Launch of Bangladesh Second Investment Climate Assessment Report

Honorable Advisor for the Ministries of Finance and Planning, Executive Chairman of the BOI, Acting Head of DFID, World Bank Sector Director, distinguished participants, ladies and gentlemen:

Assalamoalikum & a very good morning!  It is a distinct honor for me to join this event and I am delighted to welcoming you to the launch of the Second Bangladesh Investment Climate Assessment, titled ‘Harnessing Competitiveness for Stronger Inclusive Growth”, with presence of large number of dignitaries comprising senior government officials, excellencies from foreign missions, and representatives of the development partners, business/NGO communities, universities and professional bodies.

The report focuses on the investment climate environment in Bangladesh, as it has evolved in time, across locations, and in international comparisons, and outlines policy options for further progress.

Bangladesh has recorded impressive economic and social gains since the 1990s. Recent growth has been at levels close to six percent. The country has doubled per capita growth and taken large strides toward reaching many Millennium Development Goals (MDGs), ahead of many comparable countries. Attainment of the MDGs calls for accelerating economic growth of 6-7 percent a year.

Improving investment climate is core to accelerating the economic growth – to aid diversification into areas of comparative advantage and to finance infrastructure – and higher productivity. Substantial improvements in the investment climate is achieved by improving trade policies, enhancing the legal and regulatory environment for the private sector, developing an effective competition policy, establishing policies friendly to foreign direct investment, and deepening financial sector reforms.  Addressing labor skills with due regard to education and social issues is critical to improving productivity. Improvements in the policy environment for energy development are central to this effort, by strengthening the institutional framework, addressing distorted pricing, and encouraging accountable and transparent processes for investment decisions. Equitable growth and empowerment of the poor further call for strengthening of high-growth rural and peri-urban areas with natural potential, via services and infrastructure provision to such promising growth poles.

The structure of the Bangladesh economy had been moving away from agriculture, into industry and services. Rising incomes in Bangladesh are spurring consumerism, which is further fuelled by urbanization and remittances. The services sector is growing fast, represents 52% of GDP and is the largest source of employment for women; yet it faces a more adverse investment climate environment, as compared to manufacturing, and has not been a focus for policy measures.

Business in urban and rural areas displays vastly different characteristics, strengths, and issues. This divergence is equally reflected in investment climate conditions. Growth in peri-urban areas, small towns, and villages would benefit from better connectivity with metropolitan areas, not only in terms of transport and telecommunications, but also deeper market, financial, and information linkages.

The external sector has been strengthened by continued robust performance of exports and remittances, and further growth would rely on successful improvements in quality and safety standards, labor and management skills.  Private sector investment has been maintained at 16.4%, though higher levels are needed to reach growth rates of 7-8%. Increased investment domestically would depend on the ability of the financial system to fulfill its term transformation role. FDI net flows are below potential at 1.3%; higher foreign capital flows will be attracted via further improvements in infrastructure, governance, and the regulatory environment.

The current global financial crisis has dried up global liquidity, curtailing growth and international trade, and drying up international capital flows, including from emerging stock markets. Developing countries have not only seen considerable short term capital outflows, but are expected to see decreasing exports to the developed countries, and lower remittances from abroad. Bangladesh is in more robust shape than most, to handle the financial crisis aftermath, though it will nevertheless see some export and remittance effects.   With turmoil abroad, it becomes even more important to focus on investment and development at home, improving the domestic investment climate so as to enable rapid private sector growth to exert its stabilizing effect.  We at the World Bank are monitoring the evolving situation as well as the effect on the developing countries very closely, and stand ready to assist Bangladesh when needed. 

Productivity growth during the period 2003-2007 was below its potential, as scarce resources – land, skilled labor, capital, and energy – did not find their way to their most productive uses. For example, whereas most resources are channeled to larger and older firms, analysis shows smaller and younger firms to be more productive in spite of more adverse investment climate conditions. Greater dynamism and competition within industrial sectors would spur innovation and technology and ICT investment, and create pressures for improved labor skills, as the private sector strives for productivity improvements.

With sustained growth, the scarcity of certain resources (energy, finance, land, labor skills) has started to strain the economy’s growth and productivity gains. It is important to address and unblock those bottlenecks in basic resource markets, allowing for the economy and development of Bangladesh to forge ahead in a rapid, robust, and socially equitable manner.

Let me conclude by saying that there are many lessons that can be learned from this important study.  I am looking forward to today’s interesting and productive discussion and exchange of experiences, which will ultimately enable the policy makers, and eventually the investors to benefit from this undertaking in contributing to the promotion of stronger investment climate and, in the process, help the nation to grow steadily.

Thank you.