Business Environment and Development Prospects of Bangladesh
Introduction: Economic growth in Bangladesh has benefited from two decades of liberalization policies that aimed to increase private sector activity. While reforms have eased licensing and regulatory burdens, particularly for the export sector, the domestic private sector continues to face difficult challenges to growth. This is particularly the case for small enterprises that account for the bulk of private business in Bangladesh. Weaknesses in financial markets, burdensome regulation, and prohibitive policies create market distortions that reduce local competitiveness.
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The Combined effect of poor infrastructure, weak public service delivery, corruption, and security concerns constrain the ability of businesses to function efficiently. As a result, a weak enabling environment imposes excessively greater constraints to business growth. Lack of adequate infrastructure is currently hindering the expected economic growth in Bangladesh. Infrastructure development is essential for reducing poverty and improving the living standards of its citizens. In addition to low accessibility, the quality and reliability of infrastructure and its associated services are also very poor.
The country needs huge investment in order to improve the infrastructure necessary for higher economic growth. The Global Competitiveness Report (GCR) 2010-11, prepared by the World Economic Forum (WEF) and unveiled in Dhaka by the local research body, Centre for Policy Dialogue (CPD), noted that a dismal performance of Bangladesh is due to one particular area — infrastructure. So, the most important factor to ensure higher economic growth and boost investment is Development in infrastructure The policymakers are very much aware of the hard realities relating to infrastructure, particularly severe power and gas shortages.
But the key functionaries of the government have not yet been able to do something convincingly enough to help improve the situation, in practical terms. Everyone, starting from a top industrialist down to a small businessman, is affected by the problems. Besides the constraints relating to gas and power supplies, the transportation of goods from one place to another is now, as noted earlier, an added problem. Inefficient transport operators, traffic congestion and large-scale unauthorized toll collection by people in or without uniform, have all compounded the problems here.
The earlier improvement in the operations of the country’s main sea-port in Chittagong had raised hopes among the businesses. But that improvement is now under fresh threat because of growing workers’ indiscipline and mismanagement. In order to ensure the supply of accessible, affordable and reliable infrastructure, it is necessary to encourage the private sector to be engaged in the financing, construction and operation of infrastructure projects.
To this end, the Government will be required to create an environment that encourages competition, efficiency and better services at affordable costs resulting in creation of best value for the country. The Government needs to move away from being the provider of infrastructure services and undertake the role of planner, policy maker and promoter of legislation. Domestic savings play a vital role in the country’s economy by providing the investment necessary for development.
One of the key indicators of economic development and business growth is the amount of money available for investment. It is also important to increase domestic savings to achieve a higher GDP growth. In Bangladesh savings rate is around 30% whereas investment rate is around 24%. So clearly there is gap between savings and investments. So challenge for our country is to increase investment opportunity and reduce this gap. Bangladesh may face difficulty in achieving the targeted growth rate due to investment shortage and increasing savings-investment gap. Forcast of savings and investments in Bangladesh
Fiscal years| Savings| Invetment| Gap between savings and investment| 2008-09| 199205| 148841 | 50364 | 2009-10| 215742. 5| 158456. 4| 57286. 15 | 2010-11| 244914. 6| 175441. 3| 69473. 32 | 2011-12| 284020| 195336. 4| 88683. 6 | 2012-13| 321501. 6| 214463. 2| 107038. 5 | 2013-14| 361783. 6| 234672. 6| 127111 | 2014-15| 404866| 255964. 8| 148901. 3 | (Source: Bangladesh Bureau of statistics, Export promotion Bureau, Finance Division and Statistics Department, Bangladesh Bank) In order to increase the level of GDP, Bangladesh needs to increase the level of investment in the private sectors.
At the same time, it is required to increase the level of national savings in order to increase the level of investment. in recent years, national savings and investment have also increased simultaneously. However, the gap between savings and investment has been consistently increase The targeted rate of real GDP growth of 8 percent would be difficult to achieve by FY 2014-15 due Savings-investment gap in FY2009-10 worth Tk. 57286. 15 crore which might grow up to Tk. 148901. 3 crore in FY 2014-15.
This gigantic amount of idle money might further create an investment shortage in the economy In FY 2009-10, 74. 7 percent of the total national savings has been incorporated in investment and if the present trend of transforming savings into investment continues, it might fall down to 63. 2 percent in FY 2014-15. However, national investment might increase to Tk. 255964. 8 crore in FY 2014-15 while it was Tk. 158456. 4 in FY 2009-10. Since FY 2004-05, the percentage share of investment from national savings is constantly dropping.
This phenomenon implies that people are not interested in increasing the rate of their investment with the increase of their savings level. Foreign direct investment (FDI) is increasingly becoming a preferred form of capital flows to developing countries in recent years, as compared to other forms of capital flows. It can play a very important role in economic as well as business growth. Despite the overall poor investment environment, Bangladesh achieved notable success in some fields during the past years.
In the year 2009-10 (February), there were 89 new foreign and joint venture investment projects registered to BOI which amount to $590m. The projects were invested to mainly in the service, engineering, clothing and agricultural sectors. Increasing FDI inflow Like other developing countries, Bangladesh has also adopted a number of policies and provided generous incentives to attract foreign direct investment (FDI) into the country In According to experts, Bangladesh seems to offer perhaps the most liberal FDI regime in South Asia.
These include: tax holiday for 5 to 7 years, income tax exemption for 15 years for the experts of foreign enterprises, protection from double taxation, exemption from duty for importing machinery and spare parts for 100 per cent export-oriented units, full repatriation of profit and dividend by the foreign companies, , option for foreign firms or joint ventures not to sell their shares through public issues, and protection from expropriation by the state under Foreign Investment Promotion and Protection Act of 1980.
