When a country moves up the economic ladder other countries take particular interest in that evolving dynamics. They monitor the different facets of such development and try to understand where and how they can have an inter-active engagement in that functional matrix. They do so to identify areas where they can invest or be a partner so that bilateral interests can be looked after.
In this context think-tanks from other countries also contribute to this process. It then becomes only natural for these stake-holders to analyze whether the infrastructure of the country under the scanner will be suitable for engagement in terms of fiscal health. This assumes greater interest when the evolving dynamics of the country under scrutiny is considered suitable not only for foreign direct investment but also for possible sale of arms. The effort then tries to identify areas where there are positives and also areas where there is potential for transformation.
Such monitoring is presently taking place with regard to Bangladesh.
Recently the Washington based think-tank- Heritage Foundation in their 2019 Index of Economic Freedom has remarked that the Bangladesh ranking on economic freedom has moved up seven notches to 121st from 128th. They have also made some other important and constructive observations. They have pointed out that government regulatory reforms have improved the freedom of doing business in our country but the comparatively slow implementation of these reforms are in some cases undermining economic development potential.
This survey has ranked Bangladesh as 27th among 43 countries within the Asia-Pacific region. It has also observed that Bangladesh can do better if in regional terms, coordinated action is undertaken by the relevant authorities to tackle the problem of relatively poor connectivity within Bangladesh’s infrastructure. They have also drawn attention to endemic corruption, fragile rule of law, insufficient power supply within the energy sector and relatively poorer labour productivity growth.
One should look at these observations from the positive point of view where the glass is being termed as being half-full. This means that this has been the fallout from prospective investment plans.
It would also be worthwhile in this regard to mention that according to some of the monitoring Agencies – these drawbacks are affecting investment potential and implementation in the different Export Processing Zones being created by the government in different parts of the country. Comparative lack of guaranteed institutional support as available in Vietnam, Thailand, Malaysia or Singapore is casting its own shadow.
Within Bangladesh, RMG manufacturers have also been analyzing the difficulties that are gradually coming to the surface because of Brexit. Facts revealed recently have noted that Bangladesh’s export growth to the United Kingdom in the first half of the current fiscal year has posted only a 3.16% increase, compared to 14.42% overall export growth for the country. There is fear according to I.H.Ovi that the growth prospect in the third largest market for Bangladesh’s goods could weaken further because of the uncertainty created by the No-Deal prospect within the Brexit horizon. It may be mentioned here that Bangladesh’s export to the United Kingdom Was US Dollar 2.04 billion during July –December of the 2018-19 fiscal year. This figure was US Dollar 1.98 billion over the same period a year ago.
It would be pertinent at this point to note that Bangladesh’s overall export earnings from the United Kingdom saw an 11.76% growth to US Dollar 3.99 billion during 2017-18, compared to US Dollar 3.57 billion in the previous fiscal year.
The BGMEA in Dhaka thinks that there is a creeping slowdown within the United Kingdom economy because of the Brexit deal and the importers are slowing down their import of goods in general to prepare themselves for possible changes in United Kingdom’s future trade policy after the European Union divorce.
Another aspect has also drawn the attention of economic analysts. Mamun Rashid has quite correctly pointed out that the performance of our capital market in FY-2018 has not been able to match the level of expectations of potential investors and stakeholders- both domestic and also foreign, particularly among our expatriate Bangladeshi population (with a desire to invest in our stock market).
According to some Non Governmental Organizations the government has been able to make some progress in implementing surveillance in the market- through their “pro-active interference and separate governance guidelines, but the capital market was still short of any notable performance”. This was evident from the fact that most of the IPOs offered in 2018 were not from well recognized organizations but were from the lower end of the capital market. This affected public interest within the market. Such a situation was also not helped by the fact that the exchange rate as well as the interest rate volatility of the Taka created uncertainties among potential investors. This in all probability induced an outflow of money from the country. This in turn generated more pressure on the deposit base of different banks.
