Merits and Demerits of Foreign Direct Investment

Merits and Demerits of Foreign Direct Investment

Md. Joynal Abdin

The Daily Sun on May 26, 2017

 

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

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

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

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

2    Increases employment opportunity and help to reduce unemployment rate;

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

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

5    Foster economic growth, export earnings;

6    Introduces products standardisation and international exposure of other products;

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

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

9    Develops international channel of distribution;

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

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

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

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

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

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

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

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

Challenges Before Newly Elected FBCCI Leaders

Challenges Before Newly Elected FBCCI Leaders

Md. Joynal Abdin

The Daily Sun on May 15, 2017

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

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

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

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

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

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

Development and Promotion of Entrepreneurship Education

Development and Promotion of Entrepreneurship Education

Md. Joynal Abdin

The Daily Sun on May 06, 2017

Entrepreneurs are considered as the most important segment of the society to generate employment opportunity, increasing GDP growth, fostering economic development around the world. Therefore, entrepreneurship development is one of the priority activities of all development initiatives. Once it was assumed that the entrepreneurship is a by-born quality to identify profitable ideas, organise factors of production, take risks to be failure so on and so forth. But through a long debate during last century scientists have succeeded to prove it that, entrepreneurship is not only a by-born quality but it could be created through proper education, training and other pro-entrepreneurial supports along with a congenial environment. Entrepreneurship creation could require hundreds of supports but the most important part of it is entrepreneurship education.

Entrepreneurship education includes both academic knowledge and practical skills to prepare young people to be job provider instead of searching for a job in the market. It provides knowledge, skills and motivation to encourage student’s young mind to become an entrepreneur. Fostering entrepreneurship attitudes and skills in secondary schools raises awareness of career opportunities, as well as of ways young people can contribute to the development and prosperity of the nation. It helps to reduce unemployment and number of jobseekers one of the major problems around the world. Entrepreneurship could be one of the mandatory subjects in all levels of education with a major specialised faculty in the undergraduate or graduate levels. Specialised curriculum as well as specialised institute/university could be established to produce entrepreneurs in Bangladesh. Neighbouring India identified this issue as one of the key requirement for industrial advancement and established the Entrepreneurship Development Institute of India in 1983 at Ahmadabad, Gujarat. EDI is a successful model replicated in most of the Indian states and around 25 countries globally. It is producing entrepreneurs the job providers since its inception.   Our government or even the private sector could replicate the model here in Bangladesh very easily and I know that EDI authorities as very helpful in this regard.

Entrepreneurship education is essential not only to shape up the mind-sets of young people but also to provide the skills, knowledge and attitudes that are central to develop an entrepreneurial culture. Entrepreneurs play the role of catalyst to achieve economic and social development, GDP growth, promoting innovation, fostering employment generation and equity development. Entrepreneurship education is similar but not the same curriculum of business education. It requires motivation, inspiration, creation of risk taking tendency, coordination, networking, competition, business secrecy, trend analysis so on and so forth along with the business courses like management, marketing, finance, accounting etc. Entrepreneurship education includes basic scientific, ICT, innovation topics too along with hands on skill development and efficiency enhancement. It could be divided into two major heads namely entrepreneurship education and entrepreneurship training.

Entrepreneurship education could be started with one or more compulsory courses from the secondary level up to the higher secondary certificates. Specialised entrepreneurship development courses could be introduced at undergraduate and graduate level under a separate faculty than that of the existing business schools. Specialised residential institutes/universities could give more output in terms of entrepreneurship development education. On the other hand entrepreneurship training could be a specialised type of practical training including apprenticeship in relevant factories started from secondary vocational level to the diploma or higher diploma/post graduate diploma levels. But for both the types of entrepreneurship study separate international standard curriculum has to be developed first. Then a sufficient number of teachers and trainers have to be developed through international standard ToTs at home or abroad. They should be selected based on open competition and previous result analysis. They have to be offered special package of benefits to ensure retention up to a certain period of time.

Producing entrepreneurship graduate is not sufficient for entrepreneurship development. An enabling environment has to be created and maintained through harmonisation of existing policies and enacting new policies of the government. Startup friendly business environment is absent in Bangladesh till today. No bank is offering loan to a startup, no tender is allowing taking part without a certain years of experience, and no government service is providing soft condition to an initiating enterprise here in Bangladesh. Probably first 1,000 days of a newly established enterprise are the toughest period of an entrepreneur here in Bangladesh. Initial business support services are absent here. Initial registrations and licenses are provided by a long lists of organisations under different ministries of the government without interlink or inter-coordination. Therefore starting a new business is the toughest job here in Bangladesh. So this starting point has to be made easy and smooth.

