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Sundayy, March 5, 2017

http://dailyasianage.co
om/news/505
563/competittiveness-of-b
bangladesh

Com
mpetittivene
ess off Bang
glades
sh
M S Siiddiqui
Competittiveness is a multidimensi
m ional concep
pt, while perspectives varyy. A nation's competitiven ness
is determ
mined by its geeopolitical sttatus, compettitive infrastrructure, glob
bal connectiviity, people's
power, leadership and d governancee. The ultima ate goal of commpetitivenesss is the susta
ainable wellbbeing
of the peo
ople. Accordiing to Regan Administrattion's Presideent's Commi--ssion on Ind dustrial
Competittiveness, "Commpetitivenesss is the degree to which a nation can, under free and a fair mark ket
conditionns, produce goods
g and serrvices that meet the test ofo internation nal markets while
w
simultaneeously mainttaining or exp panding the real
r incomess of its citizen
ns" (1985).

Bangladeesh is one of the


t major eco onomies in South
S Asia. Allthough it beelongs to the group of Lea
ast
Developeed Countries (LDCs)-overr the last deca ade it has shoown some deegree of succeess in addressing
the econo
omic problem ms and allevia
ating povertyy. It has 6% GDP
G growth anda expects tot increase att an
appreciatting level by 2020.
2 Banglaadesh achievved a growth rate
r far higheer than that of
o the most lo
ow-
income coountries.

JP Morga an, Goldman Sachs, Citico orp, and Merrrill Lynch ha ave identified
d Bangladesh h as a highly
attractivee investment destination, projecting th he country to
o be the next Asian Tiger. JP Morgan
included Bangladesh in i their 'Fronntier Five'. Th
he Frontier Five
F was seleccted on the relative
attractiveeness of thesee countries' macroeconom
m mic and demo ographic trennds. Goldman n Sachs incluuded
Bangladeesh in its list of
o 'Next 11' affter the BRICC countries (B
Brazil, Russia, India, andd China) and
identified
d it as a counttry with poteentials to emuulate the BRIIC nations.

In develo
oping countries lacking internal sourcee of capital an
nd higher gro
owth returnss have been liinked
to successs in attractin
ng and keepin
ng foreign invvestment. Baangladesh haas to see its co
ompetitive
advantage in more creeative terms rather than ini terms of chheap labor an
nd garments..

Lack of adequate
a reso
ources for invvestment hass been consid dered one of the major ob bstacles for
coming out of the und derdevelopment trap. In thet coming years, Banglad desh will reqquire a
consideraable increase in investmen nt - perhaps worth almosst $50 billion n and 40% of the GDP. On n the
other hannd, the curren
nt investmen nt is less than
n 30% of GDP P. The additional investm ment would
require reesource mobilization by inncreased revvenue earning gs, larger infllows of foreig
gn aid, and
increasedd foreign and
d domestic invvestment. To o attract inveestment-whetther domestic or foreign- the
country's policy makeers will need to
t focus on how
h to create a good invesstment clima ate.

This environment is generally


g seenn as having thhree main feeatures: macrroeconomic conditions,
c
governannce, and infraastructure. Macroeconom
M mic factors incclude issues like
l fiscal, mo
onetary, and
exchangee rate policiess, and politica
al stability. Governance
G r
relates to govvernment inteeractions witth
business--which typicaally mean reg gulation and corruption-b both of which h affect the co
ost of starting and
running a business. Innfrastructuree refers to thee quality andd quantity of physical
p infra
astructure (ssuch
as power, transport, and telecommunications). More broadly, it can also refer to financial
infrastructure (such as banking) - or access to finance.

The basic reasons behind lower investments is poor investment friendly environment due to policy
discontinuity, red tapes, administrative hassles, corruption in public services, ineffective
implementation of the legal system, political turmoil, unsatisfactory law and order situation, poor
conditions of infrastructure communications medium, shortage of skilled labor, and trade policy-
related impediments and as such. There is also the problem of inadequate and erratic supply of
power and gas and competition with illegally imported products that evade taxation which
discourage investors to invest in the country. Moreover, the nation suffers from a crisis of trust:
businesses do not trust official, and officials do not trust businesses.

Bangladesh is compared highly unfavorably against other competing countries. The net result in cost
of production becomes high despite of so-called cheap labor cost. Bangladesh needs to follow a
strategic game plan for the investment in infrastructure, improvement in technology and skills,
develop streamline policies, and improve quality and safety standards. At the same time, it needs
both domestic and foreign investments.

It needs high rates of saving and investment, which are essential prerequisites for high economic
growth, but domestic saving in Bangladesh, on which investment greatly depends, has remained
stagnant at around 20.0% of GDP in the most recent years. The Global Competitiveness Report
2012-13 revealed that Bangladesh ranked 118th (108th in 2011-12). Countries advanced from behind
are: Dominican Rep., Nicaragua, Guyana, Cameroon, Nigeria, Senegal and Paraguay. GCI score of
Bangladesh also declined by 2.1% (from 3.73 in 2011 to 3.65 in 2012-13). Unfortunately the ranks in
the three main pillars dropped sharply.

