FY24 budget: No big news in private investment

All industrial imports, ranging from raw materials to capital machinery, have slowed down due to the dollar crisis, while the industries have been suffering from an energy crisis.

All of these issues have eventually translated into a production slump and a low export.

On the flip side, the prevailing low interest rate could not reinvigorate investments in the private sector. The investments are growing, but not at the expected pace.

According to the Bangladesh Bureau of Statistics (BBS), investments are expected to total Tk 13,870 billion upon completion of the ongoing fiscal year 2022-23, with a year-on-year growth rate of 9 per cent. Of the amount, some Tk 10,490 billion has been invested in the private sector, resulting in a growth rate of 7.81 per cent.

In financial calculations, investments are usually compared to the country's gross domestic production (GDP). Bangladesh now has an investment-to-GDP ratio of 23.64 per cent, which was 24.52 per cent in the previous fiscal year. The private sector investments have almost come to a standstill over the past seven years.

According to experts, private investment is now one of the major concerns in the economy. If the current situation does not improve quickly, new job creation will stall and inflationary pressure will not subside.

In this context, finance minister AHM Mustafa Kamal is all set to present the budget for fiscal year 2023-24 in parliament on Thursday. It will be Tk 7.6 trillion budget where the minister is expected to face a big challenge to reduce inflationary pressure and stimulate private investments.

Zahid Hussain, former lead economist of the World Bank's Dhaka office, told Prothom Alo that there have long been different sorts of problems in the investment sector. For example, investors have to move from office to office, or they do not find suitable land. The government has launched economic zones and a one-stop service (OSS), but they are yet to be fully implemented and come into effect.

It means that no initiatives that can have a major impact on investment have reached the final stage. Additionally, the dollar crisis has appeared as an additional concern for investments.

Zahid Hussain also said there is a large negative growth in the import of capital machinery due to complications in opening letters of credit (LCs) amid the dollar crisis. This is why the investments did not meet expected levels.

The business environment in Bangladesh has not significantly improved; in fact, it has worsened in three indicators over the past year, according to a survey of the Business Climate Index (BBX).

The survey report, released in January, said availing bank loans has become a complex process for the business people, while harassment in tax payment has increased compared to previous times. Additionally, acquiring land for factories or businesses has become difficult.

The Metropolitan Chamber of Commerce and Industry (MCCI) conducted the survey in collaboration with the private research firm Policy Exchange.

Masrur Reaz, chairman of Policy Exchange, said the energy crisis is currently disrupting production in local industries, which is discouraging new investors as well as existing businesses. He believes that the budget should have a special allocation to address this issue.

Reaz also noted that investors have numerous complaints regarding the prevailing tax system. Despite several phases of reduction, the total tax amount in Bangladesh remains considerably higher compared to other South and Southeast Asian nations.

He suggested further tax cuts in the upcoming budget, simplification of the tax system, and reduction of multiple tax rates to have a positive impact.

Foreign direct investment (FDI) is crucial in the field of private investments. Bangladesh received USD 2.9 billion in FDI in 2021, which increased to USD 3.48 billion in 2022.

However, the trend of new capital investment has been negative, while reinvestment has seen an increase.

Economists explain that many companies were unable to make profits in their own countries due to the dollar crisis, resulting in higher reinvestment figures in the documents. It cannot be said that the entire amount has been invested.

According to the seventh five-year plan, FDI was expected to be three to four per cent of GDP. Even if a 3 per cent FDI-to-GDP ratio is taken into account, the investments should have been at least USD 10 to 12 billion.

However, the current situation is very poor and private investment has also underperformed. The five-year plan had set a private investment target of 28 per cent, which could not be achieved.

Abdul Kashem Khan, former president of the Dhaka Chamber of Commerce and Industry (DCCI), said investors prioritise returns while making investments. They become reluctant to invest when they see business disruptions due to systemic problems.

The Japanese have shown interest during the prime minister's trip there, but they noted some issues in the business environment in Bangladesh and said these issues are not being fixed quickly.

Production has declined in various sectors, including textiles, readymade garments, ceramics, and steel, due to energy crises and reduced demand. Textile and ready-made garment sectors have suspended new recruitment while some factories are laying off workers.

The export orders have decreased significantly in Bangladesh due to the Russia-Ukraine war. Goods worth USD 18.37 billion have been exported in the first four months of the current year, which is down by 1.5 per cent from the previous year's same period. 

The readymade garment sector composed 84 per cent of the total exports, with a growth rate of only 0.77 per cent. 

Mohammad Ali, president of the Bangladesh Textile Mill Association (BTMA), said the overall business environment is currently not favourable for investors. Textile sector factories are operating at 50 per cent capacity due to the energy crisis, leading to suspended recruitment.

Ali himself had to lay off 400 workers from his company due to a lack of purchase orders and the energy crisis.

Meanwhile, the number of unemployed individuals in the country stands at 2.6 million, according to a labor force survey.

Zahid Hussain, former lead economist of the World Bank, said the time to put the blame solely on the war is over. Bangladesh is not the only country to suffer from the Russia-Ukraine war. Inflation is coming down in other countries, foreign investment is rising and growth is taking place. Then why can't Bangladesh?

He suggested Bangladesh should recognise the root causes and resolve those. It should come out of the strategy of blaming the war for everything.