Major Problems Faced by Businesses in Rural and that is holding the local entrepreneurs back.

It’s a
Urban Bangladesh by Ashek Ishtiak Haq
The ease of doing business in Bangladesh is not
getting easier. The country has taken a big 18 place
drop in the recently published Doing Business, 2008
survey; which ranked the country in the 107th position
out of 178. Japan External Trade Organization’s
(JETRO) 18th cost survey also agrees to the World
Bank’s findings. The cost of investment has been found
to be rising in the country. The country has become
unattractive to the foreign investors due to the hidden
costs associated with conducting a business. This two
major reports finding is not something unexpected.
Years of negligence and poor governance both from the
public and private players has lead to this situation.
nightmare for a fresh-blood to get access to credit. The
48 bank rich banking sector has 30 private commercial
banks; most of them target the urban market. The
private players are uninterested to move to the rural
settings. But fortunately this is changing, due to the
Bangladesh Bank regulations and strong remittance
growth from the migrant workers these banks are
finding the opportunity in this market and making a
move for rural expansion. But the access to credit is
not getting easier. The banks are not interested in
providing credit to the small investors because of
collateral issues and the high cost involved in
processing the loans. The small investors also lack
proper knowledge of how to access the financial
institutions.

Bangladesh's Ranking in Doing Business, 2008 The distribution of branches of different bank segments
180
Urban Branches Rural Branches
160 National Commercial Banks 1,238 2,146
140 Pribate Commercial Banks 1,295 490
120
100 Foreign Commercial Banks 49 -
80 Specialized Banks 155 1,203
60
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Total 2,737 3,839

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20 Source: Bangladesh Bank Website
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Inadequate infrastructure facilities (power, water &

gas): Infrastructure is always a big headache for the
urban and rural businesses. To fuel her ambition of
maintaining a growth rate of 7%, Bangladesh will need
to add 2000 MW additional energy each year. In 2007
the peak demand for electricity stood at 4500 MW
whereas generation was stagnated at 3,717 MW. The
Ease of Doing Business result is service disruptions and blackouts on almost
180 159 every single day of the year. At 147 KWH Bangladesh
160
has one of the lowest per capita electricity
140 120
120 107 111 consumption in the South-East Asia. Only Nepal has
100
76 lower consumption than Bangladesh
80 60
60
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40
20 1
0

Source: The World Bank

The problems of Bangladeshi businesses are manifold.

Poor access to credit: this is one factor that has been

continued to be pointed out as one of the major reason

1 Ashek Ishtiak Haq, 01720 594959, email: ashanto123@yahoo.com

 with Bangladesh from the very beginning. Poor
governance is one of the key points what makes the
firm unattractive to investors. The existence of
nepotism in the business circle is also something which
makes a firm weak. It is a common trend among the
business community to fill up the existing positions
within the firm with their relatives who may not be
suitable for the post. By separating ownership from
management businesses can create a better and
effective venture.

Tax structure: The tax structure of Bangladesh offers

little intensive for a business. According to the JETRO
survey Bangladesh holds the second highest corporate
tax rate among the Asian countries (even after the
government has cut the rate to 37.5%).

Water and gas is also in the same poor condition. This

has caused the businesses to look for alternative and
back-up services to support their businesses which in
turn increase their operating cost significantly. With
rising fuel cost the expense is putting real dent in their
profit figures. The service disruption due to these
shortages also causes severe problems.

Lack of efficient distribution channels: Bangladesh has

one of the flattest land structures in the world. The
lack of obstacles (hills, desert etc) and presence of
cheaper transportation option (waterway) makes the
country any supply channel manager’s dream. But
unfortunately the real picture is somewhat different.
The businesses lose near 40% of the perishable items
due to lack of efficient distribution channel. Lack of
Source: JETRO (2007)
supply chain management knowledge, a weak
transportation system, and corrupt road authorities are Lack of connectivity: The world has moved on to
some factors that contribute to make the system connect itself to the World Wide Web whereas
inefficient. Bangladesh is lagging far behind. Across the world
innovative business are emerging using a clicks and
mortar business model. They are leveraging the full
Imperfect market: Market imperfection bleeds the
potential of the World Wide Web. As the access to
businesses specially the small players the most.
high-speed internet connection becoming cheaper by
Dominance of the middlemen in the value chain often
the day around the world the story is quite different for
cost price distortion. It is a common scenario for the
Bangladesh. Businesses have to pay a handsome
product to be sold at a significant premium while the
amount in fact one of the world steepest fees to get
producers take on a huge loss. Lack of information and
access to the web. But the scenario is changing in the
the control exercised by these forces cause severe
consumer front. Consumers now have access to the
problem for the local producers.
web through their cell. There is a huge opportunity to
cater to the foreign customers by displaying the
Lack of governance: In a world bank online debate a
product in the web. But the high-speed internet
commentator said, “Corporate governance is not only
connectivity is yet to reach the acceptable standard.
relevant but essential for low-income countries. The
problem is not the stringency of rules but of the
governors themselves”. Governance is a serious issue

