Energy & Power

Cover Article
Objective Analysis: Cost of Doing Business in Bangladesh
Saleque Sufi

Mr. Farooq Sobhan had his checkered career in civil service. After retirement he spends his time, energy and efforts in dealing with issues relevant to the development of business in Bangladesh. He had extensive exposure to donor agencies, development partners and western world through his earlier assignments in foreign service. He along with Zahid Hossain, Mostafa Faruque Mohammad and M. Shafiullah formed a research team from his Bangladesh Enterprise Institute (BEI) and carried out an extensive study to examine, assess and scrutinize various reasons for rising costs of doing business in Bangladesh, compared with neighboring and other regional countries. Several seminars, workshops were organized. Personalities and concerned professionals interacted extensively, exchanged views and debated on critical and sensitive issues.
Finally the research team produced a publication titled “Reducing the Cost of Doing Business in Bangladesh.” The text of this article has revisited the pertinent issues, which are growing concern of all sensible patriotic citizens. The part of the globe where we live in used to be known as “land flowing with milk and honey”. The soothing luxury of colors and soft appeal of endless greenness were bliss of solitude for many since ages. Ninety percent of our population in the green villages is hardworking, simple, innocent, hospitable and peace loving. The country earned appreciation for its macro economic and social indicators, the poverty reduction successes by the microcredit programs, the readymade garment industry and the employment of thousands of women in the RMG sector. Availability of significant quantity of natural gas to fuel its power generation and industries, and availability of cheaper raw materials and labor made the foreign analysts extremely optimistic about the investment prospect of Bangladesh in early 1990s. Some even branded Bangladesh as “Emerging Tiger of South Asia.”
But as ill luck would have it, some recent studies about Bangladesh tell somewhat different story. For the last three consecutive years Bangladesh has been ranked as the most corrupt country in the world in the Transparency International Corruption Perception Index (CPI). The World Bank investment climate report also indicates that Bangladesh is fast falling behind China, India and even Pakistan. The incidence of corruption in Bangladesh according to the report is far greater, the quality of infrastructure is poor and the performance of key government departments or agencies less satisfactory. All these add to the cost of doing business in Bangladesh apart from political piracy and deteriorating law and order situation.
In this age of free market economy Bangladesh has no option but to keep its doors and windows wide open and face the music of open competition. So it has become imperative that all out, coordinated and concerted efforts are made jointly by the government and the private sector to make Bangladeshi products more competitive through reducing costs (direct and indirect) of production. Currently it is of prime importance that true investment friendly congenial environment is created for attracting foreign direct investment (FDI) into the country.
It should be the politics of development, not the politics of destruction, anarchy and conflict, which can bail out the nation from the current state of chaos and confusion. Black money and muscle power should not be allowed to dominate the politics in a country, which is consistently being ranked on top of corruption. It is our dearest motherland, which we have earned through sweat and blood of millions and where our farmers and growers toil hard from dawn to dusk to grow our food. You can never find a land so fertile; you can never find people so simple and forgiving. We must cheek, turn around, overcome impediments, get set and go.

Anatomy of BEI Study

The BEI in its report has studied eight sectors and departments; identified the problems and bottlenecks and has put forward a set of recommendations. It claimed that the recommendations have been formulated through extensive consultation with relevant persons both inside and outside the government.
The BEI research team also visited Malaysia, Singapore, India and China and had firsthand experience of various initiatives taken by the governments of the countries which according to the report produced impressive results. The office of Tax Ombudsman in Pakistan and e-governance in different departments in India, Malaysia and Singapore have reportedly been very successful. The research team gave special importance on training and the programs of INTAN, the principal training institution for civil servants in Malaysia. Singapore has been very successful in combating corruption of government officials, which can be a good lesson for Bangladesh.
The report has focused on the ways through which the cost of doing business in Bangladesh can be reduced and rationalized. It underlined the importance of targeting specified measures in particular sectors where cost of doing business in Bangladesh can be conceivably reduced.
It is clear from the studies of Transparency International and others that investment and economic growth would take a giant step forward if Bangladesh could effectively reduce corruption. World Bank researchers observed that if Bangladesh had been able to achieve a corruption ranking akin to Hungary and Poland over the period 1990-1997, Bangladesh's annual GDP growth rate would have been 5.5 percent per annum instead of 3.4 percent during the period with Bangladesh GNP per capita could be $ 413 by 1997 rather than $ 350. Bangladesh may be able to achieve considerable success in reducing corruption and other hidden costs of doing business if they follow practices of other countries of the region and Southeast Asia.
BEI dealt with eight public sectors relevant for business development in Bangladesh. These are Customs, Taxation, Board of Investment, Utilities (Gas, Power & Telecommunication), Judicial System and Law enforcement, Port and Shipping. The research team met cross sections of people, sector experts and professionals, stakeholders and business groups. They identified various deterrents and bottlenecks and tried to suggest measures to mitigate ill effects and overcome those identified deterrents. The sector analysis is briefly discussed here under.

