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Halting the slide in business competitiveness

Helal Uddin Ahmed | Published: October 16, 2019 21:30:00


Although Bangladesh has made some headway lately in improving its investment climate, it seems to be stuck in a quagmire in the area of business competitiveness. According to the latest Global Competitiveness Index (GCI) 2019 released by the World Economic Forum (WEF), Bangladesh's ranking has slipped from 103 last year to 105 among 141 economies. Only Nepal (108) and Pakistan (110) are behind Bangladesh in the South Asia region.

The Global Competitiveness Index is measured by the WEF on the basis of 12 main drivers of productivity or 'pillars', which gauge the attributes related to total factor productivity (TFP) that cannot be explained by labour, capital and other inputs. Four of the pillars, viz. 'institutions', 'infrastructure', 'ICT adoption' and 'macroeconomic stability' belong to the area of 'enabling environment'. The pillars 'product market', 'labour market', 'financial system' and 'market size' have been bracketed within 'markets'; 'health' and 'skills' fall under the jurisdiction of 'human capital; and 'business dynamism' and 'innovation capability' have been shown under the attribute of 'innovation ecosystem'.

Overall, Bangladesh has scored 52.2 out of an optimum 100 points, the same as last year. The country's ranking is within 100 in case of only 2 pillars, viz. macroeconomic stability and market size. Its worst rankings are in the pillars of institutions (109), skills (117), product market (119), labour market (121) and business dynamism (121).

Poor rankings in sub-areas under the broad pillars include checks and balances, transparency, property rights, utility infrastructure, internet use, skills of current and future workforce, domestic competition, trade openness, labour market flexibility, meritocracy cum incentives, financial system stability, administrative requirements, interaction cum diversity, and commercialisation.

The worst rankings in the sub-areas are: freedom of the press, incidence of corruption, intellectual property protection, quality of land administration, auditing and accounting standards, road connectivity, exposure to unsafe drinking water, extent of staff training, quality of vocational training, skill-sets of graduates, extent of local market dominance, trade tariffs, border clearance efficiency, redundancy costs in labour market, ratio of salaried female workers, soundness of banks and their regulatory capital ratio, regulatory framework for insolvency, willingness to delegate authority, companies embracing disruptive ideas, and multi-stakeholder collaboration.

The report blames complex administrative requirements and weak entrepreneurial culture for the weakening of business dynamism in Bangladesh. Insufficient skills of the current workforce and their dearth of preparedness for facing future technological challenges are the other notable weaknesses. In fact, Bangladesh appears to be facing four-pronged challenge in the area of competitiveness. The challenges are: weaknesses in governance and institutions, poor infrastructure, loopholes in financial system, and flaws in business operations. A 'business as usual' approach will not be sufficient to improve this faltering competitiveness.

While releasing the report in Dhaka, the local think-tank 'Center for Policy Dialogue' (CPD) also released its own findings from a survey it conducted on business environment in Bangladesh. About 78 per cent respondents disclosed that they had to pay bribes for obtaining government contracts. Around 76 per cent acknowledged paying bribes while running import-export business. About 74 per cent paid bribes while submitting taxes, and 64 per cent respondents held the view that the Bangladeshi tax system is quite complex. The CPD researchers claimed that it became difficult for small entrepreneurs to operate businesses here because of corrupt practices. Corruption and irregularities push up prices of their products, as a result of which they lose competitiveness. About 59 per cent of the respondents also complained about various weaknesses in the banking sector.

Experts are of the opinion that businesses in Bangladesh tend to become monopolistic when they are controlled by vested groups or interests. This cannot augur well for the economy as a whole as it deters small and medium entrepreneurs from succeeding in various sectors. Consequently, the consumers have to pay higher prices for the commodities on offer in the market. Besides, Bangladesh faces considerable risks in areas such as volatility in petroleum prices, unplanned urbanisation, industrial pollution, money laundering and concentration of wealth in few hands.

The WEF report shows that the hitherto good ranking in the 'macroeconomic stability' pillar has weakened due to lack of good governance in the financial sector. Bangladesh's trade rival Vietnam could have been a good example for the country as the Southeast Asian country is advancing its reform agenda on a gradual and incremental basis. Vietnam's ranking in the competitiveness index is now 67, as it has improved by 10 slots within one year. Yet Vietnam does not suffer from complacence and continues to improve its competitiveness on a sustained basis. Bangladesh has attracted diverse Chinese investments in recent years, but the magnitude of Chinese investments in Vietnam has been much higher because of advance preparations taken for the purpose.

It appears that whereas other competing economies have geared up their pace of reforms, Bangladesh has remained stuck in the same spot of global competitiveness. On top of everything, corruption has to be curbed if the country is to move forward and overcome the current impasse. Corruption has now become so pervasive in the state machineries that it has been identified as the most serious obstacle to good governance in all facets of the state.

As opined by experts, the first priority in the reform initiatives should be to create a business-friendly framework through enhanced investments in the infrastructure sector. Secondly, the relevant institutions need to be strengthened through enactment and application of stringent laws, rules and regulations. Establishment of good governance in money and capital markets has also become very urgent. Alongside increasing revenue collection and expediting domestic resource mobilisation through modernisation of relevant laws and rules, the number of taxpayers must be raised to a rational level through widening of tax net and curbing the common trend of tax evasion. Overall, a big push is needed for carrying forward the reform agenda in Bangladesh in order to improve its business competitiveness.

 

Dr. Helal Uddin Ahmed is a retired Additional Secretary and former Editor of Bangladesh Quarterly. hahmed1960@gmail.com

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