Healthy banking sector key to ensure sustainable economic development

Business Initiative Leading Development (BILD) Executive Director Ferdaus Ara Begum has emphasized the critical role of a robust banking sector in ensuring sustainable and effective economic development. Describing the banking sector as the lifeline of a country's economy, she highlighted the need for easy access to bank loans, particularly for entrepreneurs in the small and medium-sized enterprise (SME) sector. She stressed that developing the SME sector is essential for it to serve as a backward linkage to larger industries. Ferdous Ara Begum shared these insights in an exclusive interview with 'Views Bangladesh,' conducted by economic writer M A Khaleque and the Assistant Editor of Views Bangladesh, Girish Goiric.

Views Bangladesh: You have been appointed as a member of a committee on the 'State of the Economy.' Can you elaborate on the scope of your work for this committee?
Ferdaus Ara Begum: Our committee is tasked with preparing a comprehensive White Paper on the State of the Economy, which will provide a detailed report on the current conditions across various sectors of the economy. We have been given three months to complete this report. The committee consists of 12 experts from diverse fields. My inclusion is due to my extensive experience working with the private sector, focusing on investment and business environments. This task is both complex and time-consuming, but we are dedicated to delivering a thorough and accurate report to the government within the designated timeframe.

There have been significant concerns regarding the transparency of the data underlying perceptions about our investment and business environment. Accurate data usage and assurance are crucial for maintaining a sustainable economic position. The report addresses a range of economic areas, including employment, poverty reduction, social security, energy, major project financing, internal revenue collection, growth analysis, government expenditure, banking sector issues, and our data management ecosystem. It will also explore potential measures to improve the current situation.

Unlocking the vast potential of the Bangladeshi economy and leveraging it for public welfare is essential for achieving inclusive development. While we may not be able to resolve all economic issues, collective effort can help us identify and define these problems. The government will then use our recommendations to formulate policies. The committee will prioritize transparency and work to minimize the misuse of information in future planning.

In examining the business environment, particularly for small entrepreneurs, we have identified several challenges. For example, while there are numerous registered projects across various sectors, the actual investment has often fallen short. Despite foreign investors registering with the Board of Investment, many have not proceeded with their project proposals, and the Bangladesh Investment Development Authority lacks accurate statistics on implemented investments. Efforts are being made to better serve investors through their OSS, and further steps should be taken to enhance their effectiveness.

One of our key objectives is to determine the exact statistics related to project proposals submitted by entrepreneurs to the Board of Investment. We need to understand the obstacles they face in implementing their projects, identify ways to overcome these challenges, and pinpoint the necessary measures and areas of improvement. Since investment proposals involve significant costs, it is crucial to ascertain why certain projects are not executed. Understanding these reasons will help us create a more conducive investment environment for future entrepreneurs.

Views Bangladesh: What are your thoughts on why foreign entrepreneurs sometimes abandon their projects despite presenting investment proposals?
Ferdaus Ara Begum: Before a foreign investor commits to a project, they thoroughly research the country’s business environment, policies, labor force, and compliance requirements. They proceed with their investment only if they are satisfied with the information gathered. It is encouraging that investors are considering our country for their projects, and it is essential that we work to retain their interest. By understanding why foreign investors might withdraw their projects, we can implement effective measures to address these issues and prevent similar situations in the future.

Despite government assurances about an investment-friendly environment, it is crucial to assess the actual conditions of the existing investment climate. Without a clear understanding of the underlying issues, it is impossible to implement effective solutions. Identifying the obstacles allows investment promotion agencies to take targeted actions to address them, potentially increasing private sector investment in the future. Legal complexities often pose significant challenges in attracting both foreign and local investments. Therefore, research is needed to navigate and simplify these legal barriers.

Bangladesh boasts a substantial population of 180 million, and consumer demand and spending power have reached unprecedented levels. Bangladeshi entrepreneurs benefit from duty-free Generalized System of Preferences (GSP) for exports to the European Union, making the country an attractive destination for foreign investors seeking to leverage these benefits and tap into the large consumer market. However, investment proposals should not merely stop at registration and signing of Memorandums of Understanding (MoUs); they must be focused on actual implementation. Successful project execution is essential for generating employment and reducing poverty.

