this poor performance in investment or not. In terms of attracting foreign direct investment (FDI) we are performing even poorer than the neighbouring or competitor countries. Bangladesh earned USD 1191, 1726, 1432, 1830 and 2001 million during the last five fiscal years. It is only 0.98, 1.19, 1.74, 1.47 and 1.73% of the GDP whereas India earned FDI of 2.00, 1.31, 1.52, 1.70 and    2.11% of its GDP during the last five years. Vietnam got FDI 5.48, 5.37, 5.20, 4.94 and 6.10% of its GDP. The Maldives received FDI 17.29, 9.05, 12.91, 10.77 and 8.70% of its GDP during the last five years.

Let’s have a look at the benefits of receiving FDI into a developing country like Bangladesh. FDI could offer the following benefits to its host country:

1    Increasing supply of foreign currency and channelise international sources of industrial funds;

2    Increases employment opportunity and help to reduce unemployment rate;

3    Increases skills of the host country’s labour and facilitate technology transfer;

4    Increases managerial knowledge of the host country’s professionals;

5    Foster economic growth, export earnings;

6    Introduces products standardisation and international exposure of other products;

7    Provides corporate tax to the government and contribute in revenue growth;

8    Creates a competitive business environment and productivity improves with the competition;

9    Develops international channel of distribution;

10    Assists in adopting international standard policies and creates a global business regime;

11    Contributes to development of backward and forward linkage local enterprises and

12    Assists in improving living standard of the stakeholders through different social responsibility measures.

Bangladesh is fighting with the development barriers like unemployment, poverty reduction, enlarging product basket, enlarging export basket etc. since its independence. It achieved significant economic advancements but till we have scope to grow further. Therefore, the government attaches the highest priority to industrialisation of the economy by any means. Already we have eight Export Processing Zones (EPZ), 78 Industrial Estate developed by BSCIC to host investment. Furthermore, the government is progressing to establish 100 Special Economic Zone (SEZ) in Bangladesh. All these arrangements are to host investment either from local or foreign sources. Bangladesh Investment Development Authority (BIDA) has been restructured by merging the Board of Investment (BoI) and Privatisation Commission together. BIDA is organising conferences, seminars, road shows abroad to draw attention of the foreign investors. The government declared a long list of fiscal and non-fiscal incentives to boost up the investment movement. But till now Bangladesh’s performance in FDI attraction is considered poor. It is because a number of other factors like good governance, political stability / understanding among the political parties, security and safety of investment, law and order situation, availability of industrial logistics, hassle-free business registration and licensing etc. are involved with an investment decision making.

Now Bangladesh has to go for a comprehensive investment services like one stop service, approaching foreign investors with specific project proposals, justification of investment policies and revision (if necessary), establishment of sector specific technical and engineering institute, establishment of sector specific testing laboratories, signing free trade agreements with existing and potential export destinations, reducing business licenses and registration requirements, activating BIDA with own manpower instead of the cadre officials deployed in deputation to activate the investment attraction measures.

Bangladesh has everything to be a good destination for foreign investment. It is located at the heart of South Asia, corridor between SAARC and ASEAN countries. It has a large number of domestic consumers. Purchasing power of local people is increasing day by day with economic growth of the country. Bangladesh has a good number of sectors to invest profitably with supply of enough manpower in competitive cost. The government keeps assisting the investors with a long list of fiscal and non-fiscal incentives. Finally export items of Bangladesh are enjoying duty-free and quota-free market access to most of the export markets other than the USA. All the LDC facilities under the WTO arrangement are enjoying by an entrepreneurs while doing international trade with Bangladesh. Therefore, Bangladesh could be considered as one of the most attractive locations to relocate global business corporations to the EPZs and SEZs being developed by the government.

