Industrial Development · Industrialization · Small and Medium Enterprise (SME)

Preparing a Launching Pad for Industrialization

Preparing a Launching Pad for Industrialization

Md. Joynal Abdin

The Financial Express on Thursday, 20 December 2012

The Bangladesh economy is expanding with 5.0-6.0 per cent annual growth during last one decade. Contribution of agriculture to gross domestic product (GDP) is decreasing whereas that of industry has been increasing over the last two decades. In 1991, contributions of agriculture and industry in GDP were 30.4 per cent and 21.7 per cent respectively. In 2001, contribution of agriculture to GDP decreased to 24.1 per cent whereas that of industry rose to 25.9 per cent. Recent statistics show that contribution of agriculture to GDP is much lower at 20 per cent than that of the industry at 30 per cent. The present government has envisioned that the contribution of industry to GDP will be increased to 40 per cent by year 2021. So it is clear that the Bangladesh economy is being transformed from agriculture to industry-driven one.

But then, is Bangladesh ready to absorb this transformation? Do we have enough infrastructural or policy framework to promote industrialisation? Is business environment healthy enough to sustain new ventures here? Hardly there is one who can give a definitive answer to this pertinent question.

Now is the time to prepare ourselves to make and maintain an industrialisation-friendly environment for an industrialised Bangladesh. Let’s see what necessary initiatives can be taken to create an industrialisation-friendly environment in Bangladesh. The list may include the following:

Survey of our existing industrial sub-sectors: None of the government or private sector institutions is ready to provide a comprehensive profile of any one of the industrial sub-sectors of Bangladesh. How many enterprises are there in any particular sector? What types of machinery they are using currently? What are the latest technological up-gradations our competitors made in the sector? What types of raw materials they are using? What is the annual turnover of the sector? What is the total size of this sector at home as well as around the globe? Who are the existing importers and suppliers of a particular type of products? What is the recent trend of this industry locally and globally? What types of institutional supports this industry needs? What is the level of our products in context of quality and price?

So, the first step of our preparation for industrialisation should be to conduct detailed survey of our existing industrial sub-sectors and prepare database of the existing enterprises, machinery, raw materials, imposed duties, required institutional supports etc.

Developing need-based technical hands: Based on the detailed survey, technical training on trade/technologies, which are in great demand, may be started. For example, training in mould die designing, CAD CAM operations, CNC vertical machining centre operation etc. for light engineering, plastics and electrical sectors. Cluster-based technical and managerial training may be another option to develop need-based technical hands for flourishing of that particular sector.

Ensuring easy access to finance with a competitive rate: At this point, easy access to finance is vital. Access to capital may be easy without collateral or without guarantor up to a certain amount. But availability of finance at a competitive rate is vitally important here because currently all the commercial banks, including state-owned ones, are providing loans with 15 per cent to 25 per cent rate of interest. At the same time, entrepreneurs are looking for bank loan and complaining every time that they are not getting it and the rate of interest is too high. Today our entrepreneurs are competing with their Chinese, Indian and Vietnamese counterparts at home and abroad. So, before fixing up local bank interest rates, the government/ policy-makers should think about the rates of interest now being charged in China or India and other competitor countries that export products either to Bangladesh or compete with our products in our export markets. Rates of interest should be equal to what our competitors are paying in their respective countries. If not, our products will become uncompetitive in terms of pricing in export markets and even in local markets. Seed financing, financing for technology up-gradation, financing for achieving international standard certification etc. should be introduced to promote industrialisation.

Reducing import duty on all primary raw materials: The government may think of collecting either import duty or VAT, if all import duties on basic raw materials (do not have consumption without processing) are waived. The government incomes from import duty will go down. But this is for the time being. How much will be the reduced amount? All industries are adding at least 25 per cent value on raw materials to produce finished goods. Existing duty on raw materials varies between 4.5 per cent and 12 per cent. If we waive this 4.5 per cent import duty from the raw material import, the concerned industries will flourish. This will lead us to collect 15 per cent VAT from the finished goods produced with those raw materials. Questions may be raised that currently import duty to the extent of 4.5 per cent and VAT 15 per cent are being charged on the same products in different stages. How can the amount be larger if 4.5 per cent is waived? Think for a moment about currently imported amount and the imported amount without import duty. I am sure, without import duty, amount of import will be at least 50 per cent more than the current import. It will create a few more employment, increase GDP and 15 per cent VAT on the increased amount. The import duty waiver will pay more.

