CPD proposals for FY15 budget cited

Shahiduzzaman Khan

Insecurity of life and property is taking an economic toll. It is adversely affecting the aggregate consumption and savings as well as investment activities. This situation also creates the possibilities for capital flight.

Such a message was served this week, quite clearly, by the Centre for Policy Dialogue (CPD), the country’s one of the leading think-tanks, in the context of the rising number of cases of abduction and killing in the country. This, as the CPD has befittingly noted in its pre-budget meeting with the press, has emerged as a major threat to making fresh investment in the country.

The state of insecurity thus affecting adversely investors’ confidence in undertaking new investment ventures in Bangladesh, makes it a daunting challenge to raise the level of investment to 30 per cent of its GDP (Gross Domestic Product). But the latter is critically needed for attaining its overall planned targets in different sectors.

Many economic analysts have also pointing out, since long, that the absence of a specific investment policy and poor infrastructure facilities, especially those related to land and primary energy, are acting as major impediments to boosting the flow of foreign direct investment (FDI) to Bangladesh.

They have furthermore been highlighting the need for bringing all the services for promoting investments, both local and foreign, under one umbrella to ensure a hassle-free investment environment. There is no denying that unless the level of local investment picks up, the possibilities for attracting the required level of FDI to the country will remain poor.

Bangladesh needs to put in place a specific investment strategy, embracing industrial, import and fiscal policies, to help remove the snags in implementation process. Particularly, foreign investors, according to some observers, would be more likely to come to the country if the government could assure them of two things — land and primary energy like power and gas.

There are adequate government lands in many state-owned-enterprises (SoEs) which remain virtually inoperative for long. Earlier, the Privatisation Commission had taken a number of measures to use those, but it could not achieve anything significant because of some lingering, unaddressed inter-ministerial problems.

The FDI flow to the country has otherwise been showing an increasing trend, in relative terms, for the last several years. It marked a 45 per cent growth in the fiscal year (FY), 2012-2013, as it stood at US$ 1.73 billion against US$ 1.19 billion registered in FY 2012-13. But such a level of FDI inflow is certainly not up to the mark. For all practical purposes, the country is yet to become a favourable destination for FDI. The inward FDI flow in Bangladesh is also lower than other countries having the same status of the least developed countries (LDCs). Such trends show the FDI inflow has been shifting to the services’ sector from that of manufacturing, the latter being on the decline in telecoms, power, gas and petroleum sectors except some areas like textiles and apparels, banking and food processing.

The FDI inflow is important for a country because it creates jobs, helps reduce poverty and facilitates transfer of technology. Bangladesh was earlier identified as being among the next frontier (pre-emerging) markets on Goldman Sachs’s list of ‘next 11 countries’. From the regional perspective, Bangladesh has done relatively better compared to the situation in other South Asian countries like India and Pakistan, in terms of growth of FDI inflows. But, in absolute terms, the amounts of FDI that flowed to India and Pakistan are far greater than that of Bangladesh.

Meanwhile, the scarcity of land for setting up new industrial units has made the country’s development challenges more critical. It is already faced with two other major problems — upgrading its infrastructure and ensuring the availability of a large but skilled workforce. In order to attract more FDIs, Bangladesh needs to tackle several growth-related factors, too. These include poor governance, large scale tax-evasion, extremely high population density and the associated scarcity of land and natural resources.

Issues like unskilled and semi-skilled labour force and the country’s vulnerability to natural disasters need also to be properly addressed, besides making unrelenting efforts to help overcome infrastructure-related bottlenecks, especially those relating to gas and electricity supplies. Hence, an effective policy shift in favour of promoting ‘less gas-consuming’ industries, encouraging investment in infrastructure and giving focus on the service sector is a pressing concern for Bangladesh.

Studies have otherwise indicated that Bangladesh has the potential to attract US$ 5.0 billion in FDIs a year. The country could have become one of the fastest growing FDI-recipient countries in South Asia if it had undertaken investment-friendly policies and made all necessary facilities available. However, political unrest, infrastructural deficit and power supply-related constraints, according to some analysts, are not the only major problems for investment in Bangladesh. The moot problem lies in ensuring availability of land. Investors now only look for land as they are capable of setting up themselves the rest of the infrastructure. Many Chinese investors do now reportedly want to relocate their factories to Bangladesh due to rising labour costs in their homeland.

Investors in the developed countries are also looking now for opportunities in Asia and emerging markets for growth as well as for shielding their businesses against shocks, particularly after the global recession. Bangladesh can take this opportunity to attract more FDIs by effectively revamping its policies. The country can also become a transport and connectivity hub in South Asia. It has the potential to grow fast, but it lacks the domestic resources that are needed to make investments in order to fix its problems like power and energy deficit and infrastructural bottlenecks.

The government should undertake strong reformative actions, targeting public sector enterprises and organisations with a view to improving their operational efficiency and competitive practices.

However, the key focus of the government needs to be given on good governance, institutional strengthening and, above all, ensuring rule of law to help remove the growing sense of insecurity about life and property. The people want to live in peace and harmony. And the investors, both actual and potential ones, do likewise want to operate their businesses in a peaceful environment. Once this is ensured, it might be possible for Bangladesh to help spur investment. For this, the government, too, has to take decisive actions to remove the impediments to investment that will give confidence to the prospective investors, both local and foreign.

szkhan@dhaka.net