Tuesday, July 28, 2020
YOUR RIGHT TO KNOW
Home Business
12:00 AM, July 27, 2020 / LAST MODIFIED: 02:25 AM, July 27, 2020
Lifting private investment would be a tall order
4
Shares
Rejaul Karim Byron
The government is aiming to lift private investment to GDP ratio to a record 25.3 per cent this fiscal year although the coronavirus-induced uncertainty showed no signs of abating and structural challenges are largely unaddressed.
The ratio is just doubling of the revised private investment-to-GDP ratio of 12.72 per cent in the just-concluded fiscal year.
In the wake of the devastating coronavirus pandemic, the government was compelled to revise down the private investment target, from 24.2 per cent, as the economy came to a screeching halt, rendering factories, industries and offices closed.
The target is only a percentage point higher than the actual private investment ratio last fiscal year.
But private investment's historical trend even during normal times also did not show much hope: it has been ranging between 22 and 24 per cent for more than a decade.
The Bangladesh Bureau of Statistics has not published the actual private investment figure for the last fiscal year. However, everything would depend on where the coronavirus rampage hits the brakes.
The infections from the deadly pathogen are growing rapidly in Bangladesh and many parts of the world. Some 2,275 people tested positive for COVID-19 in the last 24 hours, said the Directorate General of Health Services yesterday. Some 54 people died, taking the total death toll to 2,928.
"I think neither the public investment target nor the private investment target would be achieved in the current fiscal year," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
Revenue earnings have plummeted because of the pandemic, which is compelling the government to go for slashing expenditure.
As a result, public investment would be lower than the target.
At the same time, there won't be much new investment unless the pandemic passes, said Mansur, a former senior official of the International Monetary Fund.
In Bangladesh, the job creation rate is lower than the proportion of the people entering the workforce.
The unemployment rate is 4.2 per cent, according to the Bangladesh Labour Force Survey of 2016-16.
Bangladesh has been maintaining the same unemployment rate for many years and it would remain the same in the coming years, said the macroeconomic policy statement of the finance ministry. The government has, however, taken some commendable steps to woo investment.
It has taken a plan to set up 100 economic zones to create about one crore new jobs. Development work on 93 economic zones has already been approved. Among them, permission was given to 11 EZs in the private sector, of which 8 have already commenced operations.
The government has brought in a major amendment to the Companies Act allowing setting up of single-member companies, a move that is expected to give a boost to entrepreneurship, draw investors and support the growth of SMEs.
The government has formulated the new Customs Act.
The One-Stop Service Rules 2020 has been issued to implement the OSS system so that investors can get different kinds of investment-related services easily and quickly from government offices.
Firms looking to establish a new business in Bangladesh must navigate a non-transparent and cumbersome regulatory space that includes services delivered by 34 different line agencies, the World Bank said recently.
As investors re-establish but also rethink their supply chains in the aftermath of the COVID-19 crisis, addressing the onerous administrative barriers to the business formation in Bangladesh is even more urgent, it said.
Job growth in the garment sector has come to a halt and overall employment creation have started to decelerate from 2013.
Slowing job creation has stunted the transformation of the labour market, where informality and poor job quality remain the norm.
Just one in five workers are wage employed, and both formal and informal workers experience vulnerability and poor working conditions.
Exploiting the potential for diversified export-oriented sectors as job creators will require an improved capability to attract and service new FDI and domestic investors, the WB said.
The WB has approved $250 million for Bangladesh to facilitate the implementation of key reforms to promote more and better jobs while supporting Bangladesh's response to the pandemic.
Bangladesh's private investment hovers around the 23 per cent-mark even in normal times, so there is no possibility that it would go past 25 per cent during this difficult period, Mansur said.
It is unlikely that the pandemic would vanish this year and the situation may persist even in the second half of next year, he said.
Bangladesh's infection rate of 22 per cent is very high compared with other countries, he said. The rate has to be brought down to less than 5 per cent to say that the situation is under control.
"Under the current situation, new investment would not take place," he said, adding that there might be some investment in existing operations.
The country would have to get rid of structural challenges to take the investment to a new height.
Bangladesh would have to maintain macroeconomic stability, attract FDI, enhance the skill of workers, improve infrastructure and keep the price of electricity at a tolerable level, he said.
Private sector credit growth target was set at 16.7 per cent in fiscal 2020-21, which was 8.61 per cent in the last fiscal year.
The private sector credit growth would not accelerate much because of the subdued demand in the economy. The banking sector has been suffering long from its own set of problems, including bad loans.
However, the expected disbursement of most of the stimulus packages amounting to Tk 103,117 crore may boost private credit growth. Most of the funds would be released through the banking channel.