Such a scenario resulted in banks being forced to gradually raise their deposit rate in order to improve their liquidity situation. This was at the cost of the capital market where potential investors took greater interest in converting their comparatively low earning equity stakes into cash, and then depositing that money into banks or with financial institutions where there was greater hope of earning higher returns from higher deposit rates. At the same time fluctuations in the exchange rate, particularly in terms of the US Dollar is also influencing most institutional investors to remit their profit to their own coffers. This has eventually led some of the foreign investors in our capital market to sell-off their holdings.
There is general consensus that corporate governance had improved over the second half of 2018 but the market did not benefit as much as anticipated as it was driven by small investors instead of corporate institutions and asset management companies as happens in some of the developed countries or in Sri Lanka, India, Singapore or Malaysia.
We need to understand that we have to overcome this absence of corporate foreign interest in order to move forward and eventually graduate from being a Billion US Dollar economy to a Trillion US Dollar economy. For this to take place, hopefully, our newly elected government will be able to enforce as promised, an improved fiscal governance format within our financial sector, particularly within our banking sector. As underlined by the Prime Minister there has to be zero tolerance with regard to corruption. Archaic laws and regulations will also need to be addressed and updated as we have entered the age of e-commerce. Measures will also have to be taken to speed our efforts towards a more digitalized economy and within the capital issuance configuration.
One has to admit that our new government is trying to address many unresolved issues that have affected our branding as a country. This has been reflected in several significant steps in different sectors. In the education sector we have noted the serious efforts that have already been made to tackle the matter of question leaks ahead of the SSC Examination. This has been tainting our record in the eyes of educational institutions abroad. We need to re-gain faith in our system.
We have also seen how the Bangladesh Inland Water Transport Authority (BIWTA) has with the help of law enforcement authorities been able to demolish more than 2,710 illegal structures located illegally on the shores of the Buriganga and the Turag rivers during their eviction drive over the last 52 days to free river banks from encroachment. Some accused have also been jailed for illegally filling up river banks and then establishing illegal factories and sawmills. Their efforts near Dhaka have freed local residents from being forced into gradual desperation. One understands that the BIWTA authorities intend to build recreational centres on the freed river banks. Children will now have playgrounds.
Similarly the Anti-Corruption Commission (ACC) after careful investigation and inquiry in the health sector have identified 11 areas of corruption and prepared a set of 25 constructive recommendations to stop them. These have been handed over to the Health and Family Welfare Minister. These include following e-government procurement tender process regarding purchase and conducting inquiry before giving approval for setting up diagnostic centres and private hospitals. These need to be done in an open and transparent manner to ensure accountability and removing the corruption potential.
In the context of enlarging and diversifying our energy profile, the new government has decided correctly to intensify efforts in this regard/ The Executive Committee of the National Economic Council (ECNEC) has already approved a significant project aimed at providing electricity to 10 million additional citizens across the country. This “Extension of Rural Electrification Project” under the Power Division will be implemented and completed by June 2020. Two million new connections will be installed and will assist in creating improved conditions in the non-urban sections of the country. This will significantly improve our potential growth in several sectors- education, health, in the creation of a more skilled workforce and also with regard to micro-entrepreneurship.
We need to remember that as in the case of Sri Lanka, Thailand, Vietnam and Singapore, if we can improve our skilled force reserve, we will open doors that could be availed of by those willing to be part of our expatriate work force. This will also encourage foreign direct investment in Bangladesh with investors being aware that we possess enhanced digitalization, greater availability of energy and also a skilled workforce. Our growth rate will then naturally evolve upwards and along with that the ability to absorb our growing educated workforce.
We have created over the past decade greater expectations and are now looking forward to enhanced achievements. Poverty has been decreasing steadily and our nutritional status improving. The inflation rate has slowed down and our balance of payments has also improved. Unemployment has remained low and the RMG sector has performed strongly.
Our GDP growth rate is expected to hit 8.13 per cent at the end of this fiscal year. Our per capita income is also expected to rise to US Dollar 1,909. These are good signs.
These factors are now generating optimism and creating confidence. We should not forget the potential connotations and denotations of such a paradigm. We can see the Sun and shall watch it shine.
Writer: Former ambassador