Private investment key to raising economic growth

Private investment, which has been stagnant for several years, should be raised to help the country achieve higher economic growth and lift millions of people out of poverty, said Mashiur Rahman, economic affairs adviser to the prime minister.

"Private sector output is a critical factor for the economy."

Private investment as a percentage of gross domestic product (GDP) declined to a three-year low of 21.78 percent in fiscal 2016, despite macroeconomic stability, according to a World Bank report published in October last year.

However, a significant rise in public investment led to an increase in total investment in relation to GDP from 28.9 percent in fiscal 2015 to 29.4 percent in fiscal 2016. The increase in public investment is attributable to the government's expenditure on infrastructure projects.

Rahman said the main source of macroeconomic stability in the last eight years has been the steady flow of remittance from Bangladeshis living abroad. The low petroleum prices in the international market have helped the country in the last couple of years.

On the other hand, the main weakness lies in the lower-than-expected investment. The government has undertaken large projects and is making investment.

"If the private sector investment does not pick up and become more active and productive, the economic progress the government is envisioning may not meet our expectations," Rahman told The Daily Star in an interview recently. 

He said the country needs growth in the gross domestic product to the tune of 8-9 percent but this high growth will come from the private sector investment and output.

"If we want more revenues it will also come from the private sector output. Private sector output is a critical factor, but perhaps we have not been able to put more emphasis on the issue.

"We have entrepreneurs and industrialists. It seems that they also want to invest. But they are not making the investment. They are highlighting various reasons for not doing so."

He said the government's projects are taking more time to complete. It would have been better if they could be executed faster.

On its part, the government has taken up many infrastructure projects to remove infrastructure bottlenecks standing in the way of private sector investment. More electricity is available than in the past. There is a shortage of gas to some extent but this scarcity is not the main barrier to investment.

"If uninterrupted supply of electricity can be ensured, the demand for gas would go down gradually."

Speaking about the banking sector, Rahman said the loans for investment largely come from public banks while the credits for trade come from private banks. "When we compare the two straightaway it is seen that the performance of the private banks is better. But I think this comparison is unfair for the public banks."

He said investment for projects entails more risks and can produce no result, and even banks perhaps do not assess the merits of the projects. On the other hand, trade loans carry practically zero risks.

Speaking about the non-performing loans, he said the NPLs have increased to some extent.

Uncertainty gripped the country's export-oriented industries because of global crises as well as local problems so exporters needed some sort of support. The government provided the support but the banks should have given loan approvals cautiously.

He said exports have been buoyant as earnings kept coming in the face of subdued global demand. He particularly praised the garment sector for keeping up the steady growth in overseas sales by managing pressures for improving compliance and making additional investment to improve the workplace conditions. 

If the government has any role to support the growth of the industry, it should identify the roles and work accordingly, he said.

About the banking sector's demand for cutting the interest rates on savings certificates, the adviser said the savers are mainly retired government servants and low and middle income groups, widows and the elderly. 

"I don't think that the bank's interest rate will automatically go down if the rates on savings instruments are cut.

"We don't have universal social security. The savings certificates ensure post-retirement or old-age income for the savers. If the rate is reduced, it would put pressure on the low income and middle income savers."

He said the new generation of entrepreneurs is well-educated. They are very promising and they know the industries they operate in. The human quality of people both at business and industry has significantly improved. "We have to show them respect."  

He said investment in education is sustainable investment. The government has taken many steps to expand technical and vocational education. These initiatives have to be implemented as quickly as possible. 

Rahman, who worked for Bangabandhu Sheikh Mujibur Rahman as his private secretary between 1972 and 1975, touched upon the transit and transhipment issues with India. He said Bangladesh is benefitting in pure economic aspects.

As per the rules of the World Trade Organisation, transit goods are not taxable and cannot be used for revenue augmentation. But if the host country has to make any investment to facilitate the transit, then it can recoup the investment along with reasonable amounts of profits.

India pays Bangladesh more than Tk 192 for each tonne of goods as transit fee if all fees paid by New Delhi are taken into account, he said.

Rahman also suggested ensuring productive use of remittance sent by migrant workers as only 1.5 percent of remittance is invested. Only 2 percent remains in the financial sector. "We have to see how the remainder is being used and see how their investment can be increased."

He said a welfare institution in the model of Sena Kalyan Sangstha can be set up for the people who send remittance.

The government can borrow from the institution instead of using the foreign exchange reserves in order to constitute the planned Sovereign Wealth Fund.

If the government borrows the money then it will become an investment for the institution, which will receive interest in return from the investment. The interest income can be distributed among the returnees as fixed monthly income once they come back home, Rahman said.