World Bank Senior Vice President and chief economist Dr Kaushik Basu, during his recent visit to Bangladesh, said poor infrastructure and slow bureaucracy are the two major challenges for the country's economy, which according to him, is standing at the 'takeoff stage'. Business processes have to be made faster and efficient by cutting red tape. He said a lot of attention has been paid to infrastructure, but Bangladesh has to take bigger strides.
Infrastructure has to be given topmost attention although it's a matter of finance while bureaucratic process has to be quicker despite regulation. The people of Bangladesh have to understand that they need political stability to entertain foreign direct investment (FDI), he added.
Dr Kaushik said FDI is now the only requirement to achieve the desired 8.0 per cent growth by Bangladesh for becoming a middle-income country. At present, Bangladesh's investment ratio is 29 per cent of GDP. It needs 34 per cent which could be done through local investment as well.
If Bangladesh can address these challenges, it will be able to attain 8.0 per cent growth in three to four years' time. There should be a self-belief among the people that this country is beginning to stand out, say analysts.
On the other hand, Bangladesh should share its economic growth and prosperity with all its people to ensure balanced and sustainable growth. Also, the government can boost its income through improving governance. The country needs to boost its local investment in addition to the foreign investments as well.
However, in spite of some progress in reducing a number of constraints on way to attracting foreign investment, the country has failed to make a big headway in getting overseas funds so far. The impediments are inadequate infrastructure, financial constraints, bureaucratic delays, corruption and political violence.
In its recent Investment Climate Statement 2015 on Bangladesh, the US State Department said corruption remains a serious obstacle to its investment and economic growth although the country offers many opportunities for investment. It has achieved over 6.0 per cent annual growth over the past two and a half decades, having a large, young and hard-working workforce and a vibrant private sector.
Indeed, there are many opportunities for investment, especially in sectors like energy, power, pharmaceutical, information technology, telecommunications as well as in labour-intensive industries such as readymade garments, household textiles and leather.
Bangladesh received $1.5b as foreign direct investment (FDI) in the fiscal year (FY) 2013-14, up from $990m in the previous year. This is a still a nominal amount of investment compared to the foreign investment that the South Asian region attracted. India, to mention, continues to dominate FDI inflows in the whole region.
The country's land registration is historically prone to disputes over competing titles. Scarcity of land is also a significant investment constraint. While efficiency of the main seaport in Chittagong has improved, construction of four-lane highway to connect Chittagong with the capital city of Dhaka is making a very slow progress.
Meantime, efforts to ease public procurement rules and za recent constitutional amendment that reduced the independence of the Anti-Corruption Commission (ACC) are likely to undermine institutional safeguards against corruption.
On the other hand, private investment did not pick up to the desired level throughout the last fiscal year due mainly to infrastructure shortage and political uncertainty. A sound political environment and an inclusive politics are seen as the key determining factors for stimulating private sector investment and regaining the GDP growth momentum.
Capital flight is taking place in the forms of money laundering, manipulation in trade pricing and remittance outflow from the country. The amount of money being laundered from Bangladesh was surprisingly more than the total inflow of foreign aid.
Many countries including India, China and Japan are very serious about relocating their industries to Bangladesh, according to reports. But scarcity of land and gas is a major barrier to cashing in on the opportunity. A World Bank estimate shows if Bangladesh can provide 40,000 acres of land to Chinese investors, around 1,5 million new jobs will be created. The government needs to give serious thought on searching left-over land for them.
Regrettably, reforms which could have helped the government boost domestic and foreign investment were not implemented satisfactorily. For example, the public-private partnership (PPP) law is yet to be finalised although 42 projects have been listed in the ADP for the fiscal 2015-16. On the other hand, the Privatisation Commission (PC) remains inactive for long.
If reforms are carried out properly, large and lumpy investments from foreign sources should expand the productive capacity of the country's economy offering a variety of new goods and services.
Removal of major impediments in physical infrastructure including utilities, economic and legal infrastructure, and effective enforcement of laws and regulation will definitely attract FDI. As such, the overall environment of doing business has to be made easier, cost effective and investment-friendly.
The government should create an investment regime which is credible and predictable. There should not be frequent changes in policies and regulations. Physical and regulatory infrastructure need to be provided to the extent practicable for the investors to ease doing business.
The year 2015 saw Bangladesh otherwise fighting back local and external headwinds, while regulatory interventions were a deterrent to infuse vigour into businesses. But the fact remains that the country's position was upgraded from a low income country to a lower middle income country by the World Bank.