Economy: Facing the challenges

Economy: Facing the challenges

 

Md. Joynal Abdin

The Independent on September 25, 2017

Bangladesh economy was flourishing during last couple of decades with on an average 5-6 per cent growth. As a result, we are hopeful that, Bangladesh could get place of middle income country from existing lower middle income country status by 2021, graduate from LDC by 2030 and finally become a developed economy by 2041. With this view in mind our political leadership offered vision 2021, vision 2030 and vision 2041 from respective platforms. More or less policy reforms have been initiated to align with the vision and create a pro-growth environment. Entrepreneurship development and private sector growth got attention of the government to be promoted and prosper.

As a least developed country (LDC) Bangladesh has few built-in barriers like poverty, unemployment, limited resources, shortage of technical knowhow, absence of good governance, corrupt bureaucracy, absence of true sense democracy etc. towards its development. But recently we are in front of few external barriers like recent flood in the northwest, Rohingya crisis in the southeast and upcoming national election in 2019. These three crisis could be well managed if concerned authorities play a respective role with dedication and neutrality. Each of the above mentioned crisis could create unrecoverable damage in the way of our economic prosperity if these are not being managed with professionalism and liability to the nation.

 Around 20 districts of the northern and northwest region of the country affected by the massive flood in 2017. This year flood has broken record of the historic flood of 1988. About 1 million people have directly been affected due to this flood. A good number of agro-farms including poultry, fisheries, and dairy farms has been destroyed by the flood. Exact monetary value of this damage is not calculated yet but no doubt that it is a severe damage to the economy of flood affected people. Poor people of the flood hit districts already loss their livelihood. Damage of will be more painful with the passage of time. This pain will be feeling more when water goes out and new irrigation season starts. Currently farmers are continuing with their savings of crops and cash, but his savings will be ended up if waterlogging period extended than that of the normal phenomenon. Government has to continue relief and other social safety net support in the flood affected area till new crops comes up. This is not less than a six months’ period. Providing relief to 1 million flood affected people for long six months is really a challenging tasks for the resource scarcity nation like us.

Military of neighbouring Myanmar (Burma) is operating a genocide against its citizen in Rakhine State (Arakan). This military operation aims an ethnic cleansing in Rakhine against the Muslim majority Rohingya community. Rohingyas were ancient citizen of independent Arakan in seventies. Burmies king conquered Arakan and made it a state of Burma (Myanmar) and rename as Rakhine. Burmies ruler never provided minimum humanitarian rights of Rohingya community as their citizen. Current military backed government of Myanmar is ignoring citizenship of Rohingya community and pointing out them as outsiders. They are operating an ethnic cleansing program against the Rohingya community. Myanmar military forces are killing Rohingya men, raping Rohingya women, burning their houses, destroying wealth without any causes. As a result, Rohingyas are fleeing out and became refugee in the neighbouring countries mainly in the Muslim majority Bangladesh to save their lives. Total 1 million Rohingya entered into Bangladesh in different times mostly (about 0.7 million) in last two months.

Bangladesh offered them food and shelter due to a humanitarian reason. But over populated and flood affected Bangladesh could not bear their liability for a long time. Ensuring basic needs of a human being for 1 million Rohingya is beyond the capacity of a least developed and already over populated country like Bangladesh. International community as well as regional powers like India and China is playing role of underworld don with this Rohingya crisis. Another big brother Russia is supporting the war criminals in this case. Global geopolitical stakes of these big brother could be motivational factor in this case. But we (Bangladeshi) are not responsible for this crisis we do not want regional or global geopolitical game with this humanitarian issue. We want that global community will come forward to ensure humanitarian needs of this largest number of refuses and get them back to their home with safety, security and dignity. This Rohingya crisis could be another big whole towards projected economic prosperity of Bangladesh.

