A Study on Investment Environment of Bangladesh

Introduction: It is known to us that our country, Bangladesh is one of the developing countries of the third world. Many neighbor countries of Bangladesh have developed their economic condition a lot. But Bangladesh has not been developed yet like them, because of having different difficulties & obstacles. These developed countries have made them free from different obstacles which lead them to be emerged as selfdependent and prosperous countries in the world. or being developed, the economic environments of those countries have a great impact. In this report, researcher will try to focus on, how the investment in Bangladesh is influenced by the current economic environment of the country. If anyone wants to start a business, first of all he or she has to invest. !hile investing for any business, one has to think about the opportunity of doing a business and the rate of return from the investment. Besides, this one has also to consider about the business risk, transportation systems, communication, and access to finance, ta" administration, corruption, administrative facilities, infrastructure and the political environment. #ll of these components build up the environment for investment. $ne will invest in any kind of business after considering all these factors. %nvironment has also a great impact in the foreign direct investment. The big and well established companies of the world consider while investing in the foreign countries. They will proceed only if they find suitable environment for the business otherwise not. &o it is seen that for doing any business in foreign countries a good investment environment is highly re'uired. I(ve already mentioned that our country, Bangladesh is one of the developing countries of the world. #s a citi)en of this country, definitely I want to have a better standard of living. or having this, first of all the economic condition has to be developed. If the investments and businesses increase then it is possible for us to have a prosperous and self-dependent country. I(ve intended to choose this topic to see what is happening in the investment environment of Bangladesh. *ypothetically, it is considered that, + The current Investment Environment in Bangladesh is not suitable or helpful for the investment. ,onsidering this hypothesis, I(ll try to analy)e some data collected from dependable sources and try to come a decision.

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A Study on Investment Environment of Bangladesh

Methodology: or preparing the report, all provided data are secondary data & collected from the ,- of World Development Indicator 2 !". Besides this a lot of data are collected from a survey report about the investment environment of Bangladesh named Improving #he Investment $limate In Bangladesh" .,ollected rom I/B 0ibrary1done by #he World Ban%"& Washington D' $ . and Bangladesh Enterprise Institute" -haka. or the comparison I have selected the neighbor countries like India, 2akistan, &ri 0anka and Thailand. or preparing the graphs M& %"cel is used. -epending on these data I have tried to discuss my hypothesis. Discussion a(out the Data: Before starting the discussion, there is a topic, like the key features of the investment environment which should be known. These key features are discussed a little bit here. a. Governance: The government of a country has a great impact on the business activities over the country. 3overnment can make the investment environment profitable to the investors by reducing ta" rate, giving administrative facilities and removing the corruption. &o it has a great impact. b. Infrastructure: If the infrastructure of a country is poor then some activities of business such as ac'uiring information, procuring inputs, to market the products etc can(t be done fre'uently. &o it should be strong for the development of the economy. c. Access to Finance: -efinitely one will finance for the investment if there is a good environment for a business. %conomic theory holds that business will invest in pro4ects if the e"pected benefit e"ceeds the cost of investment. The countries having well developed financial systems .banks, stocks & bond markets1 grow faster than countries with less developed systems. d. International Integration: rom different research, it is seen that those countries have good communication with the world economy grow more 'uickly. &o, international integration with a global economy is also a big factor. e. Human esources: *uman resource is a great wealth for a country if that has a great knowledge and skill of technology. 5apan can be the e"ample of having a great human resource which has a great contribution for the today(s condition of that country. 6onetheless, in Bangladesh, the foreign direct investment is lower than the neighbor countries. It can be understood by the graph given below7

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A Study on Investment Environment of Bangladesh

*oreign Direct Investment& +et Inflo,s -. )D/0 $omparing 1ther $ountries

=.@ = <.@ < Bangladesh India &ri 0anka 8 ?.@ ?
89 :9 89 A8 89 A= 89 A@ 89 A: 89 A9 89 98 89 9= 89 9@ 89 9:

