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‘Other countries will not be waiting’

Four major international reports released this year including World Bank’s Investment Climate Assessment report released two weeks ago, indicated a drop in the investment in Bangladesh, how do you see the situation?

Only one report – the UNCTAD report on FDI – discussed investment flows and indicated a drop in the flow of FDI into Bangladesh. The other reports looked at the investment climate and concluded that while some dimensions of the investment climate has improved in recent years, there has been deterioration in others. The bottom line is that the overall climate that affects investors’ decisions to invest has not improved to the extent desirable.

The slow improvement in the investment climate has two major implications. Firstly, investment is lower than it should be – this includes not just foreign investment or investment in large domestic companies, but investment in small businesses – the small tool-maker, the irrigation pump repair shop, the road side grocer, the small farm producing vegetables for export.

Most of these small enterprises may not be very dynamic or productive but they create large numbers of jobs which is critical in a country with widespread unemployment.

Secondly, the poor investment climate discourages innovation and dynamism. We don’t expect all enterprises to be dynamic, but in any economy, you need some enterprises which are trail blazers.

To what extent are we really open to such opportunities? If dynamism could impact the economy positively, then why is it that new businesses face so much hassle in terms of registration, getting loans and other procedures?

Access to finance continues to be a major problem-in terms of getting loans and interest rates. Moreover, most loans are short-term; about 70 per cent have to be repaid in less than three years and 50 per cent have a term less than a year. Businesses also have to put up a lot of collateral in order to get a loan and in most cases, banks insist on land as collateral.

The root cause is the inability of banks to differentiate between less risky and more risky clients. The banks themselves do not have the capacity, and the systems and institutions that help banks differentiate, such as a credit information bureau, are absent or under-developed in Bangladesh.

The credit information bureau has a very narrow coverage, in terms of the number of borrowers covered – and it only has information on recent loan repayments, not a long history of repayments, and excludes other payments such as utility bill payments which also can tell a lot about the credit worthiness of individual borrowers.

The main victims of this conservative attitude are the good investors and innovators.

Apart from the results themselves, what do you feel are the major constraints? Would you agree that this has been largely the failure of the government?

I do not see a sense of urgency in government to deal with the investment climate issues. At the very top level of this government, there is understanding of the need to improve and change things. But, overall in the government machinery, including in several top policymakers, the sense of urgency is absent. There is a fear of moving away from traditional practices and adapting to a change. The typical response is that things need to be carefully thought through, proposals need to be reviewed, and a host of people need to be consulted before a reform can be enacted or a policy can be adopted.

Of course, the government needs to do its due diligence. But there are instances where the government machinery has done things fast with all the due diligence and consultations.

So it can be done and has to be done. Other countries will not be waiting just because we are slow. They are reforming fast and we need to run faster if we are to survive in this competitive world.

Isn’t this here that the central Bank of Bangladesh should take appropriate measures?

The Bangladesh Bank also has tremendous influence in shaping the climate for investors, in some ways even more than the other bodies such as BOI and Ministry of Commerce. While there have been many improvements in Bangladesh Bank over the years, this important institution still lacks adequate capacity to understand the globalised world and what it implies for business in Bangladesh.

There is a conservative and risk-averse behaviour on the part of the central bank that is preventing our entrepreneurs from grabbing many of the opportunities that the globalised world is throwing up. Business people often complain, for example, about onerous foreign exchange regulations.

In the past two years, the caretaker government has taken a number of reform initiatives, to what extent have these reform initiations been effective, especially when reports point out that no tangible evidence has been seen as such?

The caretaker government has taken two major steps that are of strategic importance – Bangladesh Better Business Forum (BBBF) and Regulatory Reforms Commission (RRC). This has led to a structured form of dialogue between the private sector and public officials for the first time in the history of Bangladesh and this has been a major achievement.

The BBBF has representation from several ministries and agencies and because, it is headed by the head of government, it can address the inter-ministerial issues. The private sector has also done their bit by coming up with 250 plus recommendations, some of which have already been implemented.

There is of course still a long way to go and the bureaucracy needs to be faster in implementing reforms, but this a very promising start.

The RRC is another institution that has come up with some very good recommendations including two recent ones on reforming land administration and pension administration.

But the challenge is the same: how can you make the bureaucracy more pro-active in implementing the recommendations?

The chairman of RRC, Akbar Ali Khan, himself said this week that ‘there was lack of cooperation from different government bodies, especially the environment ministry, Board of Investment (BOI) and Registrar of Joint Stock Companies and Firms’.

The office of the Registrar is an important office in any country. A good business registry has comprehensive information on the birth, death of enterprises, its operations, annual reports and more.

The role of this office is crucial and it has not been carried out well. There is a need for streamlining processes, reducing discretionary power and eliminating corruption, improving staff capacity and office facilities. Recently IFC has supported the computerisation of the office but this system needs to be adequately utilised.

The Board of Investment is supposedly an investment promotion and facilitation body but has turned out to be an essentially regulatory body, and a poor one at that. Most of the BOI staff once worked for the Directorate of Industry and have an old petty regulatory mentality. Fresh blood is needed in the BOI. There is also a need for a change in the board composition, bring in more officials from the private sector, build better investment promotion and advocacy capacity, and move from being a regulator to a facilitator.

Work started on a three year Strategic Plan in February this year. But again you have the same problem – the Plan has been discussed by the Board several times but not approved yet. It has been nine months and we don’t know how much longer we will have to wait.

There have been many examples of projects of international agencies where developing countries like Bangladesh has been hampered tremendously – following years of criticism, now countries like India and China are resisting their need for aid. How should the governments of developing countries address these issues?

It is true that international agencies bring a lot of experience but this does not mean that they never make mistakes. Development is a complex exercise and sometimes our approach may be deficient. The important thing is whether we learn from our experience. The World Bank Group has rigorous evaluation procedures which help us do so.

The Government also has an important role in ensuring that aid is used effectively. It should do a better job at identifying the needs of the country and deciding where aid is required - in what form and for how long. It needs to coordinate donor activity better so that there is no duplication. There is also a need to develop the capacity to negotiate better with international agencies. We have seen this in India and China where they have dealt with donors in a much more sophisticated manner - it is not that they did not use foreign aid, but that they did it sophisticatedly.

It is important that the role and activities of donor agencies are subjected to continuous monitoring and assessment. But this has to be done based on sound logic, reliable data and good understanding of how donors work.

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