I was not privy to the discussion on private sector investment at the recent Bangladesh Development Forum in Dhaka; but I suppose the senior policy-makers in the panel talked about various policies in place to stimulate domestic investment as well as attract foreign direct investment (FDI).
However, as head of the government’s Bangladesh Investment Development Authority (BIDA), Kazi Aminul Islam appears to have acknowledged that FDI inflows are still far below the desired amount.
So, what, then, is the problem exactly?
Well, Nihad Kabir, president of the Metropolitan Chamber of Commerce and Industry (MCCI), hit the nail on the head when she described policies as being “only on paper.”
She was referring to the gap between what we see on paper and what investors experience in the real world.
Poor standards of service
Such implementation gaps are manifest in a number of ways. One is in the form of variations in service quality and speed, when it should be uniform, consistent, reliable, and standardized for all citizens.
Regulatory interfaces may work in a satisfactory manner for some investors but not for others. Often there is wide variation within the same regulatory area in the same city; I may get my company registered in a few days but for others it could take months.
When efforts are made to reform and improve any part of the process, the reforms on paper rarely translate to practical or tangible changes.
Often there is wide variation within the same regulatory area in the same city; I may get my company registered in a few days but for others it could take months
Often a single reform is not enough. We need to go beyond a single reform and think of a reform chain – one that links multiple actions needed to make the reform work.
For example, laws need to be followed up with regulations, procedures, and manuals. A new law aimed at improving the investment climate will often need to be accompanied by appropriate regulations. Once regulations are adopted, front line officials will need to be made aware of the reforms and trained properly so they can enforce them effectively.
It is extremely important that they be provided with guiding manuals and instructions on how to administer the new regulations.
If a regulatory interface has been automated, its full impact may not be felt if the front-end of the system is automated while the back-end remains manual and archaic.
Sometimes reforms started may not be sustained. And sometimes reforms in one area are contradicted by actions in other areas, defeating the purpose of the reform.
Thus, reforms may look good on paper but not on the ground. They may be good for some but not for others. They may be good for now but not in the long-run.
Such problems often go unnoticed and hence remain unaddressed.
The importance of feedback
In order to fix the system and make the process efficient, the government must pay heed to what the business community has to say by creating a feedback loop because they, businesses, know where the shoe pinches.
There are many ways to listen to the private sector from dialogue platforms to surveys to reform-specific feedback loops (see box).
Speaking from experience
The government in our neighbouring country, India, has learned this lesson the hard way. We would do well for ourselves by skipping the growing pains and going right to what patently works.
India jumped by 30 places in this year’s Doing Business rankings – from 130 to 100. This is huge for India as the country has mostly slipped or remained stagnant in most years since these rankings first began.
One of the reforms that contributed to this improvement is construction permit reforms. After automating the construction permitting process in Delhi and Mumbai in 2015, the Indian government decided to monitor implementation on the ground by initiating a series of business-to-government feedback exercises.
Conducted at roughly six-month intervals starting in early 2016, these exercises revealed glitches in the process causing implementation gaps, which triggered corrective actions that were evaluated to make sure the actions were effective.
Initially, businesses were not even aware of the reforms. When the first feedback exercise revealed this, the government launched an awareness-building campaign.
A second feedback exercise six months later indicated that awareness was high but businesses were still not using the automated system. Focus group discussions with businesses clarified why this was so.
After the government took actions to address the issues, a third feedback survey in early 2017 showed increased usage.
Encouraged by the usefulness of these exercises, the Indian government is now replicating them for other regulatory reform areas.
In short, several bridges need to be crossed before we can see the real impact of new policies and laws.
Unfortunately, in Bangladesh, the journey often ends right after the first bridge is crossed, which produces zero results in the end.
An important reason is for this is the absence of a results-based approach, better known as results-based accountability (RBA) in countries like the US, but it’s the same idea whatever you call it.
There is too much focus on policy output (a new policy or law) and not on outcomes, such as a genuine improvement in the investment climate.
Implication gaps mean desired outcomes do not materialize. Businesses do not respond to reforms the way we expect because they do not feel the impact on the ground.
Businesses look at the regulatory environment in its totality. Thus, inconsistent or piecemeal reforms are not enough to encourage them.
Variations in regulatory behaviour create uncertainty, which actually discourages investment. Because investment is a long-term issue; it takes years for the returns on investment to surpass the initial investment plus associated costs of financing. Businesses therefore need assurance that reforms will be sustained, otherwise it’s costly for them when the reforms don’t pan out as intended.
No surprise then that, at the Bangladesh Development Forum meeting earlier this month, after providing a long list of what the government is doing to attract foreign investment, Kazi Aminul Islam, our nation’s FDI champion of sorts, had to acknowledge that FDI inflows are still much lower than the desired level.
Clearly, the many road-shows to present Bangladesh to global investors have not produced adequate results.
It is time for our government to become strongly results-oriented. It is time to talk not about policy enactment but policy implementation, not tax holidays, subsidies and other incentives but about regulatory predictability, which is what businesses really care about. It is time to focus not on events, such as endless road shows to attract investors, but on processes, such as just-in-time feedback loops to find out why the rubber is not hitting the ground.
Syed Akhtar Mahmood is Lead Private Sector Specialist in Macroeconomics, Trade and Investment at the World Bank