The Investment and Policy Summit, held in Dhaka on January 24, tried to identify the problems that stand in the way of both local and foreign investment in the country. The summit also touched the issue of the present condition in the capital market. Of the remarks that were made about the capital market, that of the chief executive of the Board of Investment (BoI) was more pertinent. He said, as reported in the press, Bangladesh's stock market is a market for gamblers and the gamblers are having their way. He also said the market is not ready to supply a big capital that is needed for implementing mega projects like the Padma Bridge and also the market is not suitable for long-term investment. Many investors have taken these comments as injurious to the interest of the already ailing stock market though the BoI chief executive was right, to a great extent.
The main issue should not be whether the market is a gamblers' den or not; it should, instead, be where market went wrong and what should be done to put it on the right track. For many years, top policymakers did not pay necessary attention to build up a stock market which will be the main source of capital for businesses and also the one that will be offering a confident and safe route of investment by the growing middle class of the country. Many top policymakers thought all along, though wrongly, that the economy could prosper without support from the capital market. They thought that the source of capital is the one that is provided by banks and other financial institutions. At times, the government policy is such that it simply goes against the very interest of the capital market and that of the investors at large. When the time comes for presenting the annual Finance Bill, which is popularly known as the Budget, the investors have a sort of anxiety lest the Finance Bill proposes levying some extra tax on the listed companies' earnings as well as on the investors' earnings. Also, when the monetary policy is announced, very little thought is given as to what would have happened to the interest of the capital market if such and such change is brought to the policy.
All over the world, capital markets needed at the initial level government patronisation in one form or another for their growth. Initially, neither many companies came for listing nor did the investors come forward for investment. Listing with the bourse involves some sort of extra responsibilities of the listed companies and, in return, they expect some commensurate benefits from the government like rebate and concession in tax liability etc.
By listing, a company becomes open and its activities and accounts come under radar of public scrutiny. Stock holders at large know what a listed company is doing with its business and tax payments and what dividend it is paying to them. The top-ranking stakeholders are those who invest in equity capital of the company and the other ranking stakeholders are banks which offer it credit and also the tax authority of the country. The tax authority receives more taxes when a listed company does a good business and as such, if the company's accounts are open and transparent, the tax authority does not need to bother much about tax evasion by such a company. But in non-listed companies, the affairs are not the same. They can hide their income easily and then pay taxes below what they are required to pay.
During the Investment and Policy Summit, the media raised the issue of the multinational companies, which are doing business in Bangladesh, going public. When asked, the chief executive officer (CEO) of a multinational company said very bluntly that they do not have any interest in going public when doing so brings more problems than benefits. He, however, did not elaborate what were the problems he saw in the listing of his company with the bourses in Bangladesh when the same company, by being a local subsidiary, is listed in many of the stock markets around the world.
While the CEO of that particular multinational company drew such a gloomy picture, many multinational companies like GP, the Berger Paints and Linde BD have got listed with the Dhaka bourse.
When investors of the stock market want the multinational's local subsidiaries going public they do not want anything big. They only want a small part of equity capital as low as 10 per cent to be off-loaded. Offloading of 10 per cent is the minimum requirement under the present regulation for listing. Selling equity, no matter how small it is, means making the equity holders owners and partners of the company.
For listing, there is a big, if not a huge, incentive in the form of reduced corporate tax which is at present 25 per cent for a listed company - 10 per cent less than the normal tax rate of 35 per cent.
Today we hear so much about CSR (Corporate Social Responsibility) activities in the economy. The best of the CSR is offering of ownership of business to the people.
The writer is Professor of Economics, University of Dhaka. [email protected]
