Bangladesh · Business Environment · Challenges of Bangladesh · Economy of Bangladesh · Lower-middle Income Country Status

The path to higher middle-income status

The path to higher middle-income status

Md Joynal Abdin

The Financial Express on July 11, 2015

The current fiscal year started with a good piece of news for Bangladesh. The World Bank upgraded it from the low income country status to a lower middle income category on July 01 last. This upgradation will increase our dignity while applying for foreign loans either by the government or by private sector investors. We will be treated a low-risk country for investment. Therefore, it will have a positive impact on decision-making of foreign direct investors. Increase of foreign direct investment (FDI) could be an immediate positive outcome of this graduation.

The World Bank has classified economies into four broad categories based on their Gross National Income (GNI) per capita. The lowest category is the low-income country having per capita GNI of less than US $ 1,045. The next category is the lower-middle income country having the per capita GNI of US $ 1,045-4,126. The third category is the higher-middle income country having the per capita GNI of US $ 4,126-12,735. The topmost category is the higher-income country having per capita GNI equal to or more than US $ 12,735 per year.

Statistics shows that Bangladesh’s GNI per capita reached US $ 1,054 in the fiscal year (FY) 2012-13 and gradually it reached US $ 1184 in 2013-14 and US $ 1314 in 2014-15. As we achieved the higher GNI per capita for three consecutive years, more than the lowest slab of the requirement for becoming a lower-middle income country, the World Bank officially shifted the country into that category. But there are instances of a country slipping back into the low-income status or remaining stuck in the lower-middle income level for several decades. Therefore, Bangladesh has to be careful about not falling back while a clear vision has to be there so that we can enter the next level of higher-middle income country quickly. The next target for Bangladesh is more challenging, because it has to achieve per capita income of more than US $ 4,126, four times the present achievement.

The present level of achievement is attributed to the common people, who did it without that much planned intervention of the government or policy makers. The full credit goes to the common people. They did it unlike us. Until now we are lagging behind economic targets mentioned in the Vision 2021. According to the Vision 2021, the country was supposed to achieve 8.0 per cent GDP (gross domestic product) growth by 2013 and 10 per cent by 2017. But at present the GDP growth is hovering from 6.0 per cent to 6.5 per cent. Similarly we were supposed to achieve the hundred per cent literacy rate by 2014, but it has been achieved up to 70 per cent. We have a long way to go before achieving the target of per capita GNI of US $ 4,126. It cannot be attained overnight. It requires proper planning and timely implementation of decisions.

THE CHALLENGES: This is the time to recognise our challenges and find out strategies to face them. Increasing investment could be one of the best ways forward for Bangladesh to increase the GDP growth, create jobs and reduce poverty. Investments stood at 28.58 per cent of GDP in the country in the FY 2013-14. It helped achieve 6.06 per cent growth in the fiscal year. The investments need to be raised to 34.4 per cent to post 8.0 per cent GDP growth. That means we have to increase investment by about 5.82 per cent of our GDP (the total GDP is Tk 13,509,204 million, according to the data of Bangladesh Bureau of Statistics as of 2014).

Investing such a large amount is almost impossible for both the government and the local private sector alone. Therefore, the government could inspire the private sector to boost the local investments and at the same time they could lure foreign direct investors to invest in Bangladesh. Foreign direct investment (FDI) could be very much helpful for Bangladesh to achieve the projected GDP growth.

Statistics says the level of fresh FDI is not satisfactory. FDI inflow was US $ 1194.88 million, 1730.63 million and 1495.5 million in 2011-12, 2012-13 and 2013-14 respectively. A major percentage of the FDI was reinvestment of locally-earned profits. The foreign equity capital inflow was only US $ 454.1 million, 761.03 million and 270.59 million. We have to increase our performance in attracting FDI at any cost. Otherwise, it could be almost impossible to meet the targets.

