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The International Finance Corporation (IFC) plans to fortify its footprint in Bangladesh through extending its investment portfolio to nearly $5.0 billion in the next five years.
“We want to expand our investment for the private sector in Bangladesh. We’ll double the investment in the next five years,” Alfonso Garcia Mora, IFC vice-president for Asia and Pacific, told the FE.
He said Bangladesh was a potential place for investments as the economy was growing at a faster rate prompted by the private sector’s contribution.
The FE took Mr Mora’s interview at the IFC Dhaka office last month as he had been here to explore investment potential and cooperation with the government to build a better business climate for global investors.
In the past five years, the IFC, an arm of the World Bank Group, has lent some $2.0-billion loans to the private sector here for business development.
Bangladesh’s economy has grown a lot in the last 15 years. The RMG is playing a vital role in boosting the economy, according to Mr Mora.
Moreover, a growing but dynamic population has helped to move the country to a situation where it is closer to graduating from a low-income country, he said.
“But the current development model… is not enough to go to the next level.”
“You need to think how to strengthen, how to modernise, how to continue diversifying the model so that you can achieve the next level with a stronger economy and more diversified economy,” the IFC VP says.
“And here is where the private sector needs to play a critical role. The amount of investments that the country needs, the amount of infrastructure that the country need, the amount of attraction for foreign capital the country needs requires a strong private sector. The public cannot do it alone.”
About the challenges behind Bangladesh’s weak private-investment portfolio, he says: “Bangladesh will be an $800 billion economy by 2030. The only way to enhance its investment-GDP (gross domestic product) ratio to more than 30 per cent is to mobilise capitals.”
“The current fiscal constraint is not giving you the capacity… Three issues here are critical. Firstly, you need to attract foreign direct investment (FDI). You need to open your economy for external investments. You need to flexibilise your economy to attract capital from the outside.”
“Secondly, you need to have a strong financial sector that complies with international standards. The financial sector here has many regulations that constrain the capacity. Bangladesh has only some 8.0 per cent credit growth, much lower even compared to the similar level of countries.”
“Developing countries like Bangladesh should have the credit growth at least between two and three times than the nominal GDP growth. The credit should grow at 20 per cent at least,” cites Mr Mora.
Actually, many existing regulations are the constraints to the enhancement of the credit growth of this country which you have to resolve first, the Spanish-origin IFC executive told the FE.
“The public-private partnership (PPP) is a good model for attracting more capital in energy, healthcare, housing, transport and telecom sectors here. But you need to have a very strong, robust and credible PPP framework with international standards that can attract more FDI,” he advises.
The banking sector here is facing another challenge that is interest rate cap. You want to reduce the higher rate so that people can avail the bank loan, right? But problem is—you have forced the bank to cut the rate. But the bank cannot lend the credit at 9.0 per cent if its cost of fund remains higher. So you need to reform the financial sector first.
About heavy dependency on single-export economy, Mr Mora said Bangladesh should create a competitive environment for other export-oriented sectors too.
Meanwhile, IFC regional director for South Asia Hector Gomez Ang, who accompanies the VP, said they wanted to double the investment in the next five years.
The higher investment plan is to help Bangladesh for market diversification in the international trade market. We want to help a number of projects which can facilitate market diversification.
Since 2000, it has invested more than $3.5 billion to help Bangladesh’s private-sector growth.
Some key sectors for future investment opportunities include transport and logistics, energy, financial services, light manufacturing, agribusiness, healthcare and pharmaceuticals.