Why are the industries moving out of Dhaka?
Dhaka is losing its position as the most sought-after investment location, and Chattogram is taking its place
On October 7, the Metropolitan Chamber of Commerce and Industries in collaboration with the Policy Exchange of Bangladesh published the Bangladesh Business Climate Index (BBX). According to this index, Bangladesh received an overall score of 61.01, implying an improving business environment.
However, the Dhaka division - widely thought to be the centre of most economic activities - exhibits dwindling investment trends, while Chattogram came out on top in many indicators.
Is this a successful case for decentralisation? Or, should we be worried?
Before delving into the implications of such findings, a brief introduction of the index may be warranted.
The BBX is based on 10 indicators and a total of 35 sub-indicators that are used to approximate the quality of the business climate. The indicators include the cost of starting a business, access to land, access to regulatory information, access to infrastructure, labour and tax regulations, cross-border trade facilities etc.
They conducted a survey where they reached out to 1,000 firms from all eight divisions of the country and collected 451 total responses. Then, based on these responses from the survey they developed the BBX.
The BBX index primarily measures how investment-friendly a region is based on its performance in the indicators.
Why is Dhaka lagging behind?
According to the report, Dhaka is losing its position as the most sought-after investment location, and Chattogram is taking its place. Given that we have prioritised decentralisation for quite some time, this should be a good sign, right?
No.
The report found bureaucratic red tapes, tax burdens and predatory tendencies in regulatory authorities are the reasons for Dhaka's predicament. And they are right to point it out.
The Business Standard asked Dr Khondaker Golam Moazzem, the research director at the Centre for Policy Dialogue, why firms were moving away from Dhaka.
"Up until a certain point, Dhaka was advantageous for firms to set up shops. But, unfortunately, overpopulation and overconcentration of firms in Dhaka city have made it less competitive," said Dr Moazzem.
Overconcentration of firms also made it difficult for the government institutions to provide essential services such as high voltage electricity, required to operate machinery in most factories. More often than not, only large firms with good connections can avail these facilities. This also makes smaller firms susceptible to exploitation and predatory practices.
On top of that, overconcentration made it difficult to access lands in Dhaka city. Even if you could find a piece of land to set up your factory, the price tag would be overwhelming.
Even outside the periphery of the city, i.e., in Gazipur, Mymensingh, Manikganj, Narayanganj etc., the land price is extremely high despite failing to provide commensurate benefits of electricity, roads etc. as in Dhaka city.
When asked why Dhaka and districts in the Dhaka division were lagging behind, Shovon Islam, CEO of Sparrow Group, said, "Energy is a big problem in the entire Dhaka region. The gas line often does not have enough pressure. To operate the machinery in a garment factory, you need at least 28-29 volts. Even at factories situated near the Gazipur Chourasta, the electric voltage fluctuates around 20 to 22 volts. Since our machines cannot operate beyond a 10% fluctuation in electricity, we are forced to run the generators. When we complain about these issues, nobody listens to us."
On the other hand, Chattogram - the second most populated city and often dubbed as the export capital of the country - had the upper hand since it could provide those facilities with ease and at a much lower price. One of the reasons behind this is the lack of pressure that districts in the Dhaka division face.
Shovon Islam agreed with me.
"With increased orders from abroad, most industrialists are looking for new lands to set up new factories. Unfortunately, the cost of land in Dhaka is rising exponentially. In fact, you could simply sell the factory in Dhaka, then buy a much larger land in Chattogram and still make a sizable profit," he added.
Chattogram also has a sound communication system with the capital city. It's the port city of Bangladesh. Hence, it is easier to move containers in Chattogram. It also had satisfying accommodation facilities, five-star hotels, reputed educational institutions, among other things.
It is, therefore, beyond a foregone conclusion that the success of Chattogram in attracting investment is not an example of planned decentralisation. On the contrary, most firms are simply fed up with the overconcentration of firms in Dhaka city and the utmost failure of the institutions to provide services to the firms efficiently.
In fact, if this was part of a planned decentralisation process, then other divisions, as well as other industrial hubs better connected to Dhaka such as Gazipur, Mymensingh, Manikganj, Narayanganj etc., would have experienced a similar inflow of investments. More importantly, no significant infrastructural development has been undertaken in those regions to warrant increased capital inflow in those regions.
What is the way forward?
It has been reasonably established that firms moving away from Dhaka to Chattogram is not a sign of planned decentralisation but a temporary solution for the firms to move to a relatively better location. If planned decentralisation initiatives are not executed soon, Chattogram will also begin to suffer from similar overconcentration in the coming days as the country moves into manufacturing.
The central problem here is the over-centralisation of public facilities in Dhaka and their subsequent failure to provide services to firms in Dhaka, let alone the peripheral regions of the country.
The simple way to move forward and make Dhaka and other industrial hubs more competitive is to decentralise public services and incorporate digitalisation not just in name but also in action.
As Dr Moazzem says, "Dhaka should only host businesses and services with the highest value per unit in terms of land utilisation. The remaining businesses and services should be allowed to move towards the other well-connected regions of the country. For instance, industries and processing factories should move away from Dhaka to other regions while services like banking, insurance etc. can remain in the capital."
Authorities in public services such as water, electricity and gas should also be decentralised to provide the firms with sufficient facilities. Otherwise, they might be discouraged to move away from the cities.
On top of that, digitalisation should not be confined to the ability to simply download a form from a government website. Instead, firm owners, especially those from SMEs and startups should be able to complete essential regulatory procedures with minimal bureaucratic red tapes. They must not have to stand in long lines only to be exploited later by middlemen to simply get their complaints heard or their files signed.