It is for sure that Bangladesh needs foreign investment to boost-up its economy but we must remember that there are some adverse effects of FDI too. For example, FDI in some sectors could have an adverse effect on local employment sector. For better understanding we could imagine a scenario where a large corporation establishes a highly sophisticated readymade garment factory here in Bangladesh, where most of the tasks are completed by robotic technologies instead of human labour. Its productivity is much higher than human labour and product cost is also lower. In such cases, local factories will lose its market share. After a certain period it could be seen that local factories are reducing their manpower to adjust with the situation. Large number of people loses their employment due to that large investment. Similarly extreme competition from an FDI company may be the cause of death to many local SMEs. Repatriation of a large FDI conglomerate could have an adverse effect on foreign currency reserve or balance of payment of a country. Therefore, we must consider all these possible adverse effects of FDI into the local economy and adopt legal framework to mitigate these threats.

Finally, we could state that, Bangladesh needs FDI to functionalise its upcoming SEZs and generate employment for the growing number of job seekers. But we must reserve few product and service sectors for the local entrepreneurs. Welcoming campaign for FDI has to be increased and equipped with enough precautionary measures. Adequate preparations, practical drive and a business friendly local business environment could encourage the investors to invest here in Bangladesh. We have everything to become a middle income country by 2027 if our government, political leaders, decision makers play respective role accordingly. Otherwise piecemeal investment drive will not give us complete output up to the expectation.

Challenges Before Newly Elected FBCCI Leaders

Challenges Before Newly Elected FBCCI Leaders

Md. Joynal Abdin

The Daily Sun on May 15, 2017

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) is the apex trade organisation of the country. It represents all the Chamber of Commerce and Sectoral Associations in home and abroad. In one sentence we could term it as the focal point of Bangladeshi Private Sector. The General Body (GB) of FBCCI includes representatives from all the district chambers, joint chambers, metropolitan chambers, trade/sectoral associations including the women chambers and associations. No doubt that FBCCI general body is the comprehensive and inclusive forum with proper representations from each of the sectors and sub-sectors of Bangladeshi entrepreneurs. They are the key players of the economy. They are contributing directly in GDP growth, employment generation, export earnings and finally in the poverty alleviation of the country.

The general body of the Federation used to elect the Board of Directors through nomination or direct election. As part of their regular activities the GB of FBCCI elected its leadership for next two years (2017-2019) on 14 May (Sunday). We are waiting to welcome a group of dynamic, forward looking, knowledgeable and effective leaders to lead the federation for next two years. Current election of FBCCI has a significant difference than that of the previous elections. Current transformation trend of the economy (from agriculture dependent economy into industrialized economy), remarkable amount of foreign currency reserve, significant amount of idle money in the banking system, rising number of idle higher educated youth, achievement of our national economic visions, local and foreign investment trend, single product dependency in the export earnings, upcoming national election, concurrent change in the international economic ecology etc. made this election significantly different than that of the previous one. Therefore newly elected FBCCI leaders (Board of Directors) will face a series of built-in challenges in-front of them. The newly elected Board of the federation could consider the following issues in their action plan:

  1. Amicable Settlement with the New VAT and Other Business Related Laws: The government of Bangladesh is planning to implement new VAT law from July 2017. It is one of the widely discussed issues that the new VAT law (Draft) has few inconvenient points for the business community. There are scarcities of in-depth research findings with the issues. Therefore the upcoming leaders could take necessary initiative to measure the inconveniences through methodical research. Foreign best practices could be identified and select a best practice to be replicated here in Bangladesh in this regard. Both the parties the government and the private sector have to be cooperative to reach into an amicable settlement with this new VAT law. The newly elected Board of FBCCI have to consider the issue as first priority to safeguard stakes of the micro, small, medium and new entrepreneurs here in the new VAT law as well as other upcoming business related laws.
  1. Finding out a Way Forward to Utilise the Idle Money of Banking System: We have mentionable amount in the foreign currency reserve along with a significant amount of unutilised funds in the banking system. This unutilised fund has to be invested into productive sector for boosting up the investment wheel. We have unutilised funds but the rate of interest is comparatively higher than that of the competitor countries. So a way forward has to be identified to utilise this idle fund and moving the investment wheel.
  1. Initiative has to be taken to Diversify Product Basket: Bangladesh is the top denim exporter of the world. It is one of the key players in knitwear and readymade garment (RMG) export. What is next? We have potentials in leather goods sector, agro-processing sector, plastic sector, light engineering sector etc. But none of the sectors are coming up with a movement like RMG. Why newer sectors are not becoming export leader or near about RMG? This is because we have limitations in terms of new product designing and development. At the same time we have limitation to maintain international standard of existing products. Therefore new FBCCI leaders could take the issue seriously and establish few product research, design and development centers for potential sectors. They could claim funding from the development partners in this regard.

