Various aspects of starting a business, flow of regulatory information, infrastructure, paying taxes and more became more difficult in Bangladesh during the outgoing FY24, compared to the previous fiscal year, according to a Metropolitan Chamber of Commerce and Industry (MCCI) report.
In its report published on Sunday, titled "Bangladesh Business Climate Index (BBX-3) 2023-2024", the chamber said that Bangladesh's aggregate composite BBX score dropped to 58.75 out of 100, from 61.95 in FY23.
FY24's aggregate composite score was categorized under "Several Bottlenecks Remain for Business: Significant Efforts Required".
The distance to 100 suggests that more needs to be done for Bangladesh to become a genuinely attractive emerging market, the report further stated.
As part of its suggestions, the MCCI advised improving infrastructure and logistics, strengthening financial systems, enhancing legal and regulatory frameworks, bolstering institutional governance, and more.
The BBX score of 58.75 for FY24 also marked deterioration and painted a picture of a challenging business landscape in the country, with no significant reform measures implemented in the past year.
This decline from the previous year's score can be attributed to a variety of factors, including the increasing pressure from tax authorities amid continued revenue shortfall on the part of the government, streamline expenditures, combat inflationary pressures, navigate import compression arid rising Interest rates, contend with the impacts of the Russia-Ukraine war, and struggle with the overall global economic uncertainties.
How bad is it?
One of the primary aspects, starting a business, dropped in its composite score from 70.78 in FY23 to 62.74 in FY24.
Despite government efforts, Bangladesh experienced a drop in this as entrepreneurs continued to face obstacles such as bureaucratic red tape, prolonged application processing times, and requirement to navigate through 23 government agencies to establish and run a business.
Businesses in Barisal and Khulna divisions experienced relatively fewer challenges when initiating business activities, compared to those in Dhaka, Sylhet and Mymensingh, where the average cost of obtaining a trade licences is higher and the number of government agencies to visit is greater.
Availability of regulatory information also dipped from 72.85 in FY23 to 68.04 in FY24.
Frequency of modifying regulations by the government has been substantially high, with nearly 40% respondents not being given prior notice by government agencies regarding any regulatory changes that impact their businesses.
Infrastructure kept declining, from 74.49 in FY23 to 71.08 in FY24, as well as labour regulation from 74.40 in FY23 to 70.04 in FY24.
Power outages in particular have been a persistent concern for businesses throughout Bangladesh.
Businesses have also faced moderate challenges in adhering to labour regulations in the country, with a higher prevalence of difficulties in Chittagong and Sylhet, where over 70% respondents expressed struggles with compliance, particularly with labour filing/returns.
Dispute resolution was also on the decline from 64.24 in FY23 to 62.38 in FY24.
There is a lack of dedicated courts to handle disputes involving foreign companies, along with a shortage of skilled lawyers capable of handling such cases, exacerbating the situation.
Paying taxes also became complicated, as it dropped from 55.21 in FY23 to 54.74 in FY24.
The highest registration costs, likely including informal payments, were observed among the RMG and financial intermediaries' sectors.
The leather and tannery industries and the RMG sector have the highest incidence of making informal payments for tax compliance, reaching 61.5%.
Other challenges include frequent and arbitrary increases in tax and VAT rates, physical tax payment, and the creation of tax audit files, requiring legal assistance and raising costs.
Access to finance also declined sharply, from 35.22 in FY23 to 28.11 in FY24.
Respondents highlighted the instability and increase in the dollar exchange rate that jeopardized their companies' overall business strategies and access to many types of finance, most notably trade finance.
However, three aspects saw notable improvements -- access to land, up from 53.07 in FY23 to 53.11 in FY24, trade facilitation from 58.61 in FY23 to 60.87 in FY24, and technology adoption, up from 60.60 in FY23 to 63.50 in FY24.
Over half of the participants, 61.5%, reported instances where informal payments were necessary to secure land, with the practice being most prevalent in Dhaka, Chittagong, Sylhet and Khulna regions.
Trade facilitation saw growth, as notable improvements were observed such as decrease in the average cost of customs clearance, a reduction in informal payment frequency, and a reduction in the average number of days for clearance.
Businesses in Bangladesh embraced tech solutions, leveraging the growing accessibility of internet and mobile networks, leading to a consistent improvement in the technology and digital adoption score.
Close to 50% of the respondents indicated utilizing virtual platforms for marketing activities, but a significant majority highlighted using specialized apps and digital platforms, primarily for payment transactions.