Current legal government is ruling the country with 154 uncontested (without peoples voting mandate) members in the parliament. Legal validity of this government is declared by the court. But ethical standard of this government is still questionable in home and abroad. Therefore, current prime minister Sheikh Hasina wants an unquestionable election in 2019. Similarly, general people of the country is also waiting for a free, fair, credible and participatory election in 2019. But ensuring that free, fair, credible and participatory election is still a big challenge for the nation. Ruling party has completed all legal arrangements to hold the national election under their regime. But it is quite impossible to hold a fair election under any political party in the power. Dhaka city corporation election and elections of last few years proved this assumption. Therefore, same scenario of 2014 could be seen again in 2019. Government could use the law enforcement agencies to hold a partial election and oppositions may go for strikes and other damaging programs. Which may be cause of mass destruction of people’s wealth and life.

Finally; we could state that, massive flood, Rohingya crisis and upcoming national election etc. could be nightmare before the economic prospects of Bangladesh. Flood affected people have to be rehabilitated in time through ensuring their basic needs and rehabilitating supports. Rohingya crisis has to be resolved with support of international community, global platforms, and our friends in the Europe, America and Muslim worlds. Regional big brothers may not play a friendly role here in this regard. We may play the same role which was played by our great neighbouring friend India in 1971. If India have done a great job for the Bangladeshi in 1971 why not Bangladesh could adopt the same policy for the Rohingya community in 2017. Finally, we have to work out and reach into a way forward to hold the national election 2019 peaceful, free, fair, credible and participatory by leaving hock and cook instruments away. Otherwise, our vision 2021, 2030, and 2041 will remain in the paper and never be in practice.

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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.

Creating Investment-friendly Business Environment

Creating Investment-friendly Business Environment

Md. Joynal Abdin

The Daily Sun on March 15, 2017

 

Bangladesh is a land of unutilised opportunities and untapped potentials. Traditionally Bangladesh was an agriculture driven economy but during last few decade it is shifting its agriculture dependency into industrial economy. At the same time a steadily growing service sector is backing the industrial development of the country. According to a recent report contribution of agriculture, industry and service sector to Bangladesh economy was 51.03%, 7.69 % and 41.28% respectively in the year 1971.  Contribution of agriculture decreases into 31.55% and industry increases into 20.63% in the year 1980. Service sector contributed 47.82% to Bangladesh economy in the same year. Since then contribution of industry and service sector to Bangladesh economy is increasing and agriculture is decreasing day by day. It does not mean that the agriculture sector is losing its importance but it indicates industry and service sector is becoming stronger but agriculture is contributing as before. Agro processing industry is fully dependent upon agriculture sector; therefore no way to underscore agriculture sector too. Currently (2015) contribution of the same sectors to the Bangladesh GDP is 15.50% (Agriculture), 28.14% (Industry) and 56.34% (Service). From the above discussion it is quite clear that the economy of Bangladesh is going through a transformation from agriculture dependent economy into industrialized economy.

Agriculture has a highest limit of production per acres of land. But industry and service sector have the liberty to produce unlimited number of units or value by using the same piece of land. Therefor government of Bangladesh took parallel initiatives for agriculture and industrial development.

Foreign Recognitions of Bangladesh:

Prospect of Bangladesh economy is not recognised by the Bangladeshis only. Today it is widely recognised by the global think-tank and investment Banks like Goldman Sachs. The Goldman Sachs Investment Bank described Bangladesh as one of the Next – 11 countries (N-11) due to its prompt growth potentials (Lawson, Heacock, and Stupnytska, 2007). Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea and Vietnam – identified by Goldman Sachs investment bank and economist Jim O’Neill in a research paper as having a high potential of becoming, along with the BRICS countries, among the world’s largest economies in the 21st century.

Regulatory Environment for Investment in Bangladesh:

Indian subcontinent inherited the British legal system since the colonial period. As a result Bangladesh has a very structured legal system since its inception. It has about 45 laws relevant to the investment, business, trade and commerce in various sectors. There are more than 10 policies with different incentives and supports of the government to promote private sector investment in various sectors.

The foreign private investment (promotion and protection) Act, 1980 has been passed that ensures legal protection to foreign investment against nationalization and expropriation. It also guarantees repatriation of capital and dividend; and equitable treatment with local investors with regard to indemnification, compensation, restitution, or other entitlement as is accorded to investment. The government has made bilateral agreements for avoidance of double taxation with 26 countries and negotiations are going on with 23 countries.

