Asset markets need to be opened

| Updated: October 24, 2017 13:50:32

Asset markets need to be opened

It is often alleged that a section of Bangladesh's rich people are taking money out of the country in illegal ways. In fact, it's not an allegation; it is true.   But before accusing them for their illegal acts, we should ask ourselves why they are taking the money away from the country. When do people transfer money abroad? They do it in two cases. One, when they feel insecure and second, when there is less opportunity for investment at home. Bangladesh offers security to investment, almost fully, but physical security for people is not that good. Many wealthy people are migrating and taking up citizenship abroad. While providing physical security to a person is a long-term effort, it, to an extent, can be compensated by providing more opportunities at home for investment. 
Bangladesh offers good opportunity for investment, but not the excellent ones. The kind of opportunity offered by the country is also allowed by many other countries. In fact, in some cases, relating to incentives, Bangladesh lags behind others. For example, the corporate income tax ranges between 25 per cent and 45 per cent in the country whereas the same is much less even in advanced economies like France and the UK. The corporate income tax, on an average, is 15 per cent or so in Ireland. 
Many countries and offshore territories offer virtually no-tax regimes. So, there is a tendency to shift income from countries like Bangladesh to those offshore havens. The tax authorities can do little in this case. The better option, thus, is to reduce corporate income tax and adopt a competitive tax regime. 
It is not that the rich people, who are allegedly shifting their income abroad, are doing so only because of high tax regime at home. The truth is that the rich people want to hedge their incomes by holding different kinds of assets which are not available in Bangladesh. For example, commodity futures, a kind of derivatives, are freely available abroad, but here the same is not available. If commodity futures are available at all, these could be found only in informal market. Bangladesh's policymakers talk of commodity market, but they have not yet taken any concrete step to make such market operational. 
Here in Bangladesh, in the absence of convertibility of capital account, currency trading or holding of foreign currencies is also illegal. As a result, if the rich, who want to buy foreign exchange in excess of what Bangladesh Bank permits, resort to hundi or informal market. Holding of one currency against another is also a form of investment but here the opportunity is denied. Again, here in Bangladesh, the gold market or investment in gold is not open. Bringing in and possession of gold for the purpose other than wearing or possessing ornaments are illegal. What has kept the policymakers away from opening up of gold market for investment purpose so long? There is no good reason for this. While other countries did open up gold and other metal markets, Bangladesh kept these markets very limited only to be used for purposes like buying and selling of ornaments. Real estate market is also not liquid. It is easy to buy a house or flat in Bangladesh but not that easy to sell the same. 
The investors want hazard-free investment. Did Bangladesh offer all options for investment to its wealthy people? Recently, some rich business houses wanted permission from the government to invest abroad and the government was found to be liberal in this respect.  But before granting permission, the government should see where and why these business houses want to invest abroad. Of course, it will be difficult for the government to track the money where it goes once it is out of the country.  Why not grant permission on case-by-case basis when it comes to the question of investment abroad by the Bangladeshis? 
There should be a general guideline for everyone who wants to invest abroad. Before Bangladesh formulates any guidelines in this respect, the country needs to make its currency, Taka, convertible in capital account. By putting up so many restrictions on repatriation of income from Bangladesh for any purpose whatsoever, the country cannot keep its money at home. Money always flows where it earns more and where it feels secure. So, Bangladesh should allow its rich people more avenues and freedom to invest their money. At the same time, the country should open up all asset markets like those on commodity and gold for investment. By keeping assets markets out of bounds for the rich people, Bangladesh is only incurring loss. The rich are being denied investments wherefrom they could have earned competitive returns.
The writer is Professor of Economics, University of Dhaka. 
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