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Investment incentives in budget Zahid Hossain
A massive expansion of Investment is one of the priority areas of this year's budget pro posal which has possibly warranted the proposed inclusion of much-talked about budgetary provision for accepting undis closed money without question by paying 10 percent tax for investment in certain sectors for three years.
The finance minister in his budget speech has repeatedly mentioned that every effort would be made for creating an investment-friendly environment to attract increasing number of local and foreign investors as well as expatriate Bangladeshis. A firm commitment has been made to pro vide all possible incentives to support any new initiative for setting up any small and medium enterprises, and the existing ones for increasing production and improving quality of goods for export.
The present government with its successful experiment of public-private partnership (PPP) during its previous tenure (1996-2001) has strongly felt the need to bring qualitative change in the investment strategy by undertaking special initiatives to involve the private sector under PPP. According to the finance minister, the PPP efforts would meet the probable investment gap in infrastructure development and maintenance alongside the government's investment. "This will also open up the door for increased flow of investment from both local and foreign investors and also accelerate economic growth”, he added.
An amount of Tk 2,100 crore has been allocated in the PPP budget for setting up an infrastructure investment fund. A proposal has also been made to create three new expenditure heads in the proposed budget to facilitate new projects under PPP.
However several recent studies tell us that as for the cost of doing business in Bangladesh, compared to China, India and Pakistan, the country is lagging behind. The incidence of corruption here is far greater, the quality of infrastructure poorer and the performance of key government departments and agencies less satisfactory. Added together and speaking in general terms, the cost of doing business in Bangladesh today compared to other countries in the region is considerably higher.
Bangladesh can ill-afford these additional costs. It has become imperative that a serious and concerted effort is undertaken jointly by the government and the private sector to make Bangladeshi products much more competitive if we are to expand our exports while at the same time face the competition from imported goods in our own market. Equally important is the need to create a more congenial investment climate in order to attract more FD1 (foreign direct investment).
One obvious way of improving the investment climate would be to substantially cut the cost of doing business in the country by reducing corruption in key government departments or agencies and introducing changes, which would eliminate delays and provide greater transparency.
It is however quite heartening that the
finance minister in his budget speech made it clear that laws, rules and procedures relating to setting up industries would be further simplified. Transparency would be brought in all spheres and one stop service facility would be made effective. The Bangladesh Business Forum constituted by the last caretaker government will be properly re-constituted to make it more effective.
Another priority area of the new budget is the overall emphasis on the effective and ample growth of small and medium enterprises (SMEs). In fact, SMEs can contribute significantly to the economy by ensuring local value addition and producing exportable surpluses and helping employment generation in a big way. The finance minister has committed to motivate SMEs through provision of credit and training. The central bank has also created three funds with Tk 1000 crore to provide refinancing facilities against loan disbursed by the commercial banks. The minister has also announced that the operations of the Equity and Entrepreneurship Fund, SME Fund and Investment Promotion and Financing Facilities Fund with the Bangladesh Bank would be made more comprehensive, strengthened and effective to keep the domestic demand buoyant alongside exports.
One vitally essential requirement for setting up an industry is to have a suitable plot of land with communication and other facilities. A suitable plot with all such essential services and infrastructural facilities are
hardly available in Bangladesh. Therefore, the government decision to set up special economic zones in different parts of the country is a positive step especially considering our insufficient infrastructure facilities and non-availability of essential components like gas and power.
In line with the budget announcement, the economic zones would offer opportunities to underdeveloped regions as well as regions with potential for industrial growth. In this connection, priority should be given to the less developed areas like northern regions of the country and the hill tracts that have ample scope for development through economic activities.
It is expected that due to the present global economic crisis, it will not be that easy to attract FDI when investments across the counties have stagnated. Keeping this in mind, the government has possibly proposed to open up investment facilities for undisclosed income in certain potential sectors by paying 10 percent tax where investments could be effectively used for economic development as well as for creation of jobs. As such emphasis should be more on mobilisation of local resources through attracting local investment. And may be that is why the government has announced its programme to take up special initiatives to involve the private sector under PPP to narrow the probable investment gap alongside the government’s investment. In this connection, opening a new expenditure head to be named as PPP Technical Assistance, allocation of Tk 300
crore as Viability Gap Funding as subsidy or seed money and Tk 2,100 crore Infrastructure Fund are expected to go a long way in helping and motivating the private sectors in their future investment , ventures.
During its previous tenure, the Awami League government undertook a lot of initiatives for setting up industrial parks throughout the country and many a sites were also selected for the private investors to set up their industries, which the BNP-Jamaat government totally abandoned later. The major advantage of setting up industrial parks is that unlike EPZs, the products of the enterprises set in the industrial parks can be exported and those can be marketed locally.
Thus considering its positive aspects and suitability for a country’ like ours, the present Awami League-led government can revive the programme of setting up industrial parks at some appropriate places providing the infrastructure facilities and other services at the doorsteps of such parks. This will enable the government to have proper and effective use of our scarce land resource and will encourage the prospective investors to come forward to invest without undergoing many a hassles for setting up an industry in a country like Bangladesh. The prospective investors will get here all the infrastructure facilities and other service benefits in one go.
The writer is former acting executive chairman of Board of Investment