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.

Fighting Unemployment and Poverty

Fighting Unemployment and Poverty

Md. Joynal Abdin*

The Daily Sun on March 1, 2017

Bangladesh is a least developed country (LDC). With so many development requirements it is fighting to reduce unemployment and provide employment opportunity to all of its workable population. There are about 160.41 million people in Bangladesh. The median age of Bangladeshi population is 26. That means it is dominating by the young force. It is high time to take the population dividend for Bangladesh. But the matter of fact is that, there are about 3 million working age people unemployed; they are neither in education nor in job. Additional 2.2 million educated young forces are entering into job market every year. Another 10.6 million people are day labourer / doing odd job without any job security. Therefore till now 24.8% of the total populationis living below the poverty line and extreme poor people are about 6.5% of its total population.

Huge working age population, growing number of higher educated population and population dividend etc. issues are not matching with its 25% poverty affected people. It is because we have working hands but the government is failing to offer job to them. It is impossible for any government to offer job to its all population. But the government has a great responsibility to create such a congenial environment in which a person will go for self-employment through entrepreneurship development and employ another five persons in it. The government could inspire private sector for more investment and expansion which will lead to more employment generation, faster GDP growth, increased value addition and export earnings.

A decently employed person means a family is out of extreme poverty. On the other hand, an unemployed young man could create unaffordable situation for the society. Many skilled but low paid workers wanted to be entrepreneurs but cannot have access to high rated and complex bank loan. Bankers not coming forward due to the security of depositor’s money. In such a condition it is only the government that could play the game to move forward with the issue. Refinancing, pre-financing, credit guarantee, seed financing etc. could be the weapon for the government to fight with this tough condition. The government has limitations in terms of its treasury balance. But recent reports are not supporting its treasury balance argument. Because we have gone through the report that, Bangladesh has about USD 35 billion foreign aid in hand but failed to utilise it. We had to deposit back the foreign aids due to our inability to utilise funds. On the other hand, according to a Bangladesh Bank report idle funds with banks and non-banking financial institutions stood at Tk 1263.24 billion on January 31, 2017.

From the above two statements it is clear thatthe government could source the fund if a positive thinking is there. So it is the peak time for the government to take necessary initiatives for creating an entrepreneurship friendly environment for promoting self-entrepreneurship and expansion of existing ventures to increase employment generation. Along with the entrepreneurship development trained manpower export / formal migration of skilled workers could be another very fruitful tool for the government to fight unemployment and poverty. The following recommendations could be considered by the government and the central bank of Bangladesh i.e. the Bangladesh Bank for installing the following tools in this regard:

Easy Formal Channel to Receive Remittance:

Bangladesh received USD15.27 billion as remittance in 2015. In the years 2016 it reduced to USD13.60 billion. Does it mean the remittance earning is really reducing? No. It is only because sending remittance through formal banking channel is complicated, time consuming and complex to the illiterate or less literate expatriate workers. Whereas using informal channels like Hundi is much easier, quicker and safer. In such way government is losing revenue. Therefor the government and the central bank has to think with the issue of introducing an easy, quick and hassle-free way of sending remittance through formal channel by our workers from abroad.

Easy Formal Credit for Expatriate Labours and Professionals:

There is a bank to provide bank loan against a labour visa to help expatriate manpower of Bangladesh. But, what is their capacity? How many branches do they have? How much money is offering by them? How many expatriate workers are migrating from Bangladesh per year? In the year 2016 about 757,731 labours and professionals migrated from Bangladesh. If 5% of them want to get bank loan for three to five lakh per person then 38,000 probable clients are there to receive more than thousand crore taka.  How much money do they received from that single bank? Therefore it is time to think with the issue of offering bank loan to the second largest contributory sector of the country with hassle-free banks loan by the commercial banks and Bangladesh Bank has to come up with a new loan product for them.

