Mahmudur Rahman, Executive Chairman of Board of Investment (BOI), an energy professional and successful entrepreneur in the private sector, recently talked to Energy & Power Editor Mollah Amzad Hossain. He said prevailing atmosphere is not congenial to attract FDI (foreign direct investment) at the expected level.
“The most important factor is that we lack in the proper infrastructure, especially in the energy sector. Quality of power is very poor. On the other hand, gas connection is available, but not the proper pressure. That's why many industrial units have to keep their production suspended in the peak hours,” he said.
The BOI Executive Director said if the infrastructural problems could not be addressed, it would be a tough job in future to increase the flow of investment. Following are excerpts of his interview:
EP: You are an energy professional. You also showed extraordinary successes in the ceramics sector. Presently you are working as a public servant. Which one you seemed to be more challenging?
MR: The present job is more challenging. First of all public sector is a different area; it's a wide territory. At the same time, I got more scopes to work. I had been with an industry with sole authority; whatever I wanted to do for flourishing the business, I could do. But you can't implement everything as per your desire while you are in the public sector. There is a set system, a set structure of the government; you can't go beyond the composition. When you are the chief executive of a private company, there is nobody to obstruct you in implementing a decision. Also, there is an advantage in the private sector that you'll have the result immediately. But in public sector it takes some time to have the fruits. You must be patient. You can get result of an action in the private sector within a year, but in public sector it will take at least three years. So here the job is more challenging, responsibilities are also higher. Earlier I was in charge of a private organization, and now have the responsibility of wooing investment in the country. This is more difficult, more challenging.
EP: Do you think that our present condition is favorable for FDI in Bangladesh? Recently, JETRO (Japan External Trade Organization) has said that the year-old conception that Bangladesh's labor is cheapest in Asia is not true. At the same time, costs of doing business in Bangladesh are in many cases higher than many other countries. What's your observation?
MR: JETRO study said we are the second cheapest in Asia, after Myanmar. But industrialization didn't take place in that level. In that consideration, JETRO supported what we knew about the prospective locations for foreign investment. Among the competing locations, Bangladesh definitely is the cheapest place. That's what we had been saying.
Let's talk not only about FDI, rather entire investment scenario. There is a misconception that BOI is only for bringing foreign investment, but in reality the main task of the BOI is increasing investment, both local and FDI. If we can't increase local investment, FDI will also not rise. In that case, foreign investors will say why they will come to this country when our own entrepreneurs are not making investment.
In past two years an atmosphere has been created for investment; but still we've many things to do. There is a propaganda in the country for last two years that investment is not taking place. It's purely a propaganda being conducted for political reasons. But statistics suggest otherwise. The documents are there -- the reports of ESCAP and Bangladesh Bank, published recently. According to the BB report, import of capital machinery in last two-and-a-half-years is higher than that of five years from 1996-97 to 2001-02. It proves that investment is gradually rising in the country. On the other hand, a confusing situation emerged as the statistics are not being reflected in the newspapers properly.
The Bangladesh Bank report says that FDI increased by 82 percent in first eight months of the current fiscal. But when I had given the interim report in last November mentioning that FDI increased by 72 percent, some journalists and economists raised questions about accuracy of my data. You see, import of industrial raw materials in this fiscal raised by 22 percent, export increased by 14 percent. According to BOI, domestic investment has increased by 33 percent and FDI 82 percent. What do the statistics say? So the campaign that investment is not increasing is not true.
EP: Do you think that there is a proper investment climate in the country? Is our entire system in favor of investment?
MR: You question is very much relevant. My analysis is not as a bureaucrat, but as a professional. Let's look at the factors in attracting investment. The first and foremost factor is macroeconomic stability, secondly competitiveness --whether there is a global competitiveness in the sector where you are willing to invest -- thirdly, investment climate and fourthly, infrastructure. Above all the most important thing is the country's image abroad; although for domestic entrepreneurs it's not a very important factor.
As far as macroeconomic stability is concerned, you must agree that an excellent environment is prevailing in the country. It's totally a success of the government. There is remarkable growth in agriculture, in manufacturing sector it came after a long time. I'd say after 7-8 years, there will be a growth of 7.3 percent.
Now come to the competitiveness factor that covers areas relating to costs of business. JETRO study also tried to analyze it. The investors obviously will consider from the overall perspective. But you'll not find a single country where everything is favorable for investment. From overall considerations, Bangladesh is quite a competitive place, among the top 5-6 locations in Asia from the judgement of the competitiveness is many sectors. Bangladesh is competitive in textiles, definitely in ceramics also. If you go through the export statistics, you'll see a 25 percent higher income than the target in knitwear in the first eight months of the current fiscal. The growth in frozen food sector is 10 percent, textiles 21 percent, agricultural products 3 percent, ceramic tableware 42 percent. Income from engineering sector, which was 4.4 million dollars last year, reached 28 million dollars this year. In home textiles -- growth in bed-sheet export is 85 percent. We've competitiveness in these sectors.
