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The Financial Express

Bettering business climate in BD

| Updated: August 07, 2021 00:01:25


Bettering business climate in BD

A couple of months back, the government unveiled the Perspective Plan 2021-2041. The plan has been formulated aiming to achieve 9.0 per cent gross domestic product (GDP) growth by 2031 and 9.90 per cent by 2041. The key objective of the plan is to take Bangladesh's economy forward. Under this landmark plan, the government has also set targets to achieve the status of middle-income country by FY 2031 and high-income country by FY 2041. Achieving the economic goals taken in the plan might be a big challenge amid the Covid-19 pandemic. The persisting pandemic situation has become an obstacle to going forward with achieving a pre-determined growth rate. Since the beginning of the pandemic, the growth is under pressure. It is important to note that the first Perspective Plan for the period of 2011-2021 which ends this December could not achieve targets due to the unexpected outbreak of the coronavirus.
There is no denying that Bangladesh's economy had begun growing fast compared to peer economies in terms of GDP. The leaders of powerful economies termed Bangladesh 'as one of the fastest growing economies in the world'. As of now, the government is struggling to pull the corona-ravaged economy out of the woods by expanding monetary facilities and fiscal space. In order to revamp the economy, the government, in the meantime, announced 23 stimulus packages which accounts for 4.4 per cent of total GDP. Despite giving efforts, some macroeconomic parameters are not favourable at all. Despite the crunch time, foreign exchange reserves stood at over $44 billion. In respect of foreign currency reserves, Bangladesh is placed in an admirable position among South Asian countries. In view of current foreign exchange reserves, some friendly nations are trying to borrow foreign currency from Bangladesh under currency swap agreements. Recently, Bangladesh cleared $200 million for Sri Lanka under a swap deal. It is a landmark step, no doubt. But, Bangladesh has to make attempts at the expected economic battle when Bangladesh graduates to a developing country in 2026.
What is worrying is that inflow of foreign direct investment (FDI) has drastically slowed down since March 2020. With a view to addressing economic challenges, there is no alternative to foreign capital. The second perspective plan aims to shed 9.9 per cent poverty rate by 2031 from 20.5 per cent. But the poverty rate amid the pandemic reached close to 40.00 per cent, according to research centres. According to the second perspective plan, investments will go up to 46.88 per cent of GDP by 2041 from the existing 31.56 per cent. In view of the current trend of FDI, there should be some strategies to achieve the targets. It is to be noted that the FDI inflow decreased by 10.80 per cent in 2020. Besides, Greenfield FDI in Bangladesh declined by 84 per cent during the first half of 2020, a report of the International Labour Organization (ILO) said. A Greenfield investment is a project where foreign investors set up a new business or expand an existing one in a country. In 2018, the country saw $ 3.5 billion ($350 crore) in FDI, the highest ever in Bangladesh. In absence of the required volume of foreign investments, it is difficult to take the economy to a new height. FDI helps generate employment and cut the poverty rate. More than expected export earnings depend on the FDI inflow. At this moment, Vietnam and Cambodia are considered the competitors of Bangladesh. But, these two economies are in a race to woo foreign investments. When the pandemic broke out, Vietnam and Cambodia were able to attract many plants owned by the USA from China. Bangladesh could not win that race. They were busy relaxing the business-friendly tax policy among other policies. Bangladesh's tax policy could not attract foreign investors till now. Prior to formulating the budget, the experts raised their voice regarding this crucial matter. Bangladesh's corporate tax is higher than in Vietnam, Malaysia, China, Indonesia, Myanmar, Pakistan, India and the Philippines. Improving business environment remains a big challenge in Bangladesh. It is a grave concern that Bangladesh lags considerably behind other economies in South Asia. In the global ease of doing business index drafted by the World Bank in 2020, Bangladesh ranked 168th out of 190 countries. It represents slightly improvement in business climate than in the previous year of 2019.
The World Bank in a study suggests Bangladesh ranks next to last globally on the enforcing contracts indicator and 184th out of 190 on the registering property indicator. Transferring a property title in Bangladesh takes on average 271 days, almost six times longer than the global average of 47 days. Resolving a commercial dispute through a local first-instance court takes on average 1,442 days, almost three times more than 590 days on average among OECD high-income countries. According to the World Bank, to get electricity connection in Bangladesh, a new business needs 150.2 days, whereas in Vietnam it needs 31 days, in Singapore 30 days, in Malaysia 24 days and in neighbouring India 55 days. Besides, Bangladesh is ranked 100th out of 160 countries in the index of Trade Logistics Performances of the World Bank indicating that it lags much behind China, Thailand, India and Vietnam. In global connectivity, Bangladesh was placed 121st out of 140 economies, the WB study said.
According to the 2019 Trace Bribery Risk Matrix study, Bangladesh was identified as the country with highest risk in terms of bribery threats in South Asia. US-based Trace, a globally recognized anti-bribery business association, has been carrying out such a type of study beginning in 2014.
Considering the vulnerable economic situation created by the Covid-19, the country needs to boost foreign direct investment coupled with investment made by local conglomerates. Major macroeconomic indicators are waiting to see a surge in FDI. Otherwise, one of frontier economies, Bangladesh is set to face a hurdle to achieving the targets set in the Second Perspective Plan. The government, in the meantime, announced to raise per capita Gross National Income (GNI) to $ 3,271 in FY2025, $5,906 in FY 2031 and $17,229 in FY2041. As Foreign Direct Investment could fall by 40 per cent across the world due to the pandemic, Bangladesh needs to improve business environment. The demand for tax relaxation, resolving trade-related disputes, construction of deep-sea ports, enhancing utility facilities among other issues were put forth by foreign and domestic investors earlier. But, developments are taking place slowly. To keep pace with peer economies, Bangladesh has to scale up the work for ensuring business-friendly environment along with infrastructure development. As part of regional connectivity, a focus on a wide-range of infrastructure development issues is a must. If Bangladesh-China-India-Myanmar (BCIM) economic corridor is opened soon to run trade, Bangladesh is expected to experience huge volume of FDI. The success of second perspective plan: 2021-2-41 depends on improving the business climate. The UK-based Centre for Economics and Business Research (CEBR) recently made a projection that Bangladesh's economy would be 28th largest in 2030. The CEBR projection would come true if Bangladesh can emerge soon as a better business-friendly hub in South Asia.

Md Mazadul Hoque is an analyst specialized in economic affairs and a member of United Nations Association of Bangladesh (UNAB).
Email: [email protected]

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