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Policy reforms must to encourage new investment

  • Published at 12:29 am June 18th, 2017
  • Last updated at 12:36 am June 18th, 2017
Policy reforms must to encourage new investment
Despite enormous potential for investment, Bangladesh fails to attract new investors from home and abroad due mainly to inadequate infrastructures and other facilities required to start new businesses. According to the World Investment Report-2016 of the United Nations Conference on Trade and Development (UNCTAD), foreign direct investment (FDI) inflows into Bangladesh rose by 4.25% to $2.33bn in 2016 from $2.2bn in the previous year. The lion’s share of the FDI came actually from reinvestment and expansion of the existing projects. Lengthy and cumbersome process of registration for launching new ventures is hindering FDI inflows. Speaking to the Dhaka Tribune, economists, trade analysts and businesspersons say private investments have been stagnant because of lack of essential facilities such as infrastructures, and supply of gas and power. “Reinvested earnings have accounted for a large share of FDI received last year, indicating that Bangladesh is not getting new investments according to its potential,” Centre for Policy Dialogue Research Director Khondaker Golam Moazzem said, citing insufficient infrastructures and facilities as reasons for the sluggish private investments. Also, there are no pre-investment facilities such as information on demand and supply, supply chain, and raw materials. As a result, investors are not willing to pour their money into the uncertainty, he added. On the other hand, investors are reinvesting in their existing projects as they have established their own business networks and infrastructures, which is a positive sign, Moazzem said. [caption id="attachment_69734" align="aligncenter" width="683"]Capture Photo: Rajib Dhar[/caption] The vital source of FDI in Bangladesh continues to be reinvested earnings. The report shows that last year the country saw a reinvestment of $1.21bn out of the total FDI of $2.33bn, up by 6.11% compared with $1.14bn in the previous year. “Last year Bangladesh experienced a very modest FDI inflow dominated mostly by reinvested earnings. This indicates that companies operating in the country are comfortable reinvesting their profits in expansion of their current projects,” said Ahsan H Mansur, executive director of Policy Research Institute (PRI). “Bangladesh Bank, Bangladesh Investment Development Authority (BIDA) and the Commerce Ministry should think about how to attract investments more and more. And, they will have to ensure that the country has the capacity to support new ventures and there will be no disruptions in the provision of services to business units,” he stressed. Local investors are too expanding their existing businesses, instead of launching new ones, something badly needed for the creation of new employment opportunities. A survey report recently released by the Bangladesh Bureau of Statistics (BBS) reveals that only 1.4m jobs were created in the country between 2013 and the FY2015-16, whereas the figure was 4m between 2010 and 2013. The country registered its highest employment generation of 6.7m between the FY2005-2006 and 2010, the report states. “Investors have to undergo a cumbersome process for utility connections to their business units. Land scarcity is also a major problem,” said Abdus Salam Murshedy, former president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA). In order to bring new investments, he underscored the need for rapidly implementing energy projects, upgrading highways into four lane ones and establishing special economic zones on a priority basis. Talking about employment opportunities, Biru Paksha Paul, former chief economist of Bangladesh Bank, said new jobs would not be created unless the share of private investment in GDP increased. Echoing Paul, noted economist Barkat-e-Khuda said: “Private investment is stagnant. But we do not see any precise plans for bringing vibrancy to this sector by attracting new investments. If the government wants to reap the demographic dividend, it must create job opportunities for the growing population.” In the first 10 months of the current fiscal year, investment share in GDP stood at 30.3%, and private investment’s share was 23% and public investment 7.3%, the BBS report says. For the next fiscal the government has set a target to increase the investment share in GDP to 31.9%, and private investment’s share is expected to be 23.2% and public investment 8.7%. With a view to luring investments from local as well as foreign investors, the government should focus on establishing special economic zones, said Asif Ibrahim, former president of Dhaka Chamber of Commerce and In-dusty (DCCI). “Private investment’s share in GDP will rise to an optimum level if the government ensures necessary facilities for new investors,” he added. The government should also offer equal export policy support so that people feel secure to invest, said Ibrahim, also vice chairman of Newage Group. The economists and businessmen also highlighted the need for reforms in banking and other sectors so the authorities concerned can ensure the services within a limited time. “BIDA is working hard to improve investment environment in Bangladesh by providing one-stop service to investors,” BIDA Executive Chairman Kazi M Aminul Islam said, hopping that the country would be able to improve its ranking in World Bank Ease of Doing Business within a short period of time. “We are also exploring new ways for ensuring an investment friendly climate in the country through formulating rules for industrial corridors and establishing industrial units on unused land belonging to the government and different private organisations,” Aminul added. Performance of private investments is not up to the mark as the investors are not getting incentives and policy support they need, observed Dr Akbar Ali Khan, former advisor to a caretaker government. “Flaws in the banking sector are hindering private investment. Bangladesh will not get private investment according to its potential if the sector is not reformed,” the eminent economist stressed. In order to reach targets of the next fiscal year, people involved in the private sector called for changes in the proposed budget especially in corporate tax and tax at source for export oriented sectors and offering incentives for potential sectors. The government has set a target to achieve a 7.4% GDP growth in the FY2017-18. According to the CPD, an additional investment of Tk6,000cr from the private sector is needed to reach the target. BGMEA President Siddiqur Rahman urged the government to reduce corporate tax rates to 10% for the next five years. “The apparel industry is undergoing a critical moment. It is our earnest request to Finance Minister AMA Muhith to fix tax at source at zero percent for the next two years, Rahman said. As of now, the proposed budget is not conducive to the country’s RMG sector. And if the government would like to see fresh investments, it should increase cash incentives and withdraw the tax at source, he added. “Given the apparel industry’s contribution to the country’s economy, the government would rethink our demand,” the BGMEA president hopped.