Bangladesh is also a signatory of the Multilateral Investment Guarantee Agency insuring investors against political risk. As a member of World Intellectual Property Organisation (WIPO) and World Association of Investment Promotion Agencies (WAIPA) the country further safeguards the interest of foreign investment. Standard dispute settlement procedures are followed in case there is any dispute with the government or with any private party. If the foreign investors feel that their rights have been violated, they can file writs with the High Courts.
However, recent trends in global FDI flows lead one to conclude that national policy guidelines and incentives are not the main determinants of FDI. Despite the best tax reliefs and other incentives compared to neighbouring countries, a countries‘. FDI potential may still be low, or it may be an under-performer. Enabling Business Environment To be competitive in international markets, and to upgrade its potential in the foreign investors eyes, Bangladesh needs to adopt urgent plans for the short-run and the medium term.
So government and all the regulatory body need to take steps to develop `Enabling Investment Climate’. The Asian Development Bank pointed out that foreign firms are attracted to commercially profitable and politically stable environments, and that offering incentives is often less effective at attracting investment. Cost of doing business should be reasonable. From an economic perspective, determinants of FDI can be grouped into resource-oriented and market-oriented determinants.
The resource-oriented determinants include availability of raw materials, low-cost skilled/unskilled labour, technology-created or innovation-created assets and physical infrastructure. Poor governance and corruption is widespread in Bangladesh. Throughout the country, entrepreneurs must deal with bribery, illegal tolls, kickbacks, and the need to draw on professional or political influence to establish or operate a business. The laws and regulations that govern business are out of date, inadequate and/or ineffective in dealing with the business world today.
So there should be active governance. Financial sectors (banks, Capital market) Should be more developed and well organized. So that investors can do transaction at ease and feel secured. Banks can provide full working capital loans from the local banks on banker-client relationship. Law and Order situation on their businesses Regulatory Burden. It is conventional in Bangladesh that registration and licensing procedures (such as trade licenses, VAT registration, and Tax Identification Number) for entrepreneurs are complex, requiring considerable time and paperwork.
A survey of recent reports on the issue including a recent Investment Climate Statement on Bangaldesh by the Bureau of Economic and Business Affairs of the US Government found the following: foreigners often find that ministries request unnecessary licenses and permissions. Added to these difficulties are such problems as corruption, labour militancy, poor infrastructure, inadequate commercial laws and courts, inconsistent respect for contract sanctity, and policy instability. for example decisions taken by previous governments being overturned when a new government comes to power).
To a lesser extent, difficulty in attracting foreign investment also results from Bangladesh’s image as an impoverished and undeveloped country subject to frequent and devastating natural disasters. BRANDING Bangladesh In order to attract the huge amount of foreign direct investment we have to take steps to improve our image in the eyes of the foreign investors and brighten the country’s image at home and abroad with a view to dispelling the downbeat perceptions about our people and our culture that are still prevalent among foreigners. he country needs to be branded afresh as a promising land where investors would feel comfortable and safe. Modern branding and marketing tools should be used, a new public relations tool of attracting investors through exhibiting uniqueness of a country. While highlighting the potentials of branding Bangladesh gas, power and infrastructure are some of the lucrative areas that interest the foreign investors. So government should promote these sectors. politically biased images of development with changes of the political party in power every five years has a negative impact on Bangladesh branding.
So should promote Bangladesh as a new world-class brand through their collective, collaborative, entrepreneurial and PR efforts We don’t need to offer loans worth billions of American dollars to allure foreign entrepreneurs to set up their shops and industries on our soil. What we need to do is an assurance that we as a nation are hospitable. So by Branding Bangladesh, the country can come up as an emerging nation with its large potentials in the world market. Lesson from other country
The spectacular growth of many economies in East Asia over the past 30 years has amazed the whole world. Of course, this growth has not occurred at the same pace all over the continent. The western part of Asia grew during this period at about the same rate as the rest of the world, but, as a whole, the eastern half (ten countries: China, Hong Kong, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan Province of China, and Thailand) turned in a superior performance. Country like Malaysia , Singapore were known as developing coutry just like Bangladesh.
They had no resources or manpower but still they turn out to be one of the super power. Secret of their success is Government’s development ideology has been growth-driven, purely pragmatic and adaptable to changing circumstances, tightly regulated planned economy and political stability. We can take example of Singapore a country which has developed tremendously because of its sea port. Developing the infrastructure particularly Chittagong port is an utmost priority for developing FDI potential in Bangladesh.
Chittagong port is commercially important to Bangladesh as it handles nearly 85 percent of the export and import. Conclusion The businesses in Bangladesh have been encountering a lot of problems. But infrastructural inadequacies have been hurting the economy the most. Marginal improvement in area of infrastructures will not alone help improve the country’s competitiveness at the global level. There has to be a serious thrust. Furthermore, strong institutional and technological support to businesses on a sustained basis would be necessary for improving the overall investment climate.
Bangladesh has otherwise many strong potentials to perform better. But its systemic weaknesses, mal-governance, absence of strong political commitment — not through words but through actions — in all areas of national life, have among others, been holding this performance at a level much lower than the achievable one. It would be the prime responsibility of the policymakers to help accelerate the pace of programmes and reforms for bettering the business environment.
Bangladesh cannot afford to fall behind other comparable developing economies for the sake of its survival in a highly competitive world. Bibliography Bangladesh Bureau of statistics, Export promotion Bureau, Finance Division and Statistics Department, Bangladesh Bank Ahmed, Zia. U and Syed, Azim, 2006. Survey of Enterprises in Bangladesh. A report prepared for the Small and Medium Enterprise Department, the World Bank Group. The Daily Star, `FDI inflow sets a new benchmark’ The Financial Express, Branding a positive Bangladesh