2ercentage

8.@

2akistan

-?.@

Bears

(Source: CD of World Development Indicator 2001) In this graph, the foreign direct investment in Bangladesh & its neighbor countries are shown. This graph is showing the data from 89:9 to 8999. !e see here that the investment was very high for &ri 0anka from 89:9; the < nd position was for 2akistan and =rd for India. The rate was )ero for Bangladesh at that time. The investment has been started in Bangladesh since 899= though the rate was very low but it is increasing day by day. But the rate is very low in comparison with other countries. &o 'uestion can be arisen, what are the reasons behind this> or the answer I would like to relate the found problems with the key features which are already mentioned. a' )overnance: Bangladesh has big problems with the govt. 3overnance has direct effects on firms through the regulatory and administrative procedures effecting day to day operations. But in this country government is corrupted and has a great mismanagement in every sector which is appeared as a problem. If any one wants to start a formulated business then it takes a lot of time in comparison to other countries. It is seen by the following graph7
Canking $f Bangladesh & ,omparator ,ountries By -ifficulty of &tarting irms Thailand &ri 0anka India Bangladesh ? <? D? E? A?

%asiest To *ardest

(Source: World Economic Forum 2002) Page | 5

89 99

A Study on Investment Environment of Bangladesh

rom the graph we see that the difficulty of starting a business. Bangladesh positioned E?th out of :@ countries, where as India, &ri 0anka and Thailand positioned =?th, <<nd & 8Ath respectively. &o it is very difficult to start a business in this country because of having various difficulties. $n the other hand, Thailand(s position is 8A th. This is happening 4ust for the corruption and intention to taking bribe. This time consuming works also not to be interested the foreign countries invest here. ,orruption has also direct impact on the economy. #lmost all the firms have to pay unofficial payments to the government employees because of avoiding hassles. or this some dishonest people also start businesses and selling their low 'uality goods in the market which is creating a negative effect to the foreign countries. The graph of the unofficial payment in different sectors is given below7
Average 2nofficial /ayments to )overnment Agencies In /revious 3ear (y *irms In Bangladesh E?,??? @?,??? Taka D?,??? =?,??? <?,??? 8?,??? ? ,ustom Ta" Inspectors %nvironment &anitation ,onstruction Taka

(Source: Investment Climate Survey) &urveying on D<D firms it was found that they have to pay unofficial payments an average of Tk. @@,??? to the custom agencies. The second position is the ta" inspectors(. These kinds of activities also have a negative impact on the economy. Besides these, government stability, political problems, like hartal, nepotism, misconducts of the power of politicians are also responsible for this. (Source: Improvin! "#e Investment Climate In $an!lades#%) (' Infrastructure: !hile investing in a country the investors definitely notice about the infrastructure of a country. The basic components of the infrastructure of a country are power i.e. electricity, transport, ports customs & telecommunication. The first thing is electricity generating capacity. Bangladesh is not in a good position for generating abundant amount of electricity in comparison to the other countries. It has a great lacking of producing electricity which is hampering the investment environment. The e"isting firms are also facing great problems while production. The condition of generating electricity can be seen by the following graph7

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A Study on Investment Environment of Bangladesh

7ilo,atts /er $apita

Electricity )enerating $apacity in Bangladesh 6 $omparator $ountries ?.8D ?.8< ?.8 ?.?A ?.?E ?.?D ?.?< ?
Bangladesh India &ri 0anka 2akistan

(Source: &'S' Ener!y Information (!ency) rom the graph, it is seen that Bangladesh has about ?.?= kilowatts of capacity per capita where India, &ri 0anka and 2akistan have ?.8, .?A & .8< kilowatts of per capita respectively . &o it(s a serious problem for Bangladesh while supplying electricity. The neighbor country of Bangladesh Malaysia has ?.@A kilowatt per capita, so the condition of Bangladesh is very terrific. (Source: Improvin! "#e Investment Climate In $an!lades#%) The conditions of transport and customs are also very bad in Bangladesh comparing to other countries. The 'uality of roads and ports are also bad here. !e will discuss about this by the following diagram7

4uality 1f 5oads 6 /orts A? E? D? <? ? Bangladesh India &ri 0anka Malaysia Coads 2orts

(Source: World Economic Forum 2002) !e see here the conditions of Bangladesh(s roads & ports. It is seen that Bangladesh ranked :?th among the :@ countries of roads and :< nd among the :@ countries of ports. &o transportation in this country is very difficult. 6ow days the prosperity of a country is measured by the communication level of a country. But this is very poor in our country which is one of the best constraints for the investment here.