Easy Formal Channel to Receive Freelancer’s Earning:

According to a recent report published there was about USD3.2 billion freelancing market in 2014. USA, India, Ukraine, Australia, Canada even Pakistan is earning a significant part of that amount. Bangladesh has every possibility to be a significant partner in the global freelancing market. But due to complexities in banking channel to receive freelancing earnings many qualified professionals and unemployed youths are becoming frustrated. Digital Bangladesh will be meaningfully digital while mass people of the country could easily receive their free-lancing earnings through their ordinary bank account here in Bangladesh.

It is Bangladesh bank who has the responsibility to mobilise this process and offer a great service to the local free lancers.

Startup Financing / Seed Financing for Entrepreneurs:

There are about 2 million educated people unemployed in Bangladesh. Another 2.2 million graduates are entering the job market every year. It is impossible for the government to ensure employment to this huge number of population without promoting entrepreneurship and industrial development. Entrepreneurship and entrepreneurship is the only solution to this unemployment problem. But till now there are no startup financing / seed financing mechanism for promoting entrepreneurship. So the government could rethink with the issue and come up with a mechanism to provide startup financing for the new / would-be entrepreneurs.

Promotional Package for Venture Capital Sector:

Venture capital is a proven tool for supplying interest free loan facility to the entrepreneurs. It is widely received by the entrepreneurs and potential entrepreneurs of Bangladesh as well. But due to shortage of adequate fund this sector is not booming up as expected. Therefore it is the pick time for the government to inspire venture capital sector for the sustainable industrialisation in Bangladesh.

Export Guarantee Scheme:

There are about 7.8 million industrial entities in Bangladesh. Most of these are cottage and small in categories. Few of these enterprises are producing excellent quality products having export potentials. But due to lack of knowledge and shortage of finance to operate international trade they are not going to export. To inspire such enterprises Bangladesh bank / government could introduce export guarantee scheme and boost up export earnings of the country.

Credit for Export Diversification and Market Expansion:

Bangladesh earned USD34.24 billion in last fiscal year (2015-16). It is almost 10% more than that of the previous year. But we have the capacity to earn even more than that. We have to diversify our export basket and explore new export destinations to do so. The government could offer credit facilities for export oriented product diversification (procurement of machineries) to the existing exporters. Thus Bangladesh’s export basket and increase amount of export earningscould be enlarged.

Credit Guarantee Scheme:

Commercial banks are offering loan by investing depositor’s money. All types of bank loan have risk of return. As a result commercial banks have a shyness to provide bank loan. In such a situation Bangladesh Bank could offer credit guarantee scheme for providing guarantee of loans so that commercial banks’ shyness goes down. Thus the government could promote the industrialisation movement of the country.

Security Issues in Online & ATM Banking:

Recent ATM scamming and Bangladesh Bank’s reserve issues spread up a panic among the mass people. As a result people are feeling insecure even to draw money from ATM booths and deposit money to a bank. Therefore, it is time for Bangladesh Bank to take necessary measures to stop ATM scamming and ensure security of depositors’ money. Online banking system should be 100% secured and people’s awareness could be developed to relief the panic.

Entrepreneurship Loan for Technical Graduates:

There are about 2 million unemployed graduates in the country. Additional 2.2 million graduates are entering the job market each year. Both the government and private sector does not have ability to offer such a huge number of jobs per year. Therefor the government / Bangladesh Bank could offer entrepreneurship loan for the technical graduates and developing them as entrepreneurs in respective fields.

Professional Management of Idle Reserve / Bank Deposit:

A recent report showed that the idle reserve / bank deposit is mounting up in the banking sector (BDT 1,140 billion) especially there are BDT 1420 billion statutory deposits to the Bangladesh Bank. No return is coming out from this huge amount of idle money in comparison with its opportunity cost. Therefor it is time for thinking to invest at least a portion of this money through professional money managers. Thus a reasonable return could be ensured out of this idle money.

Finally we would like to hope that, the government and the central bank along with other responsible agencies will consider the above recommendations and create a pro-entrepreneurship regime in Bangladesh for fighting unemployment effectively and create a poverty free middle income country before the end of SDG deadline.