Basic requirement such as position for institution, macroeconomic stability, and infrastructure
declined from 112 to 119th and score: 3.72 from 3.81 at a rate of 2.4%. Efficiency enhancer i.e.
education, market efficiency, financial market and technological ready declined to 107th from 99th
position and slip of score is 3.62 from 3.69, and the decline rate is 1.9%. Innovation and
sophistication means research and other indicators declined from 122nd from 113th, with a reduced
score to 2.98 from 3.04, and reduction rate is 2.0%.

Bangladesh has recorded steepest fall in its competitiveness since 2003-04 in a global survey due to
a weakening of public sector institutions' performances, poor infrastructure, deteriorating economic
stability and financial sector efficacy. This is the third year in a row that Bangladesh has lost its
competitive edge since 2009-10, when the country jumped five positions. In 2003-04, Bangladesh's
rank slipped by 24 steps. Despite Bangladesh's falling ranking in the past years, its overall score was
rising.

This year, the country's score in competitiveness has also fallen. Businesses found inadequate
infrastructure, corruption and lack of access to finance emerging as the top three problematic factors
in doing business here. Rising worries about political instability was another problematic factor for
doing business. The financial market was at a disastrous state in 2012 because of deterioration in
banking sector's poor performance, weak monitoring and supervision security markets, and difficulty
in getting loans. The unfavorable actions and policies of the government are greatly contributing to
aggravate the situation. Other Asian countries like Sri Lanka dropped by 16 positions to 68th,
Pakistan by 6 positions to 124th, India by 3 positions to 59th and China by 3 positions to 29th,
according to the GCI scores.

The top three problematic factors for doing business included lack of access to finance for the first
time along with the problems of poor infrastructure and prevalence of corruption. The weaknesses of
public institutions remain weak subsidy management, unreliable police services and failure to
address income inequality issues, as exposed in 2012. At the same time the Doing Business 2013
report of World Bank published another report. Eastern Europe and Central Asia improved the most,
overtaking East Asia and the Pacific as the world's second most business-friendly region according to
doingbusinessindicators. OECD high-income economies continue to have the most business-friendly
environment. Bangladesh ranking is at the bottom of the list. As reflected in the ranking on the ease
of doing business, the 10 economies with the most business-friendly regulation are Singapore, Hong
Kong SAR, China, New Zealand, the United States, Denmark, Norway, the United Kingdom, the
Republic of Korea, Georgia, and Australia. Singapore tops the global ranking for the seventh
consecutive year. Bangladesh score is 127, whereas Indian ranking is 132, and Bhutan's is 148.

The competitiveness as the set of institutions, policies, and factors determine the level of productivity
of a country, which in turn influences the level of prosperity and the rates of return obtained by
investments earned in an economy. The concept of competitiveness thus involves static and dynamic
components. Although the productivity of a country determines its ability to sustain a high level of
income, it is also one of the central determinants of its returns to investment, which is one of the key
factors explaining an economy's growth potential.

The factors such as higher cost of funds and energy shortage have been responsible for scaring away
local and foreign investors over the years. The growth of private investment has remained stagnant
at around 24 per cent over the last several years. Moreover, investment proposal registered with BoI
declined more than 50 per cent to Tk. 50 billion in 2012, compared to the previous year. According to
Bangladesh Bank, the country received $700 million in the first half of the 2012-13 financial years. It
was $1.13 billion in 2011. The conditions and policy environment are not very investment-friendly.

In view of increasing competitiveness in the local with imported goods and global competition from
other countries, there is a need to ensure structural changes in the country's manufacturing sector to
create an investment friendly environment addressing the issue of high interest rate, high inflation,
lack of power and gas supply, weak infrastructure, absence of well developed supply chain etc. Low
capital and labor productivity can only be addressed through capital infusion, technology adoption
and skill development. Otherwise the investment will look for alternate destination. The competition
among the countries to attract local or Foreign Direct Investment (FDI) is on the basis of business
environment that include source of raw materials, production facilities, market feasibility etc.

The past decade's boom in exports, particularly the apparel sector is very significant to country's
economic growth, but the recent GDP growth has not led to significant improvements in the living
standards of most people and the social factors are still challenging. The key issues remain poor
quality infrastructure, particularly road networks and electricity supply, high cost of finance and
limited access to long term finance options. The improve investors' confidence the Government
needs to address all these issues including the slow pace of reformations in administration due to
bureaucratic stagnancy and lack of alignment of policies at the various levels of government, and
finally the perceived high level of corruption, even within the judicial system.

The writer is a Legal Economist