Policy Research Institute - PRI Bangladesh

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Move up the value chain'

News Published: Sunday, Jun 01, 2014

'Move up the value chain'

Economists suggest keeping growth momentum going

Thu, May 29 2014, 12:00 am

FE Report

Lack of political stability, policy continuity and required lands are impeding investment in the country, speakers at a dialogue said Wednesday. They also maintained that political instability and feeling of insecurity among the people had eroded the investors' confidence to a great extent. Participants at the dialog are also said the lack of required infrastructure and the fast deteriorating law and order, marked by the recent spate of abductions, were the key barriers to fresh investment in the country. The discussants were speaking at a dialogue organised by the Policy Research Institute of Bangladesh (PRI) in collaboration with the DFID (Department for International Development) of the UK. PRI executive director Dr. Ahsan H Mansur presented the keynote paper on the challenges and prospects of the Bangladesh economy at the programme, held at its conference room in the city. Dr. Mashiur Rahman, adviser to the Prime Minister on economic affairs, attended the function as chief guest, while Dr. Stefan Dercon, chief economist at DFID, and Dr. Stephan O'Connel, chief economist at USAID, were present. While presenting the keynote paper, Dr. Ahsan H Mansur said the economy was not picking up because of a lackluster investment performance. He said public investment had failed to catalyse domestic private investment. The difficult investment climate and related challenges have led to a decline in private sector investment, he added. Dr. Mansur said Bangladesh now faced a two-pronged challenge in accelerating private investments. He said Bangladesh was not doing well either in 'Doing Business Indicators' or the 'Global Competitive Index' “It is deficient in infrastructure and institutions (governance)," Dr Mansur said. He said increasing the labour force participation was the key to inclusive growth. Stable political conditions leading to a rise in consumers' as well as investors' confidence will help stimulate domestic demand and strengthen growth momentum, he added. He said establishing special economic zones could help overcome the investment climate problems. He said the government could exercise its power in acquiring lands to be required for industrialisation. Dr Mansur lamented that the government had enacted an act relating to setting up of SEZs, but they were yet to kick off successfully. He said improvement in investment climate would take time as the institutional and regulatory reforms are yet to take place. "In my mind, quality infrastructure, particularly power, energy and communications, has to be in place," Dr Mansur said. He noted that global trading environment provides new opportunities for private investment. He observed fragmentation of production and vertical integration across countries through trade in intermediate goods was fast becoming a dominant trading pattern. He also noted: "This has led to a surge in intra-industry trade creating global value chains."Speaking as chief guest, Dr Mashiur Rahman said policy continuity existed in the country. He said Bangladesh has been maintaining policy continuity in terms of income tax, value added tax (VAT) and supplementary tax for long He said the VAT system had been conceived of by one administration, implemented by another, and followed by all successive governments. He said the customs duty had also remained almost the same for long Mr Rahman said the tariff commission should play a proactive role in removing tariff anomalies. USAlD chief economist O'Connell also expressed satisfaction over Bangladesh’s stellar economic growth. "It is not average of 6.0 per cent. It has been growing at 6.0 per cent every year. It is very unusually stable and resilient. This economy is full of self-insurance," he said. He said ener5i and electricity topped the list of bottlenecks facing investors, followed by infrastructure, governance, contract enforcement and access to land. DFID chief economist Stefan Dercon said Bangladesh should be really proud of its record of what it has achieved in human development and poverty reduction and also for getting a process that gives it potential to continue to reduce poverty and have growth. He said keeping the current level of economic growth for long term would not be easy. He said: "You can probably do 5.0 to 6.0 per cent for the ne* couple of years, but not for the ne* ten years from now. It is going to get more difficult."He urged the country to move up the value chain, as the simple low-skill-based manufacturing process was not an easy route to keep the growth going He said Bangladesh would have to emphasise 'Five-As' to help its economic. Growth on sustained basis: additionality, anonymity, accountability, access to mobility and ability to aspire. He said, "First you need an economy that keeps on creating additionality: when a sector achieves growth it will try to keep growing further through innovation and new products