* Writer is a Development Researcher, Columnist and Author. He is serving at SME Foundation as Deputy Manager. Could be reached through mdjoynal@gmail.com

Reform Is Required in Education System

Reform Is Required in Education System

Md. Joynal Abdin

The Daily Sun on January 18, 2017

Bangladesh is home to about 163 million people. Steady economic growth of the country during last decade attracted attention of the regional and global investors. Bangladesh is second largest exporters of readymade garments. A number of other potential industrial and service sectors are waiting to take off.

With 2.19% of world population Bangladesh has a large domestic market itself and enjoying duty free and quota free market access to most of the European countries and Canadian market. Strategic geographic location of Bangladesh offers to reach to half of the world population within 24 hours by road from Bangladesh. It is one of the low cost locations for doing business (identified by JETRO) around the globe. Government is encouraging local and foreign investment for further economic growth and becoming a middle income country before celebrating the Golden Jubilee of its independence.

With all of the above potentials Bangladesh has few barriers toward development as well. The most significant barrier toward Bangladesh’s development at this moment is to develop its young force with professional skills. About 40% of total populations of Bangladesh are young. A recent study shows that there are about 11 million youths of Bangladesh doing nothing just seating idle. It is a big threat for the society as well as for the development of the country. With this 11 million unemployed youth another 2.2 million jobseekers are entering into job market every year. If one third of this 2.2 million get job than the unemployment list is enlarging with another 1.5 million youth every year.

A separate study shows that about 47% of Bangladeshi graduates are either unemployed or under employed. It is a very significant threat for the society that university degree holders are not getting job. Recent passing rate of higher secondary level is about 3 million per year. If two third of this higher secondary pass students got graduation than the rate of jobseekers will further go up. If a graduate does not get placement how drop out I mean non-educated or less educated population will manage a job? How long our society could afford this 11 million and growing idle youth?

Let’s try to analyze why graduates are not getting job? Is it like that there are no scopes for job placement in Bangladesh? Practical scenario is not like that.

A newspaper report stated recently that there are about half a million foreigners working in Bangladesh. They are sending about USD 5 billion to respective countries per year. On the other hand about 8 million Bangladeshi expatriate are earning about USD 15 billion per year. That means we are earning less but paying more. But why? The only reason is that our manpower is not skilled. Local entrepreneurs are recruiting foreigners with more payment due to their efficiency and skills. We could not develop those saleable skills among our graduates? We are not getting qualified manpower as per demand of the private sector due to the existing education curriculum in undergraduate and post graduate level.

Most of the cases, education institutes do not have any sort of linkage with the job providing organisations of Bangladesh. Let’s try to have a look what we are mostly teaching at universities of Bangladesh. We are teaching history, literature, philosophy, psychology, religion studies, drama, theater, sociology, political science, social work etc. so on and so forth. I am not here to undermine any of the above mentioned subjects. But I would like to know what the practical application of these subjects without teaching is? Where the graduates of these subjects will apply for a job? How many posts are vacant? What is the growth rate of demanding positions? How many graduates should be produced per year for proper placement?

On the other hand who are providing jobs? Job providers are mainly banks and other non-bank financial institutions, insurance companies, telecommunication companies, NGOs, electronic and print media, pharmaceuticals companies, garment factories and buying houses, logistics companies and manufacturing factories / companies of agro-processing, light engineering, plastic, leather, electrical and electronics, cosmetics, fashion designing etc. sectors. What is the application of those organisations? How much philosophical knowledge do they need to operate this daily business? How many historical events have direct reflection in theses factories? Therefor we are producing super result holder graduates but job placement is not happening.

Every field of knowledge have importance but up to a certain number per year. Therefore it is the time to estimate the required numbers and limiting those non-applied fields up to the requirement. On the other hand Bangladeshi garment and buying house sector is leading by Indian and Sri Lankan professionals due to lack of skilled professional available at home. We are consuming Indian or Chinese products starting from morning Indian tooth pest ending into mid-night Chinese magic pillow under the head to sleep.

