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Why can't Bangladesh attract private investment?

  • Published at 08:59 pm October 26th, 2020
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Despite improved ranking, Bangladesh is yet to attain a position where it can draw the attention of investors

As per the Eighth Five-Year Plan (FY2021-25), Bangladesh has set a target to attain 8.51% GDP growth, together with increasing private investment to GDP ratio at 28.2%.

With that, it has been made clear that private sector investment from both home and abroad would be crucial in attaining the national target.

In attaining the target, the country would need an investment of some Tk5,177,660 crore into the private sector. But, a country cannot expect to attract such huge sums in private investment without a conducive business environment.

A foreign investor generally evaluates a country based on its ease of doing business ranking and overall economic climate.

According to the World Bank (WB) Ease of Doing Business 2020 index, Bangladesh ranked 168, up by eight notches from 176 in 2019, out of 190 countries.

Although Bangladesh made a notable improvement in its ranking on the global index, unfortunately, the country is yet to attain a position where it can draw the attention of investors.

Despite the giant leap, Bangladesh’s ranking remains the second-lowest among the South Asian nations.

Among the South Asian countries, Nepal improved by 16 notches and ranked at 94, while India improved by 14 notches and placed at 63. Bhutan ranked at 89, followed by Sri Lanka 99, Pakistan 108 and Afghanistan at 173.

With the latest development, the Bangladesh government has decided to improve ranking to double digits, which means below 100.

As a part of its effort, the government took several initiatives, such as introducing One-Stop Services (OSS), reducing congestion at ports and roads, and reforms in regulations. 

However, the progress of the initiatives continues to limp towards their goals, where officials concerned blamed the coronavirus pandemic of pouring cold water on the ambitious move. 

Progress of One-Stop Service     

In a bid to improve the country’s business climate, Bangladesh Investment Development Authority (BIDA), the state agency for promoting investment, set a target to provide 154 services through OSS by 2021.

As of now, the BIDA has been providing 21 services through OSS, while 54 more services are set to be introduced soon.

However, apart from BIDA’s 14 services, seven of the services are being provided by other organizations. 

Although 20 government and autonomous agencies have already signed agreements with BIDA to provide 43 services through OSS, only two agencies have been successful in providing the seven services so far.

On top of that, in November 2018, three city corporations from Dhaka and Chittagong inked deals to provide new trade licenses’ service within 24 hours of applying under the OSS platform, but there has been no progress in this regard.

Besides BIDA’s 14 services, only five organizations are providing seven services under the OSS. These include e-TIN registration with the National Board of Revenue (NBR), verification of NID application through the Election Commission Secretariat, clearance and registration of organizations with the Registrar of Joint Stock Companies and Firms (RJSC), security clearance for foreign companies by the Security Services Division and online transactions through Sonali Bank.

The delay in implementing the OSS services has not only hindered the entire process, but investors also continue to suffer from existing lengthy procedures.

Why has progress been slow?

“We have signed 20 memoranda of understanding (MoUs) with different organizations, but it's only paperwork. The prime task is to integrate those platforms with our OSS digitally,” BIDA Executive Chairman Sirajul Islam told Dhaka Tribune. 

The integration has been facing delays as digital systems used by most of these organizations are not yet ready to be synchronized with the OSS, he added.

“If we can integrate their services with ours, then we will be able to provide about 50 services under one common platform,” said Islam.    

Regarding the integration of services of city corporations with the OSS, Islam said: “We have signed the agreements but could not bring them to our system as they are not yet ready.

“The Covid-19 pandemic has poured cold water on the progress,” the BIDA chairman added. 

However, economists have blamed inefficiency of administration and corruption for the slow progress of implementation of the initiatives.

“A half-cooked food can be termed as 50% progress made but it cannot be consumed. Similarly, there are lots of initiatives taken to improve the ease of doing business, and these initiatives are in progress but have not been able to touch the finish line yet,” said Dr Zahid Hussain, former lead economist at the World Bank in Dhaka.   

The slow pace of implementation caused by corruption, bureaucracy, and administrative inefficiency, has placed a bar for the country in keeping up with our competitors, said the economist.

“We made progress but it failed to keep pace with others. As a result, our competitors performed well and saw a rise in the index,” he told Dhaka Tribune.

For instance, there are 100 Special Economic Zones (SEZs), but the question is how many are completed and that is what matters the most.  

In addition, there is a lack of cooperation among government agencies as well as ministries in this regard.

“BIDA and Bangladesh Economic Zones Authority (BEZA) have been trying to improve and also took steps but this was not welcomed warmly by concerned ministries as they do not want to lose their control on these issues. This mindset has to change,” Policy Research Institute (PRI) Executive Director Dr Ahsan H Mansur told Dhaka Tribune.

As a result, these initiatives have not been not broadly effective and remain stuck in red-tape culture. That is why the OSS has been partially effective, he added.

At the same time, the quality of electricity, a key component for doing business, is very bad while legal services, especially in ensuring property rights and registration, has also scored very low, said Dr Mansur. 

He also said the capacity of ports has improved but their performance remains as one of the worst compared to others, even among Asian nations.      

Present status of major indicators 

As per the WB report, Bangladesh has carried out three business reforms during the past year.

The reforms include reduction of registration and name clearance fees and removal of the certifying fee for digital certificates for setting up a new business.

Meanwhile, the time required for getting a new electricity connection and credit information has also been reduced.

The report also mentioned that Bangladesh’s score in starting a business saw a jump by 1.6 points to 82.4 points, while the score for getting electricity rose by 4.1 points to 34.9.

This improvement pushed the index up, but it is still far below our competitors.

Bangladesh ranks next to last globally on the enforcing contracts indicator and 184 out of 190 on the registering property indicator.

Transferring a property title in Bangladesh takes 271 days on average, almost six times longer than the global average of 47 days.

Resolving a commercial dispute through a local first-instance court takes an average of 1,442 days, almost three times more than the 590 days in OECD high-income economies.

In getting electricity supply to a new building or installation, a business in Bangladesh needs to complete nine procedures, not only the highest in the region but also globally. It takes 125 days to get an electricity connection.

How can Bangladesh improve rankings?

Rapid implementation of reforms in regulations and institutions, digitalization of organizations, and stopping corruption to provide services, have been identified as key areas for Bangladesh to improve to ease doing business ranking.  

“Three issues such as time, cost and hassles in taking services are widely considered by investors to invest. Digitization can reduce these and we are working on it,” said BIDA Executive Chairman Sirajul Islam. 

“Unless the government accelerates the pace of reforms in regulations such as taxation, land registration and institutional reforms, it might lose some edge,” said Dr Zahid Hussain. 

“Physical infrastructural projects should be completed within their deadlines,” he added.

On top of that, there is a strong need for soft infrastructural development in the country to lure foreign investors in the private sector.

“Many signs of progress have been recorded in building critical and hard infrastructure such as roads, ports and airports, but in case of soft infrastructure, which includes skill training, removing corruption, scraping red-tape culture, we are lagging far behind,” said Mansur.

The government should focus on technical training to help the administration adopt advanced technologies and improve efficiency, he added.