The flow of foreign and local investments into the country is declining as the result of the lingering political uncertainty, poor utility services, and a sharp fall in private sector credit flows. With no imminent sign of resolution of the political confrontation, economists believe that investments would dip further, severely imperilling macro-economic stability. The arrival of investment proposals in the Board of Investment (BOI) fell to one-third in a month in the foreign and joint venture category. In the local companies category, it fell by almost half.
Only five foreign and joint venture companies registered themselves with the board in August this year. The number was 17 in the month of July. The arrival of investment proposals from local companies numbered 57 in August while the figure was 99 in July. The investment proposals also fell significantly, going down to only USD 30.03 million in the foreign category in August from USD 105.83 million in July.
Local investments dwindled to just USD 158.76 million in August from USD 537.07 million in July. Proposed employment generation, for which entrepreneurs have made commitments, also fell significantly during this time.
“The fall in investment will seriously hamper the growth prospects and will shrink the scope of employment,” former central bank governor Dr Salehuddin Ahmed told The Independent. He said that local entrepreneurs are looking for foreign borrowings due to the fall in private sector credit flow. Lack of foreign investment will also limit the scope of technology transfers, he pointed out.
“No foreign investment would come in a country without political stability and without safety and security of the investment,” said American Chamber of Commerce and Industry in Bangladesh (AmCham) president Aftabul Islam.
He said Bangladesh is an ideal place for investment as the return against investment is good. But nobody knows what would happen in the next three to four months, he said, expressing concern over the prevailing political situation.
“The gloomy investment scenario will
remain the same unless political stability comes following a general election,” he observed.
The BOI officials, however, claimed that the overall flow of investment has been seeing an upward trend.
“Private investments may have dwindled for any reason, but the overall investment is going up,” said Nabash Chandra Mandal, executive member of the BOI. When his attention was drawn to the number of companies making investments, the BOI official explained that the number might be higher or lower, but the investment figures were the most important aspect.
He conceded that the investment climate remains dull during an election period. As a result, the next three months would be a critical period, when the flow of investment may decline. “But the investment figures can go up any time if a company comes up with big investment plans or goes in for massive expansion,” he added.
In this connection, he mentioned the mobile companies that are going to introduce 3rd generation (3G) mobile services, which require massive investments and expansion of networks. Leading economists in the country blamed the volatile political situation in the country for the declining trend in foreign investments. They pointed out that hardly any foreign investor will invest money in such a volatile condition. They do not see any sign of recovery from the
existing political stalemate within a very
short time.
“How can we expect foreign investments when the local people are not investing their money in such an environment?” wondered Dr. Zaidi Sattar, chairman of Policy Research Institute (PRI), a non-governmental think-tank. Before making investments, a foreign company observes the overall conditions in a country, he pointed out.
He does not see any sign that an understanding will be reached between the two rival political groups in the country in the near future. “Whatever we can see, we do not see any good sign on the political front,” he added.
Sattar, however, pointed out that the economic fundamentals of the country were yet to be affected. The macroeconomic conditions are still good. But if this uncertain political environment persists, the expected growth may not occur. According to the PRI chairman, the country’s economy would have posted further growth if there had been no political violence.
According to sources, the flow of investment in the country began falling since March this year. Entrepreneurs and businessmen refrained from going in for fresh investments as the political situation started simmering in the country, the sources pointed out. Investments were also affected by the conservative policy of certain government agencies while providing utility services, including power and gas connections, to new enterprises. BOI officials, however, claimed that the power and gas connections were given to new enterprises following recommendations from the BOI.
The Bangladesh Bank has also been pursuing a tight monetary policy, reducing the credit flow to the private sector. The main objective of the BB’s contractionary monetary policy is to keep inflation under control.
“The private sector credit growth slowed in recent times, mainly because of slowdown in import growth emanating from the uncomfortable global as well as domestic situation,” the BB says in its latest economic update. According to the BB, the private sector credit growth declined to 11.04 per cent in the 2012-13 fiscal from 19.72 per cent in the 2011-12 fiscal. According to sources in banking circles, the commercial banks have been overburdened with excess liquidity because of the gloomy investment situation in the country. Around Tk. 80,000 crore remains idle in the commercial banks as the entrepreneurs are not showing much interest in getting bank loans.
The BOI officials said the country needs at least USD 3 billion in foreign direct investment every year to achieve over 7 per cent GDP growth, as targeted by the government. Against such expectations, the flow of foreign direct investment was logged at USD 1.2 billion and USD 1.3 billion in 2011 and 2012 respectively.
They hope that investments would get a fillip in the country after a number of mega development projects, such as the Padma Bridge, expansion of the Dhaka-Chittagong and Dhaka-Mymensingh highways into four-lane ones, and upgradation of Mongla port, are completed.
Finance minister AMA Muhith, earlier responding to a question, admitted the recently declining trend in private investments, but claimed that in recent years, public investments were the highest in the just concluded fiscal year. The BOI officials said the public sector investments mainly occurred in the infrastructure and communications sectors. The government has constructed a number of flyovers to reduce traffic congestion and power plants to reduce power cuts and outages and ensure the functioning of mills and factories.
-With The Independent input
