Raising private investment to be tricky: analysts

[Homo Sapiens]

https://www.thedailystar.net/business/news/raising-private-investment-be-tricky-analysts-1758214

12:00 AM, June 17, 2019 / LAST MODIFIED: 12:55 AM, June 17, 2019
Raising private investment to be tricky: analysts

Jagaran Chakma

The government’s target to raise private investment to 24.2 percent of GDP will be challenging given the trend in last several years and the ongoing liquidity crisis in the banking sector.

Private investment has been hovering around the 22-23 percent mark for long. For instance, this fiscal year it reached 23.40 percent of GDP, up from 22.07 percent five years ago, according to the Bangladesh Bureau of Statistic (BBS).

Bangladesh needs additional Tk 23,000 crore to achieve the investment target, said Abul Kasem Khan, former president of Dhaka Chamber of Commerce and Industry.

“As the banking sector is facing liquidity shortage, we don’t know where the money will come from,” he added.

Private sector credit growth sank to a 56-month low of 12.07 percent in April and the government’s target to borrow more from the banks may tighten the situation further.


The government last year set a target to raise private investment to 25.15 percent of GDP for the outgoing fiscal year, but budget documents show it edged up to 23.4 percent from 23.26 percent a year ago.

Despite stagnant private investment, Bangladesh’s economic growth has been impressive for the past decade. Provisional estimates show the economy is likely to grow at more than 8 percent in the outgoing fiscal year thanks to a steady rise in public investment.

Public investment jumped to 8.17 percent of GDP in the outgoing fiscal year, up from 6.82 percent five years ago.

Private investments are constrained by a lack of land, reliability of energy supply, poor connectivity, cumbersome regulatory processes as well as regulatory unpredictability, high corporate taxes, limited access to long-term finance and shortage of skills, said Zahid Hussain, lead economist of the World Bank’s Dhaka Office.

Without removing the constraints, it will be difficult to achieve a sustained increase in the private investment rate.

Public investment has increased because of higher expenditure in investment projects, mostly under the annual development programme, he said.

“Many of these projects are yet to be completed. Their crowding-in effects on private investment cannot materialise until the projects are up and running.”

However, there are also quality deficits in public investment expenditures.

“What is spent does not entirely result in the building of useful public assets.”

The government needs to accelerate the pace of regulatory reforms, improve the implementation of high priority projects in infrastructure and energy and invest in education and health, Hussain said.

“It also needs to act decisively to restore discipline in the financial sector.”

Reduction of corporate tax rates and simplification of the tax structure are also needed to make Bangladesh a more attractive location for both domestic and foreign investors, Hussain added.

Kazi M Aminul Islam, executive chairman of the Bangladesh Investment Development Authority, emphasised massive policy reforms to create a business-friendly environment for boosting private investment.

He also stressed the need for improving ease of doing business in cooperation with concerned ministries to continue with the growth momentum and achieve the target of becoming a middle income and high-income country within the stipulated timeframe.



Kazi Akram Uddin Ahmed, former president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), blamed the liquidity crisis in the banking sector for the stagnant private investment scenario despite the government’s positive intents.

To scale up private investment Ahmed suggested providing incentives for fresh investment.

“There are some constraints due to which we are not getting the expected result with private investment,” said Abdul Matlub Ahmad, former president of the FBCCI.

The absence of ease of doing business, cost of financing and lack of quality power supply are the major reasons for the slow growth in private investment.

However, he is optimistic about the government removing many bottlenecks next fiscal year.

He too called for bringing discipline to the banking sector as well as cutting down on the mounting default loans for boosting investment.

 

[mmr]

https://www.thedailystar.net/business/news/raising-private-investment-be-tricky-analysts-1758214

12:00 AM, June 17, 2019 / LAST MODIFIED: 12:55 AM, June 17, 2019
Raising private investment to be tricky: analysts

Jagaran Chakma

The government’s target to raise private investment to 24.2 percent of GDP will be challenging given the trend in last several years and the ongoing liquidity crisis in the banking sector.