Investment treaty for promotion and protection of investment between Bangladesh and twenty countries have been concluded and negotiations are going on with 9 other countries. Besides these, Bangladesh is a signatory to MIGA (Multilateral Investment Guarantee Agency), OPIC (Overseas Private Investment Corporation) of USA, ICSID (International Centre for Settlement of Investment Disputes) and a number of WIPOs (World Intellectual Property Organisation) a Permanent committee on development and cooperation related to industrial prosperity. Adequate provision is also made available for intellectual property rights, such as patents, design and trademarks and copy right.

The government has already enacted bankruptcy law. A law commission has been constituted with a view to identify the anomalies and weaknesses in the existing laws and legal system. One of the main tasks of this commission is updating the existing laws in relation to industries, trade and business.

All these are expected to improve general business environment along with the environment of FDI. Efforts are being made to reform the bureaucratic administration in order to make it efficient and supportive of better services for inflow of FDI and economic development oriented activities. Substantial modifications have been made to up-date the laws dealing with financial sector. The Companies act 1994 and labour Act 2006 have been enacted for facilitating inflow of FDIs in Bangladesh.

In order to improve the environment of private foreign investment and FDI, several EPZs have been established in Chittagong, Dhaka, Khulna under the Bangladesh Export Processing Zones Authority (BEPZA) in 1980. The private Export Processing Zones (PEPZs) Act has also been enacted to encourage the establishment of “Private Export Processing Zones” by the local and foreign investors. These EPZs are well enriched with the necessary infrastructural facilities and are completely protected from any law and order problems or union activities.

The BEPZA approves all projects to be located in the EPZS and offers “One window same day service” to the investors in the EPZs. The government has also approved the private power generation policy of 1996 and tax exemption on income of the company for 15 years from the date of commercial production is allowed.

The Government has undertaken several steps to make import liberalization and industrial deregulations more effective including announcing its strategy of reducing effective protection over the medium term, continuing its efforts to lower and simplify tariffs, publishing a clear tariff schedule, developing an action plan for legal reforms and a blue pint for deregulation, and putting an action plan for implementing its exports development strategy. These efforts have improved the investment environment in Bangladesh.

Bangladesh is one of the promising economies with a large domestic market, availability of labour with competitive price, low utility charges, two seaports and a potential deep seaport facility, long-term tax holiday, 100% repatriation facility, and easy access to largest regional market like India and China.

Investment Friendly Facilities and Incentives: 

Tax  exemption  on  royalties,  technical  knowhow  and  technical  assistance  fees  and  facilities  for  their repatriation, tax exemption on interests on foreign loans, tax exemptions on capital gains from transfer of shares by the investing company, remittances  of  up  to  50%  of  salaries  of  the  foreigners  employed  in  Bangladesh  and  facilities  for repatriation of their savings and retirement benefits at the time of their return, no restrictions on issuance of work permits to project related foreign nationals and employees, facilities for repatriation of invested capital, profits and dividends, provision of transfer of shares held by foreign shareholders to local investors, reinvestment of remit table dividends would be treated as new investment, and foreign owned companies duly registered in Bangladesh will be on the same footing as locally owned ones etc. facilities are available for foreign investors.

Besides the above facilities Bangladesh is offering corporate tax holiday of 5 to 7 years for selected sectors, reduced tariff on import of raw materials capital machinery, bonded warehousing, accelerated depreciation on cost of machinery is admissible for new industrial undertaking (50% in the first year of commercial production, 30% in the second year, and 20% in the third year), tax exemption on capital gains from the transfer of shares of public limited companies listed with a stock exchange, reduced corporate tax for 5 to 7 years in lieu of tax holding and agricultural deprecation, Cash incentives and export subsidies ranging from 5% to 20% granted on the FOB value of the selected products, At best 90% loans against letters of credit (by banks), and permission  for  domestic  market  sales  of  up  to  20%  of  export-oriented  companies  outside  EPZ  (relevant duties apply) etc. fiscal benefits to the local or foreign entrepreneurs.

