Competitiveness of bangladesh

 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 com mpetitivenesss is the susta ainable wellb being of the peo ople. Accordiing to Regan Administrattion's Presideent's Commi--ssion on Ind dustrial Competittiveness, "Com mpetitivenesss is the degree to which a nation can, under free and a fair mark ket condition ns, produce goods g and serrvices that meet the test of o 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 sho own some deegree of succeess in addressing the econo omic problem ms and allevia ating povertyy. It has 6% GDP G growth and a expects to t increase att an appreciatting level by 2020.

2 Bangla adesh achievved a growth rate r far higheer than that of o the most lo owincome co ountries.

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 'Fron ntier Five'. Th he Frontier Five F was seleccted on the relative attractiveeness of thesee countries' macroeconom m mic and demo ographic tren nds. Goldman n Sachs inclu uded Bangladeesh in its list of o 'Next 11' affter the BRIC C countries (B Brazil, Russia, India, and d China) and identified d it as a counttry with poteentials to emu ulate 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. Ba angladesh ha as to see its co ompetitive advantage in more creeative terms rather than in i terms of ch heap 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 the t coming years, Banglad desh will req quire a considera able increase in investmen nt - perhaps worth almosst $50 billion n and 40% of the GDP. On n the other han nd, the curren nt investmen nt is less than n 30% of GDP P. The additional investm ment would require reesource mobilization by in ncreased revvenue earning gs, larger infllows of foreig gn aid, and increased d 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 seen n as having th hree main feeatures: macrroeconomic conditions, c governan nce, and infra astructure. 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 typica ally mean reg gulation and corruption-b both of which h affect the co ost of starting and running a business. In nfrastructuree refers to thee quality and d 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 policyrelated 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

Â