Home ›› 30 Jan 2023 ›› Front
The business environment in Bangladesh deteriorated in 2022, compared to 2021, as corruption remained the biggest barrier to doing business for the majority of enterprises, according to a survey of the Centre for Policy Dialogue (CPD).
Some 64.6 per cent of the respondents to the survey have complained about facing severe corruption while availing services from different agencies and organisations of the government and the private sector.
The findings of the survey, titled “Bangladesh Business Environment 2022: Findings from the Executive Opinion Survey,” were revealed at a media briefing at CPD’s Dhanmondi office in Dhaka on Sunday.
The survey covered 10 pillars, including infrastructure, financial system, trade, competition, governance, building human capital, working and employment, and economic recovery.
Bangladesh’s business environment did not show considerable progress during 2021-22. It either deteriorated or remained stagnated compared to the previous year, CPD Research Director Khondaker Golam Moazzem said while presenting the findings.
“Corruption remains the most problematic factor for doing business for the majority of enterprises though the severity of its impact has been gradually shared with other structural and newly emergent problematic factors,” he said.
Several global economic, social, technological and environmental risks have emerged that need to be taken into account by Bangladesh at least in the medium term, he added.
The economist said the government should put importance on better transparency in formulating and implementing different policies, strategies, plans and operations targeting long-term competitiveness, productivity enhancement, ensuring sustainability, addressing climate vulnerabilities and ensuring green growth and clean development.
CPD carried out the opinion survey from April to July 2022 in partnership with the World Economic Forum, discussing the issue with 74 senior officials of different private companies in Dhaka, Chattogram, Narayanganj and Gazipur. A rapid assessment survey was also conducted alongside it to highlight domestic issues concerning businesses.
Findings
The majority of the respondents faced corruption while paying taxes (48 per cent), receiving business licences (54 per cent), securing connections to utilities like gas, electricity and water (49 per cent), and doing business in the export-import sector (75 per cent), found the survey.
Inadequate infrastructure, limited access to finance and inefficient bureaucracy were among the major problematic factors and they hampered the business environment to a large extent, Moazzem said. The challenges multiplied through new factors such as higher inflation (38.5 per cent), volatility in the foreign currency market (38.5 per cent) and policy instability (35.4 per cent), he said.
Trade and investment-related issues did not improve during 2022 after the Covid-19 pandemic. Besides, despite various initiatives, foreign direct investment (FDI) inflow remains at a low level, he added.
CPD Executive Director Fahmida Khatun said, “The current situation is unstable. We have the pressure of inflation on one side, then there is the crisis caused by the Russia-Ukraine war, also there are geopolitical factors for which even big economies are going through recessions.”
She also said that many international organisations, like World Bank and International Monetary Fund (IMF), have forecast that it will linger till 2024. Many big economies will enter recessions.
The government should not increase gas and electricity prices and keep general people under pressure to meet the demands of international agencies. Hence, a negotiation should be done considering the people’s interest, Fahmida added.
“Ahead of the general election, the business atmosphere may further dwindle. Investment may decrease. CPD’s next survey will focus on this issue,” she said.
Limited access to financing and an inefficient bureaucracy were termed as the third most problematic factors with 43.1 per cent of the respondents complaining about each.
As per the survey, 44 per cent of businessmen perceived that money laundering through various channels is largely pervasive.
Moazzem said Bangladesh’s loan liability would significantly go up in future if the foreign loans are not utilised properly. As there is a crisis now, it should be considered before choosing projects.
“Unnecessary projects should be avoided. Many times, necessary projects may become unnecessary if they are not completed on time. Also, 90-per-cent-finished projects should be completed quickly. However, a good review is significant after finishing a project,” he added.
It also found that entrepreneurs perceived the three biggest economic risks for Bangladesh in the coming years as rapid and sustained inflation (25 per cent), a debt crisis (22 per cent), and severe commodity price shocks and volatility (22 per cent).