Private investment has been hovering around the 22-23 percent mark for long. For instance, this fiscal year it reached 23.40 percent of GDP, up from 22.07 percent five years ago, according to the Bangladesh Bureau of Statistic (BBS).

Bangladesh needs additional Tk 23,000 crore to achieve the investment target, said Abul Kasem Khan, former president of Dhaka Chamber of Commerce and Industry.

“As the banking sector is facing liquidity shortage, we don’t know where the money will come from,” he added.

Private sector credit growth sank to a 56-month low of 12.07 percent in April and the government’s target to borrow more from the banks may tighten the situation further.


The government last year set a target to raise private investment to 25.15 percent of GDP for the outgoing fiscal year, but budget documents show it edged up to 23.4 percent from 23.26 percent a year ago.

Despite stagnant private investment, Bangladesh’s economic growth has been impressive for the past decade. Provisional estimates show the economy is likely to grow at more than 8 percent in the outgoing fiscal year thanks to a steady rise in public investment.

Public investment jumped to 8.17 percent of GDP in the outgoing fiscal year, up from 6.82 percent five years ago.

Private investments are constrained by a lack of land, reliability of energy supply, poor connectivity, cumbersome regulatory processes as well as regulatory unpredictability, high corporate taxes, limited access to long-term finance and shortage of skills, said Zahid Hussain, lead economist of the World Bank’s Dhaka Office.

Without removing the constraints, it will be difficult to achieve a sustained increase in the private investment rate.

Public investment has increased because of higher expenditure in investment projects, mostly under the annual development programme, he said.

“Many of these projects are yet to be completed. Their crowding-in effects on private investment cannot materialise until the projects are up and running.”

However, there are also quality deficits in public investment expenditures.

“What is spent does not entirely result in the building of useful public assets.”

The government needs to accelerate the pace of regulatory reforms, improve the implementation of high priority projects in infrastructure and energy and invest in education and health, Hussain said.

“It also needs to act decisively to restore discipline in the financial sector.”

Reduction of corporate tax rates and simplification of the tax structure are also needed to make Bangladesh a more attractive location for both domestic and foreign investors, Hussain added.

Kazi M Aminul Islam, executive chairman of the Bangladesh Investment Development Authority, emphasised massive policy reforms to create a business-friendly environment for boosting private investment.

He also stressed the need for improving ease of doing business in cooperation with concerned ministries to continue with the growth momentum and achieve the target of becoming a middle income and high-income country within the stipulated timeframe.



Kazi Akram Uddin Ahmed, former president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), blamed the liquidity crisis in the banking sector for the stagnant private investment scenario despite the government’s positive intents.

To scale up private investment Ahmed suggested providing incentives for fresh investment.

“There are some constraints due to which we are not getting the expected result with private investment,” said Abdul Matlub Ahmad, former president of the FBCCI.

The absence of ease of doing business, cost of financing and lack of quality power supply are the major reasons for the slow growth in private investment.

However, he is optimistic about the government removing many bottlenecks next fiscal year.

He too called for bringing discipline to the banking sector as well as cutting down on the mounting default loans for boosting investment.

Only was to close the gap is to increase FDI. There is no other way.

 

[bluesky]

Only was to close the gap is to increase FDI. There is no other way.

As far as I have read FDI guys are going to Burma where there are plenty of lands and people are docile. A company builds a factory in Burma gets the benefit of the automatic entry to the ASEAN market. It is not so for BD. BD has the international market for textiles but not all companies deal with this item. For the time being, at least, we can expect mostly the Chinese FDI on textiles. But, the Chinese have their own sourcing and market. Anyway, FDI is not coming the way we are expecting.

 

[Nilgiri]

Only was to close the gap is to increase FDI. There is no other way.

There are other ways....but it needs BD businessfolk (and all govt ppl handling/related to them) to have enough buffer and capability to take sustained calculated risks in this competitive+globalised world. But nearly all of them seem settled into status quo and mediocrity (just judging by how much FDI BD has put out compared to what it has received...that ratio is far worse than the low level of incoming FDI).