The government of Bangladesh announced 2017 as Leather Goods Year. But in absence of significant development initiatives (projects and policies) this announcement may not be worthwhile. The newly elected business leaders could take this issue to make the Prime Minister’s announcement meaningful.

  1. Internationalization of Bangladeshi Brands: Bangladesh is still lagging behind to establish an international brand. Walton has started this journey in a limited scale. I think all the major exporters of the country have this ability to establish own outlets abroad and establish Bangladeshi brand image with the world class products. The upcoming business leaders could negotiate with the government to allow outwards investment with few precautionary measures.
  1. Creating and Maintaining a Congenial Trade Regime with the Major & Potential Export Markets: Brexit, US presidential views with NAFTA and sloth movement of implementing WTO agreements etc. issues are giving us a signal of tomorrow’s global trade regimes. Bilateral trade arrangements are becoming faster and fruitful means of international trade regime. Till now we do not have a single effective bilateral trade, service or investment agreement with any global players or our major trade partners. Therefor the new FBCCI leaders could think of the issue seriously and insist the government to sign bilateral trade agreements with our major and potential export destinations to create and maintain a congenial trade regime with them. Otherwise we could be isolated in the international market after a certain period.
  1. Private Sector’s Capacity Building to Achieve SDGs: We are committed to attain the sustainable development goals (SDGs) by 2030. Government is enacting necessary policies and laws to facilitate the SDG achievement. But main game has to be played by the private sector. Almost all the sub-sectors of Bangladeshi private sector have limitation in terms of skills, knowledge and know-how. Fiscal and technical limitations are toughing the goals near about impossible. Therefore the private sector leaders like FBCCI Board has to be proactive to play due role in capacity building of the private sector as per requirement of concerned sectors.
  1. Special Attention has to be given to Employment Generation: Idle brain is a devil’s heaven. Idle young force is the engine of social unrest. Bangladesh has 3 million plus unemployed young forces at this time, another 2.2 million jobseekers are entering into the job market every year. Low or primary educated youth are going abroad as worker but a significant number of (not less than 1 million) higher educated middle class youth are remaining idle. This huge number of non-productive young people could be harmful for the family, society as well as the country. This problem could be more visible as an uncontrollable challenge in near future. Therefore it is the right time to think with the employment generation, facilitating self-employment opportunities like freelancing, entrepreneurship etc. Government alone could not be successful if adequate support is not available from the private sector.

From the above discussion it is clear that the new leadership of the Bangladesh private sector i.e. the Board of Directors of the FBCCI has significant role in employment generation, capacity building of the private sector, fostering the investment movement, creating and maintaining congenial trade regime in home and abroad. Therefore the GB members of FBCCI could think a while to elect learned, capable, farsighted, proactive and dynamic leaders to contribute in nation building movement toward a sustainable economic development of Bangladesh.

Trade Organisations in Sustainable Economic Development

Trade Organisations in Sustainable Economic Development

Md. Joynal Abdin

The Daily Sun on April 26, 2017

There is no alternative of individual and institutional income generation for economic development and poverty alleviation of a country. Ensuring employment is the most effective tool for facilitating individual and institutional income generation. There are about 162 million populations in Bangladesh and about 120.70 million of them are in workable age group. For providing employment to such a huge number of populations government has only 1.7 million positions in civil service, a mentionable percentage of this government positions remain vacant forever; for example 18% of government positions are vacant now in Bangladesh. As per a recent report there are 58.10 million people involved with private sector jobs.

There are no exact data regarding the total number of businessmen in the country but it is stated that, there are about 30 million businessmen in Bangladesh. From the above statements we could find out a summery that there are about 37.20 million unemployed people in Bangladesh now.

