TURNING RECESSION INTO REWARD
Strategic investment can cure economic ailment
M. Shahidul Islam.
A hybrid brand of ‘National Socialism’ is back in disguise as the governments everywhere is stepping into economic management of matters that have hitherto been under the purview of the private sector.
That does not mean the Hitlerism is back, but it does prompt one to wonder if there is something called independent economic policy making in the offing, like the sovereign foreign policy of nations, so to speak.
May be, although the very thought of a sovereign economic policy can not be envisioned without taking into account the variables that are embedded in the unique structure of any individual national economy and the degree of impact the global economic vagaries bring to bear upon it. Needless to say, the halcyon days of globalization are over, at least for now.
And, as nations are going their respective ways to safeguard vital national interests in the face of internal and external challenges to their economies, we don’t have the luxury to sit on the fence until irreversible harm befalls us.
Based on latest date available, imports constitute nearly 29 percent of our $67.7 billion GDP while export earnings contribute only 22 percent to that composite basket. The huge disparity between export and import earnings causes substantial trade imbalance, deters growth of indigenous industrialization and seriously pressurises on foreign reserve.
Given that the global economy has already entered into what most experts predict to be a prolonged recession, our government must embark upon ‘strategic investments’ with private cooperation. That needs dramatic shifts in economic policies and adoption of new ones which must be comprehensive, conscientiously devised, and long term in nature.
Under the current dispensation, the Board of Investment (BOI) is loosing its relevance due to its poor grasp on the dynamics of domestic productivity pattern, its inability to recruit internal investors, and the lack of Foreign Direct Investment (FDI) that is becoming a norm of some sort.
As well, despite there being many ways to beat the recession, a ‘rule of thumb’ method is to spend less and earn more, something with which the BOI has little relevance. As earnings will be shrinking further in coming months due mainly to reduced remittance and exports, the nation will be left with no other viable option but to rein in on imports.
The dilemma is: Money saved from reduced imports-if that is at all possible in the short run-has to be spent on public investment to generate employment. Failing that will reduce demands for goods and services in a bigger way and exacerbate the negative impact of recession further.
An old adage has it that the necessity is the mother of all inventions. Hence, the recession-induced predicaments should be used as the required rationale to go for indigenous production of much of what the nation currently imports. This needs gumption, determination and leadership due to our import list being colossal and the politics being under tectonic transition prior to an election that is as yet far from certain to yield the desired leadership for the nation.
Besides, the task of re-hauling the economic engine is an onerous one. Starting from machinery and equipment, we import chemicals, iron, steel, textiles, raw cotton, food (including even egg, lentil and onions), cement, crude oil, and petroleum products.
Interestingly, a bulk of those imports comes from India where our exports are at the minimum level and the trade deficit has overshot the limit of $2 billion. To the contrary, Indian imports from Bangladesh constitute only 0.10 per cent of its overall imports.
That makes better trade deals and harmonization of tariff and non-tariff regimes with India a matter of immediate concern. Time is propitious now to negotiate better regional trade deals as Indian exports too are facing global challenges due to the ongoing recession in the OECD nations and Pakistan and India have begun allowing trucks from their respective countries to cross borders along the disputed Kashmir region with permissible goodies.
That having said, one can not be too optimistic about a regional approach to such matters, if lessons of history are anything to go by.
From our unique vantage, import curtailment can be ensured by implementing a ‘grand strategy’ that would entail setting up of indigenous industries to produce much of the materials we currently import. The process should be pervasive enough to cover everything: From agricultural products to heavy machineries. Only a joint public-private collaborative effort can ensure the implementation of such a strategy at a time when pinning of hope on foreign investment-at least at the initial stage-could prove unrealistic due to the prevailing uncertainties in the global investment climate.
The government, however, can cash on some of the leeway that the recession has provided for the developing economies. With respect to our own circumstances, the scenario on internal revenue collection is much better than ever before, thanks to the better accountability and monitoring, while over $200 million is expected to be saved this year from the subsidy being provided toward the import cost of fuel.
Added to the unspent ADP fund from the previous fiscal, a chunk of over $1 billion that the IMF has on offer, and a portion of the forex reserve, an initial fund of $2 billion or more can easily be spared to create a ‘strategic investment fund’ (SIF). This will make participation of investors from home and abroad more enticing, credible and convenient.
That is part of the battle plan, however. Substantial investment is also needed in the power sector to sustain the trajectory of growth that the economy had attained in previous years. Researches show that power shortage alone is robbing the economy of 2 percent of the GDP.
The existing ‘disrupted and irritating’ power production capacity of about 4,400 MW against a recurrent demand of 5,300 MW is draining the vitality of the economy from the grass root level upward. This dismal scenario has compelled business people to import and install generators in a massive scale, resulting in, on average, 5.3 percent of any given business firm’s total fixed assets (at book value) going into investment on importing generators. Time is ripe to set up industries to produce electricity generators within the country, whatever it takes. This alone will reduce import costs by 9 percent or more, according to rough estimations.
The government also needs to focus more on patronizing the service sector which now accounts for 52 percent of GDP and is the largest source of employment. Financial institutions should be prompted to liberalize their credit regime further toward the service sector so that more of the unemployed youths can be absorbed in the sector in coming months and years. Banks also should lower their lending rates to borrowers to contribute in the rejuvenation of the economy that is showing serious signs of slowdown.
Finally, all concerned should be educated and cautioned about what lies ahead and why not to depend on things that are not within our control. The insipid and austere ambiance may be disliked by our elites, but it is there amidst us and will stay for a while as a despised guest of honour!