In an exclusive interview with The Business Standard, Business Initiative Leading Development (BUILD) Chairperson Abul Kasem Khan discussed what should be our economic policies in the post-Covid-19 situation. He also talked about how we failed to attract foreign investors who had left China during the pandemic and what we should do if we want to attract them in the future
The Business Standard (TBS): In the post-Covid-19 situation, what do you think our economic policies should be?
Abul Kasem Khan (AKK): Before thinking about the post-Covid-19 situation, we must figure out how long the current situation will go on as the pandemic still continues globally. As our economy is globally connected, I would say the different initiatives taken by the government, such as the stimulus packages, should continue. In fact, the government should broaden the packages in terms of providing assistance to other sectors that are currently not a part of the stimulus.
In the post-Covid-19 situation, we should observe where the world economy is moving towards and then decide what our economic policies should be. In the export sector, we are currently seeing positive growth, and our remittance earnings are improving as well.
However, one thing we have heard a lot from small and big business owners is that the process of getting stimulus money from the banks are a bit cumbersome and lengthy. If we can ease this process, I think we will be able to solve the cash constraint in the market.
TBS: You said a few days ago a window of opportunity might open up for Bangladesh to enter the Association of Southeast Asian Nations (ASEAN). Can you explain it further?
AKK: We have the biggest advantage due to our geographical location. We are just in the middle of two rising economies – China and India. Also, we are located just beside the ASEAN countries. Thus, it not only opens a window of opportunity for us to enter the ASEAN markets but to also become a member of it.
Ten Far East countries are now in ASEAN, and they have gained a lot due to the free trade agreement. Thus, we need to fix economic and political diplomacies to enter ASEAN as a member country.
ASEAN is a vast market for Bangladesh to explore. Also, Bangladesh, being a developing country, can provide a lot of products and human resources to them.
We are already providing workforce to Singapore and Malaysia, who are contributing to building those nations. Thus, ASEAN already has an existing relationship with Bangladesh, and we need to take this opportunity to explore further.
For foreign direct investment (FDI), ASEAN is also a big investment market. Singapore is a major investor, and they have been investing a lot in other countries. Our relationship with Singapore dates back to a very long time.
TBS: How competitive is Bangladesh in terms of doing trade? Is our ease of doing business rating enough? If not, how can we increase our rating?
AKK: This is a very important question. Bangladesh is competitive in certain areas, but overall, as a nation, we are not very competitive compared to our neighbouring countries or ASEAN nations like Vietnam and others. We have some deficiencies and due to those, we see a poor ranking of Bangladesh in terms of competitiveness.
If you ask specifically which areas we are not competitive in, I would say we are mostly lagging in providing logistics support, and compared to Vietnam and Thailand, we are way behind them.
Be it a local or foreign investor, connectivity is crucial to everyone. Their target remains to bring their products to the market in the fastest possible time. Because this way, they can ensure the cash flow.
Unfortunately, our communication infrastructure from the port to the factory is not smooth. We cannot ensure a seamless and hassle-free environment in this sector. Thus, we need considerable investments and infrastructures in the logistics sector.
We are very competitive inside the factories, and that is why we hold the second position in the RMG export sector. But whenever we are stepping out of the factories, we are losing our competitiveness. This is all happening because we do not have proper infrastructure and logistics support. We are getting delayed because of the port congestions, customs clearance procedures, lack of roads, etc.
The government is certainly taking initiatives to solve these issues, but I would say the initiatives need to be completed in time. If we can complete our development projects in due time, our competitiveness will increase.
TBS: Do you think we can attract more investors in Bangladesh as many countries are moving their businesses from China? For example, Japan is looking for options. What can we do to attract investors like the Japanese ones?
AKK: We need to realise that we have failed to attract investors who left China. Due to Covid-19, many Japanese investors have left China, and most of them either returned to Japan or went to Vietnam. We were only able to attract one or two investors, whereas Vietnam secured more than 15.
Now the question is whether we will be able to attract them in future. And for that, as I have mentioned earlier, if we can develop our logistics sector, we will undoubtedly become more attractive.