Another recent report shows that there are more than 3 million higher educated unemployed populations in Bangladesh with 2.2 million newcomers in the job markets every year. It is easier to manage and employment opportunity for a low educated or uneducated youth but difficult to manage a career opportunity for a higher educated one. Uneducated or lower educated manpower could migrate into Middle East as a labour but higher educated youth could not do so. Thus the number of unemployed higher educated people is rising day by day. If such a trend continues for next few years they could be another burden for the society as well as for the nation.

Before meeting a terrible situation of the above mentioned problem we must have to identify a way out of it. The government has to take the issue as a new challenge and come out with appropriate solutions. The government could mitigate this problem with professional education system, skills development through practical training, creating entrepreneurs through entrepreneurial education, creating entrepreneurship friendly policy regime, creating start-up friendly fiscal and economic policies, self-employment oriented education / training, hands-on training for creating freelancers etc. Such types of projects should get the highest priority in the upcoming national budget of the government.

There are few problems which are impossible to solve by individual or organisational initiative. These problems are subject to be dealt with collective power and unity. To apply that collective power of the business community, effective trade organisation is required. There are about five hundred trade organisations in Bangladesh; among these 101 are chamber of commerce (district chambers, metropolitan chambers, joint chambers, international chambers etc.) and about 379 sectoral associations are mentionable. The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) is the apex institution that represents all the trade organisations of Bangladesh.

FBCCI used to negotiate, cooperate and support the government in enacting trade related policies on behalf of the private sector of the country. It represents all the trade bodies in different committee forms by different ministries, agencies, departments, and other organs of the government. It assists all the 500 trade bodies of the country in holding election and other regulatory purposes. FBCCI used to negotiate budgetary facilities for different sectors, products and customs structures with the national board of revenue (NBR) on behalf of the private sector.

To perform all of the above mentioned duties an efficient and functional FBCCI is our national requirement. To make it functional and effective its current manpower has to be increased, professional skills of existing manpower has to be improved and financial capacity of the federation has to be uplifted. There are many countries in the world where federation / national chambers are getting budgetary support from the government.

But till now FBCCI has to depend upon its members’ subscription, building rental and donation of business community. It is not sufficient to employ and retain efficient professionals and expand its services to the economy of Bangladesh. FBCCI will get its new leadership through the upcoming election in next month. We are hopeful that the new management will take necessary initiative to take the organisation as well as its member bodies into new height and serve the nation better. Competing business leaders are supposed to declare respective election manifesto soon. We would like to offer few recommendations as follows for their consideration and include into the election manifesto for making the federation as well as other trade bodies (chambers and association) for functional and effective:

  1. Taking necessary initiative to get budgetary support for operating FBCCI from the government.
  2. Pursuing the government to involve district chambers closely with the development project implementing in respective district.
  3. Undertaking projects to ensure hassle-free visa facility for the business community in consultation with all the foreign missions working here in Bangladesh. It will increase movement of our foreign trade into a new destination.
  4. Increasing research based capacity of the federation through undertaking visible interventions along with a time bound action plan
  5. Increasing capacity of the federation to undertake projects for private sector development and pursue government and other development partners for funding.
  6. Making the initiative of establishing Entrepreneurship Development Institute (EDI) a reality (initiated earlier but failed to get finance). Indian model of EDI, located at Ahmedabad, could be replicated here in this regard.
  7. Capacity building of different trade bodies to provide business support services, registrations and licenses. Negotiating with the government to hand over trade license, small and cottage industry registration etc. responsibilities to the trade bodies.
  8. Participating in foreign investment / trade fairs with own stall of FBCCI to facilitate B2B business matchmaking.
  9. Establishment of product research and new product innovation centre, testing laboratory, and undertaking product diversification initiative to enlarge export basket.
  10. Perusing the central bank and other ministries of the government to inspire the corporate houses, banks, NBFIs to support FBCCI development 10fund from respective CSR budget.
  11. Developing a research fund for conducting a certain number of systematic researches by the FBCCI research team every year.
  12. Providing FBCCI Award to the best growing company, most employment creator company, most Donor Company, best exporting company etc. to recognise their contribution to the society and inspire them to donate most at FBCCI development fund.
  13. Establishment of FBCCI’s branches in important business hubs at home & abroad and fixation of an FBCCI contact point in relevant ministries.
  14. Opening a news department in FBCCI and all major chambers and associations to assist local entrepreneurs to get quality certification of respective products from respective international or foreign authorities. It will help to get more acceptances of Bangladeshi products to the foreign buyers.
  15. Establishing business incubation centre to support new entrepreneurs, perusing the government for start-up financing.
  16. Establishing technology and engineering institute to produce skilled manpower as per demand of different business sectors.
  17. Motivating government for creating an environment to commercialise local inventions.
  18. Undertaking regular research on different international trade arrangements under the WTO, RTA or BFTA to make local entrepreneurs aware about our trade benefits under different agreements and facilitating to utilise the benefits in international trade.
  19. Playing more visible role in creating freelancers and adopting outsourcing friendly infrastructure in Bangladesh by the government.
  20. Undertaking projects to facilitate adoption and utilisation of e-commerce and e-business facility to make the digital revolution fruitful.