Bangladesh has to create employment opportunity for existing unemployed and upcoming jobseekers youth. None will employ a single person if he/she could not contribute into the advancement of that organisation. To offer contribution one needs applied skill/technical and vocation knowledge. We do not need labour to carry foreign goods to the door step of our houses but we are in need of a manufacturer of those products beside our houses.

From the early morning we need tooth pest and tooth brush. In which university/institute/training center in Bangladesh one could get the skill of manufacturing these items? Then we are in need of soap and shampoo in the shower. Do we have enough skill to manufacture soap and shampoo? Which institute is teaching to manufacture soap and shampoo in Bangladesh? Then we are in need of bread and butter for breakfast. Similarly I need a bread maker and a butter producer. How many institute in Bangladesh training up a raw hand youth to prepare bread from flour or produce butter from milk or other vegetable fats. Then we used to dress up ourselves before going out of the house. How many trims and accessories used in our dress? How many of those trim and accessories could be produced beside our houses? To identify the trim and accessories used to produce our dresses starting from fabric, to threads, button, zipper, cutting knife, designing knowledge, sewing machine, finishing iron, and hander or packet etc. which one of the dress we do know to manufacture? Thus we could identify that, there are 163 million consumers in Bangladesh but skilled manpower to manufacture or serve those consumer items are very limited in amount.  As a result we are becoming a nation free from applied knowledge or practical skills. It is resulting into the long list of unemployment every year.

Therefore we are in need of a serious revision in our educational system mainly in the curriculum. We are quarreling with unipolar, bipolar or tri-polar education system. But we are missing the point that school student, madrasha student, or maktab students are my brothers or sisters. I have to absorb everyone into my economy. So let’s train them up with a useful skill and let them perform the respective job. If every hand perform in respective position than the economic upliftment of Bangladesh will be a miracle for the entire world. The Bangladeshi miracle of development and prosperity will be identical and adoptable for rest of the globe. We are in need of a feed mill manufacturer rather than a scholar speaker or a robust leader.

Adopting the concept of multi-role projects

Adopting the concept of multi-role projects

 

Md. Joynal Abdin

The Financial Express on March 9, 2016

A programme is a plan of actions made in order to achieve a specific result. In other words, a programme is a plan of things aimed at achieving a clear objective, with details on what is to be done, by whom, when, and what resources to be used. On the other hand, a project is a planned set of interrelated tasks to be executed over a given period of time and within a certain amount of budget and other limitations. Main objective of this article is not defining programmes and projects with a few sweet sounding words, but to analyse the development projects now being implemented by the government, NGOs, development partners. We all know that Bangladesh passed 44 years of its independence. Bangladesh has earned the experience of implementing of hundreds of projects with billions of Taka either with local fund or donor grants and loans. The main objective of all the development projects is to empower people to eradicate poverty, overcome infrastructure limitations, and effect employment generation, entrepreneurship development, industrialisation, rehabilitation, education, healthcare, communication development and so on.

 We are happy to watch the country grow. But have we ever thought about the opportunity cost of all the projects and programmes implemented here in Bangladesh since independence? Bangladesh received about US$ 50 billion as foreign aid through government or non-governmental (NGO) channels. The sum is equal to US$3000 per head of our present population (160 million). Besides foreign aid, grants, loans internal funds were also being used in numerous development projects. Have we got optimum result out of this huge investment? The answer is obviously in the negative, because our earlier projects were not scientifically planned and designed with a broad vision.

Many plans, policies, targets and visions are now under implementation by 43 ministries and about 350 departments, directorates and agencies. Hundreds of development projects are approved by concerned authorities and implemented every year. Few projects have inter-ministerial coordinated components (combined efforts to address different needs).  As a result, a good project of one ministry/agency may cause huge damage to other ministry’s/agency’s role. For example, over-bridges and flyovers were built to reduce traffic jam in the city. But the same over-bridges and flyovers are identified by experts as one of the major causes of traffic jam in the city.