Additionally Bangladesh is offering 100% foreign equity allowed, unrestricted exit policy, remittance of royalty, technical know-how and technical assistance fees, full repatriation facilities of dividends and capital at exit, and an  investor  can  wind  up  investment  either  through  a  decision  of  the AGM  or  EGM, he  or  she  can repatriate the sales proceeds after securing proper authorisation from the Central Bank etc. benefits to a foreign investor.

Investment Friendly Factors of Production:

  • Largely a homogenous society with no major internal or external tension Bangladesh has a population with great resilience in the face of adversity.
  • The people of Bangladesh, a liberal democratic country irrespective of race and religion are living in harmony for years.
  • Bangladesh enjoys broad non-partisan political support for market-oriented reforms and offers the most investor-friendly regulatory regime in South Asia.
  • This country has a large trainable, enthusiastic, and hardworking low-cost labour force suitable for any labour-intensive industry.
  • A bridge between ASEAN and SAARC nations, the Geographical location of Bangladesh is ideal for global trades with very convenient access to international sea and air routes.
  • Bangladesh is endowed with abundant supply of natural gas, coal, water and very fertile soil.
  • Although Bangla is the official language. English is widely spoken as second language.
  • Increasing trend of per capita forecasting its purchasing power is increasing in the local market.
  • All Bangladesh products other than armaments enjoy complete duty and quota free access to EU, Japan, Canada, Australia, Norway and most of the developed countries. However, for apparel export to USA, Bangladesh has a quota regime which ended on 1st January 2005.
  • Export earning is continuously increasing.
  • Increasing trend of remittance earning.

Challenges and Recommendations:

With all of the above benefits Bangladesh have few limitations and challenges to attract further investments. Government could consider following recommendations to make the business environment sustainable and attractive to foreign investors:

  • Decreasing number of permissions / registrations / licenses requirements with a predetermined time frame / one stop investment services.
  • Ensuring hassle free and in-time delivery of industrial utilities like Electricity, Gas and water etc.
  • Making Bangladesh Investment Development Authority functional and effective with adequate resources.
  • Special investment attraction drive with specific project proposals to attract local and foreign investment.
  • Activating entrepreneurship promoters like better business forum or regulatory reform commission.
  • Developing infrastructure as per requirement of tomorrow’s business world.
  • Developing sector specific demand driven skilled manpower with specific technical knowledge.

Finally, we could conclude here with a statement that, Bangladesh has long lists of sectors and wide feature to promote local and foreign investment. But in absence of an effective and functional investment promotion agency (not regulator) Bangladesh is performing not as per the expectations. There are several entrepreneurship development, SME Development and Industrial Promotion agencies of / establish by the government. But due to lack of manpower, financial ability, technical and professional knowledge most of the organisations are less performing. Activating those organisations with right person at the right place could be one of the ways forward to strengthen investment attraction movement 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

Digitisation of SMEs – Opportunity or Challenge

Digitisation of SMEs – Opportunity or Challenge

Md. Joynal Abdin

Daily Sun, 15 February 2017

 

The small and medium enterprises (SMEs) are considered as the most significant part of an economy. They are labour intensive and low capital investment in nature. Due to their labour intensive feature they used to contribute more in employment generation and assist the government to fight unemployment. SMEs are the mother of heavy industries and the backbone of the economy. In many countries, SMEs are the feeder organisation of large corporations. Big branded companies used to get part of their products from SMEs through outsourcing or subcontracting.

SMEs are a significant part of the product’s value chain in those economies. Till now subcontracting / outsourcing business has not being popularised / formalised / institutionalised in Bangladesh. As a result value chain concept of product manufacturing has not developed here in the real sense. Outsourcing concept started its journey in readymade garment sector during the last few years. But it is not widely practiced method in any other sector in Bangladesh.