Finally we could state that the private sector has to play a visible role to achieve SDGs by 2030. This role could be played more effectively from a common platform like trade bodies instead of personal or institutional level. Therefore the government has to play its due role for capacity building of the trade bodies. New elected panel of FBCCI leaders could play the role of catalyst here in this regard. A common vision of the business community, government and the development partners is required to ensure sustainable development of the economy and achieving a developed Bangladesh as per our national target.

Levelling Trading Field for SMEs

Levelling Trading Field for SMEs

 

Md. Joynal Abdin

 The Daily Sun on April 2, 2017

There is a common debate that Bangladeshi SMEs are “Missing Middle” or “Excluded Middle” categories of enterprises of the economy. The first phrase i.e. the Missing Middle is mainly used by the donor communities and few Bangladeshi economists closely working with the donors.

It means that the SMEs are the middle segment of the enterprises which are missing either microfinance facilities i.e. exclusively for the cottage, and micro enterprises operated by the NGOs. On the other hand upper medium to large enterprises are enjoying every facilities of the institutional support offered by the government agencies and other institutes like banks, leasing companies, and multinational or regional trade negotiation platforms etc. Similarly in the second phrase Excluded Middle the concept is the same but only different is that, missing middles are out of service by error or unknowingly.

On the other hand, Excluded Middle are the missing part who are deliberately excluded by the policy makers, decision markers, government, development partners etc. to offer more benefits to the other segments. I would like to be with the second groups i.e. SMEs in Bangladesh are “Excluded Middle” segment of enterprises. Manufacturing SMEs are not getting any extra privilege over the trading and service sector enterprises from any policy aspects. SME loan are draining away by the traders or defaulter large enterprises that are included in the SME categories by the new definition of SMEs mentioned in the National Industrial Policy 2016 of the government. They are destroying reputation of the manufacturing SMEs through becoming defaulters in repayment of bank loans in time.

That means including trading, service and large enterprises into the categories of SMEs through broadening its threshold in the definition became harmful for the real entrepreneurs, I mean manufacturing SMEs from both the sides. Firstly they are competing with the manufacturers to grab benefits and destroying their reputations by becoming defaulters. Not only for these two reasons but due to many other reasons time has arrived to examine whether we are providing policy support to the real entrepreneurs i.e. local manufacturing enterprises those are creating jobs for the unemployed population in mass scale or their benefit is going to somewhere else due to policy gap of the government. To ensure optimum use of the government incentives and benefits definition of the manufacturing SMEs should be revisited and redefined by the government of Bangladesh.

To ensure inclusive and sustainable development of the economy it is not enough that the government will be happy with the GDP growth and increased amount of export earnings.