Views Bangladesh: Is the committee addressing any specific issues related to the state of the economy?
Ferdaus Ara Begum: The committee comprises economists with extensive experience in analyzing the country's socio-economic conditions. They will apply their expertise to various economic issues, including why revenue collection is not meeting expectations. We aim to identify weaknesses in the economy and social management. We are currently navigating a new environment that presents opportunities to enhance our socio-economic status. It is crucial to determine how best to capitalize on this situation. The committee will explore how Bangladesh can leverage these changes, recognizing that while the country has achieved notable successes in economic and social development, there remains untapped potential.

Views Bangladesh: Private sector investment in Bangladesh is not growing as desired. As a developing country, why is private sector investment lagging behind expectations?
Ferdaus Ara Begum: Investment in the private sector has indeed been stagnant for some time. Although overall investment is rising, it has not kept pace with GDP growth. Similarly, while GDP is increasing, employment growth has not followed suit. Sustainable economic development hinges on boosting private sector investment to the desired level. Bangladesh is committed to eradicating poverty, but without increased private sector investment, we cannot create sufficient employment opportunities, which are essential for poverty alleviation.

The COVID-19 pandemic and the Ukraine war have disrupted private sector investments, exacerbating the issue. Additionally, political uncertainty has led many entrepreneurs to adopt a cautious approach to new investments. Foreign investors typically evaluate the investment environment, political stability, and social conditions before committing to investments. As a result, creating a stable and supportive environment for private sector investment is crucial for driving economic growth and employment.

Views Bangladesh: What are the prevailing trends in the current international perception of Bangladesh's investment environment?
Ferdaus Ara Begum: Internationally, Bangladesh’s investment climate is not viewed very positively. In the latest 'Ease of Doing Business' index from the World Bank, Bangladesh was ranked 176th out of 190 countries. The World Bank has recently introduced a new index called B-Ready (Business Ready), and a forthcoming report will provide a detailed overview of Bangladesh's business environment. A strong position in these indices can signal to investors that improvements are underway. However, foreign investors seek assurance of adequate profits, capital security, and the ability to repatriate their profits before making investment decisions. In Bangladesh, it typically takes three to four years from the registration of an investment proposal to its implementation, primarily due to delays in obtaining approvals from various offices. Simplifying the legal process for investment registration is essential.

Views Bangladesh: In terms of industrial development, which is more crucial for Bangladesh—small-scale industries or large-scale industries?
Ferdaus Ara Begum: There seems to be a debate about the relative importance of large-scale versus small-scale industries. In reality, there is no conflict between the two; both play crucial roles. Large-scale industries are essential for producing certain types of products that cannot be manufactured by small-scale industries alone. Therefore, establishing large industrial projects is necessary. However, this does not mean we should neglect small or cottage industries. Small-scale industries require less capital and can create employment opportunities on a broader scale. There is considerable interest among Bangladeshis in becoming entrepreneurs, but banks and financial institutions often show limited enthusiasm for financing small entrepreneurs, partly due to legal complications. Encouraging small-scale entrepreneurship is vital. Establishing effective linkages between large and small enterprises can help sustain small entrepreneurs, as seen in other countries. In Bangladesh, large enterprises often rely on imports rather than sourcing from local small businesses. Improving the quality of locally manufactured goods and adjusting tax policies could enhance this situation.

Views Bangladesh: In developed countries, capital markets are a key source of long-term investment. Are entrepreneurs in Bangladesh making efforts to attract investment from the capital market?
Ferdaus Ara Begum: In developed countries, capital markets are indeed a primary avenue for long-term investments. However, in Bangladesh, entrepreneurs have not been actively seeking investment from the capital market. This is largely due to the capital market’s history of corruption and irregularities. The market has been dominated by a few individuals, and despite investigations, many issues have not been publicly addressed. This lack of transparency has eroded investor confidence in the capital market. It is crucial to rectify this situation and restore trust in the capital market. Initiatives like the SME board for small entrepreneurs and the Pink board for women entrepreneurs are steps in the right direction. If these platforms are utilized effectively, they could potentially enhance opportunities and success for entrepreneurs in the future.