Maximizing Growth for Bangladesh: A Private Sector Vision

1
Maximizing Growth for Bangladesh A Private
Sector Vision
UNDP , January 13, 2009
Ifty Islam, Managing Partner, Asian Tiger
Capital Partners 8801715840112,
ifty.islam_at_at-capital.com www.at-capital.com
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Can Bangladesh achieve inclusive growth of 8?
3
A Case for Optimism

• While Bangladesh has grown at 6 for the past 5
  years, despite Mother Nature and political
  volatility, we at the FBCCI believe that the best
  years for the country are ahead of us.
• Bangladesh 3 attractions for investors
• A large base of low-cost labour
• A rapidly growing domestic market of 150mn people
• In the heart of Chindia - Access to nearly 3bn
  people in the Asian region.

Can Bangladesh Achieve Inclusive Growth of 8?
4
Key Challenges

• Factors that need to be addressed by the
  government in order to achieve an inclusive
  growth of at least 8 include
• Solving the Power Crisis Reduce Transport
  Bottlenecks
• Increased private sector investment and improve
  Access to Finance
• Focus on greater FDI Effective Brand
  Bangladesh/Diaspora Strategy
• Skills development and improving vocational
  training
• Creating a dynamic SME sector
• Export Diversification New Sectors and Markets
• Opportunities from Greater Regional Integration

5
An Economic Vision

• It is critical for Bangladesh to develop a long
  term national vision 2020
• It should include detailed analysis and a
  practical roadmap for policy development and
  implementation.
• Extensive dialogue should be undertaken with
  civil society members, business chambers,
  non-government organizations, and other
  stakeholders.

6
Key Economic Challenges Facing the Next
Government
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Where has the power crisis originated?

• The demand for around 5,500MW of electricity is
  not met by an avg supply of only 3,500MW.
• Many power plants are idle due to the gas supply
  shortage.
• An inefficient transmission and distribution
  system operated by state owned companies are the
  main factor behind high system loss. A reduction
  of 1 system loss can save around 45 MW of
  power.
• Another factor is the lack of political and
  environmental consensus to tap Bangladesh's coal
  resources. We have a probable coal reserve of 3.3
  billion tones, which is around 5 times higher
  than our current proven gas reserve in terms of
  its heating value.
• A lack of transparency in power generation
  procurement and tendering in the past.
•  

The supply demand deficit for electricity is
widening
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Greater Focus on Diversifying Exports

• Diversifying exports adequate incentives for
  entrepreneurship development, and efficient
  appraisal of foreign direct investment (FDI)
  proposals.
• Bangladesh has significant export potential
  pharmaceuticals, leather goods, frozen foods,
  shipbuilding, and information technology-enabled
  services (ITES).

9
Education, Skills Development, Vocational
Training and Manpower Exports

• By 2015 revenues in the manpower sector could
  reach USD 30bn, which will require a focused and
  targeted strategy on vocational training along
  with investment in HR consultancies.
• Most Bangladeshi migrants are young, male,
  unskilled, aged between 15-30 years and poorly
  educated.
• Only 10-20 are certified vocationally trained
  and less than 10 of general college graduates
  are exportable.

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Looking Ahead 
The charts below from a survey of 1200 people
conducted by the Bangladesh Investment Climate
Fund (BICF) highlight the ongoing perceived need
for major economic reforms in Bangladesh as well
as the lack of clarity that the next government
will deliver on them.
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An Economic Roadmap to deliver 8 inclusive growth
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Energy Short-term Plan

• More Rental Power Plants (RPP) need to be
  installed to overcome the short term power
  crisis.
• The Coal Policy needs to be finalized as early as
  possible.
• The government should implement the merchant
  power policy immediately.
• The government can set up some small coal fired
  power plants and can import coal from India on a
  temporary basis before developing our own coal
  mines.
• A more efficient and faster procurement and
  tendering process should be adopted for quicker
  implementation of any project.
• Reducing system loss in the power sector should
  be a priority as a reduction of 1 system loss
  can save around 45 MW of power.