The above phenomenon has arisen due to single-purpose programme planning by our decision makers. Time has come to give up this one-eyed (single-purpose) planning and think about multi-role project/mega projects. For example, Dhaka is one of the worst cities to live in (as per a few recent research reports) owing to its environment pollution and unplanned urbanisation. Traffic jam, shortage of public transport, water pollution, and environment pollution of Dhaka city could be reduced if a ‘Back Home’ mega project could be implemented.

The idea of this project is not to send everybody to their respective native villages by force, but to create a situation whereby people will automatically leave Dhaka. For example, an office executive at present has to waste an hour and a half to attend his office at Motijheel from Uttara or Mirpur. The same person can attend his/her office from Comilla easily if there is a fast train service between Comilla and Dhaka with only two stoppages at Daudkandi and Bhoberchar. It will not take more than an hour. Similarly someone from Gopalganj, Rajbari or even from Mymensingh may not require more than one hour to reach Dhaka by a bullet train. So we need a six-lane road with double railway lines from Comilla to Dhaka, Gopalganj to Dhaka, Rajbari to Dhaka and Mymensingh to Dhaka. We already have highways in these routes which should be developed. These four routes will allow half the Dhaka dwellers to move back to Comilla, Munshigonj, Narayangonj, Madaripur, Faridpur, Gopalganj, Rajbari, Manikganj, Narsingdi and Mymensingh districts.

These six-lane routes will not be a matter of connectivity only. These routes will facilitate economic development through industrialisation of respective districts. As a result, new employment will be generated. One such multi-role project can offer multi-dimensional solution to our existing problems.

Construction of multi-lane roads has multiple effects. Other projects like development of existing SME (small and medium-sized enterprises) clusters could also help provide multiple solutions to existing problems. For example, a cluster development includes several segments of activities like skill development of existing workers and entrepreneurs, creating new workers and entrepreneurs, upgrading existing machineries, establishing training centres, testing laboratories, storage facilities, specialied transportation system, market linkage, new market searching, and expanding value chain for maximum value addition, etc. As a result, new employment will be generated in each of the segments of the chain. It will raise productivity, improve product quality, augment sales, increase profit and so on. All of these effects will cause poverty reduction and ultimately usher in economic development of the country. Critics may argue, why SME cluster development instead of Special Economic Zone (SEZ), or Export Processing Zone (EPZ)? The answer is simple. SEZ or EPZ requires huge cash investment for infrastructure, utility and land development. On the other hand, in case of SME clusters, these are already available there. Plot allocation, utility supply etc. of a SEZ or EPZ may be controversial in terms of political identity or corruption. SME clusters are free from these controversies. Therefore it is better to think about development of existing 177 SME clusters without going for expensive industrial estates, SEZ, EPZ, etc.

The concept of multi-role projects could be applicable in every other sectors. For example, existing ‘Sadar’ hospitals located at district headquarters could be transformed into nursing institutes, medical colleges, medical technology centres and hospitals. It would require huge money and premises to establish a separate nursing institute, medical technology institute, medical college and a ‘Sadar’ hospital in separate premises as separate programmes. All these institutions can be set up in the same premises, or in other words, existing Sadar hospitals can be transformed into such a multi-role organisation and much lesser allocation will be required. A co-located multi-sectoral technical education centre concept can drastically change our existing education system and turn it into a practical demand-driven, profession-oriented education system.

It is time to think about multi-role inter-related/inter-connected institutions both in case of public and private entities through implementing multi-role projects. It could be far more productive with lesser investment.

The path to higher middle-income status

The path to higher middle-income status

Md Joynal Abdin

The Financial Express on July 11, 2015

The current fiscal year started with a good piece of news for Bangladesh. The World Bank upgraded it from the low income country status to a lower middle income category on July 01 last. This upgradation will increase our dignity while applying for foreign loans either by the government or by private sector investors. We will be treated a low-risk country for investment. Therefore, it will have a positive impact on decision-making of foreign direct investors. Increase of foreign direct investment (FDI) could be an immediate positive outcome of this graduation.

