Wednesday | 15 January 2025 | Reg No- 06
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Wednesday | 15 January 2025 | Epaper

Bar to the budget: Inertia in private investment

Published : Sunday, 28 May, 2017 at 12:00 AM  Count : 286
Haradhan Ganguly
Private investment continues to remain wary, as if foggy desire on growth expectation. The nation will stride with a new budget with a new hope of higher growth for the coming financial year of 2017-18. On June 1 we will get the proclamation of new budget with setting for execution from 1 July 2017. Our target is fixed for going to a higher growth path.
The driving force for the strategy will be the establishment of a labour-intensive export-oriented manufacturing sector and a much more diversified, commercially motivated agricultural sector. The resulting transformation will create good jobs in manufacturing and organized services while raising productivity and incomes for the remaining but substantially lower percentage of labour force engaged in farm sector.
The strategy will be implemented through an array of reforms encompassing macro-economic management, tax and public expenditure policies, trade policy, financial sector policies, policies for infrastructure development and policies for the development of a skilled labour force. Our growth will be employment creation oriented.
The goal of Bangladesh is determined. By 2021, the country is to be turned into a middle income one. So the basic function of a budget as a short term measure is to smooth the transitional phases for boosting successful efforts for long term measures that is our 7th five year plan. The success story of all these linked phases will bring us the cherished goal. Achievement of crossing 7 per cent growth is emboldening us. Our entire development discourse is viewed upon this determination based on backtracked successes.
But successes are not overwhelming. In a market driven economy private investment is a life blood and leaving behind the private investment is one of the major constraints of growth. For the past several years we are failing to bustle out of the fortress of stagnant private investment.
In fiscal 2016-17, private investment to GDP is expected to be 23.01 per cent, only 0.02 per cent points higher than the previous year. The ratio has been stagnant for the past several fiscal years.
The ennui on the investment front is even more puzzling given the amount of excess liquidity that the banking system is sitting on. As of November last year, TK 277,956 crore is lying idle among banks according to Bangladesh Bank (BB).
The banks' lending rate decreased significantly in the past couple of years. The weighted average lending rate stood at 9.70 per cent in March, down from 11.93 per cent two years earlier. Economists say, cost of doing business has remained high in Bangladesh due to various regulatory complexities and uncertainties.
The energy constraint has not eased despite improvements in electricity generation and the physical infrastructure, particularly relating to trade logistics has remained poor. We have roads but they are not well maintained. Ports are unable to handle import and export cargoes efficiently. Our railway system fails to deliver the services investors need to conduct their business, while water transport system continues to depend on outmoded technology.
The financial markets have not developed to keep up with the dynamism of the private sector. On the contrary, the banking system has moved in the opposite direction with large nonperforming loans and regulatory capture by vested interests.
Investors find it difficult to access medium and long term credit at affordable interest rates. Last but not the least, efforts to ease the access to land have not yet produced any visible results. We have not succeeded in getting any special economic zone ready for operation yet.
Recently imports are showing prospect but it is not due to strengthening manufacturing sectors. A big portion of the increase in import of capital machinery are safety equipment as apparel exporters look to please their western retailers with their enhanced work place safety measures.
Import has also been increasing as a result of the government's implementation of large infrastructure projects. In the first nine months of the fiscal year, letters of credit opening and settlement for capital machinery soared 52.82 per cent according to BB. But the real industries that generate employment are not taking that many loans.
In the first nine months of the fiscal year, private sector credit growth stood at 10.08 per cent, down from 10.76 per cent recorded for this period a year earlier by the BB. CPD thinks large business groups are putting emphasis on consolidating their existing business instead of expansion. The challenge before the medium and small investors is that, on one hand they have to compete with cheap imports and on the other hand, existing big business groups have captured a big market. There are also a lack of facilities like power, gas and infrastructure. This is the biggest problem investors, especially the new ones, have been facing.
Another reason is the contraction of domestic demand arising as a result of sliding remittance. This may have an adverse effect on increasing investment. A daily report says that Planning Minister AHM Mustafa Kamal stated, private sector is not growing much. Infrastructure digs out all the things for revamping the role of private sector, we hope.
But we think, there are intrinsically some inherent limitations prevalent for private sectors' introvert attitude which is yet to be explored. Market concentration by big wigs and too much proneness to syphoning of money to outside the country are causing damper for private investment.
But this Bangladesh over 44 years since independence, has increased its per capita income four fold, cut poverty by more than half and is well set to achieve most of the  millennium development goals.
In recognition of these challenges, the present government has adopted a long term development strategy based on the Vision 2021 that has set solid development targets for Bangladesh by the end of 2021. Those targets if achieved will transform the Bangladeshi socio-economic environment from a low income economy to the first stages of a middle income economy.
Good governance of economy and body politic will wither away the present inertia of private investments in manufacturing.  Before this political nourishments and blessings of intermediary regime interests in trade thriving on unearned incomes must show an end. We don't deserve unhealthy contest between manufacturing and trade. The first must sway upon the latter. Let us wait to see how much the coming budget show the way.

The writer is Secretary of the United Nations Association of Bangladesh (UNAB)






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