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A Study on Investment Environment of Bangladesh

Telecommunication system is one of the best ways today. This is also poor over here. Bangladesh has <?A faults for every 8?? main lines, according to the International telecommunications /nion. !here 2akistan has 99, Malaysia has =A, 2hilippines have <9, &ri 0anka has 8@ and Indonesia has 8= faults in every 8?? lines. &o this is one of the weakest points of Bangladesh in the communication side. But now a day it is recovered in a big portion for the mobile phones. (Source: Improvin! t#e Investment Climate In $an!lades#%) Bangladesh has very low attempts to improve its infrastructure rather than other countries. It spends very low amount of money for research & development. It could be clarified by the following graph7
5esearch 6 Development Spending As a Share 1f )D/ /ercentage ?.A ?.: ?.E ?.@ ?.D ?.= ?.< ?.8 ?
Ba ng la de sh In di a hi na M al a , ys ia

(Source: &nited )ations Educational* Scientific + Cultural ,r!ani-ation.&)ESC,) It is seen over here that the lowest amount of money is being spent in the country rather than other country, which leads to have a very poor infrastructure. &o, last of all, we can see the overall condition of the infrastructure of Bangladesh comparing with other neighbor countries by the following graph7
4uality 1f Infrastructure In Bangladesh 6 $omparator $ountries A? E? D? <? ? Bangladesh India &ri 0anka Malaysia

.Source: World Economic Forum 2002) Page | 8

A Study on Investment Environment of Bangladesh

It is seen here that Bangladesh is the weakest country about the infrastructure among these four countries. 2osition of Bangladesh is :D th among :@ countries. 2ositions of India, &ri 0anka and Malaysia are EE th, E<nd & <?th respectively. &o it is very awful for Bangladesh. (Source: Improvin! "#e Investment Climate In $an!lades#%) c' Access to *inance: Bangladesh firms tend to have reasonable access to formal finance compares to other low income countries. It is seen in the survey that the private firms has provided <: F of 3-2 of Bangladesh. $n the other hand Thailand & Malaysia has the contribution a lot of. That is seen by the following graph7
2ercentage $redit to the /rivate Sector as a share 1f )D/ <?? 8@? 8?? @? ?
Bangladesh India Thailand Malaysia

F of 3-2

(Source: Data for 2000* World $an/) rom the graph it is seen that Bangladesh & India have very low contribution comparing to Thailand & Malaysia. Though there are a lot of obstacles in these country firms in private sectors are doing better here. $n an average almost E?F of these firms are investing from their retained earnings while only =?F percent comes from The banks. Banks are also practiced to use overdrafts facility or line of credit. E@F of firms are doing this and banks are also providing money very fre'uently. In this side we can see some good things for Bangladesh economy. (Source: Improvin! "#e Investment Climate In $an!lades#%) d' International Integration: It means to have good relationship and better communication with foreign countries. By e"porting goods, the country(s economy can earn a lot of foreign currency which can help the country to have a better economy. Besides, this if Bangladesh imports those goods which are not available here. Importing that goods Bangladesh can improve its technologies which is mandatory for Bangladesh for improvement of the economy. But the target should be set in such a way so that the figure of e"port is greater than import. 6ow by the help of a graph we are going to see what is happening in Bangladesh and neighbor countries.

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A Study on Investment Environment of Bangladesh

E8ports 6 Imports as a Share of )D/ 8D? 8<? 8?? A? E? D? <? ? Bangladesh India 2akistan Malaysia /ercentage

(Source: World $an/ Estimates) This is seen from the graph, Bangladesh, India, 2akistan all of them have more import than e"port. But Malaysia has more e"port than import which indicates a very good economy. The country e"ports rises only EF of 3-2 from 89A? to 8@F of 3-2 in <??8.on the other hand import increases from 8AF to <=F of 3-2. &o it is also a bad indicator for the economy. (Source: Improvin! "#e Investment Climate In $an!lades#%) #nother thing is important here that is Bangladesh charges more tariffs than other countries. The graph shows that
Average #ariffs In Bangladesh 6 $omarator $ountries 2ercentage =@ =? <@ <? 8@ 8? @ ? Bangladesh India 2akistan ,hina Indonesia Tariffs

