Business Environment and Development Prospect Bangladesh
Introduction Bangladesh is an agricultural country with full of natural resources. The country became independent in the year 1971. It has been almost forty years that we got independence but still the economy of the country did not click enough. In spite of having small area, it is one of the most densely populated countries of the world. Therefore it has a large consumer market. But due to the lack of strategic management country has been suffering to develop an improved business environment. Business environment of Bangladesh will be much better than it is right now if some major issues can be added or removed.
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It is true that efforts have always been taken to achieve a developed business environment in Bangladesh but not been properly implemented yet. Domestic savings in Bangladesh has remained at around 20% of total GDP in the past few years. Role of domestic savings & investment in Bangladesh Economic growth of Bangladesh is highly dependent on the basis of domestic savings and investment from both public and private sectors. The process of economic growth of a country depends on the ability of firms to expand their productive capacity through domestic savings and investment.
Proper relationship between saving and investment in the macro economy helps to attain desirable business environment. The term domestic saving is highly related to domestic investment. By not spending all of income in buying consumer goods and services, it is possible for resources to be converted as fixed capital such as factories and machinery. Saving can therefore be vital to increase the amount of fixed capital available, which will contribute to increase economic growth. However, increased domestic saving does not always match to increased investment.
This means that domestic saving may increase without increasing investment when there is a short-fall of demand (for reduction of production, employment, and income therefore recession) rather than to economic growth. For short-term, we can say that if saving lags behind investment, it can turn to a growth of aggregate demand and there must be an economic boom. For long-term, when domestic saving goes down than investment, it eventually reduces investment and detracts from future growth of a country’s economy. Domestic savings in Bangladesh has remained at around 20% of total GDP in the past few years.
Measures to boost up domestic saving and investment Fulfill Saving-investment gap – government should pay particular attention to the relationship between domestic savings and total investments in the economy. High Saving-investment gap may signify the impending problem in the balance of payment account. Consumption behavior – After the 2000, Bangladesh has had a major shift in consumption pattern. The major contributing factors to over consumption are luxury imports and tourist expenditures. Adequate control on consumer credits should be set up pro-active campaign for saving culture should be implemented.
Incentives for savings – in many emerging economies, commercial banks often play central role in which domestic savings are channeled. Increase in variety of saving products would increase the level of investment. Increase tax structure that based on consumption rather than income would also promote domestic savings and investment. Focusing on SME-Government has to come forward to spread SME all over the country. Rather than forming a industry it will be better to finance SME. Financing the SME’s will increase domestic savings and investment locally. Risk management policy must be introduced.
This will encourage the small investors to contribute in domestic investment. Foreign direct investment (FDI) The issue of Foreign Direct Investment (FDI) has been receiving phenomenal attention from many governments. Bangladesh is not lagging behind from it. Economic development for the developing countries like Bangladesh is largely dependent on FDI. The major challenges for the host country are to ensure an eye-catching and conducive investment climate to foreign investors for FDI inflow. In recent years, Bangladesh has been devoting efforts for attracting FDI offering a lot of lucrative incentives and benefits.
Though attempts taken to increase FDI inflow, the result achieved is not appreciable enough for Bangladesh. Bangladesh needs to take some measures for enhancement of FDI. Foreign direct investment is the category of international investment that reflects the objective of a resident entity in one economy obtaining a lasting interest in an enterprise resident in another economy. FDI=equity capital + reinvested earning + intra-company loans For a country like Bangladesh it is very difficult to make higher investment because most of the domestic savers are not financially well equipped.
But higher investment is mandatory for reducing poverty and to make higher growth of economy. Rather than depending on foreign direct investment (FDI) it is almost impossible to set up production facilities of a country. In the recent years FDI has been playing significant role for the development of our growth. From FY2000 to FY 2005 there had been a trend to increase FDI. Quite surprisingly after that certain period rather than gaining FDI started to lose its contribution in the economy of Bangladesh. It is a matter of hope that in the recent years FDI has been increased in Bangladesh.