13
Energy Long-term Plan

• Accelerate the development of Phulbari and
  Bangladeshs other coal deposits and
  simultaneously build large-scale coal-fired power
  stations.
• The government needs to focus on new gas field
  exploration to fuel the existing gas based power
  plants.
• The recoverable proven remaining reserve of gas
  is around 8.1 TCF which will start depleting
  after 2012. The maritime boundary dispute with
  India and Myanmar is a major barrier to offshore
  gas exploration, and should be resolved as soon
  as possible.
• The government should declare the next 5 years
  plan of action for BAPEX. Should set up at least
  6 exploration wells every year.
• If needed, energy bond or levies should be
  charged to raise funds.

14
Transport Infrastructure Priorities

• The government may opt for public-private
  partnership (PPP) for the construction of the USD
  500mn Dhaka Elevated Expressway (DEE) to ease
  Dhaka citys severe traffic problem.
• Construction of the Dhaka-Chittagong highway
  should be accelerated. Upgrade existing highways
  linking Dhaka, Chittagong, Sylhet, Rajshahi, and
  other key points of the country into four lanes.
• The government should move forward with the
  Chittagong Deep Sea Port Project, as Bangladesh
  has a better opportunity to set up the port due
  to the upside down V shape of the Bay of Bengal
  and being positioned at the apex.
• Within 100 days, a National Sea and River
  Infrastructure Development Council should be
  established
• Every industry and ports should be made free from
  hartals and blockades.

15
Improving Infrastructure through Regional
Integration

• For South Asia the crucial transport links to be
  developed to integrate with India and China would
  be along the alignment of the Asia Highway (AH).
• The Jamuna bridge in Bangladesh would allow the
  AH to provide uninterrupted travel between
  Bangladesh and Calais routed through India,
  Pakistan and then either into Central Asia or
  through West Asia into Europe.

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Mitigating effects of Global Financial Crisis
Recommendations

• A Financial Crisis Taskforce should be formed
  immediately with representatives from both the
  Government, FBCCI and Leading Economists
• GoB/WB/IMF should assist Bangladesh exporters and
  manufacturers with adequate financial back up
  packages against the adverse consequences of
  falling commodity prices and credit repayment
  capacities and also by ensuring single digit
  interest credit flow to them.
• A GFC mitigation fund 15,000 crore should
  immediately be created for the purpose with
  grants from the donor agencies.

17
A National Vocational Training/English Language
Initiative

• The Education Budget needs to be increased
  significantly and 50 of that budget should go
  towards vocational training as we see in
  Malaysia.
• There should be a greater use of PPP within
  education and vocational training.
• The Government should encourage the population
  by announcing English as the Second Working
  Language.
• As a starting point, government should establish
  vocational training institutes in 50 untapped,
  but populated Union Parishods.
• As per the advice of BBBF, the government should
  establish a USD 100mn or BDT 7000mn fund for the
  development of labour funds.

18
Increasing FDI and an Effective Brand Bangladesh
Strategy

• Increasing FDI
• Accelerate the proposed reform program for the
  Board of Investment (BOI) including the setting
  up of a new Investment Bangladesh wing.
• It is critical to attract more qualified and
  credible senior BOI officials from the private
  sector if the re-energisation of the BOI is to be
  effective, especially the BOI Chairman.
• New Brand Bangladesh Taskforce
• The new Government should set up a Brand
  Bangladesh taskforce with a core committee
  composed of the heads of the BOI, EPB, Foreign
  Ministry, FBCCI, Finance Ministry, Bangladesh
  Bank and NRB professional groups from Europe and
  the US.
• The Committee should also liaise with donor
  agencies such as DFID, USAID, CIDA, DANIDA and
  others to leverage their contacts.

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The Ministries should encourage diversification
of exports

• Currently, knitwear/garments frozen foods
  comprise gt 75 of exports.
• The economic wings of Bangladesh Embassies need
  to be made more effective.
• It is worth careful analysis of where does
  Bangladesh really have comparative.
• Key potential export sectors to diversify
  over-reliance on RMG/Manpower
• Leather goods and Footwear
• Agro and Agro-food processing
• Light Engineering
• Technology/ICT
• Outsourcing
• Service sector exports should be developed,
  which are less reliant on large quantities of
  power given the current energy crisis facing the
  country.

