Home ›› 09 May 2023 ›› Editorial
Logistics performance is one of the key indicators to attract investment in a country. Bangladesh needs to attract more investment both from local and foreign sources along with Foreign Direct Investment (FDI). By 2025 Bangladesh needs gross investment of 36.59 per cent of GDP, and by 2041 to 46.9 per cent so far achievement is 31.68 per cent.
FDI target is about 3 per cent of GDP; however by 2022, we have achieved only 1.01 per cent. Export target by 2041 is USD 300 billion. Investors consider logistics supports as one of their priorities to select a country destination.
Bangladesh, since last few years, has given added importance on logistics development. Presently, logistics support services are administered through a number of ministries, agencies, departments, sometimes over lapping and duplication of authorities making the permission, licensing, and approval giving process suave and time-bound. Now, it has got feebleness and several headstrong making it time consuming and uncertain. Prime Minister’s Office (PMO) since last few years in collaboration with private sector was working sincerely for an effective Logistics Development Policy, prepared strategies for logistics sub-sectors to bring more discipline in this sector.
The recent announcement of improvement of Logistics Performance Index (LPI) 2023 will create a positive image against Bangladesh as the country at the moment needs huge investment for logistics sector development in particular and at the same time investment in all other non-traditional sectors in general.
Global logistics market size will be about $9.9 trillion; domestic market size was $15 billion in 2028 which will increase to a reasonable size. National plans have given enough importance on the sector; expenditure on the sector needs to rise to 8 per cent of GDP from 2-3 per cent. Demand for warehousing to increase by 64 per cent by FY23, over $1 billion investment opportunity in cold chain only.
Recently announced LPI 2023, Singapore secures 1st position by achieving 4.3 score while Finland attains the 2nd by achieving 4.1 out of the scale 5. The logistics performance of Bangladesh goes up by 12th position from 100 (LPI 2018) to 88th (LPI 2023). By considering the LPI 2023 and LPI 2018, among the six components, the performance of Bangladesh has improved in four categories such as customs procedure, international shipments, logistics competency and quality of service and timeliness. Along with Bangladesh, Congo Republic, Dominican Republic, Guatemala, Guinea-Bissau, Mali, Nigeria, Uzbekistan, and Russian Federation have ranked 88th position as all these countries scored 2.6 out of a scale 5.
All the South Asian regional partners of Bangladesh have performed a better position in LPI 2023 in comparison of LPI 2018. It will provide a positive vibe to the world as the region is booming through its trade logistics performance. It is expected that connectivity among the regional trade partners will boost economic growth. For Bangladesh, after the LDC graduation era, logistics would be treated as one of the key factors to ensure sustainability and growth of competitiveness in international trade by reducing lead time and transport costs.
However, it is a matter of conjecture that not only Bangladesh all other South Asian countries, some African and Central Asian countries have done better. The changes are very fast now, so no way to leave behind. The dynamism of regional focus, de-globalization, rising economic nationalism, increasing geopolitical tensions and the challenges of multilateral institutions to deliver on their promises have brought several changes in economic transition. Bangladesh needs to be ready for adapting new changes.
Considering the importance of logistics development in order to attract new businesses, PMO and BUILD started a journey in 2020 by forming Logistics Infrastructure Development Working Committee (LIDWC) to provide policy advocacy for the improvement of the logistics scenario in Bangladesh under the mechanism of the Public-Private Dialogue Platform. Logistics has been included as an export-diversified and priority sector along with its 21 sub-sectors in the National Industrial Policy 2022. A framework for National Logistics Development Policy (NLDP) was presented by BUILD to PMO in 2022.
As a follow-up of two-day national-level workshop on 16-17 November 2022 in January 2023, PMO formed the National Logistics Development and Coordination Committee (NLDCC) under the chairmanship of the Principal Secretary of HPM. Five sub-committees have already been formed namely policy and regulatory framework, infrastructure, investment attraction, institutional and capacity development, and technology and digitalization to facilitate the national committee to formulate NLDP.
Now the new LPI indicators by World Bank will be an encouragement for the country to work further to achieve better results in future. As we are aware, LPI 2023 has been developed based on the outcomes of the survey where participants were stakeholders of the logistics sector.
LPI evaluates country logistics performance through six (06) components like the efficiency of customs and border management clearance, quality of trade-and transport-related infrastructure, ease of arranging competitively priced international shipments, competence, quality of logistics services, ability to track and trace consignments, and frequency with which shipments reach consignees within the scheduled or expected delivery time. While crafting the NLDP policy Bangladesh needs to take care of all these issues.
Multi-dimensional factors and elements have been considered to develop a matrix to select country groups for survey respondents such as coastal countries, landlocked countries, high-income countries, middle-income countries, and low-income countries.
Moreover, the globe has been segmented into several regions such as Africa, East Asia, Central Asia, Latin America, Europe less Central, and Organization for Economic Co-operation and Development (OECD) to group the countries.
For calculating LPI 2023, survey questions are developed by considering the six components of LPI to assess the country’s logistics level on a 5-point scale. Later on, the average number of these six components is taken as the final LPI score. LPI scores are broken down into four performance groups; poor logistics performers, partial performers, consistent performers, and logistics friendly. The ranking mechanism of LPI 2023 has followed the group rank instead of the country rank. For example, LPI score of Denmark, Germany, Netherlands, and Switzerland score 4.1 out of 5. Considering the score, the group rank of all four countries is 3rd out of 139 countries.
It is found that, over the past decade since 2007, high-income and developed countries have occupied the top ranks of the LPI. On the other hand, in least-developed countries, political unrest, natural disasters, and fragile economies affected by armed conflict have been suffering from its poor logistics performance. The supply chain crisis because of the pandemic has not significantly changed the relative pattern of results across countries because the crisis was global in terms. Economic development, GDP growth, industrialization, decentralization, investment attraction, and quality of the business environment all are positively correlated with logistics performance.
The COVID-19 pandemic taught us the importance of logistics and production supply chain for the seamless improvement of the global economy. Global trade mostly depends on container shipping trade which carries over half of the world trade in terms of value. Both air freight and container shipping were almost disrupted by the pandemic which made the manufacturing sector stagnant because of the scarcity and unavailability of the production raw material. There is a reverse side of the coin like the e-commerce and ICT sector enjoyed an enormous boom amid the pandemic.
Countries with a visionary focus have concentrated on the development of trade logistics infrastructure to ensure the sustainability of harmonized growth. Bangladesh’s government has a target to be a high-income and developed nation by 2041. Socio-economic targets of the Perspective Plan of Bangladesh-2041 are set by considering the export-oriented manufacturing-led strategy. Logistics performance with a global standard is the key to attracting investment to attain all the targets. Moreover, logistics is not only a key enabler to fasten domestic production and simplify export activities, but also a potential and promising sector of the export basket to earn foreign currency through logistics service export.
It is high to keep the momentum of the initiative of logistics policy formulation mechanism that was jointly initiated by the Prime Minister’s Office, BUILD with the support from World Bank Group in 202o. Both the public and private sector stakeholders are willing to have a comprehensive national logistic policy to bring this huge cross-cutting sector under a single umbrella. LPI 2023 would be a brainstorming tool for the policymakers and relevant stakeholders while designing the policy of Bangladesh.
Ferdaus Ara Begum is CEO of BUILD a Public Private Dialogue Platform. She can be contacted at ceo@buildbd.org
Mohammad Nazimuddin is Senior Research Associate of BUILD
