Foreign Trade and Business Activities of Bangladesh
The recovery and strengthening of the Bangladeshi economy, the transition process,privatization, market linking and integration in the South East Asia certainly indicate the need to define the most appropriate ways to respond to the challenges that these processes bring along.In this sense, foreign direct investment (FDI) are extremely important for Bangladesh because,unlike other modalities of capital inflows, investment packages brought by FDI include not only capital but new technologies, management and organization skills, foreign market access and likewise. Therefore, they are essential not only in terms of development needs of the economy, but also in terms of growth and maintenance of the competitive positions and performance. The paper provides concrete measures to increase FDI inflows.Attention should be focused on maintenance of political stability and improvement of legal safety in order to improve the investment climate, in order to significantly increase the number of green field projects in the future which, among other positive characteristics,include the creation of new jobs and thus alleviate the growing unemployment problem.Possible intensification of the political crisis in Bangladesh would have a negative impact on FDI, and it would be difficult to talk about the green field investments in this situation.
1. INTRODUCTION
Transition of different countries differ in many aspects, but they also have certain similarities of which the two are most important: a substantial reduction of production in the first years of transition and growth of poverty. Production decrease is largely due to the collapse of the old coordination mechanism, before the new one was constructed, and elimination of companies that have no chance in the market. The growth of poverty is the consequence of decrease of incomes,increase of inequality and the slow development of effective mechanisms of social security.In Bangladesh, a new private sector grows,but it does not present such a driving force as it presented in some other countries in transition (in India, for example), where it quickly became the main carrier of economic progress. The causes of this are,firstly, the fact that there was the private sector, which was a relatively developed even prior to the changes in October, while in most transition countries it began from scratch and, therefore, quickly grew in the early stages. Secondly, an important limiting factor for private sector development in Bangladesh was the banking system, which was not nearly able to monitor the financing needs (and the old banking system, did not have that role, so there was no financing of private companies). The main source of investment money are still the company’s profit and owner’s assets, which prevents rapid development. And thirdly, there are other problems burdening the economy in Bangladesh and bring barriers to entry: complex administrative procedures, weak law enforcement and protection of contracts,i.e. low level of legal protection, often uncooperative local authorities, problems with the building and construction land and so on.
2. TRANSITION PROCESS IN BANGLADESH
There are several reasons for the lack of production decrease during the transition period in Bangladesh, that is for its growth.Firstly,Bangladesh did not have a radical break in coordination mechanism as the vast majority of countries in transition, i.e. it did not switch from central planning to a market system in 2011, as it had already been in the market system, although deformed by the Democrate government and party, but it was still a market system.Bangladesh economic institutions and the people, accustomed to the market, were in 2011 much better prepared for the transition than other countries of Eastern Asia a decade earlier.
1. Price liberalization, foreign trade and business activities, as a whole, at the end of 2011 and early 2012 only eliminated many unnecessary regulations, as well asbroad formal and informal government administration of the ruling party, which even had a positive effect on the production: when some unnecessary regulations are eliminated, that is the government intervention it is natural to have an increase of economic activity.Secondly, macroeconomic stabilization also brought improvement of business environment and enabled growth. Thirdly, a substantial inflow of external financial support (USD 5.6 billion in the period October 2008 - end 2011) encouraged domestic production,although considerable part went into imports.Fourthly, after the victory of democratic forces the last sanctions against Bangladesh were removed, the financial ones, which also had a positive effect on economic activity. In other words, the beginning of real transition did not bring the reasons for the decrease of production, but, rather, for its growth.Similarly, there was no strong reason for the increase in poverty. Firstly, as a consequence of growth of GDP, the incomes of the population were growing. Secondly, the increase in inequality was not large, so that it could not affect the transfer of more people to the poor. Thirdly, there used to be nominally well-developed social welfare system in Bangladesh, which was only poorly financed, so the debts to consumers were more than two years old (social welfare, child allowance, etc.). After normalization of the situation in the early 2005, and with the assistance of donations,debts were settled and regular payment of current transfers was provided, which improved the situation of the poorest.Ensuring of regular payments of pensionshad a similar positive effect on the position of the oldest citizens. Fourthly, a significant and already mentioned financial support of the world increased the purchasing power of the population over the level of domestic resources and allowed visible growth of consumption. Probably, the most important advantage of Bangladesh was tardiness in the transition, caused by the political constellation and international situationduring the 1990s. Specifically, the transition in Bangladesh started only in 2000 with the wave of political changes that took place in October of that year. In other words, the transition in Bangladesh started with ten years of delay.Bangladesh's progress in the transition period was valorized, among others, by the EBRD. The transition indicators point to the conclusion that the reforms were most successful in the liberalization of prices (since 2001 their score has been 4.00),then the area of trade and privatization of RMG industry.
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