We have failed to attract the foreign investors who left China. On the other hand, the situation has given us duty-free access to 97% of goods in the Chinese market. China is a huge market. So, if we attract investors who want to explore China, it can become very profitable for us.
Also, many US companies are relocating their businesses from China to minimise the supply risk. They could undoubtedly take Bangladesh into consideration. However, it is sad for us that they have not kept us on their consideration list. They are looking for opportunities in Indonesia, Thailand, Vietnam, and Cambodia.
Bangladesh is undoubtedly an attractive country. We have competitive labour and an excellent FDI policy. Now you might ask why we are failing to attract the investors. The reason is that Bangladesh is doing good, but others are doing better, and they are more attractive. Thus, we need to do a SWOT analysis to pinpoint our deficiencies.
Our tax rate is not very competitive considering our neighbouring countries, and our enforcement of law is not strict either. Also, our exit policy has some difficulties. For this, the investors fear that they might get stuck if they enter here. It is sad but true that we have missed the window of opportunity that opened due to the pandemic.
TBS: Do you think building special economic zones alone will be enough to attract investment?
AKK: I think it is a game-changer. I would thank our prime minister for taking this dynamic initiative. Because this will not only help us attract investors but will also allow us to achieve the Sustainable Development Goals (SDGs) and materialise our dream to become a developed country by 2041.
TBS: What do you think our policy should be if we want to attract more FDI?
AKK: We have many things to do. As I have said, the government is very open and progressive-minded, and they want to help. For the last 25 years, our economy is on the growing side. And we have all the qualities – our income level is rising; we have demographic dividends, young population ready to learn, one country, one nation, and one land – to attract FDI.
We have a good foundation. Now, we need to bring stability. We must not change our policy overnight because both local and foreign investments depend on it.
We also need a competitive taxation system. We need to come out of the old idea that if we keep the tax rate high, we will get more tax. I am afraid that is not right. Instead, we need to broaden the tax net. We need to rationalise it and lower the tax rate so that everyone pays tax. Our tax rate is higher compared to our competitor countries.
We need a proper marketing plan regarding Bangladesh. There is a promotional ad called Incredible India, but we have never seen anything like that in Bangladesh. We need to show the investors why they should come here. Also, we need to include foreign companies who are already doing business in Bangladesh. Their experience will also attract other investors. Also, we will need a country-specific plan.
We have shortages on our supply side. We almost import every raw material to make a product. This is another reason the foreign investors get disinterested. If we can manage the supply side for a few products in our country and bring it under the industrial policy, the investment rate will also grow.
Additionally, we need to sign free trade agreements (FTAs) with different countries. Because of the FTA facility, foreign investors are taking an interest in Vietnam.
Lastly, we need to have a competitive research team that will find out which sectors we are developing in and which ones need more attention.
TBS: Bangladesh is soon going to graduate from the least developed country (LDC) status. If it happens, Bangladesh will need to pay around 12% duty in the European market, whereas Vietnam will enjoy zero tariff due to the recent agreement. Do you think the government should reconsider the LDC graduation as our RMG industry has suffered a massive blow due to the Covid-19 pandemic?
AKK: We will soon recover from the Covid-19 situation. So, if we want to delay our LDC graduation process, we need to think carefully. However, we will have to graduate one day. What we need to do is explore individual FTA opportunities. For example, the UK is no longer a part of the European Union. So, if we can come to an agreement with them, that will certainly help us a lot.
Also, if we graduate in due time, our status will be higher in the eyes of the investors. So, we need to carefully identify the advantages and disadvantages of LDC graduation and decide after analysing losses and profit margins.
TBS: Our exports are mostly RMG products. Do you think diversification is necessary for our export products if we want to cope with the future challenges?
AKK: Absolutely. Diversification has become a need of the hour. We are heavily dependent on the RMG sector, which is something we cannot change overnight. But we need diversification in the RMG products.
We also have other sectors, such as leather, medicine, and ICT, by which we can bring diversity in our export products. What we need to ensure is that everyone gets equal opportunities in the export sector.