Customs

According to BEI the prevailing procedures of customs are cumbersome and time consuming, entailing significant opportunities and bureaucratic discretion. Production of unnecessary documents and protracted customs clearance procedures result in extra costs and delays to exporters and importers.
BEI identified the following main costs in dealing with customs in Bangladesh:

The sheer number of steps in port procedures allows opportunities for bureaucratic discretion and delays.

The cost of loading and unloading of containers at Chittagong and Mongla ports is usually two to three times the cost in Bangkok and Singapore.

Customs procedures at airports and land ports are similarly fraught with multiple requirements for documents and approvals.

BEI put forward a set of recommendations which merits consideration by the government: · A green channel one-stop clearance may be introduced to allow exporters and importers to quickly fulfill their legal requirements without harassment and difficulty. The operations of the customs authorities should be more transparent and efficient. · A task force may be formed headed by NBR with representatives from FBCCI, MCCI, CCCI, Customs, Port Authorities, Health Directorate, BOI, Immigration, Environmental Authorities, Bangladesh Bank and the exporters and importers themselves to evolve ways to dispense with unnecessary permissions and licenses to expedite clearing and forwarding consignments to reduce cost of long delays.
Trade unions in the port sector have been found to be a particularly severe obstacle to imposing discipline on the lower functionaries who are primarily responsible for the unfavorable image of the customs and other public services. Trade unions maybe de-linked with political parties to restore public confidence.

Taxation

It appeared from the study of BEI, the businessmen experience major difficulties with tax administration, while they were little concerned with rate of taxes.

The major costs as appeared from study are:

The tax filing and payment procedures were by and large tedious and cumbersome. It appeared that many rulings were made arbitrarily by the tax authorities, which compelled taxpayers to seek refuge to courts at further cost of time and money. The time consuming process adds cost to production and consequently Bangladeshi manufacturers lose the competitive edge in the world market.
Many tax provisions are loosely worded leaving room for a high level of discretion by the tax officials and therefore leave ample opportunities for corruption. The present tax system lacks simplicity and transparency with too may loopholes to evade taxes.
BEI recommended for creation of a position of Tax Ombudsman. His responsibility would be to represent taxpayers and investigate taxpayers' complaints.
Quick, efficient and transparent port operation may bring us in line with standards of regional ports. The number of approvals and documents may be condensed into much simpler and comprehensive unit for easier processing. It appeared from the study that the rate of tax evasion is very high among taxpayers of higher bracket. The inspection section in the department has been failing to fulfill its mandate. It requires close supervision and inspection of tax officers at all level; e-government services for both customs and tax administration can ensure greater transparency; hostile, politically charged trade unions are found to be severe obstacles for imposing discipline. To restore public confidence the trade union activities in the ports must come under scrutiny, it must be declined from the political parties. Trade union leaders may be sent to visit user-friendly ports like Singapore and in Malaysia to gain firsthand knowledge of their transparent and efficient procedures BEI recommended in the study.

BEI further recommended that tax rates, forms, procedures for filing tax returns, possible modes of payments and all other relevant information should be published on the website as well as in print media and handbooks for wide dissemination of information for public knowledge and transparency. These would safeguard the interest of taxpayers and would protect them from unscrupulous tax advisers.
The Minister of Finance and Planning is desperately trying to steady our rocking boat of economy. NBR chairman is known to be a fair, honest and dynamic personality. This combination can do a lot to improve the prevailing situation of customs and taxation for reducing the cost of doing business in Bangladesh to a great extent.

