What do you think is the present challenge to the economic growth of Bangladesh? When this question is asked to people of various background, the answers are also very different in nature given the profession, gender, age, locality etc. This question being asked to a corporate house their response may be higher bank interest rate; the hawkers on the street may respond of non availability of funds from formal banking channel; the social workers may respond it's the dilemma between development and environment, which one gets the priority; to a banker it is lack of demand in the investment due and the excess liquidity; to a policy maker the response may be to bring in governance in corporate sector; to a home maker (popularly called housewives) it's the future of their kids etc. All of which pertain to one commonality and that's the investment climate. The investment climate in fact is a multitude of issues like discussions, dialogues, debates to arrive at a consensus among various related stakeholders including policy makers, private sector, development partners, academicians, professionals and the respective trade bodies etc. Despite political agitations during the last couple of years have gone to the level of historic high in terms of volatility, the country was able to maintain the growth trajectory in excess of 6 per cent It was possible in fact due to the indomitable nature of this nation.Challenges to economic growth
Both fiscal and monetary policies along side transparency and governance determine the future course which will guide the direct investments from both local and foreign investors
Masihul Huq Chowdhury
What do you think is the present challenge to the economic growth of Bangladesh? When this question is asked to people of various background, the answers are also very different in nature given the profession, gender, age, locality etc. This question being asked to a corporate house their response may be higher bank interest rate; the hawkers on the street may respond of non availability of funds from formal banking channel; the social workers may respond its the dilemma between development and environment, which one gets the priority; to a banker it is lack of demand in the investment due and the excess liquidity; to a policy maker the response may be to bring in governance in corporate sector; to a home maker (popularly called housewives) its the future of their kids etc. All of which pertain to one commonality and thats the investment climate. The investment climate in fact is a multitude of issues like discussions, dialogues, debates to arrive at a consensus among various related stakeholders including policy makers, private sector, development partners, academicians, professionals and the respective trade bodies etc. Despite political agitations during the last couple of years have gone to the level of historic high in terms of volatility, the country was able to maintain the growth trajectory in excess of 6 per cent It was possible in fact due to the indomitable nature of this nation.
Investment climate in a country is the critical element for the future economic growth of a country. Both fiscal and monetary policies along side transparency and governance determine the future course which will guide the direct investments from both local and foreign investors. The availability of proper infrastructure, utilities are as of similar importance as the availability of efficient manpower (both in decision making process and in the labour). The growth in excess of 6% for consecutive last 10 years represent that Bangladesh is really poised to become a mid income economy and among the top 20 countries in GDP per purchasing power parity soon. If we could properly address the discipline in terms of setting up the required infrastructure including ensured supply of utilities, proper corporate governance engrained, cost of doing business lower etc, then we can certainly strengthen our position among the developing countries and be a role model for other developing countries.
Agriculture in broader perspective has been a great success story for Bangladesh. Be it in grains production, fisheries, poultry products, dairy products et al. Despite reduction in arable land, the success seen in agriculture is incredible. We have not only achieved self sufficiency in our main staple rice but have become exporter of rice products. The key challenges surrounding agriculture need urgent action towards meaningful and timely resolution include, among others, the following : 1. The ease in availability of quality seeds; 2. The increase in renewable energy for irrigation; 3. Land reform regulation; 4. The proper price allocation to farmers; 5. Further smoothness and efficiency in channel of distribution with gradual removal of middle men etc. The above will work as incentive in the agriculture sector for more productivity.
The active involvement and participation by women in productive work force is one of the major pillars of success for the growth of GDP. Once put under the veils and meant for household activities and bearing/rearing children our women have come a long way. The success of RMG industry is primarily due to the women work force deployed in the RMG factories. The education sector and health sector are sectors which cannot be thought without the active involvement of women. But how far have we reached in truly empowering our women compared to developed economies? Despite such a huge contribution to the economic growth, the women must be truly recognised for the contribution and create environment where they can increase their participation in other sectors. In order to do so, proper safety/security net, steps to encourage society for no drop out from school, fair treatment on the basis of merits needs enforcement.
When the trade wings of our diplomatic missions become more proactive, this can certainly promote brand Bangladesh across the globe. Bangladesh has become source of supply of low cost workers, garments etc. The unnecessary harassment our people have to bear travelling with our own green passport or the reception we get when checking in any hotel overseas is quite embarrassing. How many countries give us no visa requirement /or visa on arrival? What is the role played by our diplomatic mission when a hardworking non resident Bangladeshi gets maltreatment there? Saying so, our embassies can play a critical role in branding Bangladesh and take concerted ways in order to promote migration of skilled workforce like in the areas of software engineers, teachers, bankers, engineers to go up in the ladder of value chain. When the campaign went to a level that buying Bangladeshi clothes mean that the buyers in overseas markets are buying blood stained apparels, what plausible actions did our diplomatic missions take to overcome this negative image? What our diplomatic missions in countries like Saudi Arabia, UAE, Qatar, Kuwait etc have done to expand employment in those countries or even taken steps to have a longer strategic position in development of those countries like the way Indian or Pakistani
diplomats?
One of the major areas of impediment for bringing in proper investment climate is cost of doing business. Though Board of Investment is working hard it is yet to achieve the desired results. In competing countries like Vietnam, Sri Lanka, Laos etc, the one stop services provided by the respective regulatory authorities have brought significant momentum to attract both domestic and foreign direct investment. This needs to be reviewed in our case so that the associated costs including delays are properly managed in order to remain competitive. The other point to ponder is to make a positive branding of Bangladesh. We are no longer an isolated country plagued with natural calamities including floods and cyclones. The resilience of people has brought us in a status where the term bottomless basket is a matter of distant past. The image has to be showcased in different investors forum so that the international community understands and appreciates towards investing in Bangladesh.