2 Ashek Ishtiak Haq, 01720 594959, email: ashanto123@yahoo.com


Source: JETRO (2007)
Lack of proper business knowledge: Most of the
entrepreneurs of Bangladesh apply the traditional hit
and miss approach with their businesses. They have
little institutional knowledge and have little access to
training as very few organizations offer quality facility.
In absence of know-how relating to general
accounting, branding, taxation, law etc the businesses
tend to miss the opportunity that the regulatory
environment offers. Internet can play a vital role here
for knowledge dissemination but the access to the net
is not that easy.
Corruption: There is very little to add in this point
since there is so much uproar from every kind of media
about how corrupt the country is. Corruption is
probably one of the biggest problems faced by the
organizations. The recent drive against corruption is
encouraging but unfortunately this is focused around
the urban centres whereas the rural corruption is still
rampant.
Poor law and order situation: Having a sound law and
order situation help flourish business. But the situation
has deteriorated over the years. Recent drive to
improve the situation has helped but it has done
damage to the business communities’ confidence.
Frequent policy changes: Policies formulated get
changed with the government. As there is serious
antagonism between the main two parties, they tend
to undo the work done by their predecessors. This
causes pain to the business community as the high
investment projects require serious policy
consideration and longer payback period and such
changes can create havoc for the project.
3 Ashek Ishtiak Haq, 01720 594959, email: ashanto123@yahoo.com
Bureaucratic hassle: Bureaucracy and red-tapism has
taken its toll for Bangladesh business environment.
Opening a business on an average takes 74 days.
Getting a license takes a staggering 252 days.
Political instability: According to a UNDP research
strike has led to 3-4% GDP losses during the 1990s.
There are about 611 strikes during 1995 to 2002. This
creates immense burden on the business firms as the
shops often get vandalized during strike violence.
Natural Disasters: Sheer density of the country’s
population- 2,639 people per square mile- makes any
natural disaster a crisis. Among the time magazines
list of top 10 natural disasters of 2007 Bangladesh is
the only country to be featured twice. These disasters
disrupt supply chain, damage business and create
untold suffering for the consumers.
Skilled labor: Bangladesh may be the land of cheap
labor but they are also unskilled. The training
institutions are not sufficient to provide the quality
labor force the businesses need.
Quality of raw-materials: The material used to make a
product lacks consistent quality. The country has to go
miles to achieve the structured type of business that
we find common in the developed world. Modern
quality techniques found wanting in the manufacturing
sector of the country. But as the businesses get more
sophisticated they will need quality materials. As the
recent quality scare in China proves business has lot
more to lose (e.g. quick execution) than their
business.
William Shakespeare in Julius Caeser wrote “the fault,
dear Brutus, is not in our stars- but in ourselves.” The
statement is allegorical for Bangladesh. Except for
natural calamities all the problems mentioned here are
caused by our own fault. This is also a thing of hope as
the most of the problems are caused by man-made
reasons, they can be solved with proper persuasion.
References:
The World Bank (2008), “Doing Business, 2008”.
JETRO (2008), “The 18th Survey of Investment-Related
Cost Comparison in Major Cities and Regions in Asia.”
AT Capital (2008), “Bangladesh 2015: Growth,
Investment, Opportunity”
KATALYST (2003), “National Private-Sector Survey of
Enterprises in Bangladesh, 2003”
KATALYST (2006), “Meeting the Challenges in SME
Development in Bangladesh: Special Reference to
Government’s Budgetary Measures”

4 Ashek Ishtiak Haq, 01720 594959, email: ashanto123@yahoo.com