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Developing infrastructure for a competitive business environment in post-LDC

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Progress of physical infrastructure, upgrading of the business environment and labor productivity and technical implementation are crucial in making Bangladesh viable in international trade by counterweighing the developing country (DC) graduation from least developed countries (LDC).

Developing-infrastructure-competitive-business-post-LDC-Bangladesh
Figure 1: Better infrastructure and labor productivity will lessen the costs and smoothen the business in the post-LDC period.

In this regard, the General Economics Division (GED) said in a study report, “Better infrastructure and labor productivity will lessen the costs and smoothen the business in the post-LDC period.”

The arm of the Planning Ministry did the study named ‘Impact assessment and coping up strategies of graduation from LDC status for Bangladesh’ as Bangladesh is poised to graduate from the group of the LDC in 2024.

The study emphasized that although the government must be praised for growing the number of power plants to 108 in 2020 from 27 in 2009, most of them are in a minor scale.

global-infrastructure-ranking

Keeping in mind the increase of likely demand for electricity to 34,000 MW by 2030, the govt. is planning to invest around US$70 billion in the power sector over the coming 15 years.

Time needed to get electricity

Source: World Bank; doing business 2019

Country Time (in days)
Bangladesh 150.2
India 55
Indonesia 34
Malaysia 24
Myanmar 77
Nepal 70
Philippines 37
Singapore 30
Thailand 30
Vietnam 31

It is of utmost vital that this investment is built on using low-cost options and renewable energy to the degree of technically conceivable to cut the cost of electricity, safeguard the sustainability of primary energy supply and cut carbon pollution. Suitable pricing of primary energy will be of serious importance.

Besides, importance will also have to be given to power transmission and distribution, upgrading of grid capacities, and energy trade in the wider area.

The GED report highlighted the present road network was insufficient to deliver infrastructural support to a country with a people of more than 160 million and that is ambitious to become a high-income country in 2041.

In international connectivity, Bangladesh is given a score of 34.3 out of 100 and a ranking of 121th out of 140 countries. The quality of roads is also measured to be below average, with a score of 3.1 out of 7 and a rank of 111th out of 140.

Meaning the export competitiveness can be badly affected by the high cost of business, equally for imports of raw materials and capital goods and exports of products.”

The status of effective, low-cost trade logistics is now well-recognized as a vital factor of export competitiveness.

FDI-Bangladesh
Figure 2: Bangladesh needs to get on the bandwagon of the global value chain (GVC) as a means to export-oriented industrialization.

Bangladesh is ranked 100 out of 160 countries in the Index of Trade Logistics Performance (LPI) of the WB, much behind China, Thailand, India and Vietnam.

The report said, China, Vietnam and India are the main competitors of Bangladesh for readymade garments (RMG) in the European Union, and the higher cost of trade logistics may have grave opposing costs for maintaining market share post-LDC graduation.

When Bangladesh graduates from the LDC group, surely the competitiveness challenge will deepen. And to preserve the market share in the more competitive environment, it will be significant for companies to have timely and less costly access to raw materials, uphold production schedules and ship products to their buyers on time.

Vessel turnaround time and cargo clearance from container yards at the Chattogram port, which handles 75% of Bangladesh’s US$90-billion international trade, are longer than the most ports in the region. Reforms should be done to improve the efficiency of the Mongla port.

Moreover, after holding dialogue with all shareholders, decisions should be taken as to whether some of the handling operations in the ports of Chittagong and Mongla should be contracted out to private entities, the report said.

Despite progress with the policy environment for the private sector that has spurred the expansion of private investment from a low of 6 percent of GDP in the fiscal year of 1988-89 to 23 percent of GDP in FY2018, the overall investment climate for Bangladesh remains substantially weaker than those found in competing countries.

This is echoed in the international rankings of investment climate prepared by the WB as well as by the World Economic Forum. The WB 2020 Ease of Doing Business ranks Bangladesh 168th out of 190 countries.

Bangladesh has taken some constructive steps to address the serviced land restraint through industrial parks and special economic zones.

“This is a welcome move. Speedy completion of all ongoing facilities and making them available in a timely and business-friendly way will be an important factor to spur domestic and foreign investment,” the GED report said.

“Bangladesh should focus on reducing the time it takes to get electricity, register property, obtain credit, trade across borders, enforce contracts and resolve insolvencies.”

Export expansion and diversification are often constrained by limited domestic capital, technology and market knowledge.

The foreign direct investment (FDI) with their better technological and managerial skills and knowledge about international marketing conditions is expected to improve the productivity and export performance of host country firms.

It has been claimed that Bangladesh needs to get on the bandwagon of the global value chain (GVC) as a means to export-oriented industrialization.

Cross-border FDI flows have been the lifeline for the growth of GVC trade that helps sustain the growing production networks across borders.

Bangladesh’s record in mobilizing FDI is disappointing, the GED said.

FDI in Bangladesh reached $2.2 billion in 2017, as compared with $134 billion in China, $40 billion in India and $14 billion in Vietnam.

At present, Bangladesh faces the dual challenge of mobilizing more FDI and integrating it into the GVC operation.

Its greatest chance of receiving on the GVC bandwagon lies in aggressively courting FDI from conglomerates that are seeking low-cost places for producing parts and components or for final assembly within the outline of cross-border production integration.

FDI thus becomes critical for Bangladesh not only to develop a wider base of intermediate goods industry but also to diversify exports into intermediate goods by vertically integrating with cross-border production entities.

labor-force-skills-inclusive-growth
Figure 3: A key challenge in the post-graduation world for Bangladesh would be to raise labor productivity through big investments in human capital and other policy changes.

Bangladesh needs to transform its RMG experience with GVC on to other areas such as footwear and leather goods, electronics, light engineering, toys, and plastics with an aggressive strategy of FDI-driven GVC over the sequence of the next decade.

Bangladesh is plentifully gifted with low-cost labor that delivers the basis for qualified benefits in producing and exporting labor-intensive products.

Certainly, the RMG upheaval is a major example of how Bangladesh has grown global market share based on low labor costs. Yet, it is also known that labor productivity in Bangladesh is very low.

The report pointed that a key challenge in the post-graduation world for Bangladesh would be to raise labor productivity through big investments in human capital and other policy changes. This possibly holds the crucial to successful graduation from LDC status.

Utilizing land, employing labor and investing capital away from agriculture to industry is not sufficient if the labor force is not trained and productive.

Bangladesh has made significant inroads in enlightening human capital as suggested by promising human development pointers relative to comparators at the same level of development.

The superiority of the labor force in terms of skills is also low on average though the government started the National Skills Development Policy to increase the capabilities through spreading the extent of technical and vocational education and training.

Constructing on the development achieved in basic education and consolidation of other levels of education, including vocational and higher education are important to have a well-educated and skilled population with the capacity to contribute effectively to the country’s development.

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