Longer term, BD needs not only more better education system (to deliver the quantity for quality selection later)....but also the apex attitude for those that are at the apex in BD.

As far as I have read FDI guys are going to Burma where there are plenty of lands and people are docile. A company builds a factory in Burma gets the benefit of the automatic entry to the ASEAN market. It is not so for BD. BD has the international market for textiles but not all companies deal with this item. For the time being, at least, we can expect mostly the Chinese FDI on textiles. But, the Chinese have their own sourcing and market. Anyway, FDI is not coming the way we are expecting.

But what does BD model offer as FDI demand in RMG/textiles?

The model is saturated more or less....it simply a case of expanding the amount of capital and keeping costs low. None of that needs FDI to be honest. BD can simply raise any short-mid term financing money it needs from its own savings and loans from its own stock market/banks etc....BD businessppl are most experienced at this already....a foreigner would just be confused and at a disadvantage to take risk there. Like maybe final tier stuff (QC process control, sales, marketing, top level designing etc) has some scope for FDI, but it would not be a huge amount money wise....and I would imagine whatever parts of it that are relevant for BD are happening already.

"Real" FDI is driven by more what you don't know how to do, or do well (compared to say global average or global best at later stage)....and thus you need someone to bring their expertise (and they do so at their own risk mostly...given they deemed your market can enrich them in a win-win). BD is simply quite inept at this for multiple reasons....if I am not mistaken the largest "FDI" chunk lately is simply mostly from a tobacco company acquisition from Japan....we will have to see if its even counted by the UNCTAD under the global FDI norm (as opposed to simple M&A which they account differently in some reports).

 

[mmr]

There are other ways....but it needs BD businessfolk (and all govt ppl handling/related to them) to have enough buffer and capability to take sustained calculated risks in this competitive+globalised world. But nearly all of them seem settled into status quo and mediocrity (just judging by how much FDI BD has put out compared to what it has received...that ratio is far worse than the low level of incoming FDI).

Longer term, BD needs not only more better education system (to deliver the quantity for quality selection later)....but also the apex attitude for those that are at the apex in BD.



But what does BD model offer as FDI demand in RMG/textiles?

The model is saturated more or less....it simply a case of expanding the amount of capital and keeping costs low. None of that needs FDI to be honest. BD can simply raise any short-mid term financing money it needs from its own savings and loans from its own stock market/banks etc....BD businessppl are most experienced at this already....a foreigner would just be confused and at a disadvantage to take risk there. Like maybe final tier stuff (QC process control, sales, marketing, top level designing etc) has some scope for FDI, but it would not be a huge amount money wise....and I would imagine whatever parts of it that are relevant for BD are happening already.

"Real" FDI is driven by more what you don't know how to do, or do well (compared to say global average or global best at later stage)....and thus you need someone to bring their expertise (and they do so at their own risk mostly...given they deemed your market can enrich them in a win-win). BD is simply quite inept at this for multiple reasons....if I am not mistaken the largest "FDI" chunk lately is simply mostly from a tobacco company acquisition from Japan....we will have to see if its even counted by the UNCTAD under the global FDI norm (as opposed to simple M&A which they account differently in some reports).

You know the problem is. BAL dont like when people ask question about economic growth. And since they keep posting 8 percent Stronk numbers they are unwilling to make real reforms and do things that need to be done. I am afraid by the time they relaize how they fucked up the economy it will be too little too late. For example foreign exchange since 2016 didn't increase. Why is that? If economy growing at record level. They have allocated lot of money on coming budget on science and technology but if you observe carefully most of the money on the science and technology will go to nuclear power plant which is build by foreign engineers. It's a white elephant just to do dick measuring. Budget allocation on health and education going down every year as percentage of GDP. This bal people are obsessed with mega projects. Ease of doing business in India is 77 and bd is 176. Hasina should learn it from modi how to improve this.

And then you have defaults loans. Almost 10 percent of total outstanding loans. Most are held by politically connected bal people. since we dont have strong bond market and low investment rating I dont know how bd will sustain the GDP growth and investment unless its fdi. Public investment is never sustainable for high growth.