and diversification. Second, it has to be a society where anonymity is possible and anyone with good idea will have access to the economy and new entrants are welcome. Third, accountability - clarity and transparency are crucial. Fourth, it has to be a society, where there is access to mobility of the poor and lower middle class to the middle class. There has to be a condition of ability to aspire to think long-term."The DFID official urged the country not to think short-term to ^attract investment. "Let’s not think of the growth environment for the next two to three years. Let's keep on thinking and setting up the institutional settings for conditions as investment needs to be for the long run."He said for the next level of growth, there has to be long term investment coming from outside and from people committing capital. Speaking at the programme, Dr. A.B. Mirza Md. Azizul Islam, former caretaker government adviser, said political stability was a key issue in the country to boost investment. "Bangladesh now needs political stability .... to boost investment," Mr. Islam said. He said improvement in law and order and better political understanding among the major political parties were also required to bring back investors' confidence. The former caretaker government adviser said the SEZs should be selected on the basis of the opinions of the potential investors to implement the zones effectively. He said there were many industrial plots remaining idle for long as those had not been potential to the investors. He said release of external resources was important in the context of meeting deficit funding He observed that the external resources were not being disbursed due to delay in executing projects or improper selection of projects or lack of efficiency of the project directors concerned. He said Bangladesh now needed to explore new markers both for goods and for manpower eports. He said Bangladesh was now exporting its goods to the new markets, but the volume of receipts was rot satisfactory. Mr. Islam said the export earnings from the new destinations ranged between US$ 50 and $60 million. "Is it due to improper trade policy?" he questioned. He noted that Bangladesh’s per capita remittance earnings remained much lower than that of many developing nations including the Philippines and Indonesia. Former commerce minister Amir Khosru Mahmud chowdhury said private sector investment was not growing as expected and it was due to lack of confidence among the investors. He said the democratic practice might give the investors a space for comfort. The fiscal deficit cannot be overcome through deficit in democracy, he noted. He said human rights violations were also eroding the investors' confidence. Saleh Uddin Ahmed, former governor of Bangladesh Bank, said the country lacked policy continuity. He said investors wanted policy continuity, while planning for investment. He was critical of the inadequate performance of the regulatory bodies including the Bangladesh Securities and Exchange Commission, Bangladesh Telecommunication Regulatory Commission. Mr. Ahmed said the financial management in the country was weak. Dr Hassan Zarna1., chief economist at the Bangladesh Bank, said the growth target would not be achievable until implementation of the four-lane Dhaka Chittagong Highway, the Padma Bridge and other required infrastructural set-ups. Moazzem Hossain. Editor of The Financial Express (FE) said foreign direct investment could not be attracted unless the local investment picked up. Mr Hossain said there was fiscal deficit every year and he sought to know the cost of such deficit. Professor MA Taslirn, chairman of the department of Economics at Dhaka University, said Bangladesh was facing serious threats in terms of draining out of its many talented youths. He said: "A large number of talented people are disappearing each year as Bangladesh is not able to accommodate them."Abrar A Anwer, head of corporate banking at Standard Charted Bank, said land scarcity was one of the key barriers to investment in the country. He said policy continuity was also important as entrepreneurs wanted a lasting policy while taking decisions on investment. Rubana Huq, managing director at Mohammadi Group, a leading garment manufacturer, said the government was not paying proper attention to the investment affairs. "In my view, the government is not paying its proper attention to finding out solutions the existing problems relating to investment," she said ‘She said the garment factories had not been receiving fresh orders since March last and a significant volume of orders was now being diverted to even Ethiopia. She said investment was not growing because of inadequate infrastructure and utilities including gas. Selima Ahmad, founder president of Bangladesh Women Chamber of Commerce and Industry said corruption was a key barrier to investment. She claimed that she had to offer bribes to the officials working with a state-owned commercial bank. Stre also stressed political stability and establishing rule of law to boost investment.

http://www.thefinancialexpress-bd.com/2014/05/29/36630

 

Speech