COMPARISON WITH VIETNAM:  We can compare our economic performance with that in Vietnam. Both the countries have similar stories of achieving independence through long bloody war. Both suffered heavy losses during their war. As per IMF data, Bangladesh’s total GDP is about US$ 185 billion. Similarly, Vietnam’s total GDP is about US$ 186 billion. Vietnam earned FDI to the tune of US $ 19,886.1 million, 15,598.1 million and 16,348 million in 2010, 2011 and 2012 respectively. During the period Bangladesh got only US $ 913.3 million, 1136.4 million and 1191 million respectively. Bangladesh posted FDI inflows equivalent to only 11-12 per cent of what Vietnam saw. It is reflecting our measurably poor performance in increasing investment.

If Bangladesh wants to enter the higher middle-income country category within the next one or two decades, we have to draw up a proper action plan and start implementing it from today.

INVESTMENT CLIMATE: The current investment climate in Bangladesh is very cumbersome from every aspect. An investor is required to go to about 30 different institutions for a licence, registration and permission to operate a business. These institutions are under different ministries. An investor seeking to run a manufacturing company has to go to a city corporation or a union council for a trade licence, to the National Board of Revenue (NBR) or tax authority for TIN (taxpayer’s identification) and VAT (value-added tax) registration. Besides, there are the Registrar of Joint Stock Companies and Firms (RJSCF) for joint stock registration, scheduled banks for business account, the Chief Controller of Imports & Exports (CCI&E) Office for import and export registration certificates, the Directorate of Environment (DoE) for environment clearance, Bangladesh Standards and Testing Institution (BSTI) for certificates on product standards, the Export Promotion Bureau (EPB) for rules of origin certificate etc. A manufacturing company also needs gas, water, telephone, insurance and many other services. Most of the offices are operating as regulatory bodies. The policing mentality of a section of officials there and corrupt practices make the whole process complex and time-consuming. Now it is the time for decision makers to make the process easier, even one-stop investment service (if possible) can be offered to attract local as well as foreign investment.

In a chaotic political environment entrepreneurs lose most either in the form of money or human capital. Foreigners are not used to this type of man-made chaos. As a result, they become disillusioned. It affects our exporters, joint ventures and FDI flows. Our political leaders have to reach a consensus on ensuring a better political atmosphere and thus make sure that Bangladesh emerges as a higher middle-income country.

Bangladesh’s international trade (export and import) is mainly dependent on a single seaport-Chittagong Port-and the single highway, namely, the Dhaka-Chittagong highway. So, traffic jams are eroding our competitiveness in international trade. Bangladesh has to think of alternatives to these two single options. Traffic jams in Dhaka city also are eating up a significant portion of man-hours. Infrastructural development should be made adequately to ease the problems. All government offices including Secretariat as well as the cantonment, universities and garment factories should be relocated outside Dhaka and it will provide a relief to the city-dwellers. A deep-sea port, transit routes to India, Nepal, and Bhutan etc. have to be developed within the shortest possible time to reap benefit of the four-nation transport and transit agreement signed recently in Nepal. We are lagging behind our competitors in the use of industrial utilities and infrastructure. The government should think of cluster-based industrial development and ensure required infrastructure and utilities for such industrial units.

Inefficient or corrupt bureaucracy is a big hurdle for economic development of a country. There is enough room for improving the efficiency level of our bureaucracy by introducing digital filing and any other transparent process. Most of the trade and investment institutions have the scope for capacity-building. The government has to undertake prompt action for institutional capacity building of public sector organisations and agencies. New service-oriented (not regulatory) and pro-development institutions like a specialised trade negotiation commission, a cluster development agency, a foreign investment promotion agency, an entrepreneurship development institution etc. are required for supporting and promoting the private sector and it will help the economy attain the take-off stage. Only then we can dream of a higher middle-income status or even more than that for Bangladesh.

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One thought on “The path to higher middle-income status

  1. Hi Md.Joynal
    Pleasure meeting u here …and happy remadam my brother.
    I am impress of the middle~income steps and caution u are given under the witch of your article becoming a middle income nation….

    My country is no exception to this process the regretable part for us is Political policy are not encouraging such steps that could give flavor to these dish that we were thought back in India and other places….educa

    ion

    Like

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