I agree with you on the question of climate. Our law and order is not good, otherwise the managing director of KEPZ would not be hurt in gun attack. Many others are facing a similar situation. I think erosion of social values is also a reason. I'll not blame the government alone. However, the erosion in the social value can be checked if there are stringent laws. We've our own problems, otherwise we would not top the list of most corrupt country for consecutive years. We need to solve the problems relating to the environment. Earlier we had also facilitation problem. The task of the BOI is cooperating the entrepreneurs; and I can claim that we could remarkably improve the BOI service in last two years.
EP: You also admit that we lack in investment climate. How can we overcome the problem?
MR: You can blame the climate, but the major problem is dearth in the infrastructure. The investors have to face a lot of hazards regarding electricity and gas. Civil society, development partners and economists for the last 2-3 years are talking about investment climate. In fact, climate has been more discussed than other prerequisites like infrastructure. If you don't have the fundamental, whatever competitiveness you have and whatever heaven-like the country is, investment will not come. I'll repeat, investment will not come if you don't have the infrastructure. But in our country we don't talk much on condition of road infrastructure, port and others. You see we don't discuss much about power and gas facilities.
EP: You have identified infrastructure as a major problem in making investment. What should the government do for development of the infrastructures, particularly in the power and gas sector?
MR: The entrepreneurs are facing problems for present energy supply situation. They don't get required gas pressure in their industries. If you go to Dhaka EPZ right now, you'll see most of the industrial units are not getting gas with required pressure. They are getting 20-PSI pressure instead of 50-PSI. Many industry have to keep production suspended for 2-3 hours during the peak production time.
The growth in gas demand was projected at 5 percent, but now it's about 10 percent. If we don't resolve the problems how can we expect investment? If we talk about power, we must say the quality of power is very poor; there is no assurance of proper voltage or uninterrupted electricity supply. As a result, the medium and small industries are suffering tremendously. The big investors arrange alternative captive power for their industrial units, but where the money will come from for the small entrepreneurs? But still we see in the World Bank report that growth in the SMEs is 5 percent. The growth would be 7-8 percent had there been quality power supply. I think our investment situation would be much better if we could have spent the time and money for infrastructural development instead of resource investment plan studies. I think infrastructural dearth is bigger hurdle in investment than the climate. We need to develop our infrastructure under a pragmatic planning.
Here I want to mention one thing. We are trying to provide all facilities for the investors from one point. The Energy Ministry has done an excellent job in this regard. Earlier the investors needed approval from the concerned gas company for getting a connection, but now it has been brought under the jurisdiction of the BOI. So, now an investor doesn't need an approval from the gas company, BOI will give the approval.
EP: What's your suggestion for developing a dependable power system?
MR: The State Minister for Power can say better. I think we can encourage the small power plants that we are not doing. May be there are some problems in our policies. Take the example of IPP. I don't think we gave such an incentive to any other sector as given for the IPPs. You gave them tax holiday for 15 years, waived duty from importing machinery. We are purchasing electricity from them in foreign exchange. Small investors producing electricity up to 10-MW should be given similar incentives; here the government will also be profited as it will not need to bear the responsibility of buying electricity. I think we should formulate a transparent policy for encouraging the small investors.
EP: And what's about the gas sector?
MR: We wasted a lot of time in talking about gas export for past two years. It would be better to admit that there is internal market of gas in the country and keeping it in mind work for developing the gas sector should be proceeded. We fell behind for debating on the gas export issue. At the same time we lost our image by not making timely payment to the foreign companies. I think we would have a better position if we could encourage the IOCs for more exploration by making the timely payment.
EP: There are allegations that the IOCs are departing from Bangladesh due to absence of domestic market of gas.
MR: I don't think so, I don't think they left Bangladesh due to lack in the environment of the country. However, the government should have clarified the reasons behind exit of Shell or ChevronTexaco.
EP: How do you look at the private investment in the energy sector?
MR: Recently a policy for private investment in the infrastructure development on BOT and BOO basis has been finalized. Now it awaits government's approval. I think we should implement it as soon as possible. We can make necessary amendments if we face any problem in implementing the policy.
EP: Money market is a major source for mobilizing funds for the energy sector. Bangladesh is an exception. How do you look at it?
MR: I think we shouldn't waste time; we should register the energy companies with the stock exchange and from the money market mobilize the required the investment that we badly need in the energy sector.