FDI inflow in Bangladesh: major sectors There are lots of sectors in Bangladesh where FDI keeps on contributing significantly. The economy of Bangladesh has been executed in a specific way by allowing the chances for opening the door of service industries to FDI. Different service sectors like power and energy, banking, insurance, telecommunications, oil and gas infrastructure development, transport and communication, textile industries, manufacturing and Hotel and tourism are always blessed by FDI. | 1997| 1998| 1999| 2000| 2001| 2002| 2003| 2004| 2005| 2006| 2007| 2008| 2009| Agriculture & Fishing (Total)| 1. | 1. 4| 2. 9| 15. 2| 1. 1| 1. 6| 4. 1| 1. 7| 2. 3| 1. 8| 2. 0| 19. 14| 10. 95| Power, Gas & Petroleum| 242. 1| 235. 2| 83. 5| 301. 0| 192. 4| 57. 9| 88. 1| 124. 1| 208. 3| 210| 216| 46. 89| 73. 66| Manufacturing| 162. 4| 139. 8| 191. 8| 193. 5| 132. 2| 142. 9| 165. 2| 139. 4| 219. 3| 107| 109| 183. 96| 233. 74| Industry (Total)| 404. 5| 375. 0| 275. 3| 494. 5| 324. 6| 200. 8| 253. 3| 263. 5| 427. 6| 307| 325| 249. 99| 318. 35| Trade & Commerce| 158. 9| 164. 3| 27. 5| 53. 2| 27. 6| 63. 7| 44. 0| 66. 6| 130. 5| 142| 145| 207| 188. 63| Transport & Telecommunication| 5. 9| 25. 3| 0. | 5. 4| 0. 9| 48. 5| 45. 9| 127. 5| 281. 9| 268| 272| 379. 62| 445. 99| Other Services| 4. 6| 10. 5| 2. 9| 10. 3| 0. 3| 13. 7| 2. 9| 1. 1| 3. 0| 18| 18| 21. 32| 17. 69| Services (Total)| 169. 4| 200. 0| 30. 9| 68. 9| 28. 8| 125. 9| 92. 8| 195. 2| 415. 4| 428| 435| 512. 66| 478. 31| Total FDI in Bangladesh| 575. 3| 576. 5| 309. 1| 578. 6| 354. 5| 328. 3| 350. 2| 460. 4| 845. 3| 736. 8| 762. 0| 960. 59| 913. 02| *Bangladesh Bank Statistics Department * (USD in millions) Fig-FDI inflow in different Sectors, (1997-2009)
Measures to be taken to increase FDI inflow For the prospect of Bangladesh, there is no other way rather than increasing FDI. There are some limitations which act as barriers and obstacle FDI inflow. To remove these barriers we can expect to increase FDI inflow. Removal of bad effects of Bureaucracy The activities of bureaucratese in some government agencies create problems in the implementation of the project, thereby giving rise to acrimony and legal hassles. The removal of these adversely affected Phenomena will enhance the possibility to achieve more FDI inflow. Political Stabilization
It’s very useful to develop political stability for better FDI. Dynamic and independent government agencies attract foreign investors and make them to develop a good impression which increases FDI in country. Sound Diplomatic relation Sound diplomatic relation and devoting efforts help to grow an improved bilateral relation between two countries. As a result both countries show their interest to invest in another one. This will help to have more FDI a country to another. Sound diplomatic relation also helps to develop a good image of the country to all over the world. Policy
The policy of Tax should be fair enough for both domestic and foreign investors. Proper implementation of trade liberalization, floating exchange rate, current account convertibility should be maintained. These will help to increase FDI in Bangladesh. Importance of enabling business environment Business environment is one of the prerequisites for putting Bangladesh on a high growth path. Time has come to promote a solid business environment where people can rely. Satisfactory numbers of foreign investors are interested to invest in the country. Investors just want to have a proper business environment where they can rely.
If we can set up a vibrant and safe business environment, undoubtedly more investors will come and invest in our economy. Certain steps need to take for enabling a sound business environment. These are as follows- Continuation of policies In Bangladesh it is very common that policies don’t last long. As govt. changes policies are also changed. This type of culture is not appreciable at all. It gets very difficult to maintain a sound economy living with this trend. So, the continuation of policies must be maintained in order to achieve a good business environment. Removal of weak Infrastructure
The infrastructural inadequacy like, power, fuel supply, telecommunication, road and railway communication, required manpower, trained workers, modern management technique and above all inadequate and insufficient port and shipping facilities hamper to develop a good and vivid business environment . However, these types of lacking should be removed. Role of regulatory bodies Securities and exchange Commission (SEC), Central Bank (Bangladesh bank),BOI should be much more proactive, responsive and quick. The activeness of such kind of institutions will help to create a fair impression to others.
Lack of Good Governance Lake of good governance stands in the way of promotion of business environment in Bangladesh. It has been observed that there is tradition to change established rules and regulation overnight to give benefit to particular applicant. Thereby causing uncertainty and shaking the confidence of investors. On the other hand, affiliation of workers union with political parties also hampers good governance. Lacking of Judiciary System The old and outdated law and the poor functioning of judicial system in the country have discouraged many of the prospective investors.
Most of the time t seems to investors that judiciary of Bangladesh is ineffective. Modification and reform of Judiciary System will foster the business environment of Bangladesh. Lack of adequate information The image of Bangladesh is unfavorable for investment to the outside world. The cultivation of favorable image requires dissemination of information related to macro economic situation, industry policies, lists and descriptions of political joint venture partners, privatization of programs, laws and regulations governing FDI, administrative structures.
Apart from these information, foreign investors may not likely to come to Bangladesh. This hampers very badly in case of getting a fair business environment. Removal of corruption In Bangladesh, Corruption is a very common practice and increases all forms of injustice. It accentuates poverty, prevents development, and undermines democracy and governance. It prevents rule of law, distorts market and stifles economic growth. Corruption creates and perpetuates social and economic deprivation and inequality. Corruption leads to violation of basic constitutional and human rights.
