Widespread corruption, inefficient bureaucracy, credit crunch to blame for business cost hike, price spike: CPD survey

FE REPORT | Thursday, 27 January 2022

Pervasive corruption, weak and inefficient bureaucracy, and lack of access to credit especially for minnows are mainly to blame for business-cost hike and resultant price spikes, a CPD survey shows.

As per the Centre for Policy Dialogue (CPD) survey findings, published in Dhaka on Wednesday, micro,- small and-cottage industries are the ones that face far acute credit crunch and business-cost escalation.

Some 68 per cent of the respondents complained that high level of corruption is major problematic factor while around 67 per cent said inefficient bureaucracy is the challenging factor for carrying out business.

However, the businesses in the country will take three years to recover from the effects of the pandemic, according to 45 per cent of the 73 private companies' high officials who were surveyed during April-July period in 2021.

Some 42-per cent respondents said the country's economy is still under pressure while 63 per cent of the traders supposed that the distribution of incentive packages was "disproportionate" for the SMEs during the peak of the pandemic last year.

The think-tank took executive opinion of 73 high officials of private companies located in Dhaka, Chattogram, Narayanganj, Gazipur and Faridpur during the survey period.

The Executive Opinion Survey (EOS) report was prepared by CPD Research Director Dr Khondaker Golam Moazzem, and Programme Associates Md SalayMostofa and Ms Ratia Rehnuma.

"Some 68-per cent businessmen considered corruption to be the main obstacle while 67 per cent and 55 per cent of the businesspeople respectively noted incompetent administration and insufficient project financing to be the biggest challenge," Research Director Dr Khondaler Golam Moazzem said while presenting the keynote.

The CPD conducted the survey to report the state of business competitiveness of Bangladesh during 2021 in the backdrop of easing of the Covid-19 pandemic and compare the changes to understand the level of recovery in the business environment.

Despite the 'build back better' approach in the post-Covid period, businesses continue to face structural challenges, added with new challenges, that ends up questioning the competitiveness of the business environment, the study concludes.

Moreover, the businesses accounted for mostly disproportionate recovery after it failed to ensure decent employment and wages, social and environmental development and access for the marginalized.

The study was conducted in regards to the large-medium-small-micro sizes of factories under four sectors (agriculture, manufacturing, non-manufacturing, services) and covered 10 issues.

The 10 issues were: Infrastructure, Institutions, Safety and Security, Financial System, Trade and Investment, Competition, Business Operations, Governance and Innovation, Building Human Capital, Working and Employment, and Managing the Economic Recovery and Risks.

According to the study, improvements have been reported in corporate ethics (-0.59; 61.6 per cent); less use of bribes during tax payment (-0.9; 58.9 per cent) and awarding the public contract (-0.93; 63 per cent).

However, bribes in export and import trade (-1.27; 74.6 per cent) remained almost unchanged.

The CPD analysis finds that businessmen over the years positively acknowledged government's long-term vision for economic development (0.64; 53.4 per cent in 2021), which includes automation and digitisation of trade and tax-payment systems, strengthening the public procurement system.

On the other hand, fiscal instruments failed to satisfy the need of the people, businesses and environment.

As per the survey, businesses performed poorly to serve people equally (-0.49; 51.4 per cent) while taxes could not address the inequality (-0.67; 57.1 per cent) and tax obligations were difficult to comply with (-0.65; 59.7 per cent).

"Moreover, addressing the environmental degradation (-1.09; 69.1%) also disappointed," it says about a big concern of the day as reflected in various ratings.

Some 58.9 per cent mentioned that protection of personal data held by the public companies is somewhat absent (-0.53).

In order to improve the business environment for ensuring early recovery, the surveyors recommend that the country's tax structure needs major revision focusing on the equity of different categories of people.

The policy think-tank feels that an inclusive recovery plan needs to be implemented focusing reduction in tax rates, better access to credit facility, and reduction in corruption.

Restructuring of the fiscal incentives focusing micro,-small, self-employed and-emerging businesses is "highly essential - and upcoming national budget should highlight these issues," it suggests.

"Emerging concerns include tax, health and skilled workforce-related issues which are affecting all categories, particularly large-scale and FDI-led investments," says the CPD report.

The recommendations say anti-corruption drives, particularly against those which have adverse effect on businesses such as those related to bribes in licensing, registration, providing utility facilities and tax collection, should get priority. Transparency and accountability in public services ought to be ensured.

And the NBR and the Tariff Commission should jointly review the fiscal expenditure incurred for providing fiscal incentives and subsidies to different categories of enterprises and activities.

Although safety and security issues did not make progress in 2021 compared to that in 2020, the financial sector and trade and investment-related issues have either somewhat recovered or are in the recovery phase, the CPD notes.

Meanwhile, the capital market has been struggling in building confidence among investors.

Major challenges here include poor-quality IPOs (56 per cent), weak regulatory enforcement role of SEC (53 per cent), anomalies in financial reporting (50 per cent) and suspicious trading on the secondary market (50 per cent), according to the survey

It says other issues are lack of transparency in BO accounts and failure to ensure due diligence of DSE/CSE, SEC, CDBL etc.

Regarding faster recovery in the trade and investment sector, the survey recommends that attracting more foreign visitors could improve image of the country.

Entrepreneurs still consider that the corporate businesses are dominated by few groups of companies like previous time (-0.74; 65.8 per cent in 2021 and -0.85; 74.1 per cent in 2020); retail services somewhat improved (0.75; 67.6 per cent), so is the provision of professional services has improved (0.42; 42.3 per cent).

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