Where doing business is costly but politics is easy!

Abdul Bayes | Published: November 05, 2018 21:47:33 | Updated: November 06, 2018 20:56:22

The cover page of the latest World Bank's doing business report.

Doing politics in Bangladesh seems to be an easy task. This is reflected by the number of political parties - both registered and unregistered - jostling to participate in the next general election. But doing business here is a hard nut to crack.  Bangladesh continues to face a number of barriers in the world of business which negatively impacts investment so much needed for economic growth and employment generation. In other words, doing business here is very costly and discouraging.

It is true that Bangladesh duly claims a credit for its performance in the last one decade or so in various socio-economic arenas. Remember this country was once termed a "Test Case of Development" - a la  Just Faaland and J. Parkinson - in the 1970s in the  'negative' sense - that is, if Bangladesh develops, then no other country in the world would remain underdeveloped. Now it is being dubbed as a test case of development in a positive sense -all developing countries should be able to drastically reduce extreme poverty as Bangladesh has shown the path of reducing poverty. For the moment, let's forget that Bangladesh has also done exceptionally well and tops the list of developing countries, given adverse natural and man-made constraints, in various socio-economic indicators.

But the findings of a recent report of the World Bank dampen the exuberance and enthusiasm existing all around. The country has been ranked 176th (out of 190 countries) in the World Bank's Ease of doing Business index this year - the lowest ranking for a South Asian nation. Finance Minister himself termed it as a "shame for the country after it lagged behind war-torn Afghanistan".

The report concentrates on 10 areas of life cycle of a business - starting a business, confronting construction permits, access to electricity, registering property through formal and informal battles, access to credit, paying taxes, enforcing contracts, international trade, resolving  insolvency and protecting minority investors.  Although Bangladesh has progressed one notch up compared to 2018, it scored badly in seven of the indicators. From last year there were improvements in three areas such as access to electricity, registering property and paying taxes. Comparatively speaking, India's ranking  on doing business has gone up from 77 to 100, Nepal's from  100 to 110, Sri Lanka's from 100 to 111, Pakistan's from 136 to 147, and  even of a war-ravaged Afghanistan lifted its score from 167 to 183.

It would, however, be a mistake to assume that Bangladesh has done nothing on this font. In fact, it has adopted a number of pro-business policies but the commitment was weak and implementation was at snail's pace.

Improvement (or deterioration thereof) in the factors that fuel business have a number of economic implications which has relevance with Professor Selim Raihan's following observations (paraphrased). Despite  the  gradual  rise  in  the  investment-GDP  ratio over the past three decades, in recent  years,  the share of private investment in GDP (gross domestic product) has  remained static and the share of public investment in GDP has risen. It is also found that the share of  private investment in total investment has fallen  whereas  the  share  of  public  investment  in  total  investment  has  increased.  One  very  important  aspect  of  the  pattern  of  Bangladesh's  investment  regime  in  the  1990s  and  2000s  is  that  the major  contribution  to  the  rise  in  investment-GDP  ratio  came from the rise in private investment and its  share  in  total  investment.  Especially, during 1995  and 2008, there was a persistent rise in the private  investment- GDP  ratio. Between 2009 and 2017, this ratio ?uctuated. Between 2009 and 2017, the ratio of private investment to GDP increased by only 1.2 percentage points.

Bangladesh aspires to achieve 9.0 per cent real GDP growth  rate  by  2030.  In  this  case,  the  required  investment-GDP ratio would be around 40 per cent  under the assumption of a 4.44 ICOR (Incremental  Capital-Output  Ratio)  -  the  average  ICOR  during  2013 and 2017. Under this scenario, between 2018  and  2030,  the  investment-GDP  ratio  has  to  be  increased annually by 0.73 percentage points -  171  per cent  higher  than  the  annual  average  percentage  points  rise  of  0.42  during  2013-2017.

 It may be noted here that Bangladesh's investment to GDP ratio at 31 per cent at the moment stands far behind Bhutan (58 per cent), the highest in South Asia, Nepal (31 per cent), Sri Lanka (32 per), according to the recent IMF report.

The fate of a prosperous Bangladesh, nay, attainment of a middle-income country status country by 2030, very much depends on improving the environment relating to doing business.

Abdul Bayes is a former Professor of Economics at Jahangirnagar University.


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