Private investment: Recapping the basics
Wasi Ahmed | Published:
February 24, 2016 22:21:23
October 24, 2017 21:42:34
As the government keeps harping on the country's 'investment-friendly business climate' while potential players in the field do not consider it so, the dichotomy is not in spirit but in the scope of things that renders the atmosphere friendly or unfriendly - from their respective perspective. The government is serious, perhaps more than ever, in attracting private investment to the country - both local and foreign. In fact, there was no lacking in recognising the merits of investment in the past too, as successive governments considered it worthwhile in repeated utterances, often to the extent of rendering the issue banal.
The present government appears to have taken some lessons from the past. This is clear from the package of incentives being offered, especially to foreign investors. In a recent announcement some time ago, the government announced that it would add more to the already available incentive package for foreign investors including providing subsidy to encourage installing central effluent treatment plants (CETP) in the proposed special economic zones (SEZS). Understandably, CETP is a highly cost-intensive installation, but once in place, it is capable of keeping the work atmosphere of an industrial zone clean besides its crucial role in protecting the environment against pollution of all sorts. Most of the other incentives are in terms of fiscal and financial benefits, such as tax waiver, duty-free import of capital machinery and equipment, rebate in registration fees for land, VAT rebate for payment of utility services, etc. Besides, foreign investors will be allowed to bring five per cent of a factory's workforce from their own countries.
If the government considers these incentives charming enough to attract investment, the outcome might not match with expectations. Offering incentives in fiscal terms becomes elusive, even meaningless, if an investor in his very start-up gets stuck with all kinds of conceivable bottlenecks. That is to say, if facilitation in the form of infrastructure is not up to a certain acceptable level, an investor would scarcely look at what the government offers by way of fiscal and financial incentives. This has been a stark reality this country has been grappling with ever since attracting foreign investment figured in the agenda, albeit in the political agenda. It may be a unpalatable fact, but the government must recognise that inadequate infrastructure, corruption and inefficient bureaucracy were found to be the key hindrances to increasing investment up to a desired level.
One of the country's lead Chambers, the Metropolitan Chamber of Commerce and Industry (MCCI), in its latest economic review has mentioned that the country is facing the biggest challenges in accelerating investment in the private sector that remained pegged far below the true potential of the economy. "Bangladesh is progressing well but below its true potential mainly due to absence of investment-friendly climate and political harmony, which is keeping it from performing at full capacity," says MCCI in its economic review. It emphasises on substantially improving the business climate. The three things, pointed out in the review, that are highly instrumental in motivating investors in making investment decisions in any country are: political stability, easy availability of reasonably priced utilities and infrastructure, and easy access to bank loans at low interest rates. The MCCI suggests, the government should do everything to address these preconditions in order to achieve the much-coveted middle-income-country status by the turn of the present decade.
According to the review, the net foreign direct investment in July-November increased 6.88 per cent in the current fiscal to $730 million from $683 million in the corresponding period of the previous fiscal. This marginal rise is far from enough and does not demonstrate the confidence to weigh in making investment decisions. The go-slow policy that prevailed in the investment climate of the country for some years is yet to shake off its inertia, the review added.
True, there is political calm prevailing in the country for some time, a big respite indeed. But that does not sufficiently demonstrate the kind of stability that an investor -- more appropriately a foreign investor-looks up for any major investment decision. An element of uncertainty still looms. Compounded with this, infrastructural inadequacies, lack of consistency in policy matters, scarcity of industrial lands and so on are perennial disincentives. Addressing all simultaneously doesn't make sense given the gigantic nature of the task. Ensuring the utilities at reasonable cost, to start with, can have a positive impact, coupled with streamlined execution of policies. With the SEZs being planned, including earmarking a few for country-specific investments, the government has to make sure that start-up is no longer a problem nor is the access to utilities like gas and power. If these can be firmed up in a coordinated manner, things may not look as grim in near future as now.