Board of Investment (BOI)

BOI Chief Mahmudur Rahman, one of our very trusted friends, is a man of vision, strong personality and excellent technical and managerial flavor. He has taken many initiatives to make BOI, a meaningful, vibrant and authoritative organization. BEI study suggested more comprehensive measures to strengthen BOI.
The BOI is mandated to be the focal point of the investment process and was established as a single point of delivery for all services to investors. BOI requires adequate resources and manpower to provide all services. In some areas, which the author thinks Executive Chairman would also agree. The BOI lacks mandate and authority to be on effective one-stop service provider.

BEI study identified some obstacles which probably have not escaped the attention of present BOI leadership:

With the transition from a government department to an investment promotion agency the philosophy and outlook of all the personnel need to be changed significantly.
The agency is not provided with sufficient power in the government structure to cut through the bureaucracy and deliver services to investors.

The BEI study has put forward a set of recommendations, which appear to be appropriate:

The powers vested in BOI should be re-examined with an eye towards making a truly effective one-stop service center. In this connection the recent decision to provide various BOI services online is a welcome step in the right direction.
BOI should become a division of Prime Minister's office with the ability to allocate available land and approve foreign loans. The executive head of BOI should have cabinet rank and status to make the organization more powerful, effective and quick delivery institution.
BOI personnel should be provided training in investment promotion, investment analysis and management.
BOI should have the power to issue all licenses and certificates for trade, such as Import /Export Registration Certificates, VAT registration etc.
Industrial parks should be established wherever possible throughout the country either under the authority of BOI or by private sector entrepreneurs with full support of BOI.

The high powered committee chaired by Prime Minister herself with Finance, Commerce and Industries Ministers must sit once a month to resolve all urgent investment related problems and issue directives to make BOI really effective and truly efficient.

Utilities: Gas, Power and Telecommunication

The BEI report focused on three sectors -- gas, power and telecommunication. It recognized unique problems of each sector and solutions thereof. It also discussed general points common to all utilities.

The study identified the following common costs:

Getting connection is difficult and expensive. Once connected the billing irregularities and corruption make it complex and costly to maintain connection.
Infrastructure is inadequate to meet current demand. Inefficiency in management leads to high system loss and low cost recovery. Cost recovery continues to remain low both due to pricing of tariffs and poor billing and revenue collection systems. High system losses and system inefficiency were traced to a combination of deteriorating infrastructure, unauthorized connections, theft and pilferage.

One of the major problems all the utility sectors are facing is growth of highly politicized trade unionism along negative lines. Pressure is exerted by trade unions to avoid punishment for customers engaged in theft. Basically, a polluted atmosphere has been created where good work cannot be rewarded and misdeeds can not be punished.
Remedy lies in de-politicizing the trade unions, their activities must be confined to staff welfare only and interference with daily administration and operation must be dealt with strictly and promptly.

The BEI study also came up with some common recommendations:

Improvement of billing and revenue collection systems primarily through computerization. This is more or less introduced to some extent. Bill preparation distribution and collection may be outsourced to private sector on an area basis to ensure competition. This has yielded positive results in neighboring countries.
Uninterrupted inflow of private capital is essential in all utility sectors for expansion and development of infrastructure. Enabling government policy and regulatory reforms are essential preconditions. Telecommunication regulatory communication has not made much headway. Energy Regulatory Commission could not be set up even after one year of the passage of regulatory commission act in the parliament.

The BEI has recommended for liberalization of the telecommunications sector to mobilize the capital and technology required to meeting the massive backlog of unmet demand for telephone services. Deferring full liberalization could mean that Bangladesh would miss out the opportunity and benefit created by the revolution in telecommunications technology and global liberalization of the sector. It also recommended for extension of liberalization through expansion of the phone network, reduction of the phone charges to competitive levels and improvement in quality of services.
BEI also pointed out that politicians and bureaucrats must be convinced that information and communication technology can transform government to serve its people better (e-governance, online applications and internet voting etc).