Establishing an entrepreneurship development institute: Currently all business and engineering institutes are producing managers and professionals; in other words, job seekers in Bangladesh. None of the institutes is dedicated to create an entrepreneur, that is a job provider. Features, traits and characteristics of an entrepreneur are different than those of a manager or professional. Mind setting and risk bearing tendency of an entrepreneur make him a job provider instead of a job seeker. Bangladesh does not have any institute for creating entrepreneur. We should have it as soon as possible. India established the Entrepreneurship Development Institute (EDI) in Ahmedabad in 1983. It has dozens of branches throughout India creating successful entrepreneurs for last 30 years. They are providing free-of-cost technical assistance to the LDCs to establish entrepreneurship development institutions. Bangladesh may make use of this opportunity easily. So far as I know, EDI, India is assisting Myanmar, Cambodia, Vietnam and many African and Latin American countries to establish entrepreneurship development institutes.

Establishing sector-specific engineering and technology institutes and testing labs: We have glass and ceramic institute, textile university, college of leather technology etc. Till now we are missing a plastic engineering and technology institute, world-class electrical testing laboratory, institute of automobile engineering and technology, furniture institute of Bangladesh etc. Such types of sector specific institutions and testing laboratories should be established to support industries for sustainable development of the sectors.

Setting up of product display and sales centres: For promoting Bangladeshi products, permanent display and sales centres may be established in all international airports, major tourist spots at home and in all Bangladesh embassies abroad. Trade shows/exhibitions may be organised by all Bangladesh embassies. B2B matchmaking events may be part and parcel of these trade shows/exhibitions.

Providing uninterrupted power and utility supplies to the manufacturing industries: Uninterrupted supply of electricity, gas, water etc. should be ensured with highest priority. Residential and industrial grid of electricity may be differentiated and uninterrupted supply of electricity should be provided to the industrial units. Load shedding should be lessened with lower utilisation of human resources and capital machinery as well as higher rates of wages and bills. Otherwise, per unit cost of products will go up and make local products uncompetitive.

Establishing industrial park: It is quite easy to ensure all sorts of industrial infrastructure and utilities at a particular place. At the same time, there are a few industries like light engineering, plastics and electrical products which use few common processes and raw materials. Establishing collocated industrial park with these interdependent sectors may give more output; minimise processing time and cost, maximum utilization of land and other facilities. EPZ is a successful model of industrial park in Bangladesh for export-oriented industries. Similar success stories may be written by establishing collocated industrial cluster park for the Bangladeshi entrepreneurs.

Providing/assisting in achieving international standard certification: Agro-processing, fresh vegetable, frozen fish, shrimp etc are major exportable items of Bangladesh. Main consumers of Bangladeshi agro and other products abroad are non-resident Bangladeshis. Foreigners are not consuming these because our products are not quality-certified by any international standard organisation. Export earnings from these products may increase hundred times if we can create ethnic market in these respective countries by ensuring quality certification so that foreign buyers could trust our products. The government may establish an institute or BSTI (Bangladesh Standards and Testing Institute) may increase its mandate to assist local factories to get international standard certification like ISO, FSMS, HACCP certification for increasing export earnings and promoting this sector at home and abroad.

Creating an industrial cadre in civil service: Agriculture officers are supporting farmers in selecting appropriate crops for specific lands, better use of pesticide, and grading and preservation process of crop. Similarly, the government may create separate ‘Industrial Cadre’ in civil service to assist small and medium entrepreneurs in making their time-to-time decisions regarding business trends and expansion possibilities. It will create employment to business graduates in civil service and provide information/direction assistance to the entrepreneurs. A business graduate will feel proud to serve the small and medium entrepreneurs as a first class government official like agriculture/ fisheries officers.

Removing legal barriers to industrialisation: There are many laws that create barriers towards industrialisation. Our bureaucrats are unable to go an inch beyond those laws. So many certification, licensing, and enlistment issues have to be resolved. Now it is the time to identify laws and policies creating barriers towards industrialisation and remove those on the basis of current priorities.

Establishing common facility centres in different clusters: There are some industrial processes that need larger investment to be established, which is beyond the reach of small or medium entrepreneurs. For the sake of industrialisation, employment generation, increasing GDP growth and maintaining social stability, the government has to take initiatives to establish cluster-based common facilities centres to ease the process for the small entrepreneurs.

Setting quality guidelines for different industries: One of the major causes of our failure to face the challenge of imported products is inferior quality of our goods with higher prices. If Bangladeshi products lose local market in the face of high quality imported products with the same price how can these local industries be sustained? The government will have to issue quality guidelines for different products being manufactured locally. BSTI may play a vital role to increase quality of local products by issuing and enforcing quality guidelines for all locally manufactured products.

Adopting ICT and E-business and E-commerce: The government has yet to ensure E-commerce infrastructure for the local industry. By adopting ICT and e-business, our exports may be increased. Postal service and other e-commerce-related services should be strengthened to allow local entrepreneurs to go for a hassle-free e-business globally.

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