Initial investment, incubatory services, registrations, licenses, business networking, support services, intermediary services, and startup environment should get priority of the government policies to make the entrance easy, smooth and hassle free for a new/young entrepreneur. Otherwise next generation will not be interested to come into business in home condition rather they will migrate to abroad and brain drainage movement will get another momentum. Secondly all the government agencies like police, environment, factory, boiler, tax and customs authority, BSTI, and the local administration has to be motivated to change their mindset of existing administrative tendency into a service prodder tendency. Because nobody will go to buy harassments by investing his/her own money and brain here in Bangladesh and become an entrepreneur. Government and the private sector especially the trade organizations has to be working closely to identify existing anomalies of becoming new entrepreneurs and mitigate those factors to create a pro-investment friendly environment here in Bangladesh.

A congenial business environment will not only create local entrepreneurs but also attract foreign investment to the economy. With and united effort of both the channels of investment industrialisation of Bangladesh will be ensured and a sustainable economic development will be in place. Therefore it is the right time to look into the entrepreneurship education system seriously and create an entrepreneurship friendly business environment here in Bangladesh. Both the government and private sector joint effort could lead the initiative into a success.

Absence of Functional Research Facilities in Bangladeshi Trade-bodies

Absence of Functional Research Facilities in Bangladeshi Trade-bodies

Md. Joynal Abdin

The Daily Sun on May 3, 2017

Bangladesh is considered as one of the potential emerging economic powers around the world. It has a very significant number of achievements in terms of fulfilling MDGs, increase per capita income, GDP growth, and export earnings.

It is one of the N-11, Frontier-5 countries. Bangladesh entered the level of lower middle income country and hopes to progress further. Bangladeshi scientists, innovators and researchers have proved their world class capacity and merits. As a result we are getting name of many Bangladeshi scholars in various prestigious global lists. But till now we hardly have a signboard of Bangladeshi companies out of our territory. Easiest answer of this absence could be that, it is prohibited for Bangladeshi nationals to carry beyond a certain amount of money abroad. Absence of capable entrepreneur could be another cause of it.

Government effort to develop capable entrepreneurs in Bangladesh is very insignificant. We have 122,176 primary schools, 20,297 high schools, 4,113 colleges, 9,319 madrashas, 5,790 technical schools and polytechnic institute and 132 universities in Bangladesh but we do not have a single specialised entrepreneurship development institute. We are producing doctors, engineers, managers, technologists and other professional job seekers through our education system here in Bangladesh. But we are not producing the job provider entrepreneurs through our existing academic curriculum. Globally it is proved that, entrepreneur could be created through proper education, training, mentoring in a congenial policy environment.

There are many challenges/barriers to operate a business enterprise beyond individual capacity. Therefore entrepreneurs became united under a single platform like chamber of commerce or sector specific associations around the world. Similarly Bangladeshi entrepreneurs/businessmen are united under two types of trade bodies namely the chamber of commerce and sectoral associations. There are four different types of chamber of commerce in Bangladesh.

These are district chambers, metropolitan city based chambers, joint chambers and international chamber of commerce. According to a recent list of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) there are 101 chambers of commerce and 379 associations in Bangladesh. The objective of all the trade bodies is capacity building of Bangladeshi private sector from respective fields and negotiating unitedly with the government to create and maintain a congenial business environment in home and abroad. Research based information has no alternative to carry forward this function of the trade-bodies successfully.

Bangladeshi trade bodies including the federation chamber have limitations in terms of research facilities. An effective and functional research centre is absent in all the chambers of commerce including the big players like FBCCI, DCCI and MCCI etc. Scenario is more inferior in the associations including the largest associations like BGMEA, BKMEA etc. Business leaders are providing special commitments for developing the research department of respective trade-bodies before each election during last decade. Another new election of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) is heading toward us in the next month. Hope all of the panels will give emphasis on research and development duly in respective election manifesto. But unfortunately research facilities in the trade bodies are not getting momentum. Let’s think a while why research facilities/capacity of research departments of the trade bodies is not reaching up to the standard of our expectations? The followings could be considered as the major causes of current inferior performance of the research departments in Bangladeshi trade-bodies:

Multiple expectations of the management from the research wing: Job responsibility of the research wing is not clearly defined in the trade bodies. As a result management has multiple expectations from the research team. For example an informative letter has to be written, president or vice president has a program then its requires a written speech, a sector studies has to be conducted, a position paper has to be prepared, trade statistics is required, seminar has to be organised, meeting minutes has to be written, project proposal has to be prepared etc. a long list of expectations to research wing. But writing letter could be completed by the administration or respective department, writing speech could be completed by the PR section, writing project proposal is a specialised job of project consultant etc. are similar tasks but having great distinctions than that of the functions of a professional research team. Thus a good research team could be ineffective if it would like to serve every expectations of the management.

