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Political chaos forces investment plans to shelve

  • Published at 03:51 am April 24th, 2013
Political chaos forces investment plans to shelve

Local and foreign investment plans have been shelved due to prolonged political uncertainties in the country, putting a dent on the economic growth.

World’s top clothing brands like Tesco, Walmart, H&M, C&F, VF and Celio have already decided to give up their investment in Bangladesh because of the political uncertainties, said a local entrepreneur.   

“It's difficult to forecast, it’s difficult to plan as we don’t know where we are now,” Evince Group Chairman Anwar ul Alam Chowdhury told the Dhaka Tribune.

The political chaos is a common scenario ahead of every general election in Bangladesh. But this time the political upheaval might take longer as political parties have been entangled with several issues, scaring away investors.

Business in Bangladesh is facing a series of strikes since February this year, hindering business activities and sending negative signals to other countries.

“The longer the political uncertainty will persist, the more companies will hold off investment, affecting the economic growth that is needed to improve the living standards of the people,” said AK Azad, former president of The Federation of Bangladesh Chambers of Commerce and Industries (FBCCI).

The entrepreneur deferred a Tk5bn denim project due to political upheaval.

He informed that many foreign entrepreneurs diverted their investment plan for China, Myanmar and Vietnam. “This is very bad news for our economy,” he said.

“Higher interest rates, unfriendly loan classification policy and cancellation of new gas connection have already slowed down the investment,” said Abdus Salam Murshedy, managing director of the Envoy Group, one of the country’s largest apparel manufacturers.

“Political uncertainties add to our woes,” said the president of Exporters' Association of Bangladesh.

No textile millers go for investment in 2013 due mainly to cancellation of gas connections and political uncertainties, according to Jahangir Alamin, president of Bangladesh Textile Mills Association.  

Bangladesh’s economy, which sailed relatively unscathed through the global financial crisis of 2008-2009, might head back towards annual growth of below 6%, latest forecasts suggest.

“Things might turn worse if political uncertainties take longer,” said Dr Mirza Azizul Islam, finance adviser to the last caretaker government.

The growth of investment – a prerequisite for economic growth--remained stagnant at around 24% over the last several years, he said. The overall investment growth needs to be more than 28% to achieve 7% GDP growth, he said.

The International Monetary Fund in its latest World Economic Outlook forecasts that Bangladesh’s GDP growth this year will fall to 6%.

Earlier, the World Bank and the Asian Development Bank also forecast that the GDP growth will be less than 6% in the current fiscal (2012-13) due to political turmoil and the sluggish world economy.

The figure falls far short of the target of 7% estimated for the current fiscal year.

The contribution of overall investment to GDP growth remained negative since 2008. The investment proposal registered with Board of Investment (BoI) declined more than 30% to Tk6bn in first eight months of current fiscal year compared to the previous year, BoI data showed.

According to the Bangladesh Bank data, the private sector credit growth fell 13.96% year-on-year in February on the back of declining imports and political unrest.

The overall import (based on settlement of letters of credit) growth fell to 11.07% during the July-February period of the current fiscal against 13.62% growth in the corresponding period of previous fiscal, it said.

Analysts held the ongoing political standoff responsible for the fall in private sector credit growth and import growth as businesses shy away from making any new investments amid a fall in industrial production and trade.