The World Bank has classified economies into four broad categories based on their Gross National Income (GNI) per capita. The lowest category is the low-income country having per capita GNI of less than US $ 1,045. The next category is the lower-middle income country having the per capita GNI of US $ 1,045-4,126. The third category is the higher-middle income country having the per capita GNI of US $ 4,126-12,735. The topmost category is the higher-income country having per capita GNI equal to or more than US $ 12,735 per year.

Statistics shows that Bangladesh’s GNI per capita reached US $ 1,054 in the fiscal year (FY) 2012-13 and gradually it reached US $ 1184 in 2013-14 and US $ 1314 in 2014-15. As we achieved the higher GNI per capita for three consecutive years, more than the lowest slab of the requirement for becoming a lower-middle income country, the World Bank officially shifted the country into that category. But there are instances of a country slipping back into the low-income status or remaining stuck in the lower-middle income level for several decades. Therefore, Bangladesh has to be careful about not falling back while a clear vision has to be there so that we can enter the next level of higher-middle income country quickly. The next target for Bangladesh is more challenging, because it has to achieve per capita income of more than US $ 4,126, four times the present achievement.

The present level of achievement is attributed to the common people, who did it without that much planned intervention of the government or policy makers. The full credit goes to the common people. They did it unlike us. Until now we are lagging behind economic targets mentioned in the Vision 2021. According to the Vision 2021, the country was supposed to achieve 8.0 per cent GDP (gross domestic product) growth by 2013 and 10 per cent by 2017. But at present the GDP growth is hovering from 6.0 per cent to 6.5 per cent. Similarly we were supposed to achieve the hundred per cent literacy rate by 2014, but it has been achieved up to 70 per cent. We have a long way to go before achieving the target of per capita GNI of US $ 4,126. It cannot be attained overnight. It requires proper planning and timely implementation of decisions.

THE CHALLENGES: This is the time to recognise our challenges and find out strategies to face them. Increasing investment could be one of the best ways forward for Bangladesh to increase the GDP growth, create jobs and reduce poverty. Investments stood at 28.58 per cent of GDP in the country in the FY 2013-14. It helped achieve 6.06 per cent growth in the fiscal year. The investments need to be raised to 34.4 per cent to post 8.0 per cent GDP growth. That means we have to increase investment by about 5.82 per cent of our GDP (the total GDP is Tk 13,509,204 million, according to the data of Bangladesh Bureau of Statistics as of 2014).

Investing such a large amount is almost impossible for both the government and the local private sector alone. Therefore, the government could inspire the private sector to boost the local investments and at the same time they could lure foreign direct investors to invest in Bangladesh. Foreign direct investment (FDI) could be very much helpful for Bangladesh to achieve the projected GDP growth.

Statistics says the level of fresh FDI is not satisfactory. FDI inflow was US $ 1194.88 million, 1730.63 million and 1495.5 million in 2011-12, 2012-13 and 2013-14 respectively. A major percentage of the FDI was reinvestment of locally-earned profits. The foreign equity capital inflow was only US $ 454.1 million, 761.03 million and 270.59 million. We have to increase our performance in attracting FDI at any cost. Otherwise, it could be almost impossible to meet the targets.

COMPARISON WITH VIETNAM:  We can compare our economic performance with that in Vietnam. Both the countries have similar stories of achieving independence through long bloody war. Both suffered heavy losses during their war. As per IMF data, Bangladesh’s total GDP is about US$ 185 billion. Similarly, Vietnam’s total GDP is about US$ 186 billion. Vietnam earned FDI to the tune of US $ 19,886.1 million, 15,598.1 million and 16,348 million in 2010, 2011 and 2012 respectively. During the period Bangladesh got only US $ 913.3 million, 1136.4 million and 1191 million respectively. Bangladesh posted FDI inflows equivalent to only 11-12 per cent of what Vietnam saw. It is reflecting our measurably poor performance in increasing investment.

