Maintaining progressive economic growth

Finance Minister AMA Muhith expressed his hope last week that the country’s investment-GDP ratio would reach 32 per cent within the next two years and that export growth would cross double-digit within the current fiscal. For the present, the ratio remains below 30 per cent.

The country’s economic situation, however, maintained a satisfactory growth in the recently-concluded year as there is no political unrest since 2015. The finance minister said the country’s gross domestic product (GDP) growth will cross 8.0 per cent within two years.

Reaching such a threshold in terms of investment is expected to give the country’s economy an extra confidence for going forward. However, there is still an unemployment challenge as around 2.0 million job aspirants enter the job market every year. But only 0.4 million of them are able to manage jobs. On the other hand, the industrial sector is still facing an energy crisis.

Over the last six years, Bangladesh consistently recorded progress on various socio-economic indicators, including GDP growth, per capita income, food production, low inflation, job creation, social mobility and women’s empowerment.

Foreign exchange reserves rose to $29 billion from $7.5 billion seven years ago. The country used to produce only 11.1 million tonnes of food grains in 1972, but now produces 38.2 million tonnes, while arable lands declined 6.0 per cent during the period. It is technology that helped this growth, and most importantly, it is the research which has consistently contributed to this growth.

But the new environment and the new versatility that is available make the country dream of becoming a developed country by 2040. Effective macroeconomic plans, along with the implementation of the sixth and seventh five-year plans, have helped Bangladesh avert the impact of the global economic downturn and sustain the economic growth over the last six years.

There is no denying that the scarcity of land is a big problem for investment. In this land-hungry country, it is very difficult to spare lands for large investment projects. However, some export processing zones have been created and a number of small economic zones are getting ready for investors.

However, there are other challenges too. The country is paying too much attention to garment and textile exports. It needs to diversify its export and attract investment. Bangladesh can be the next destination of foreign investment after China and India. As an advantage of the demographic dividends, three million people join the workforce every year. The country can continue the supply of the workforce until 2045.

There are seven core areas where billion-dollar investment opportunities are lying — physical infrastructure, power, backward linkage industry for garment and textile, automotive, pharmaceuticals, leather and shipbuilding.

Easing of business setup and investment regulations, and rapid execution of infrastructure projects will be the driving forces for Bangladesh to increase economic growth to 8.0 per cent and attract expected level of foreign direct investment by 2020.

Some progress has been made by the government in helping to ease doing business; however, there is still some way to go if the country is to attract large investment from local and foreign investors.

According to a recent study of Multilateral Investment Guarantee Agency of the World Bank (WB) Group, civil disturbance, terrorism and war are the topmost factors that put foreign investors at bay. But one out of four corporate investors either withdrew from an existing investment or cancelled planned investments over the recent past due to various reasons.

The reasons include adverse regulatory changes, expropriation, non-honouring of government’s guarantees, breach of contracts and transfer and convertibility restrictions. In fact, Bangladesh has to be investment-centric to bring in more investors. Also, the retention of investors is crucial. Almost 30 per cent of all the investments that goes to developing countries stop expanding or leave because of regulatory constraints.

In Bangladesh, it takes 1,442 days to enforce a contract, and the financial cost of enforcement is 67 per cent of the claim, whereas the duration is 400 days in Vietnam, and 453 days in China, and the financial costs are 29 and 16 per cent of the claims. Economists say the country cannot afford this.

The road and rail freight transportation companies, in particular, can set up partnerships with internal shipping lines or logistics providers in order to increase trade with multinational companies. New modes of transport such as barge services for transporting containers between Chittagong and Dhaka instead of trucking by road can also help improve logistics.

Bangladesh was the 45th largest economy in the world in 2015. But when it came to logistics and transport, it stood at the bottom third globally. In fact, public-private partnership (PPP) might be the key to raising investment for improving the country’s transport infrastructure.

Allowing private operators to operate alongside the state-owned enterprises (SoEs) on a level playing field is another way of getting the benefits of private sector investment and innovation. It will also provide incentives to the SoEs to improve their services. To attract private investors to PPP projects, Bangladesh will have to provide commercially viable tariff level, operating autonomy and termination compensation.

The growth in container traffic of the Chittagong port should be much higher than the country’s economic growth. It needs to grow at 15 per cent annually. Despite modernisation and upgradation of the facilities, time taken for customs clearance is still beyond acceptable limit at Chittagong port. So, the main focus should be on an integrated supply chain for smooth movement of goods and people.

There is a need for initiating policy reforms as many of the policies, including the one on FDI, are not forward-looking. Local businesses say giving more focus on innovation and quality education will definitely raise skilled manpower and standard of services.

The country has undeniably a very strong and resilient economy and has been maintaining a progressive growth since its independence. Analysts believe it’s a lucrative investment destination as the key factors that can attract foreign investors are there: Stable GDP growth, steady currency and a stable government for many years. For foreign investors, good returns, capital safety and dividend or capital repatriation are the three major priority issues.

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