The three biggest social risks they noted were a cost-of-living crisis (51 per cent), an employment and livelihood crisis (19 per cent), and infectious diseases (8 per cent).
They also assessed digital inequality and failure of cybersecurity measures as the top technological risks and human-made environmental damage and natural disasters as the biggest environmental risks.
CPD urged the government to plan and implement a series of policies and strategies to address these risks and deliver long-term competitiveness, enhanced productivity and sustainability.
It said the government should also focus on improving the efficiency of infrastructure, which is showing some positive changes from the substantial investments in the past decade.
Financial sector
The financial sector’s situation somewhat worsened after the pandemic, with most of the indicators showing scores lower than 2021. The overall level of performance of the sector has remained negative indicating a struggling situation as in previous years, said the survey.
According to the respondents, the negative perception was observed in the case of the soundness of banks (41.9 per cent), accessing start-up capital (51.4 per cent) and financial and auditing reporting standards (49.3 per cent).
The study also said that 45.9 per cent of businessmen indicated that SMEs are facing difficulty in obtaining funding from the financial sector (45.9 per cent) and the progress is rather slow compared to other financial market indicators.
It said the competitive environment in businesses has further worsened due to the lack of proper practices of corporate governance, weak regulatory oversight and lack of corporate ethics.
The Competition Commission, the Directorate of National Consumers Right Protection of Commerce Ministry, Bangladesh Bank (BB), the National Board of Revenue and Finance Ministry should play their due role to ensure competition in the market, CPD said, adding that operations of the companies playing the role of “dominant market player” need to be regularly monitored in different segments of markets and supply chains.
An inclusive supply chain in major sectors needs to be developed with the assured presence of SMEs in each segment of the chain, said the study.
It also said that the government’s measures regarding money laundering are highly inefficient. Of the respondents, 42 per cent expressed their view that a large part of economic activities are undocumented and unregistered while 20 per cent indicated that businesses are using the internet for selling their foods and services.
Moazzem said the country does not get proper FDI due to weak rules and regulations, tax system and infrastructure and lack of skilled manpower.
He also said that financial incentives are not being distributed properly. The promoting system should be overhauled to improve all businesses and diversify export. Small businesses cannot enter the supply chain properly and that leads to inequality and big businesses dominating SMEs.
Smart Bangladesh
Moazzem said that the government has started campaigning about building a “Smart Bangladesh” without evaluating the structure of “Digital Bangladesh.” An extensive evaluation is needed before starting the campaign for Smart Bangladesh.
CPD also suggested stronger regulatory oversight, proper corporate governance practices, and instilling of corporate ethics.
Human capital development should become a mainstream activity of the government and it should evaluate its Digital Bangladesh initiatives thoroughly to identify its strengths, weaknesses and issues, it said.
Recommendations
CPD suggested the need for comprehensive policy support to meet short, medium and long-term challenges amid the uncertain post-Covid business environment.
On a more positive note, businessmen had fewer complaints about a high tax rate and the gradual reduction in top-tier tax rates may have contributed to that. However, the complexity of tax regulations is perceived as more troublesome than the tax rate, found the study.
FDI should get priority along with local private investment. Public investment with the support of development partners and FDI needs to focus on green city development, clean energy development, waste management, industrial pollution control, etc., CPD recommended.
The report also added that business-related information needs to be disclosed in an integrated information and data system to review the operations of players in the supply chains.
The think-tank recommended that the financial sector overhauling, including amendment of the Bank Company Act, could be initiated as part of complying with the IMF’s loan conditions; the cap on lending rate can be lifted to ensure better access for SMEs; ensuring transparency in outstanding loans; and making sure the regulators, including BB, Bangladesh Security and Exchange Commission and Insurance Development and Regulatory Authority, play an effective oversight role.
CPD said despite sporadic improvements, institutional inefficiencies have also made things harder for businesses. It also pushed for major reforms to public institutions for better transparency, accountability, and efficiency, and recommended that the major political parties should commit to such reforms in the upcoming parliamentary election.
