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WB terms Bangladesh
a protectionist economy
Holiday Desk
The World Bank (WB) country chief Zhu Xian termed Bangladesh the most protectionist economy in South Asia and said last week that Bangladesh needs to open its economy to survive in a quota-free world. “Against many odds, investors have made remarkable headway and contributed greatly to progress in this country”, Xian said adding that for Bangladesh to put its people on a path to prosperity means creating a policy environment and investment climate that allows investors and entrepreneurs to contribute fully to the growth process.
“Prolonged high protection breeds inefficiency, inhibits competition and stifles productivity growth. That is not good for export competitiveness or for economic growth over the long term,” WB chief said, detailing the global lender’s new economic theory to put Bangladesh on a higher growth path.
The three-point theory, unveiled last week in a report authored by a team of World Bank economists, suggests that Bangladesh needs to shift from agriculture to manufacturing economy to become a middle income country by 2016.
It shows Bangladesh a high income growth path through switching over to service and labour-intensive manufacturing sectors, integrating more into global market system and emergence of diverse dynamic urban centres.
The world is moving quickly; so are countries in the region and Bangladesh needs to move faster just to stay in the same place and to catch up. Concrete, coherent and immediate actions to improve the investment climate are urgently needed.
For its part, the World Bank Group is more than willing to ramp up its technical and financial assistance in order to augment infrastructure and to improve the investment environment in Bangladesh.
Beyond improving the investment climate, Bangladesh needs to open its economy to survive in a post-MFA world. Bangladesh is now the most protectionist economy in South Asia. Prolonged high protection breeds inefficiency, inhibits competition, and stifles productivity growth. That is not good for export competitiveness or for economic growth over the long term. In a highly competitive post-MFA world of today, there is no option but to strengthen export competitiveness by phased and transparent liberalization of the trade regime.
In Xian’s view Bangladesh’s remarkable economic and social gains have taken place, despite widely held perceptions of weak governance. Setting aside this governance conundrum, Bangladesh now faces bigger challenges as there are still some 56 million people living below the poverty line. In absolute numbers, that will be more than the poor people Bangladesh had inherited at independence. To win the fight against poverty and reduce the numbers of poor people, Bangladesh must grow stronger and faster.
The countries in East and Southeast Asia faced similar situations at the different stages of development, and their experience to develop export driven and labour intensive manufacturing produced good results for their economic development, he pointed out.
‘…labour is the most precious asset to the economy. But on the other hand, challenges to create jobs remain,’ he said.
He said Bangladesh needs to attract foreign direct investment in manufacturing sector as a strategy to create opportunity for maximum employment and put the nation on a path to prosperity.
‘Concerted efforts are necessary to improve Bangladesh’s attractiveness to FDI,’ the WB executive said.
Xian said the level of FDI has been quite low in Bangladesh — less than 0.5 per cent of GDP for the most part.
Quoting a WB’s survey, he said firms with any level of foreign ownership are 10 per cent more productive on an average than firms that are wholly domestically owned. For these transitions to happen, he said Bangladesh would have to increase its investment rate by more than five percentage points (to 30 per cent of GDP from the current 25) and also employ its resources (labour and capital) more productively.
The benefits of having a large domestic market are clear, but that should not detract from the tremendous opportunities that access to global markets offers, he pointed out.
Moreover, he added the transfer of technology and managerial skills that accompany FDI are vital to become more efficient and productive in the competitive global markets.
Xian said one critical constraint to attract FDI is infrastructure bottlenecks related to power, trade facilitation and transport networks that are imposing significant costs on exporting and importing firms.
Bangladesh joined the World Bank after independence, in 1972. Since then, the World Bank has been a significant and long term development partner. All the credit that Bangladesh gets comes from the International Development Association, the concessionary arm of the Bank. All IDA money is interest free and comes with a 40-year maturity, with the first 10 years as grace period.
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Why loss of liquidity hurts
the stock market?
Share Shah
What do we really mean by market liquidity? From bankers’ point of view liquidity means —in possession of means of payment. Today it means one has access to credit. You will hear the term “liquidity” used and abused daily in discussion of the global economy. “There’s too much liquidity!” you will hear. Too much “money” chasing too few assets. But that is only half true. The chasing part is true. The “money” part is not.
The problem, as we are all about to discover, is that when a major actor in an aging global monetary system attempts to maintain the status quo, as the US did by loaning gold to the UK in the 1920s under the gold standard and as China does today by purchasing US Treasury bonds under the US Treasury dollar standard, a global credit bubble results.
