The private sector needs to invest in skills, research and innovation

Abul Kasem Khan, chairperson of the Business Initiative Leading Development (Build), a private sector think tank, explains why Bangladesh needs to improve logistics, develop infrastructures and simplify rules to attract investment, why the private sector needs to research and innovate to stay competitive in an interview taken by The Business Standard Staff Reporter Reyad Hossain.

We have seen in recent years that the government is serious about infrastructure development and has taken up quite a good number of mega projects. Do you think those are enough to drive the country toward a higher growth?

At this critical juncture of Bangladesh's economic road map, these projects are truly game changers and will definitely accelerate our growth and development in many ways.  We must encourage and continue large infrastructure investments to reduce the deficit in our infrastructure. Our investment in infrastructure needs to reach 6% to 7% levels of GDP from current levels very soon.  We need to attract more investments into Bangladesh given our requirements. Given Bangladesh's economic growth cycle, this is the right time to invest adequately in infrastructures. Modern and efficient infrastructure is a precondition to accelerated growth and development.  Recent trend is very positive to note, the government has increased infrastructure spending by 300% since 2011-2012 fiscal year, and now it is almost close to 3.65% of GDP which indicates that government has given top priority to develop our infrastructures. However, we need much larger investments. Our GDP growth remains trapped primarily due to lack of modern and efficient infrastructure. We need to accelerate the pace of work on infrastructures to be more competitive than Vietnam and others in the region.   

Which are other areas the government should also focus for infrastructure development? 

Logistics infrastructure is one of the most critical areas that also need focus. It has enormous scope to create competitive advantage for the country.  The strong economic growth of Bangladesh supported by growing export and import volumes demands a modern and efficient logistics ecosystem in the country which is also an integral part of infrastructure development. Today, business and industrial competitiveness demands improved productivity, channel expansion, shorter lead time, faster communication, modern warehousing and efficient transportation. In advanced countries, logistics cost is 10% of GDP whereas it is on average 20% and in some cases higher in Bangladesh. We are very competitive within the factory area but once we leave the factory premises, our competitiveness reduces. It is estimated that the modern customs and border clearance procedure can decrease the cost of trading by 14%-17.5% in lower-middle-income countries like Bangladesh. Furthermore, some studies estimate that reduction of one additional day for port clearance can increase our exports by 7.4% and reducing logistics cost by 17% can increase export performance by another 7.4%. Therefore, it can be seen that with very minor changes we can maximize our competitiveness. Efficiency in trading across the border is also a priority consideration for investors and the private sector.  Moreover, given Bangladesh's ratification of Trade Facilitation Agreement (TFA) under WTO, comprehensive development of overall supply chain management is critical.  And this is an area which we must focus to develop an efficient logistics ecosystem for today and the future. The good news is that government is giving top most importance to this sector and has set up the Logistics Infrastructure Development Working Committee (LIDWC) - a public-private sector standing committee under the Prime Minister's Office (PMO) which is headed by the Secretary, PMO. The government has also included logistics as a high priority sector in new Industrial Policy 2021 as per the recommendation of the LIDWC.   We must act fast as the region is also reshaping due to emergence of China and India as economic superpowers of the world and Bangladesh due to its unique location can truly gain by becoming a logistics hub and a gateway between South and Southeast Asia. 

Is the private sector itself ready for the next stage of development? Do they have enough farsightedness, visions, skills and R&D?

Our private sector has the vision and the drive for moving to the next level. We need to address the current bottlenecks and challenges faced by the private sector so that right policies and strategies can be developed for creating improved economic freedom and opportunities.  We need to have modern policy framework to face the current challenges in Covid-19 pandemic situation, and the future challenges of 4th Industrial Revolution (4IR). The Perspective Plan 2021-2041 well defined the ways to transform the country from a lower middle income to an upper middle income by 2031 and a high income country by 2041. The major goals of the plan are eradicating extreme poverty by 2031 and achieving zero poverty by 2041, increasing GDP growth to almost double digit. The strategic goals and milestones of the plan include industrialization with export-oriented manufacturing; paradigm shifts in agriculture to enhance productivity; transformation of rural economy to primarily industrial/digital economy; the urban transition, efficient energy and infrastructure; building a Bangladesh resilient to climate change and establishing Bangladesh as a knowledge hub country.  Given the road map, the role of the private sector will be critical in achieving the goals and objectives. Two important transitions for Bangladesh will happen soon - one is our graduation from LDC status expected in 2026 and second is implementation of SDGs by 2030. On the other hand, private investment is targeted at 28% of GDP which needs to be achieved to fulfill the 8th FY Plan targets, therefore economic reforms and economic deregulation need to be expedited to expand the economy. I feel foreign direct investment (FDI) target in the 8th FY Plan has been kept low due to the COVID realities  which is understandable but given the need, this has to be set at a higher level keeping in mind the growth of Bangladesh.  We need to invest in skills, research and innovation.  There must be government incentives, matching funds to encourage the private sector to invest in skills development, training, innovation and industrial research.  Bangladesh is probably at the bottom of the global ranking for innovation and research. We must focus on industrial research and innovation in the coming years.      

The government claims itself friendly to private sector and investment. What more is needed from the government to accelerate the private sector growth? 

The government has been very supportive to the private sector. It has an open door policy towards investment, which has been demonstrated through various policy supports to the private sector.  We do have one of the most open policies for investment in the region, however, having such policies does not guarantee investments automatically especially foreign investment.  So far the government has been able to create a solid economic foundation where the economy is ready to take off to a higher growth trajectory. The progress is visible everywhere - the economic transformation is moving Bangladesh towards a middle income country. On the other hand, Bangladesh needs to match the global standards in terms of economic freedom and opportunities for the private sector.  We must revisit some of the policies and laws to modernize and match those with the global standards for our businesses to remain competitive. Given our LDC graduation in 2026, certain policy supports will no longer exist thus reducing and impacting our competitive advantages, similarly to attract more FDI, additional support is needed - therefore, we need to reinvent and also revisit some areas to enhance our competitiveness. These may come through reforming policies, simplification of taxation system, rationalization of tariffs, ease of doing business, greater trade facilitation, reducing cost of business, seamless connectivity, developing logistics efficiency etc.  We also need to intensify our bilateral and regional cooperation, especially through various trade agreements, look towards east for expansion of investments, reduce the supply divide and accelerate shorter regional value chains. In addition, we should focus more on information technology to increase efficiency, promote digital transformation from farming to manufacturing. More investment is also needed in research and innovation to promote climate-friendly production and consumption.