It breeds crimes, social frustration and discontent. Corruption undermines the processes and structures that could be conducive to poverty reduction and promotion of human security. Removal of corruption is not only necessary but also mandatory activity for Bangladesh. Political Unrest and instability Political unrest, due to lack of understanding between government and oppositions, delays the implementation of the project. The recurrence of strike and HARTAL in the country pollutes the investment climate and affects the fruitful operation of any project.
It makes the investors unhappy and also hampers image of the country to the foreign investors. For enabling good business environment this sort of tendency should be eliminated. Development of financial system in Bangladesh The ultimate goal of a financial system is to strengthen the savings-investment process of the country. For economic development, the financial system mobilizes and lifts up together the financial resources from various units, and ultimately utilizes all those resources for productive investments and economic growth.
Indeed, the financial system influences the economic development process through supporting an active payment mechanism. Such kind of financial efficient mechanism helps to achieve greater production and strengthens the development process of a country very smoothly. Bangladesh has a Bank dependent financial system. In the recent years, a number of non-banking financial institutions (leasing and merchant banks) have been established. In spite of establishment of all those NBFI, the banking sector of Bangladesh captures the majority share of the financial market.
Although there are lots of banks, NBFI, leasing and merchant bank but still financial system of Bangladesh did not click in the expected way. That’s why the demand for reforming the financial system is getting high to higher day by day. Measures to reform the financial system * Gradual deregulations of the interest rate structure with a view to improving the allocation of resources * Providing market oriented incentives for priority sector lending * Making subsidies in the priority sectors more transparent * Adoption of an appropriate monetary policy Improvement in the debt recovery environment * Capital market should be more strengthen * A number of accounting, supervisory and management oriented reform measures should be taken. * The co-ordination of loan classification and capital adequacy * New management and operational tools such as Lending Risk Analysis (LRA), Management Information System (MIS), New Loan Ledger (NLL), and Performance Planning System (PPS) etc. should be immediately introduced. * Lack of loan screening skill, lack of accountability on the part of bank officials, high loan price should be avoided. Computerization of the operations of the Central Bank * Merger and Acquisition policy in order to save the weak institutions. * Creating public-private partnerships * Modernization, automation and E-banking * Bank Managements should be protected from illogical interference and influence of sponsors. * Keeping Bangladesh Bank free from all sorts of influences * Ensuring effective supervision of Bangladesh Bank over NCBs For successful implementation of any reform program, the important reconditions are the skill, experience and attitude of the officers and employees. Reform initiatives attempted to improve legal aspects, corporate governance, loan recovery, exchange and interest rate management and risk management and efficiency of Bangladesh Bank. Legal framework is highly needed for bringing dynamism in the financial system. In Bangladesh, Financial sector reform started in an intensive way in the beginning of the 1990s under the Financial Sector Adjustment Credit (FSAC). But still the reform measures of Bangladesh are needed to be continued.
Bangladesh vision 2021 Everybody is looking to a comprehensive vision for Bangladesh in 2021 when the country will celebrate 50 years of independence. There is optimism that country can move into the ranks of middle income countries by 2021. It is expected that Bangladesh Bank will be able to ensure money supply perfectly, cost of credit and monetary management in general are consistent with national macroeconomic objectives. We are expecting that we will be able to hold a true democracy and a publicly accountable and transparent government.
Proper planning, implementation and monitoring of the budget from poverty alleviation perspective will lead to the country to a country of middle income. Branding Bangladesh Nowadays it has got immense importance to focus a nation through Branding. It is also called Nation Branding. In general, the nation brand concept is a relatively new, but widely accepted and applied to some leading nations, like UK, Germany, France, Spain etc. These countries got public attention due to the branding.
Time has come to make such kind of Branding for Bangladesh also. To emphasize on positive sides of a country and to mitigate the negative sides of a country Branding works amazingly. Nation Branding gives idea about the people, tourism, governance, exports, culture & heritage and investment and immigration of a country. Bangladesh is a country where political instability, poor infrastructure, corruption, discontinuation of policies is present. These major issues hamper the image of Bangladesh to the people of other countries.
Therefore foreign investors lose their intention to invest in Bangladesh. We have to make believe to the foreign investors that Bangladesh is not a country of disaster and at the same time we have to promote a good image of the country through nation Branding. Building a strong nation brand could help the developing countries like Bangladesh to overcome the lacking and to build advantages, in order to compete for tourists, markets and investors. Conclusion Bangladesh is a country of hope and optimism. The people of Bangladesh are very optimistic.
Although Bangladesh continues to face a number of major issues, including widespread political and bureaucratic corruption, economic competition, fierce market competition relative to the world, overpopulation, widespread poverty, climate change etc. but we have many opportunities that are waiting to unveil. Right now it is considered as a developing country. Still if we can unleash the opportunities there is a great chance to reach into the rank of middle income country within the year 2021. Removal of obstacles will lead us to a position where we have been trying to each since 1971.