Bangladesh and investment

Time has come for our government to take a step back from their many power-point presentations with all those wonderful graphs and tables and seriously evaluate on-going criticisms.

It is true that in recent times, we have done fairly well in macro-economic terms. The 'Far Eastern Economic Review' in one of their latest issues has particularly praised the Bangladesh economy and predicted not only higher economic growth but also increased foreign exchange reserves for the coming year. They have in this context also predicted a rise in remittances from the Bangladeshi Diaspora abroad. It is expected that this will strengthen the taka as against the US dollar and the euro.

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However, such good news is set aside and suffers when we also read about a recent World Bank study entitled 'Improving the Investment Climate in Bangladesh'. It is a disappointing commentary on the way we are managing our institutional infrastructure related to investment.

This study evaluates various aspects and then identifies weaknesses. The survey was apparently carried out in end-2002 in consultation with firms involved in garments, textiles, food and food products, electronics, chemicals and pharmaceuticals located in Dhaka and Chittagong. It has also been mentioned that the survey covered nearly one thousand manufacturing units. That is broad spectrum indeed. Consequently, the survey, one would think deserves special scrutiny and consideration by those members of government who are charged with combating these malpractices and shortcomings.

Some of the unfortunate aspects highlighted include erratic power supply, corruption within the sectors of customs and tax departments, law and order, environmental, labour and social security agencies. This is not the first time that fingers are being wagged at us. We need to wake up.

It is true that in developed economies as well, corruption sometimes feature in a big way. Avoiding payment of VAT and taxation are current there also. For example many openly point out that Italy's informal economy is larger than its formal economy. However, it has not become a norm. In most cases, such evasions are still exceptions. With us, this virus appears to have assumed universal proportions.

We must remember that Bangladesh is competing today for scarce resources. Foreign Direct Investment (FDI) is not automatic. It should not be pre-supposed that the world is fighting for our invaluable and cheap human resources. Yes, we have a labour force eager to learn different skills and provide support for various economic activities. However, even here, we have several constraints -- low functional literacy, lack of English as a medium of expression and operation and absence of facilities for graded training. We only have a marginal advantage, and labour is but one of the four factors of production. We are also deficient in capital and entrepreneurs. As such, we are really, in cricketing terms, on a sticky wicket and have very little flexibility.

In the first week of July this year, the head of the Bangladesh Resident Mission of ADB told newsmen that despite progress in some areas in the economic front, the investment climate remained weak as reflected in low levels of both domestic and foreign investment.

This comment was on the basis of observations contained in the ADB quarterly economic report released that week. It was also mentioned that if the country was to achieve GDP growth rate of 6.5 per cent by FY 06, as envisaged in the government's medium term macroeconomic framework, investment, specially private investment, needed to be stepped up significantly. ADB also noted in this regard that growth in industrial output during FY 2003 was expected to increase to 7.3 per cent from 6.5 per cent in FY 2002, due mainly to a recovery in manufacturing production and steady growth in electricity, gas and construction activity. Statistics available indicate that the first eight months of FY 2003, year-on-year manufacturing output actually increased by 5.2 per cent relative to the corresponding period of FY 2002, with strong growth evident since January 2003.

The above statistics show reasonable activity. Then the point is why (if all the macro-economic factors are so good), FDI and local investment are really not coming in. The query also rises as to why we are being unable to build and modify our infrastructure to expected levels. This problem assumes sharper focus when we compare ourselves with what is happening in our neighbouring countries and also in Vietnam. In fact, a report has recently noted that the annual inflow of foreign investment into Vietnam is nearly fifteen times higher than Bangladesh. Even Myanmar, despite political problems and disguised sanctions is attracting more FDI than us.

I will not even suggest that we compare ourselves with China, India or Thailand. The irony is that unlike these countries many multi-nationals are expressing their confidence in us by voting with their feet. Many important international companies are leaving Bangladesh and relocating themselves elsewhere.

In the recent past, we have seen foreign financial institutions rethinking their commitment in Bangladesh. We have also noticed the withdrawal of Shell operations. The government probably needs to analyse why this is happening without attaching recriminations. Is it because some foreign companies are finding it difficult to generate smooth returns on their investment? Are they discerning ineffectiveness in our investor's protection regulations or in the incentives for investment? Is it lack of congenial business environment coupled with informal political interests?

Figures indicate that FDI inflow in 2001-02 fiscal year was over US dollar 300 million, but during July-March period of FY 2002-03, there has been a sharp decline. This is not an encouraging sign. The problem is further compounded by the weakness in our foreign portfolio investment potential.

On paper Bangladesh is providing a large number of incentives to foreign investors. However, the impetus is being largely lost because of many drawbacks. Some of them are of our own creation and others emanate from natural causes (natural disasters). Poor governance, inefficient handling of law and order situation, a bureaucracy mired in corruption, lagging tele-communications facilities in the IT sector, work stoppages due to political reasons and poor handling of goods in our ports come immediately to my mind. The July 2003 Country Commercial Guide issued by the US Trade Centre in Dhaka catalogues various ills but it particularly underlines the question of procedural delays. These are but a few elements that give us our negative image abroad. Added to all of these is the recent suggestion that Bangladesh is terrorist prone. Daily newspapers also highlight with gruesome photographs and headlines regular kidnappings, murders and traffic problems. All these contribute to a rise in the anxiety threshold. Given the available quality of life and existing work related difficulties, one honestly fails to understand why a potential foreign investor should decide to move to such a horizon as compared to safe havens like Thailand and Malaysia.

The government has to tackle the situation with seriousness and reduce the cost of doing business in Bangladesh. It should start with an intensive, objective and impartial examination of the reasons for corruption. This will help to determine whether personnel in affected areas of governance in the public sector are being paid proper wages so that they can survive with honesty and dignity. They need to also identify the various ways corruption and cutting of corners are encouraged through informal political pressure. Probably, an independent anti-corruption body needs to be put in the place. Today, maximum reform is required here.

Bangladesh has a bleak future if we cannot free ourselves of this vicious cycle. There is no way we will have investment in the proportions that we desire. Transparency and accountability have to replace the existing structure of greed, psychological preference for the default culture and the criminalisation of the political process. A prospective investor must feel secure to transfer his hard-earned resources into our country. It is not enough to say that the government has introduced one stop investment support mechanisms. It is just not taking place. Mere power-point presentations extolling the virtues of coming to Bangladesh will not resolve our credibility crisis in the international investment arena. We have to be seen to be consistent with our stated objectives.

Muhammad Zamir is a former Secretary and Ambassador.