Judicial System and Law Enforcement

Inordinate delay in disposal of cases, by the lower courts in particular and miserable failure of the police in enforcing law and order also add cost to doing business in Bangladesh.
BEI study pointed out that one has often to make unscheduled and unspecified payments to public agencies to get things done. Other day one of our senior colleagues was repenting that his organization had been approached by law enforcing agency to pay Tk. 5000 for each case of disconnection of defaulting or illegal gas connection in a metropolitan city.
The study observed these payments are unavoidable whenever recourse is taken to either the courts of law or the law enforcement agency. Most businessmen are not averse to making the payments as long as they are convinced that the opportunity cost otherwise would be prohibitive. But most of them tend to avoid the lower court and police if and when they can.

BEI put forward following recommendations:

All out efforts must be made for capacity building of judiciary, better court management and decentralization of the lower judiciary may be actively considered for quick dispensation of cases. Courts at union and upazila levels as means of alternative dispute resolution may be considered.
Judiciary must be made independent of the executive at the earliest.
Judges should be better trained and paid, judge population ratio should be increased.
There should be mechanism to ensure judicial accountability and court proceedings should be made transparent.
Judicial reforms should aim to simplify the rules and procedures so that the general population can understand and comply with the law.
Police force must be modernized and the quality of officers and personnel improved through better training and orientation to make it equal to the task.
To insulate the police from extraneous political pressure and influence, all recruitment, postings, promotion and transfers should be merit based and made through independent commission.

BEI study expressed optimism that by a radical restructuring of the police department it may be possible to control corruption in the department and to enhance its efficiency to improve the law and order situation of the country. The government must demonstrate requisite political will and commitment to reform and restructure police force along positive line. Police must not be used as an organ of ruling political party to curb opposition movements. Government and political parties must work hand in hand to find out ways and means so that police can restore popular faith and respect and at the same time improve their performance and efficiency.

Ports and Shipping

BEI observed that 6-9 turnaround days, the average time is required to service a regular container vessel in Chittagong port due to its weak infrastructure and inefficient operations. It is not better in Mongla.

BEI identified the following reasons for additional costs:

Turnaround time is far higher than other regional ports.
Hostile labor union enforced wage and facility fees increase every two years. Workers demand additional payments even within regular duty hours.
If demand is not met, they go slowly and in extreme case loading and unloading is totally stopped.
Inadequate equipment and infrastructure slow down operations. It is unfortunate that private sector could not proceed with container terminal construction due to stiff opposition of vested interest.

BEI recommended several measures to improve situation:

Ports should be made fully autonomous and decentralized.
Dock Workers Management Board should be abolished to gain control over the labor situation at the ports.
Ports which are backbone of national economy should be declared an essential service so that workers can not go on strike.
Private sectors could be encouraged as partner of port authority to invest in and improve the port infrastructural facilities.
Installation of Quay gantry cranes and other equipment is essential for improving efficiency of the ports. More container terminals in both public and private sectors are also required to meet ever-increasing need of both export and import businesses.

The BEI dealt with majority of aspects of increased cost of business and remedy thereof but did not mention much about downgrading of political leadership. There was a time when the most brilliant boys/girls of the classes were the class captains. They used to grow leadership quality and student politics used to be dominated by the all round talented persons. Now the back-benchers have taken over. Muscle power and black money dominate politics. Mastans and toll collectors dominate present day politics. Terrorism, anarchy and corruption have made our very existence vulnerable and critical.

Basic Structure

Parliament must be the focal point of any and every policy reforms, law making and accountability. Parliamentary committees must be effective and meaningful. Government and shadow government must behave in more responsible and transparent manner. For nourishment and sustainability of our nascent democracy the party in power should always be more patient, painstaking and behave rationally. Opposition has to play its role too. Main focus is parliament. If people representatives do not play their role in the peoples' parliament, democracy can not be institutionalized and the politics of destruction will bring the dooms day.
Unless democracy is institutionalized, firmly anchored on the basis of the spirits of liberation war and there won't make much headway. Nation needs a big push, a real thrust, a mass upsurge to set things back to track. We have our back to the wall. We must turn around roll on the runway and endeavor to take off if we have to survive in this open world where nothing but cutting edge technology and efficiency survives.