The higher rate of interest which the bank charges on their financing is certainly an area of concern. How many of the banks have really reduced the spread to the prescribed level per Central Bank directive of 5 per cent? Spreads is primarily derived through subtracting gross interest expenses from gross interest income earned divided by Total Assets Portfolio of the bank. Under the present market situation where there is excess liquidity, why then a number of banks fail to achieve this guideline of keeping spreads lower than 5 per cent threshold? The lesser demand for money has brought down the interest rate of fixed deposit to almost a historical low position. Hence the Cost of Deposit also mirrors the market expectations. However, when a lender decides to lend money to a business then two of the indicators enable them to take this decision, one is Cost of Fund and the other one is the Risk Premium it charges. The cost of liquidity is added to Cost of Deposit to derive at Cost of Fund. Cost of Liquidity simply stated is the cost which occurs due to keep the adequate liquidity in the form of SRR and CRR with Central Bank. These amounts give zero or almost negligible amount of return. In calculation of Cost of Fund, administrative expenses are added. Then Premium or Spreads is added with Cost of Funds to derive the Rate of Interest. The banks may be able to reduce Cost of Deposit by applying the following ways: 1. Reduce Cost of Deposit by improving deposit mix; 2. By lowering the Non Performing Loans (NPL) as NPL eats out profit in the form of interest in suspense; 3. Rationalise opening of branches. It is justified that a branch generally will be making operating profit from the second year of opening. 4. Optimum cost control in order to ensure lower administrative cost. But fair share of cost must be allocated towards automation, employee remuneration and training. The premium/spread generally commensurate with risk-return trade off. But this spread should be done in such a manner that it is well within the Central Bank prescribed rate. Creating a curtail or oligopoly among the banks in protecting the spreads rather is detrimental to the overall economic development of the country. If we take the propensity to lose money as risk then lower the propensity to lose lower the risk premium and vice versa. But the way the banks prices even taking the higher cost of supervision and monitoring its SME portfolio generally doesnt depict that rationality. If 2/3 large loans of a bank go bad , the eventuality is more lethal to a banks overall health even compared to that of the entire SME portfolio of that respective going bad. Needless to say, more than 80% of business entities in this country fall under SME with paltry contribution of 20% to annual GDP. While in our neighbouring India SME sectoral contribution is 90% in annual GDP. Countries like Korea, Japan, USA, Germany etc have the similar track record. In the coming days, the larger corporate bodies will be further aggressive in taking off shore foreign currency loan, issuance of debt instrument in capital market, imposing various sophistication like interest rate collar etc making the environment not only innovative but even more competitive for the banks to work. The banks therefore must rationalise the premium/spreads to bring down to reduce the rate of interest.
Health service is a basic right for any person. We have got a few five star hospitals in the capital city where the equipments and doctors are of very high standard. However, the post operative care comes nowhere near. But Dhaka is not only Bangladesh. The level of health care services in the rest of the country barring a few places still is in a very rudimentary stage. The doctor to patient ratio is another cause of alarm. Improving health services gets high priority for the obvious reason of healthy nation. That is why we see so many people going to India, Thailand, Singapore etc for proper treatment coughing out large amount of valuable foreign
currency.
Road congestion welcomes us every morning to our workplace adding stress to our already stressful life. True that there are lots of developments in infrastructure or ongoing programs to ease the traffic. Yet the traffic situation has remained in a stalemate. Dhaka, being the capital and center of all activities, has to bear this overcrowded and overloaded situation. There is an apparent fear any time Dhaka may implode due to this overburdened situation. The cost of fuel burned due to this traffic adds to our economic woes on the one hand and eats our valuable man hours on the other. The impact of this fuel emissions polluting our environment cant even be calculated in monetary terms as the effect will be borne by generations to come. The mass public transit system can relieve us from these complexities.
It is rightly said that in the coming days, the countries who will control source of sweet water supply will be able to control the world. Being the largest delta, Bangladesh has her unique advantage of so many rivers and water bodies. The challenges remain include the pollution of water, navigability etc. Proper action plan encompassing dredging, stoppage of leakage of waste products strategising to improve the quality of water in the drinking condition should get the national priority. The Green Banking initiative by the Central Bank is one of the policy guidelines which will help the environmental sustainability in the long run if applied properly. The initiative for automated brick fields, the alternative to fossil fuel energy, are among the few to name which will have a long lasting impact.
The equality in the distribution of income is another key challenge. The problem lies when the producer of goods/services do not get the proper share of the value addition. One of the key national agenda is to ensure that the entrepreneurs must go for distribution of fair share to the workers. This will enable the return in form of social justice, market stability and higher productivity and efficiency. These without doubt work as pillars for economic progress as evident in developed economies. Scandinavian countries like Norway, Sweden, Finland and Singapore are to name a few.
The cost of doing business primarily is derived on the above issues which certainly require more thoroughbred discussions along with other pertinent issues like education, skill, innovation, empowerment, gender equality, health and many more. The issue of lowering spreads in the banking sector is one of the ingredients but so is ensuring access to finance to the deprived demography of the country that are in need of finance to participate in the overall economic development of the country. The detailed discussion in various pillars have to be brought into proper perspective to draw a strategy in line with 5 years plan so that Bangladesh has proper investment climate lists among the key agenda for development and progress. The above issues demand discussions in details to understand and settle the key agenda for bringing in proper investment climate.
The writer, a banker by profession, has worked both in local and overseas market with various foreign and local banks in different positions