Global business environment is changing its dynamics every day. Rapid development of science and technology is supplying fuel to the movement of business dynamics changing motion. For example, if we look back to one decade we will see that SMEs were using record books with pen or pencil for keeping record of materials or financial transactions. Using postal / courier services to send documents were the only means. Physical visit was necessary to test a raw material’s quality and final decision of purchase. But today, within a decade, big revolution happens in this arena due to the rapid progress of information and communication technology. Today sophisticated computerised record keeping is available at affordable cost. Internet communication changed the dynamics of manual communication and physical presence became unjustified here. Email communication replaced the postal or courier services, video conferencing technology ensured audio visual communication without physical presence, mobile communication has just created a revolution in this sector. Robotics with artificial intelligence made the previous dynamics completely irrelevant within this one decade. We do not know what the next miracle is waiting for us in the coming decade(s).

With the advancement of science and technology industrial community adopted the best possible solutions and ensured justified progress of the sectors as required. For example, steam engine was invented in 1780s and business factories started to mechanise themselves with water power and increase productivity at highest rate at that time. With the invention of electricity in 1870s manufacturing assembly line concept was initiated by the entrepreneurs with the use of electricity and productivity increased into the next step. Later on they adopted computerised automation concept while computer was invented in 1969. Similarly today in 2017 industrialists are fighting to adopt digital technologies for digitisation of respective enterprises by using cyber physical systems, robotics with artificial intelligence even the 3D printing technologies for ensuring productivity, products quality, and well acceptance of the consumers.

Now come to the point how many SMEs are capable of adopting all these new technologies in terms of Bangladesh? How much modernised our SMEs are? Whether rapid progress of technology is an opportunity or a threat to the Bangladeshi SMEs?

I have the opportunity to visit SMEs throughout the country. I have optimistic observation regarding the enterprises located in Dhaka, Chittagong, and other divisional cities or BSCIC industrial areas. I found them at least updated to the millennium technology or later. But in most of the cases SMEs located at old clusters or district level are lagging behind in terms of technology up gradation. As a result they are losing market share and becoming sick. With those old fashioned technologies of the 1970s SMEs are less productive, product qualities are not up to the expectations of buyers, product designs and shape are too old. They are unable to diversify products due to technical limitation. They are unable to enter the new segment of market due to lack of knowledge. They are just waiting for death. I saw this measurable situation in coconut oil cluster at Bagherhat, in few cases the story is similar to some SMEs of Bogra light engineering cluster, Cox’s Bazar ship building cluster, Rangpur satoronji cluster and many jewellery or pottery clusters all around Bangladesh.

According to a recent report (November 2016) of the World SME Forum, it is expected that the global B2B trade of SMEs will be USD6.7 trillion by 2020 and B2C trade will be USD3.2 trillion by this time. That means a bigger opportunity is waiting for Bangladeshi SMEs to be a part of that bigger cake and capture a reasonable share of it. But, question is that could we think about our readiness to grab this opportunity? Are Bangladeshi SMEs ready with quality products and world class services in their basket? How much share is our target? What are the preparatory activities we have to finish up by this time?

To analyse current scenario of Bangladeshi SMEs we will find out that till now Bangladeshi SMEs do not have access to global market; they are disconnected from global value chain. We do not have information about global market demand of our products and current available supply chain. What are the standard we have to comply with labour, environmental, social, and quality standards to grab a justified share of that market?

Bangladeshi SMEs are suffering from scarcity of skills required in various specialised fields. Those are suffering from limited availability of managerial skills, specialised skills such as technology and language that are crucial for reaching global markets. Finally, SMEs are suffering to get formal bank loans with competitive rate of interest.

Digitisation and expansion of ICT skills could offer a very unique solution to most of the above mentioned challenges. For example, an SME entrepreneur or manager could easily identify global demand of his / her product by using ITC Market Access Tools from his / her office or residence. They could at least identify what types of skills is required to improve their capacity and which institutions home or abroad are offering these skills for students or professionals by using internet. They could easily collect information of SME loan products offering by different banks by searching into respective website. They could search buyers from global business directory by becoming members of respective network online. Thus we could see that ICT / digitisation is an opportunity for the SMEs but they have to be trained up accordingly to utilise this opportunity.

