Private sector investment key to sustainable development

Every nation strives to achieve rapid and sustainable development. The core responsibility of any government is to ensure the optimal use of limited resources to maximize public welfare and elevate the country to the peak of development. A government that fulfills this responsibility effectively and brings development to all sectors of society is considered a government committed to public welfare. Many people believe that simply achieving economic development will fulfill the primary goal of development, but this belief is not entirely accurate. Development is a comprehensive concept, not limited to just economic progress. While economic development is an important indicator, it is not the sole measure of overall development. In other words, without achieving positive progress in other development indicators alongside economic growth, it cannot be considered balanced development. Economic growth is crucial, but it is not the only criterion for development.

If the benefits of economic development are not equitably distributed among the general population, that development can never be considered genuinely beneficial or balanced. Without progress in areas such as education, healthcare, public health, and social justice, alongside economic development, true development cannot be achieved. Investment is essential for any kind of development. Without investment, development is simply not possible. Investment is required both for the exploration and extraction of natural resources, as well as for the production of new goods and services. Developing countries like Bangladesh constantly face a shortage of investable funds or resources. These countries cannot simply spend money on development as they wish. Therefore, they must seek investment from various domestic and foreign sources. While nature has blessed most countries with vast resources, the investment needed to explore and extract those resources is often lacking in many nations.

Therefore, these countries have to rely on foreign investment. To acquire investable resources and use them effectively, a government must be in power that is accountable to the people and cannot misuse investable resources at will. If a government is disconnected from the public, it has no obligation to work for the welfare of the people. Typically, during the rule of an anti-people government, efforts to protect the interests of individuals and groups are disguised as development. The hallmark of an authoritarian and disconnected government is making development efforts visible, whether that development is sustainable or fragile. A disconnected government typically invests more in infrastructure than in productive sectors and focuses on visible development. The main advantage of infrastructure development is that it can be used to convince the public that development is taking place in the country. However, economists believe that the real purpose of infrastructure development is to support productive private sector entities.

Government investment generally does not benefit the productive sector. For example, when the Padma Bridge was inaugurated, it was claimed that its construction would increase GDP growth by 1 to 1.5 percent. However, the specifics of how this growth would occur were not explained. The Padma Bridge, by itself, cannot contribute to GDP growth. If there is significant industrialization in the southwestern region of the country, the Padma Bridge could contribute by providing transportation facilities. But have we created an effective and conducive environment for investment? Without that, how can we expect GDP growth to reach the desired level? During the tenure of an anti-people government, sectors like education and health are severely neglected. In contrast, excessive importance is given to infrastructure development. Similarly, instead of mobilizing resources from domestic sources, such governments become excessively dependent on foreign loans.

What do we observe when we review Bangladesh's development strategy? In recent times, especially under the leadership of the Awami League in the past 15 and a half years, the infrastructural development achieved has surpassed what any other government managed in the previous 53 years. At the same time, the amount of money embezzled and the corruption that has occurred under the name of development during this period is unprecedented. In the name of development, infrastructural improvements have been made visible, but at the same time, vast amounts of money have been siphoned off through various processes. The most infrastructural development in this region has taken place in the last 15 and a half years. Prior to this, during the nine years of the Jatiya Party's rule, there was significant infrastructure development. Before that, during the regime of General Ayub Khan in the former Pakistan era, substantial infrastructure development was achieved. The permanent bridges and roads constructed in villages during Ayub Khan's rule still stand as examples. Even many of the capital's major structures were built during Ayub Khan's time. Authoritarian governments tend to focus more on infrastructure development because it is visible, and there are greater opportunities for misappropriation of funds in the process of building such infrastructure.

Anti-people governments are generally not inclined to undertake the challenging task of resource mobilization from domestic sources. Instead, they fulfill their financial needs by borrowing from foreign sources. The burden of this foreign debt ultimately falls on the common people. Governments that rely on foreign loans for development, instead of mobilizing resources from domestic sources, tend to have a lower tax-to-GDP ratio. Among South Asian countries, Sri Lanka and Bangladesh have the lowest tax-to-GDP ratios. Sri Lanka's tax-to-GDP ratio is 7.4 percent, meaning the country collects 7.4 percent of its total GDP in taxes each year. Bangladesh’s tax-to-GDP ratio stands at 7.5 percent. In contrast, Japan's tax-to-GDP ratio is 34.1 percent, South Korea’s is 32 percent, and China’s is 20.1 percent. Even Pakistan’s tax-to-GDP ratio is 10 percent, while Bhutan's stands at 11.3 percent. Countries with comparatively low tax-to-GDP ratios have no other option but to rely on foreign loans if they wish to pursue development.

