Business environment in Bangladesh experienced changes during 2021 when the businesses were at an early recovery phase after the covid contamination had eased. However, there have been some problematic factors in doing business in 2021. There was no major change in case of top problematic factors in doing business during 2021. According to a survey conducted by Centre for Policy Dialogue, corruption topped the list in 2021 as it did in earlier years. Transparency International's corruption index in 2021 ranked Bangladesh 147th globally (13th from the bottom). The survey found inefficient bureaucracy and limited access to financing to be the second and third most problematic factor respectively. It indicates that the businesses have suffered most due to the combined effect of these three factors.
Businessmen's perception about infrastructure has improved - it is ranked fourth important factor which was earlier ranked top or second most problematic factor. Significant public and private investments in road, bridge, port, electricity, gas, rail, water supply have contributed to the improvement in infrastructure to some extent. According to the survey, health has emerged as a major problematic factor followed by tax rate, complexity in tax management, tax regulations, inadequate skilled workforce - a new set of challenges for a growing business sector. Majority of businessmen perceived that it would require over three years for the recovery of businesses. They suggested additional initiatives such as financial incentives, tax reduction, control of corruption, easy access to credit, improving health care, mass vaccination etc to support business recovery. As part of the recovery mechanism, different businesses have taken different strategies in order to facilitate the recovery process. These include cost cutting, working with new buyers, investment for business expansion, exploring new markets and manufacturing new products. Majority of the businesses mentioned that the government's monitoring mechanism for smooth implementation of the stimulus packages was somewhat poor. Businessmen have identified digital financial services as a major market for businesses in the next 10 years. The other important markets would be skills capital, data management, plastic recycling, editech and reskilling, care, unemployment insurance etc.
From the survey, several risks have been identified that will pose a critical threat to the country for the next two years. For the economic sector the top risks were the debt crisis in the large economies, proliferation of illicit economic activities and the asset bubble burst in large economies. Climate action failures and human made environmental damage are the risks for the environmental sector. For the societal sector it was the employment and livelihood crisis, infectious diseases and the collapse of the social security system. For the technological sector these risks are digital inequality, failure of cyber security measures and the failure of technology governance.
BANGLADESH'S PERFORMANCE UNDER DIFFERENT PILLARS: The year 2020 has been an unusual year in terms of doing business. The perception regarding institutions during the time of pandemic have changed on a few indicators. Majority of institution related indicators such as the government's responsiveness to changes, efficiency of legal & judicial system, ability to ensure stable policy environment, and independence of judiciary are yet to reach the pre-covid level. Some improvement in perception was observed in 2021 compared to 2020. These include private business's ability to challenge government decisions, ethical standards of politicians, less burdensome public administration's compliance etc. Businessmen over the years positively acknowledged the government's long-term vision for economic development. There were difficulties in complying with tax obligations and addressing environmental degradation. Tax structure needs major revision focusing on the equity of different categories of people. NBR and Tariff Commission should jointly review the fiscal expenditure incurred for providing fiscal incentives and subsidies to different categories of enterprises and activities.
Majority of infrastructure related indicators are perceived to have positive changes not only compared to 2020 but also to 2019 (the pre-Covid period). Quality of road infrastructure, water supply, efficiency in train and seaport services have improved. This positive perception is the outcome of substantive public investment in infrastructure development over the last decade. Positive performance was observed in the case of digital platforms providing telecommunication services, retail and supplied services, financial services etc. Lack of development was observed in digital platforms for care services, professional services, transport and shipping services. A number of governance and operational challenges on e-commerce had also emerged during 2021 which caused deterioration of consumers' confidence. Reducing the pressure on a single city, Dhaka through decentralisation of public services, businesses and other economic activities, is highly important.
Safety and security issues did not make progress in 2021 compared to that in 2020. Organised crime such as mafia-oriented racketeering and crime and violence imposed huge costs on businesses. According to the majority of survey respondents, climate changes are somewhat increasing the cost of doing business. These are causing a rise in internal migration to city areas, higher demand for jobs in city areas, pressure on urban city services and rise in informal economic activities. Businessmen have the opinion that there is a dearth of transparency, equitability and ensuring justice in the services provided by law enforcement agencies. Better perception prevailed in case of costs on businesses for wide-scale social and political unrest. Government needs to take proper measures to improve the perception about law enforcement agencies and ensure efficient services to reduce cost of businesses.
The Ministry of Finance has made it mandatory for NBR to verify audit reports of business entities using digital platforms which will improve transparency in the financial reporting system. However, the majority of businessmen indicated that SMEs are facing difficulty in obtaining funding from the financial sector and the progress is rather slow compared to other financial market indicators. Trade and investment related issues are somewhat at the recovery phase after the pandemic. Further initiatives are required to attract more FDI with regard to tax, infrastructure and skilled manpower. Domestic business environment has improved and passed the pre-covid level. However, the overall competitive environment is below the minimum average level. An unbalanced recovery is observed particularly in the case of SMEs and informal sector activities.
Business operations in 2021 have somewhat improved and crossed the pre-covid level. However, the level of changes in most of the cases is below the minimum standard. Better performance in business operations was observed in case of companies giving equal employment opportunities to women. However, further improvement is required in case of companies giving equal opportunities to those from a typically disadvantaged religious, ethnic, racial background. According to the survey, lack of governance has been a major drawback for ensuring transparent business operations. Entrepreneurs have agreed that the current education and skill development systems are not conducive to creating human capital to meet the needs of digital technologies, creativity skills, self-management skills etc. Studies suggest that curriculum development, improvement of teacher's skills and quality, orientation with international skill development system, standardisation of national skills and more public investment on vocational and nonvocational institutes are highly essential.
The survey found that the majority of people do not have sufficient access to unemployment income, training and re-employment support, eldercare and mental healthcare. All members of the population have yet to get access to housing. Government's initiative for access to housing for all needs to be expedited further. Government should also gradually introduce universal social protection schemes, employment insurance and unemployment insurance schemes. Businessmen responded that the economic growth and revival strategy of the country is not so effective. According to the survey, the government's negligence towards protecting the environmental, natural and cultural heritage assets were not appreciated either. Bangladesh has ranked 162nd out of 180 countries in the 2020 Environmental Performance Index (EPI-2020)
After the pandemic crisis the recovery of the economy has become a major concern. While businesses on many accounts have shown signs of recovery, it is in most cases a disproportionate recovery which largely fails to ensure decent employment and wages, access for the marginalised, and ensure social and environmental development. An inclusive recovery plan needs to be implemented focusing on reduction of tax rates, better access to credit facilities, reduction of corruption. Restructuring of the fiscal incentives focusing on micro, small, self-employed and emerging businesses are highly essential; the upcoming national budget should highlight these issues. Debt crises, illicit activities, geo politicisation of strategic assets, climate action failures, human made environmental damage, employment and livelihood crisis and digital inequality should figure prominently in the current and upcoming development policies and strategies (Job strategy, LDC graduation strategy, Mujib climate and prosperity plan). Otherwise, the disproportionate impact of those risks would cause the exit of many emerging business opportunities and loss of employment particularly those of women.
Dr Khondaler Golam Moazzem is the Research Director at Centre for Policy Dialogue. [email protected]
Md Salay Mostofa and Ratia Rehnuma are Programme Associates at Centre for Policy Dialogue