Last week, the stock prices tumbled on Wall Street and across much of the rest of the world. They were dampened by worries of slowing economic growth in the United States and worsening borrowing conditions that could make everything from huge corporate buyouts to buying a new home more difficult. Major stock market indicators such as the Dow Jones industrial average and the Standard & Poor’s 500-stock index, were down more than 2 per cent.
US newspapers reported that the day was the worst one-day decline on Wall Street since markets plunged worldwide in February 2007 after an investing scare in Shanghai, and it occurred amid the biggest volume of trading on the NYSE in five years. Losses of more than 2 per cent were recorded in Spain, France and Germany, while Britain, Argentina, Mexico and Brazil fell more than 3 per cent. Asian markets fell less. The Nikkei 225 in Japan and the Hang Sang index in Hong Kong were down some 2.5 per cent at the opening. Taiwan, South Korea and Singapore also fell by more than 3 per cent.
The credit difficulties began in the United States with investors growing worried about losses on securities that helped to finance mortgages for borrowers with weak credit, but now they have spread to highly leveraged companies as well. The big US banks now find themselves taking on more loans because they had promised to do so if the loans could not be sold. And the market for some types of securities has vanished.
If anyone can dampen liquidity in our stock market, it will not be the banks but our regulatory body. The past few months both banks and non banking institutions along with banks with merchant banking functions had discovered a safe haven. None knows how much money has been poured in both margin lending and against securities. Also no one is really sure how much the banks have invested in their own portfolio. If the recent trading volume of the Dhaka Stock Exchange is any indication then the answer is substantial.
The question that really bothers many is not the growing size of our market but the fact of utilization and source of funds. Should credit be used to acquire equity and if allowed to what extent. We are aware that without some sort of debt equity ratio it is not possible to set up industrial or business enterprise. But what about savings? Should one morally allow debt to be used to acquire capital assets?
I do not really have any answers that would strictly apply to private savings. But there could be exceptions in matters of other forms of investing such as property. Essentially our property boom of past several years has been spurred by easy availability of funds from banks. Now with the situation otherwise one may also expect a crash in the apartments market. One of our eminent advisors has already suggested that the builders should start building graveyards.
The regulatory move by our Securities & Exchange Commission to cool down the heated stock market seems to be working. It seems that the Commission has correctly diagnosed the current market predicament and has directed the right dosage to reduce liquidity by restricting netting in all forms. Some economists have suggested that flow of more shares into the market would help. I am not sure that this would be the sole solution unless we can really be sure if funds are coming from real peoples’ savings or from borrowings.
Perhaps it would be beneficial to the market if the Commission now directs its attention in downsizing the abuse in the central depository. It is said the increase in the numbers of beneficial accounts often halts the data processing capacity of the depository company. The accounts now numbers 1.6 million which is said to be five times the projection. These numbers have largely grown in order to capture new issues. As a result serious mom pop investors are deprived of allotments. Many of the new accounts are surrogates, or multiple persons. Perhaps the Commission should consider these accounts on the basis of “one man one vote” or allow only each household to have a single account. Moreover restrictions should be made about the use of omnibus accounts over which the Commission has no control.
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Warid Telecom now covers
two-thirds of Bangladesh
Warid Telecom has expanded its network to eight more districts covering two-thirds of Bangladesh, says a press release.
Bhola, Jhenaidah, Kustia, Meherpur, Pabna, Patuakhali, Shariatpur and Tangail cities are now under Warid network making its footprints in 43 districts. The youngest mobile company already covers all major highways of the country as well.
The introducer of Next Generation Network (NGN) technology in Bangladesh, Warid Telecom's primary objective in the market is to ensure highest level of telecommunications service and customer care. So, expansion of Warid Telecom guarantees uninterrupted connectivity and absolute voice clarity.
Warid Telecom has achieved one million active subscribers in just 70 days of operations recording the fastest subscriber growth by a mobile company in Bangladesh. The achievement proves to overwhelming response of the people to Warid.
A subsidiary of the Abu Dhabi Group, one of the largest groups in the Middle East, Warid Telecom was awarded the 6th license for mobile telecommunications by the Bangladesh Telecommunica-tions Regulatory Commission (BTRC) in December 2005 as part of a land-breaking MOU with the Board of Investment of Bangladesh. Before launching commercial operations on May 10 this year, Warid Telecom set an example in the telecommunications sector in the country by paying about Tk 350 crore as licence fee.
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