Published in The Financial Express on Wednesday, 11 June 2014.
Investment drought hits country
Syed Jamaluddin
Investment is facing a drought-like situation in Bangladesh. Political instability, lack of electricity and gas connectivity, high interest rate, loan processing charges and non-availability of black money for investment in industrial sector are retarding investment. Industrialisation is stuck up for lack of investment. Economic growth is not getting desired momentum. Job opportunities are not being created. The march towards progress is hampered.
Interest rates in Bangladesh are high compared to neighbouring countries. In India, the interest rate is 9.0 per cent for industries. This rate is 8.0 to 12 per cent in Sri Lanka. It is 9.0 to 12 per cent in Pakistan. In Bangladesh, interest rate is 13 to 16 per cent and banks collect multifarious service charges which raise the cost of borrowing.
After setting up industries, the entrepreneurs have to wait for many years for lack of connectivity of gas and electricity. As a result, invested capital is lying idle on one hand and the industrial equipments are in a state of decay, on the other. As factories cannot go into production, they cannot repay loans. In the process, they become defaulters.
Because of many complicacies in the National Board of Revenue, the Anti-Corruption Commission and other departments, the investors cannot use black money in the industrial sector. As investors can not use their funds, demand for loan is not created. Therefore, idle money is increasing in the banks. Banks are not receiving new proposals for investment
The government is giving assurance that investment will rise, inflation will come under control, employment will increase and infrastructure problems will be over. But the reality is not tallying with what is being said.
In this context, many economists and entrepreneurs think that if an acceptable and participatory election is not held, confidence-inspiring political environment will not return. Unless this happens, the economy will not gather momentum. If the crisis of confidence is delayed, the economy will be affected in many ways. Then it will be difficult to control it. Meanwhile, local and foreign investment, employment and production have been affected. This state of affairs cannot be allowed to continue.
The foreign exchange reserve is increasing. If the reserve is spent for importing industrial equipment and raw materials, this will increase production and new jobs will be created. This will keep the economy strong and people will get relief. The reserve will have to be utilised for the benefit of the people.
Private investment has dropped for the second year on the back of political uncertainty. In fiscal 2013-14, private investment as a proportion of Gross Domestic Product (GDP) stood at 21.39 per cent, down to 0.36 per cent, according to a provisional estimate of the Bangladesh Bureau of Statistics. According to the latest enterprise survey of the World Bank and the IFC, the private sector sees political instability as the biggest obstacle to the country’s business environment. While the disrupting political unrest has dissipated for now, the risk of it making a comeback hovers around.
Insecurity in the minds of the people has endangered the investment climate. Healthy macroeconomic fundamentals could not restore investors’ confidence, which nosedived last year due to massive political violence.
A number of financial scams involving Hall-Mark and BASIC Bank, for example, have also created unnecessary hurdles for good borrowers and entrepreneurs and piled up bad loans. Large-scale corruption in state-owned BASIC Bank and Sonali Bank has also eroded investors’ confidence.
Economists think that the projected economic growth might not be achieved in the next fiscal as the expected level of investment would not take place. Political uncertainty is looming in the country. In such a situation, investors would not be interested to invest in new projects or expand the existing ones. One economist said measures taken in relation to boosting of private investment are not sufficient to enhance private investment.
The budget should have emphasised prioritisation of policies to boost investment. Not enough has been done for opening the door of privatisation. Arrangement for facing shortage of gas and power has been inadequate. Flow of funds to private sector faces problems as higher target of bank borrowing by the government has been fixed. The cost of borrowing includes interest rate and other expenses.
If political instability and deteriorating law and order situation cannot be controlled, investment will not increase. Enough and dependable steps have not been taken in the budget for attracting investment. Investors are saying that new investment may not take place because of political uncertainty, weak infrastructure and high interest rates.
Huge local and foreign investment will be needed to reach the level of middle-income country. Economic diplomacy will have to be stronger for attracting foreign investment. Foreign aid and grant have to be increased for investment. Attracting investment remains a challenge.
According to the Centre for Policy dialogue (CPD), private investment would continue to decline for the third consecutive year in fiscal 2014-15.The economy faces an impossible task of raising private investment by Tk750 billion in fiscal 2014-15 to achieve the desired 7.3 per cent GDP growth.
The writer is an economist and columnist. jamaluddinsyed23@yahoo.com.au