20
Leveraging Diaspora

• The Government needs to set up a Diaspora
  taskforce that will incorporate a Dhaka Committee
  and dedicated secretariat and sub-committees in
  Europe, the US and Middle East
• The taskforce will connect various Diaspora
  networks overseas both professional as well as
  broader community networks to build a
  comprehensive NRB database.
• Multi-lateral agencies such as the World Bank,
  ADB, the UN, DFID and USAID can contribute both
  funding as well as research on the effective
  leverage of Diasporas in China,.
• Policymakers need to develop a strategy to
  attract more Diaspora to return home including
• Fiscal incentives such as lower import taxes
  for personal effects for NRBs.
• Special stipends and visiting professorships
  for leading NRB academics.
• Also learn from China with more public
  recognition/status for Diaspora .
• The Special Economic Zones projects should be
  expanded to target NRBs.

21
Reducing the Cost/Improving Access to Finance

• Lend on risk-based assessments of business
  prospect, not just collateral.
• BB needs to encourage the development of
  longer-maturity lending.
• Develop PE and Venture Capital so that there is
  greater access to risk capital to encourage
  entrepreneurship/new business and innovation.
• Computerize central credit information bureau to
  loans gtBDT 10,000.

22
A Strategy for Asian Regional Integration

• Increasing intra-regional trade/reduce reliance
  on EU and US exports.
• Asia as a source of FDI and portfolio capital
• Can Bangladesh be Asias Low cost manufacturing
  hub?
• How can Bangladesh integrate with neighboring
  countries, to overcoming the energy crisis and
  integrate into regional transportation networks?
• Learn from Economic lessons from Asias economic
  success stories.

23
Promote Economic Decentralization/ Increased
Regional Autonomy

• Some estimates suggest that Dhaka will be a city
  of over 20mn by 2015.
• Strains on the capital are causing
  congestion,bottlenecks, labour shortages.
• Supporting the growth of several other regional
  centres for manufacturing would yield economic
  benefits as well as supporting inclusive growth.

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A strategy for developing the SME Sector

• A standard definition of SME needs to be
  established by the government.
• The government needs to protect small
  enterprises by relaxing tax and VAT policies
  aimed towards them.
• Banking Institutions should solve the problem of
  delayed payments to SMEs. A Network of Factoring
  Services must be set up at home and abroad
  operated through banks.
• Banks should be required to make the loan
  application and acquiring procedure much less
  tedious and cumbersome.
• More SME development funds, such as the fund
  currently managed by the SME Foundation, may be
  created to subsidize the projects of potential
  entrepreneurs.

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Formulate a national policy on "industrial
cluster development"

• Access to land is a major factor restricting
  entry of new firms.
• Serviced land in Bangladesh is hard to find, and
  expensive.
• Free zones have both sector development
  infrastructure rationale.
• Export-oriented free zones (EPZs) enable
  exporters to compete globally may counterbalance
  the anti-export bias of trade policies.
• Expansion of EPZs as well as sector-focused
  Special Economic Zones (SEZ) for
  export-diversification should be pursued by new
  government.

26
Enhance effectiveness of BBBF through a stronger
secretariat

• Consider regional/local level better business
  forums under similar public-private partnership
  principles.
• Place greater emphasis on effective
  implementation of the 249 BBBF recommendations,
  of which 39 are long term.
• Consider expanding BBBF with additional
  professionals and forming industry-based working
  groups.

27
Make the Regulatory Reforms Commission (RRC) a
permanent body

• Assessment of the 202 laws currently under review
  by RRC need to be effectively expedited through
  the Law Ministry.
• Complete e-registry work.
• RRC proposals on land reform needs to be
  implemented.
• The process of Regulatory Impact Assessment (RIA)
  needs to be institutionalized within the RRC.

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Improve ADP implementation rate by capacity
building initiatives

• From July-Oct 2008 only 13 of the ADP has been
  implemented. Overall use of ADP funds is
  unsatisfactory and back-end loaded.
• The Ministries should have professional units to
  monitor and evaluate the status of project
  implementation on a regular basis.
• Improve the speed and efficiency of the Economic
  Relations Division.

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Reconstitute the Boards of public institutions

• Add business chamber leaders subject matter
  experts as ex-officio members in various public
  boards.
• The boards may be co-chaired by public and
  private sector members to engender greater
  dynamism in public enterprises.
• Three key agencies that would benefit from this
  PPP initiative include the BOI, the EPB and the
  SEC.