If Bangladesh wants to enter the higher middle-income country category within the next one or two decades, we have to draw up a proper action plan and start implementing it from today.

INVESTMENT CLIMATE: The current investment climate in Bangladesh is very cumbersome from every aspect. An investor is required to go to about 30 different institutions for a licence, registration and permission to operate a business. These institutions are under different ministries. An investor seeking to run a manufacturing company has to go to a city corporation or a union council for a trade licence, to the National Board of Revenue (NBR) or tax authority for TIN (taxpayer’s identification) and VAT (value-added tax) registration. Besides, there are the Registrar of Joint Stock Companies and Firms (RJSCF) for joint stock registration, scheduled banks for business account, the Chief Controller of Imports & Exports (CCI&E) Office for import and export registration certificates, the Directorate of Environment (DoE) for environment clearance, Bangladesh Standards and Testing Institution (BSTI) for certificates on product standards, the Export Promotion Bureau (EPB) for rules of origin certificate etc. A manufacturing company also needs gas, water, telephone, insurance and many other services. Most of the offices are operating as regulatory bodies. The policing mentality of a section of officials there and corrupt practices make the whole process complex and time-consuming. Now it is the time for decision makers to make the process easier, even one-stop investment service (if possible) can be offered to attract local as well as foreign investment.

In a chaotic political environment entrepreneurs lose most either in the form of money or human capital. Foreigners are not used to this type of man-made chaos. As a result, they become disillusioned. It affects our exporters, joint ventures and FDI flows. Our political leaders have to reach a consensus on ensuring a better political atmosphere and thus make sure that Bangladesh emerges as a higher middle-income country.

Bangladesh’s international trade (export and import) is mainly dependent on a single seaport-Chittagong Port-and the single highway, namely, the Dhaka-Chittagong highway. So, traffic jams are eroding our competitiveness in international trade. Bangladesh has to think of alternatives to these two single options. Traffic jams in Dhaka city also are eating up a significant portion of man-hours. Infrastructural development should be made adequately to ease the problems. All government offices including Secretariat as well as the cantonment, universities and garment factories should be relocated outside Dhaka and it will provide a relief to the city-dwellers. A deep-sea port, transit routes to India, Nepal, and Bhutan etc. have to be developed within the shortest possible time to reap benefit of the four-nation transport and transit agreement signed recently in Nepal. We are lagging behind our competitors in the use of industrial utilities and infrastructure. The government should think of cluster-based industrial development and ensure required infrastructure and utilities for such industrial units.

Inefficient or corrupt bureaucracy is a big hurdle for economic development of a country. There is enough room for improving the efficiency level of our bureaucracy by introducing digital filing and any other transparent process. Most of the trade and investment institutions have the scope for capacity-building. The government has to undertake prompt action for institutional capacity building of public sector organisations and agencies. New service-oriented (not regulatory) and pro-development institutions like a specialised trade negotiation commission, a cluster development agency, a foreign investment promotion agency, an entrepreneurship development institution etc. are required for supporting and promoting the private sector and it will help the economy attain the take-off stage. Only then we can dream of a higher middle-income status or even more than that for Bangladesh.

Socio-economic challenges of Bangladesh

Socio-economic challenges of Bangladesh

 

Md. Joynal Abdin

The Financial Express on December 21, 2014

Economic development without socio-economic challenges is inconceivable. The journey to development has never been easy for any nation and it is always a long hard battle to turn promises into achievements. Bangladesh is a developing economy growing with an annual growth rate of around 6 per cent, striving to become a member of the middle income group. The per capita income and GDP size of Bangladesh are also growing with time. The country’s economy is changing from traditionally agro-based to industry-based entity.