The government could play a very vital role in training entrepreneurs / professionals / upcoming professionals about how to utilise ICT tools to collect required information and from where; because another recent study shows that, ICT skilled SMEs are making 13% more revenue than that of an ordinary SME. They are getting 10% more buyers than that of the ordinary ones. That means we have knife in hand but that needs to be sharpened. The government has to come up to provide this sharpness to the SME entrepreneurs / professionals of Bangladesh for making them globally competitive. To digitise SMEs internet bandwidth should be free or with a minimum cost. Internet speed is required for satisfactory performance of outsourcing / freelancing sector. Few adjustments are required in banking sector for making them SMEs friendly. Thus the government, yes it is government that can bring the change and promote the revolution for economic liberty of Bangladesh by 2021.

Overseas Employment Sector Deserves More Attention

Overseas Employment Sector Deserves More Attention

Md. Joynal Abdin

The Daily Sun on November 18, 2016

 

Contribution of agriculture, industry and service sector to the Bangladesh GDP was 51.03%, 7.68% and 41.28% in the year 1971 (during the Liberation War of the country) respectively. Similarly, it was 31.55%, 20.63%, and 47.81% in the year 1980, 32.75%, 20.69% and 46.55% in the year 1990 respectively. Later on in the year 2000 contribution of agriculture, industry and service sector to the Bangladesh GDP was 23.77%, 23.31% and 52.91% respectively. Currently (2015) contribution of the same sectors to the Bangladesh GDP is 15.50% (Agriculture), 28.14% (Industry) and 56.34% (Service). From the above discussion it is quite clear that the economy of Bangladesh is going through a transformation from agriculture dependent economy into industrialised economy. Agriculture has an optimum point of production that could not be increased by increasing inputs. Therefore the government is encouraging industrialisation for facilitating employment generation, poverty reduction, earning foreign currency by increasing exports, and so on and so forth.

Since our independence one segment of Bangladesh GDP i.e. service sector is rising sharply without much efforts and measures. It has grown from 41.28% into 56.34% without any breakthrough. Contribution of industry rose to 28.14% from 7.68% with the growth of RMG, Leather, Plastic, Agro-processing sub-sectors. We offered back to back L/C facility, bonded warehouse facility, Cash incentives, Negotiated at WTO and other regional and bilateral forums to ensure duty-free and quota-free facilities to the manufacturing industrial sub-sectors. As a result, readymade garment (RMG) sectors earned UDS 25.49 billion in 2014-15 FY. If the value addition is around 30% then we could state that Bangladesh received USD 7.65 billion by employing 1.2 million workers, a large amount of capital, fullest capacity of our diplomacy etc.

On the other hand, Bangladesh received USD 15.31 billion remittance in 2014-15 FY by employing 0.6 million overseas workers. Without consuming Bangladeshi rice, water, gas, electricity or any other facility overseas workers contributed USD 15.31 billion for the country. Most of them are less-skilled, semi-skilled or even unskilled. How many Bangladeshi taka the government provided as cash incentives for them? How much tax government weaved? How many trade delegations went to negotiate with foreign recruiters regarding the welfare of these overseas workers of Bangladesh? How many free trade agreements required be negotiated or signed to promote flow of workers to the destination countries? How many institutes/ universities the government has established to increase their skills so that they could earn more money with the same service?

USD 15.31 billion is net profit of Bangladesh whereas we are working hard to get USD 7.65 billion profits by employing more workers, capitals, policies, and so on and so forth. It is very shame for the nation while we read news that baggage of this overseas workers are missing in Hazrat Shah Jalal International Airport while returning home. It is our national disability to establish a government commission for promoting overseas employment in abroad. They will be liable to collect foreign demands for the workers and supply visa to the interested workers without super profit of the middlemen.

We hate those Bangladeshi diplomats who are ashamed to talk to Bangladeshi workers abroad while they are in dire need for help. We hate those embassy people who disagree to offer information support / direction / advise while a Bangladeshi worker is missing abroad. Many Bangladeshi workers have to be buried abroad while they died there. Why could not we ensure an overseas worker that his dead body will be carried forward to your family if he dies over there? Anyway this sector is the second highest source of foreign currency for Bangladesh economy.