But government has to ensure stakes of every segment in the growth and export earnings as well. Large companies have competitive advantage over the SMEs in terms of organisational capacity, technical ability, access to finance, and negotiation capacity etc. aspects. As a result they are dominating in the national as well as the global trade of a country. But it is proved that the SMEs could have a vital stake in national and international market if proper policy support is available from the government. Japanese large companies are outsourcing required tools and equipment’s from their SMEs whereas Bangladeshi large companies are importing these from abroad to assemble or manufacture their products for national or international market. It could be said that the SMEs in Bangladesh are not capable of producing quality goods for supplying to the large companies. The question is how Japanese SMEs are being capable to produce qualitative goods? Why large enterprises, donors and government are not helping Bangladeshi SMEs to overcome their limitations and produce qualitative products for supplying to the large companies?

Arguments could come up survival to the fittest, why government should offer them extra benefit? The answer is quite simple that SMEs are contributing two-thirds of formal non-agricultural private employment around the world. They are contributing 63% of the total employment in OECD countries. In most of the developing countries and LDCs, SMEs are contributing more to employment generation than that of their GDP contribution. It is because SMEs are mainly labour intensive and using traditional low productive machineries due to their inability of further access to technology. But In Japan, Korea, and China it is proved that the SMEs could play the role of feeder organisation and supply qualitative intermediary goods for boosting up mass production of the large entities. On the other hand export orientation of SMEs could increase demand for their products and help them to go for large scale production.

Export orientation of SMEs could be facilitating in various forms like direct exports, indirect exports, non-equity contractual agreements, and foreign direct investment (FDI) etc. A recent study shows that, only 7.6% of the SMEs involved with export around the world are mostly from developing countries. On the other hand 14.1% of the large enterprises of the developing countries (that means double of the SMEs) are involved with export business. In terms of LDCs SMEs export involvement is about 3%, but direct export of manufacturing SMEs is a negligible, where 0.09% of service SMEs are export linked, this figure is 31.9% in case of large enterprises. That means SMEs are missing a level playing field in terms of international trade around the world. But for fostering inclusive and sustainable development a level playing field has to be created for the SMEs in international trade.

In terms of direct export Bangladeshi SMEs have limitation in trade negotiation with the potential buyers, limited ability to go abroad for buyer searching, limited managerial knowledge to handle export procedures and documentation etc. Therefore indirect export through large companies or group wise export could be encouraged here in Bangladesh. For example, one or two SMEs are unable to bear initial export costs but if ten SMEs become united and export under on single brand name and export documentation then it could be worthwhile in terms of export cost bearing and procedure handling. But till now buyer searching and proper positioning of products remains as challenges. In this case all the Bangladeshi embassies located outside Bangladesh could organize Bangladeshi product fairs once a year and display our SME products by inviting local chamber of commerce and business leaders and play the role of match makers in this case.

SMEs participation in indirect export is much better around the world. About 90% of export earnings of developing countries are indirectly contributed by the SMEs. The same report shows that, 78% of global enterprises are SME representative but only 34% of these are involved with direct or indirect international trade. That means SMEs have ability to further contribute in international trade around the world. If a level playing field could be ensured. Major obstacles to create a level playing field for the SMEs are:

SMEs are facing high tariff even more than the large firms due to the existing market mechanism. They are facing double even triple taxation due to their inability to maintain or obtain required tax relevant documents.

Adverse effects of the Non-tariff measures imposed by the importing country hit the SMEs much. Because large companies could adopt newer measures to address NTM requirements and enter into the market as a compliance company. But due to their limited capacity SMEs could not.

Cumbersome boarder procedures and delay shipment or clearance effect the SMEs more due to their inability of bearing highly charged boarder storage cost.

Access to information and distribution channel development is also another major challenge for export orientation of SMEs. Difficulties in access to required amount of trade finance is another major challenge for SMEs export orientation.

Most of above challenges require government policy intervention for creating and maintaining a level playing field for SMEs in national as well as international market. Adoption of ICT, e-marketing, e-commerce adoption could give them advantage over few of the above mentioned challenges but finally it is the government who has to come up with kind heart to support SMEs to grow further and contribute more in employment generation, GDP growth, export earnings and ensure an inclusive and sustainable development of the economy. Otherwise they will remain Missing Middle or Excluded Middle as mentioned.