The country is making progress which is more or less visible. At the same time, it is also visibly clear that the growth is not inclusive. Economists have defined economic growth as the increase in the market value of the goods and services produced by an economy over time. It is conventionally measured as the percentage rate of increase in real gross domestic product, or real GDP. In our case, not all the people are getting better off, rather it is a group or few groups of people who are getting richer everyday and amassing wealth beyond measure. An average of the income of the common people and that of rising wealthy community may rise from time to time, but that does not indicate a real income growth. Parameters of growth stretch far beyond and involve series of socio-politico-economic challenges, some of which are mentioned below:

1. ABSENCE OF INCLUSIVE GROWTH: Economic growth of a country includes economic development, but does not reflect every citizen’s growth. For example, if the total size of an economy is $100 billion, with 30 per cent people living below the poverty line, 40 per cent belonging to the lower middle class, 25 per cent to the upper middle class and the remaining 5 per cent to the rich class owning 60 per cent of the country’s wealth, doubling of the economy size will not necessarily mean that incomes of all the groups have increased equitably. If, for instance, it is found that 30 per cent of the population is still tottering below the poverty line, the growth is not inclusive. Ensuring inclusive growth has turned out to be a major challenge for Bangladesh.

 2. ABSENCE OF FAMILY/ SOCIAL BONDING: Mutual bonding among members of the family is fast breaking down in our society and a tendency to imitate the life styles of foreign societies has surfaced. This will not help us establish social justice, which is an essential prerequisite for balanced economic growth.

3. ENSURING INSTITUTIONAL CAPACITY BUILDING AND GOOD GOVERNANCE: The government of Bangladesh emphasises on digitisation of public services. But very little progress has been achieved so far in that direction. None of the public services, including those relating to healthcare, trade licence, electricity, gas-water connection, passport, land registration, municipal activities, law enforcement activities, taxation etc., are available on online mode fully. To overcome this situation, institutional capacity building of the concerned agencies is required. Digitisation at every step in a transparent process could help improve the situation.

4. PROVIDING EQUAL OPPORTUNITIES FOR LOCAL AND FOREIGN INVESTORS: With increasing number of job seekers, Bangladesh needs foreign investment to create more employment opportunities and foreign investment can only be attracted through formulation of investment friendly policies. A level playing field should be provided to both local and foreign investors in terms of policy and practices. There is a clear dearth investment friendly policies and attitudes.

5. MAINTAINING A BALANCE BETWEEN LOCAL VERSUS IMPORTED PRODUCTS: Countries like Bangladesh should provide protection to local products to enable them to be competitive and thrive. At the same time, there are items that we do not produce and have to import. Therefore, trade policy of the country has to be moulded in a manner that allows local products to enjoy a certain level of advantage over imported products. At present, there are irrational import tariffs on import of finished products and import of its raw materials. In some cases, VAT and other local taxes imposed on local products have made them un-competitive compared to the same kind of imported products. Therefore it is imperative that local products be given adequate protection to meet competition from imported products.

6. MAINTAINING POLITICAL STABILITY: Economic development can not be achieved without political stability. Absence of political stability is a major challenge to our future economic development. Political platforms/parties must be transparent and accountable for every action, from selection of candidates for elections to selecting ministers.

7. MANAGING RISE IN UNEMPLOYMENT: There are about 1.98 million unemployed/ under-employed people in Bangladesh. Every year many more enter the job market. Ensuring employment for these unemployed people is clearly difficult for the government alone to handle. The private sector will have to share the burden. We have so many platforms to work for employment generation and better coordination among these agencies could give us more tangible results. Export of trained manpower or skilled professionals could be the next step in this regard.

8. ENSURING DEMAND DRIVEN AND PROFESSION ORIENTED EDUCATION: The number of educated unemployed is rising and the education system has to be reorganised. Profession-oriented and demand-based curriculum have to be introduced. A powerful link is required between the academia and industry leaders to affect adjustments in the curriculum according to requirement.

Apart from the above mentioned issues, there are many other socioeconomic problems facing Bangladesh. Our policy makers, politicians, think-tanks and civil societies will have to respond to the demand of time. If the issue of economic development is the uppermost in our minds, every citizen of the country has a stake in the affairs of the state.