Absence of yearly action plan and budgetary allocation: Most of the major trade bodies of Bangladesh have a research department. But it does not have annual action plan with required budgetary allocation. As a result research executives of the trade bodies became day labourer toward ad hock instructions of the higher authority. Therefore, no publishable research is conducting by them and no output is visible after a certain period.

Writing speeches and other ad hock write ups on an emergency basis: Research department of the trade bodies has to write down speeches for the respective presidents and vice presidents on an emergency basis/within short notice. Writing an informative speech requires time, but short notice decreases its quality. On the other hand giving message of the organization is purely a function of public relations (PR) section. So, PR and Research department has an overlapping position regarding writing speeches. Ad hock write ups like letter, meeting minutes etc. destroyed valuable time of a good research team.

Absence of qualified research team: Conducting research is a team work. It requires cross faculty specialized knowledge of economist, statisticians, MIS and business graduates along with sector specific expertise. But most of the research departments of the trade bodies do not have enough manpower to provide respective faculty inputs in a research team. As a result designing and conducting a quality research is not possible by the fractional team.

Absence of skill development initiatives: Conducting a good research requires a number of technical skills which is not available in all faculty of master level education. Therefore special tailor-made training skills are required to design and conduct a good research. You will hardly find a trade body who is investing money to build capacity of the research team by training them up in home and abroad. As a result research departments are not becoming skilled and proficient in respective tasks.

Absence of competitive package of benefits to retain competitive talents: Most of the trade bodies are paying non-competitive benefit to the executives.

Generally research related professionals are more knowledgeable than that of the others. As a result they have more opportunities than that of the others and switched over into a competitive career option and trade-bodies losses these talented people due to lower benefits packages.

Absence of job security and clear career path in the trade bodies: There is a vulnerability as well as ambiguity regarding the career options of a professional in the trade bodies. As a result these are not lucrative positions at all to the talented university graduates. Therefore, deserving graduates are not willing to apply for a position in a trade body.

From the above discussion it is clear enough that, Bangladeshi trade bodies are yet to determine the job responsibilities of respective research department to make them effective and efficient. Following steps could be considered for establishing a strong research cell in a chamber of commerce or sector specific association:

Determine specific objective of the research wing: Management of a chamber of commerce must determine their expectations from the team. Separate team could be formed for separate actions for example a small team could be specialised in speech, letter, meeting minutes etc. writing jobs. Separate team for designing and conducting professional research on specific issues. Similarly another specialised consultant group is required for project relevant tasks. All these activities are similar but needs different types of skills and mentalities. So a trade body must determine specific objective of its research team or form separate team for separate actions.

Prepare an annual action plan with required budgetary allocation and time frame: The chamber authority has to prepare a specific plan of actions with required budgetary allocation to conduct a specific number of researches on predetermined topics in a year. Ad hock assignment diversified focus of the team and make them weak performer.

Team formation and required capacity building: Conducting Research is a team work. It requires cross faculty knowledge including economist, business graduates, statisticians, development studies and MIS professionals. Therefore, forming a balance team is essential for well performance of a research team. Conducting research in practical fields requires few university plus skills. Therefore even the most scholar university team has to be trained up on specific research relevant skills for ensuring same page thinking of the team. Training has no alternative to make the team well performing.

Competitive package and clear career options: Competitive package is required to retain competitive merits. Job satisfaction, job security and clear career path is required to form and retain a functional and effective research team in a trade body.

Finally; we could state that it is the right time to establish a strong research team at every trade body of Bangladesh. Otherwise capacity building of Bangladeshi private sector will be hampered for another decade until we do so. In many countries chamber of commerce is fully financed by the respective governments. As a result they have skilled professionals in trade bodies. Even the neighbouring Indian trade bodies are well equipped with functional research team. Similarly the private sector of Bangladesh could claim government budgetary allotment for the chamber of commerce. The Federation of Indian Chambers of Commerce and Industry (FICCI) counterpart of the FBCCI has a long list higher educated research team with more professionals than that of the total manpower of FBCCI. A functional research team is much more essential today for capacity building of Bangladeshi Private Sector to negotiate with our global partners and enter into international market with our products either in the form of export or internationalisation of our own brands through outward FDI.

