UK, US spot problems for investing in Bangladesh

Governance issues and power have made Bangladesh a difficult place for business, a joint UK and US study says.

Senior Correspondentbdnews24.com
Published : 22 Oct 2014, 10:05 AM
Updated : 22 Oct 2014, 01:19 PM

The ‘Inclusive Growth Diagnostic Study’ released on Tuesday focused on particular investment issues that impact most heavily on inclusive economic growth in Bangladesh.

The UK Aid and USAID jointly funded the study that analysed existing data to look into the issues that potential investors take into account when making investment decisions.

The report did not make any recommendations, however.

“It is vital we create a detailed, shared understanding of the challenges facing investment in Bangladesh,” DFID Country Representative in Dhaka Sarah Cooke said, making comment on the study, in a statement.

“This supports work across the development community, the Bangladesh government and the private sector to speed up inclusive economic growth”.

She said the report adds “valuable new insights, benefitting from the inputs of the UK and US analysts, building on what we already know”.

The report would also help in supporting “further collaboration”, Cooke said.

USAID Mission Director Janina Jaruzelski also pointed to this effort as “an opportunity for additional collaboration between the donor community and the government of Bangladesh”.

The report came when the government was developing its economic policy priorities, including the next Five Year Plan.

The study identifies the importance of addressing energy availability and protecting property rights.

Governance

The study found governance and power issues “the most binding constraint” for economic growth of Bangladesh.

It found the process of contract and property rights enforcement “costly, cumbersome and uncertain”.

This, it said, combining with an “inefficient and ineffective” land tenure system constrains private sector investment and growth.

The Bangladeshi business environment is one in which Bangladesh firms face “high temporal and administrative costs” in doing business.

“The combination of inefficient land administration and management system, and poor contract and property right enforcement combined with persistent corruption is increasingly impeding growth in Bangladesh,” the report commented.

“Corruption seems to underpin all microeconomic risks in Bangladesh by acting as a risk multiplier for other distortions”.

It said the long-term growth prospects for Bangladesh depended heavily on its ability to overcome a series of interrelated micro-level distortions, particularly poor contract enforcement and corrupt, costly and ambiguous land tenure system.

Electricity

Identifying electricity also ‘the most binding constraint’ to economic growth, the report said the shadow price of electricity was extremely high.

This is evidenced by un-served energy costs many times higher than that of paid bulk tariff rates for electricity.

Additionally, firms and the government itself attempt to bypass the difficulties caused by lack of electricity access by using private generators and building export processing zones (EPZs) with reliable electricity infrastructure that will attract both foreign and domestic investment.

Analysis has also shown that increasing power generation and consumption has in turn increased Bangladesh’s investment levels and economic growth rates.
These findings are further supported by most indices, firm surveys, as well as numerous in-country experts interviewed during a field visit.
“Unless strides can be made in bridging the current electricity supply gap, Bangladesh’s economic growth rate will continue to underperform relative to its potential,” the report said.
Though the study does not reference education as a major investment issue, it notes the importance of education policies – particularly in tertiary education – to supporting Bangladesh’s future economic potential.
The study also assesses the challenges faced by investors in the garment and textile sectors, including power supply, labour skills, and access to finance.
It also analyses the constraints facing women entrepreneurs, looking in particular at social norms that restrict opportunities, educational attainment, and limits to economic empowerment.