Migration from Bangladesh started in 1976 with a modest number of 6,078 workers. Presently Bangladeshis are engaged in overseas employment in more than 100 countries; about 6.07 million workers had been employed in various parts of the world up to October 2016. 2007 and 2008 were the highest overseas employment years in the history of Bangladesh with total 8.32 million and 8.75 million employed overseas. But in terms of remittance 2014 and 2015 are the highest earning years with USD 14.94 billion and USD 15.27 billion remittances respectively.

About 49.65% Bangladeshi overseas workers are less skilled, 31.75% are skilled, 15.15% are semi-skilled and only 2.3% of them are professionals. Comilla has the highest number of overseas employed population i.e. about 11% of the total overseas employed population followed by Chittagong 9.57%, Brambanbaria 5.22%, Dhaka 4.48% and Chandpur 4.16% of total migrated populations. Top most destinations of Bangladeshi overseas workers are the KSA, UAE, Kuwait, Qatar, Bahrain, Oman, Malaysia, Korea and Singapore etc.

To ensure smooth migration of workers and professionals, the government shall have to take the following steps:

  • to reduce the prevailing unemployment problem of the country;
  • to earn foreign currency without consumption of Bangladeshi foods or drinks;
  • to reduce frustration among the youths, terrorism, drug addiction, social unrest etc;
  • to develop the capability of investment for self-employment and entrepreneurship;
  • to promote relevant business sub-sectors like travel agents, aviation, tourism etc;
  • to enhance the financial capability and purchasing power of the migrant workers which gears up the economic activities and uplifts the standard of living;
  • to enhance transfer of technology to the country through technical knowledge and expertise acquired by the workers working abroad;
  • to create motivation and develops awareness of the migrant workers towards cleanliness, hygienic environment, importance of literacy, discipline, etc.

Overseas workers face the following challenges while migrating:

  1. Corrupt Passport office does not issue passports without some extra money / hassle.
  2. Super extra profit motive of the recruiting agency / visa sellers leads to abnormally high payment for the visa.
  3. Procedural hassles in some legal institutions in home and abroad.
  4. Over demand of the employers without adequate requirement of labour just to get the money by selling visa.
  5. Non-payment, underpayment, delayed payment, poor living conditions, refusal to provide air tickets at the time of exit, non-adherence to the terms and conditions of employment by the sponsors.
  6. Sometimes workers are repatriated after becoming handicapped temporarily or permanently due to accidents without proper treatment or compensation.
  7. If a worker dies over there, then carrying his dead body is another burden for his family.
  8. In most of the cases victims’ families do not receive insurance or other benefits due to non-claim for the benefit.
  9. The government is paying around three lakh Bangladeshi taka to each of the victims’ families (if workers die abroad) but the system is too cumbersome and lengthy.
  10. Sometimes recruiting agents do not provide any money receipt for receiving money from the migrant workers.
  11. Sometimes some agents do not handover the requisite papers like employment agreement, visa papers, etc., to the workers, or they deliver it at the last moment before departure.
  12. Sometimes recruiting agents do not come up to assist the workers who are facing various problems related to their contracts in the destination countries.

The above mentioned hassles would be removed if the government took following actions:

  1. Activating relevant government agencies with a view to turning regulators to service providers;
  2. collecting demands for workers and professionals from foreign recruiting authorities and supplying those visas to the interested workers and professionals with a logical / banking profit;
  3. the government should reduce government agency linkage to reduce migration time and relevant corruption;
  4. searching new destinations and new professions to increase remittance earnings;
  5. providing training on demanded trade and exporting skilled workers instead of unskilled or semi-skilled workers and using Bangladeshi embassies as service centres for the overseas workers instead of remaining typical bureaucrats.

Neighbouring India earns much more remittance per overseas worker because they are sending skilled workers after negotiating their working environment, minimum salary, insurance benefit etc. Migration cost from India to the same destination is much less than that of Bangladesh. Therefore it is time for the government to come forward for the welfare of the overseas workers and migrating professionals to ensure a hassle-free, safe and secure migration and ensure logical remuneration for them through government to government negotiation. Special drives could be taken for encouraging highly educated professionals to opt for overseas employment to ensure more earnings and quick development of the country.