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.

Budgetary Measures for Economic Growth and Sustainability

Budgetary Measures for Economic Growth and Sustainability

Md. Joynal Abdin

The Daily Sun on 21 April, 2017

There are about 162 million populations in Bangladesh and nearly 127 million of them are workable. There are only about 1.7 million positions in government services 18% of those are vacant.

That means government could provide employment to nearly 1% of its total population in its existing setup. What about the employment opportunity of the rest 99% populations of the country? It is stated that, there are about 30 million businessmen in Bangladesh. So government service holders and businessmen are account for 31.7 million populations. Till now there are 95.3 million workable populations of the country. As per a recent report of the ministry of finance there are about 58.1 million people are employed in private sector. As per this statistics till now there are 37.2 million workable but unemployed populations in the Bangladesh.

That means workable but unemployed populations are about 23% in our society. The percentage of total unemployed population would be more than 40% if children and over aged citizens are counted here. Alarming news is that the number of higher educated but unemployed population is rising. Low educated or uneducated people are migrating abroad as labor force. But higher educated unemployed are mostly from the middle class family. They are not able to be labor in home or abroad due to the family status but remaining burden for the family, society and the nation as non-productive unemployed. In such a complex situation increased amount of unemployed populations would be a big burden for the society if government does not take the matter as a serious concern.

As per the constitution of Bangladesh it is the government who is responsible to ensure basic needs of every citizen of the country. Obviously government will not provide services to all but government will create such a congenial environment where surplus unemployed populations will be absorbed by the existing institutions or new institutes will be emerged. Government could facilitate policy and other environmental supports where people will become entrepreneurs (self-employment and creating employment for others), involving more labors in development projects through budgetary measures, increase investment in hands-on skill development programs / projects to facilitate the idle population to be productive, facilitating import substitutions and export orientation  so on and so forth.

Now come to the first point what government could do for creating self-employment / entrepreneurship development. First and foremost initiative would be increasing general levels of confidence / developing confidence of would be entrepreneurs through building hands on capacity to influence their decision making to start a new business through providing skills, industrial location, startup financing, mentoring and other financial & non-financial incubatory supports. Special initiative has to be taken to address and overcome their fear of failure. Mentoring is required for setting up a confidence building scenario to overcome existing cloudy condition about the direction of their business.

Developing their levels of creativity and capacity to innovate has to be strengthening through undertaking newer project like existing Learning and Earning project of the ICT division of the government of Bangladesh. Undertaking local demand based development plan in our national budget could be a way forward to engage more labor force with the government development activities. For example presently government is undertaking a road construction project and provides the tender through a national level tender. As a result the tender winner may not be a local citizen of that territory. He may not know other relevant expectations / priorities of local people with this contraction project. Finally contractors are not bothering about the quality of the project implementation but he is managing the line managers and drawing the bill.

If government takes a reverse initiative that, all the peoples representatives from the union even ward levels will prioritize development needs of their territory in consultation with the citizen and prepare a priority list of development initiative for that territory. They will send the list to concern authority for allotment. Then the decision maker justify the needs and provide the budgetary allotment to the local authority for implementation then the local representatives and administration both will be equally liable for proper monitoring and implementation of the project through using local resources. Such a demand driven budgetary system could help to ensure more peoples engagement in government development projects and create employment. Another more important issue is increasing capacity of the budget implementing agencies and relevant stakeholders to ensure qualitative implementation of government development projects.

Thus government could increase personal sources of earnings through its existing mechanism. We must remember that, personal growth will lead us towards a self-sufficient burden free society. Then institutional / organizational growth will lead us toward out of poverty and sustainability of development. Finally; by ensuring the above two condition we could have economic growth and it will lead us towards job creation and safeguarding the society.

Sustainable Development Goals (SDGs) could be the best guideline to select projects and shifting from existing generalized budgetary system into a specialized one. At the same time harmonization of existing taxation system and justification of the duty structure on CKD, SKD, and finished products is required to harvest a pro-growth environment in the Bangladesh.

We are getting big amount but poorly implemented budgets during last few years. Now we are in need of demand driven, project specific, motive oriented and duly implemented national budget for economic growth and sustainability.

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.