(Source: International 0onetary Fund Staff Estimates) It is seen from the graph that India is charging more tariff than Bangladesh but other countries are not. It is also a obstacle for the improvement of the economy. The foreign countries won(t be interested here to invest because; they can invest in ,hina or Indonesia or in 2akistan at a cheaper cost. Because Bangladesh & India charging <?F & <9F of tariffs where Indonesia charging only :F of tariffs. #nother problem is that, in Bangladesh the highest amount of +Irregular 2aymentsG has to pay the importers & e"porters. #s ill luck would have it, Bangladesh is in the worst position in this case. #mong :@ countries Bangladesh placed the :@ th position. (Source: Improvin! t#e Investment Climate in $an!lades#%)

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A Study on Investment Environment of Bangladesh

e' 9uman 5esources: # country could have a lot of natural resources. But that won(t be effective if that is not utili)ed. To make it availed the country(s human resources would have to be used. Bangladesh has a lot of people to work i.e. it has a big labor force. But that is not being utili)ed perfectly. 2eople of this country have lacking in education, technical knowledge, sciences etc. Besides this, the educated people are leaving this country for having big 4obs to the foreign countries. Hery little number of scientists and highly educated persons are staying here to serve the country. &o the country is being deprived from their contributions. !e can gather some ideas about this from the following graph7

5an%ing 1f Bangladesh 6 $omparator $ountries By Availa(ility 1f Scientists 6 Engineers

India

Malaysia

#vailability of &cientists & %ngineers 0ikelihood &cientists & %ngineers will 0eave ,ountry

,hina

Bangladesh ? <? D? E? A?

Strongest #o Wea%est .Source: World Economic Forum 2002) Bangladesh has ranked @Ath in the term of the availability scientists & engineers. $n the other side, in the term of likelihoods scientists & engineers will leave country Bangladesh has positioned :Dth. But there is a big difference with the neighbor country India, where the rate is pretty lower than Bangladesh. Illiteracy is also a big problem for Bangladesh. The illiteracy rate in Bangladesh is @AF. It is the lowest rate among the comparator countries of east ands south #sia. The rates of illiteracy in 2akistan, India and &ri 0anka are @EF, D?F and @F respectively. (Source: World $an/ + &nited )ations Educational* Scientific + Cultural ,r!ani-ation. &)ESC,)

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A Study on Investment Environment of Bangladesh

*indings: -iscussing all the data, we find that in these five key features all the cases e"cept the feature +#ccess to inanceG. $ther four features can(t be fulfilled because of having a lot of problems. Bangladesh is an independent country since 89:8. #fter the independence of <D years still it is a poor country rather than the neighbor countries like India, 2akistan, &ri 0anka, Thailand, Malaysia, and Indonesia. Because its business activities are nor doing well. oreigners( aren(t interested to come over here because they have a negative impression about this country. !e can strongly say that the corruption and mismanagement are the prime reasons for these things. In this country, 2eople pay Tk. E,:9Ecr for bribe. (Source: "#e Daily Star* 21102103)' %verywhere we see the corruption. It has also problems in the infrastructure, transportation systems, telecommunication systems, port, custom, government employees, political instability, leaving the country of talents, demand of scientists, engineers, educational system, illiteracy, electricity problems, lower technological development problems etc. among these problems the top constraints are electricity, custom & trade, cost of financing, ta" administration etc. it also can be shown by the following graph7
#op $onstraints #o Business 1peration 6 )ro,th In Bangladesh #sses To inancing ,ustoms & Trade %co. 2olicy /ncertainty ,ost of inancing Ta" #dministration ,orruption %lectricity ?F <?F D?F E?F A?F

(Source: Investment Climate Survey) *ere the y-a"is is showing the contents which are the ma4or constraints for the business operation & growth of investment in Bangladesh. rom the graph we can see that electricity is the biggest constraints for business operation. Besides this, custom & trade, ta" administration, access to financing etc also is disturbing the business operation. &o the investors are not motivated to start their business here.

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A Study on Investment Environment of Bangladesh

$onclusion: #t last, we can suggest that the government should be free from all kind of corruptions at first; if corruption can be eliminated then control over these problems may be taken. Besides this the members of the parliament or the political leaders also have to be free from all kind of corruption. They have to come out with a broad mind for improving the country(s economy and over all the relevant parts which are involved for the developing the standard of living.

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