The recent development activities undertaken by Bangladesh are largely dependent on foreign loans. Bangladesh's foreign debt crossed the $100 billion mark for the first time in December last year. At this time, the per capita foreign debt stood at $592 or 65,000 BDT. In December of the previous year, the total foreign debt, combining both the private and public sectors, amounted to $100.64 billion, which is equivalent to 11 trillion 7 thousand 40 crore BDT. In the fiscal year 2023-2024, Bangladesh paid $328 crore towards foreign loan installments. In the current fiscal year, this is set to rise to $402 crore. By the fiscal year 2029-2030, the country will have to pay $515 crore in foreign loan installments. In the future, there may come a time when new loans will need to be taken to pay off the installments of old loans. There seems to be no moral obstacle or resistance when it comes to embezzling loaned funds.

After assuming office, the interim government formed a committee to draft a white paper in order to assess the actual state of the economy. In its preliminary report, the committee stated that over the past 15 and a half years, $24 billion worth of funds, under the guise of development, have been siphoned off from Bangladesh to foreign countries. One member of the white paper drafting committee mentioned that the amount of money illegally transferred abroad is even higher than the reported figure. In other words, much of this money never entered the country but was instead traded abroad in collaboration with various parties. A common trend of anti-people governments is their failure to invest in productive sectors or take initiatives to boost production. They primarily focus on infrastructural development. An example of this can be provided.

Bangladesh is rich in gas resources, but the proven reserves available can only sustain the country for the next 12 to 15 years. Without new gas exploration, Bangladesh could face a gas shortage. The government could, if it wished, implement nationwide gas exploration and extraction through the relevant institutions. However, the government seems more inclined towards importing liquefied natural gas (LNG) from abroad instead. The cost of importing LNG is at least five times more expensive than the cost of supplying locally sourced gas. Despite this, the government’s preference for importing LNG can be attributed to the opportunity for commissions. Instead of tapping into the vast domestic resources, there seems to be a greater interest in meeting the demand through imports.

The extraction of natural resources or the development and acquisition of new products and services requires investment. To secure this, funding must be gathered from both local and foreign sources. Additionally, a conducive investment environment must be ensured. Foreign investors are like migratory birds during the winter. Just as these birds will not take shelter in a pond or lake unless there is enough food and safety, foreign investors will not invest unless they see the security of capital and the potential for adequate returns. There is doubt about Bangladesh’s enthusiasm in creating a favorable investment environment. A few years ago, in the World Bank’s "Ease of Doing Business" index, Bangladesh ranked 176th out of 190 countries, indicating the state of our investment environment. Recently, the World Bank released a report titled "Business Ready," in which Bangladesh was placed in the fourth tier among 50 countries. A Japanese organization conducted a survey of Japanese entrepreneurs operating in Bangladesh and found that 70 per cent of them were dissatisfied with the business environment in the country.

Our focus seems to be on achieving development through increased reliance on loans. Both the extraction of natural resources and the creation of new resources require significant investment, but it appears that we are not paying attention to this. As a result, the potential for investment in the private sector is continually being eroded. It is important to note that investment in the private sector leads to increased production in the productive sectors, while investment in the public sector tends to encourage corruption and irregularities. Investment in the private sector has dramatically decreased. In November of last year, the growth rate of loans in the private sector was 7.66 per cent, the lowest since May 2021. Prior to that, when the maximum bank loan interest rate was set at 9 per cent, the target for private sector loan growth was set at 14.1 per cent, and the actual growth reached 14.7 per cent. However, at that time, imports of capital machinery, raw materials, and intermediate goods for industries had significantly decreased.

A prominent economist in the country states that in a developing economy like Bangladesh, private sector investment should account for at least 30-35 per cent of GDP. However, for over two decades, private sector investment has been fluctuating around 22-23 per cent of GDP. In the Seventh Five-Year Plan, the target was set at 28 per cent of GDP for private sector investment, but this target was not met. In the current fiscal year's budget, the target for private sector investment has been set at 27 per cent of GDP, which is unlikely to be achieved. The targets set in various sectors continually fail, but no one is held accountable for these failures. If we want to achieve rapid and sustainable development, increasing private sector investment is essential; but are we thinking about this?

MA Khaleque: Retired banker and writer on economic affairs.