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Privatize target public corporations within
12-18 months

• State owned enterprises include Bangladesh
  Chemical Industries Corporation (BCIC),
  Bangladesh Sugar and Food Industries Corporation
  (BSFIC), Bangladesh Steel Engineering
  Corporation (BSEC), shouland others.
• Bangladesh Biman and Sonargaon Hotel, in
  particular, need to be seriously considered for
  privatization.
• Ministry of Industries and the Privatization
  Commission should work in tandem.
• All state owned enterprises under the Ministry
  of Industries and the four former Nationalized
  Commercial Banks need to be managed
  professionally.
• Sonali Bank, Rupali Bank, Janata Bank, and
  Uttara Bank need further organizational
  restructuring and streamlining so that they are
  managed on a commercial basis.

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Policies to increase production of high-yielding
rice

• The most serious constraints to increased
  production and sales of high-value rice involve
  problems with post harvest processing and
  milling, threshing, drying, etc.
• Formulation, distribution, and enforcement of
  grades and standards
• A national committee may be formed in
  collaboration with BSTI to research and establish
  grades for fine and high value rice.
• The committee should include members from BRRI,
  BD rice exporters association, the ministry of
  agriculture, and other institutions related to
  rice trade.
• BRRI should continue to develop improved
  varieties of traditional fine rice and
  concentrate on developing a slender, long grained
  high yielding variety suited to local conditions
  in production, postharvest management, and
  processing.

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Encourage greater adoption of Farm Machinery and
Fertilizers

• Ensure availability of fertilizer during
  cultivation In Bangladesh fertilizer production
  is constrained by gas and power shortages.
• Better education to ensure appropriate use of
  fertilizer Farmers usually apply fertilizers
  based on their estimation and thus reduces crop
  productivity.
• Introduce an efficient water management system.
• Education to ensure farmer avoid excess use of
  pesticides
• Lack of cold storage suggests the government
  should encourage a nationwide chain of such
  facilities. This will help export-oriented high
  value added agriculture businesses to grow.

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A Strategy for Developing a Technology and
Outsourcing Sector

• Improve E-HR/ Set Up more IT Vocational Training
  Institutes.
• Adopt Second Submarine Cable/Cut High Internet
  Costs further
• Poor Country Image Include IT as part of the
  Brand Bangladesh Strategy.
• Establish a credible domestic tech player
• Ensure Effective Overseas Marketing and
  Distribution.

34
Establish Bangladesh Climate Change Venture
Capital/ Cleantech Fund

• Effective marketing of climate change projects to
  global/regional cleantech funds.
• This will also bring in much-needed technical
  expertise
• Expand Solar Energy for Water Heating

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Recommendations for the RMG sector

• New markets through coordinated marketing and
  sales efforts.
• High value added business with a gradual
  preparation to enhance skills, technology and
  capacity.
• FDI/JV and long term loans for backward and
  forward linkage industries for woven products, as
  only about 35 of the woven fabric is produced
  locally, whereas knit sector receives cash
  incentives.
• Implementation of central bonded warehouse as per
  BGMEA suggestion in order to cope with shorter
  lead time requirements.
• Workers training for improving skills for
  successful operation of the industry is crucial.
  

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A comprehensive Public Administration reform
needed

• In the current structure, only 6 of almost
  200,000 government employees (civil service) are
  class I officers.
• The ratio needs to rebalance with reductions in
  non-class 1 staff.
• In addition, higher salaries, training, career
  development, and tenured positions need to be
  ensured.

37
Re-enforce the Right-to-Information and more
Effective Public Audits

• Implement the Right to Information Act (RIA)
  within all ministries including Ministries of
  Commerce, Industries, Finance, Planning
  Commission, and other relevant ministries/departme
  nts.
• Undertake an initiative to strengthen audit
  practices within public sector institutions.
• For this purpose, the Office of the Comptroller
  and Auditor General of Bangladesh (CAG) needs to
  embark on a capacity building project.
• The Entity Wide Audit (EWA) practice needs to be
  expanded to all Ministries and divisions within
  the government on regular intervals