Issues of risks, shocks, vulnerabilities and uncertainties for business in Bangladesh need to be readdressed
By Rezvi Newaz
Edited by Khawaza Main Uddin
Businesses always face their inherent challenges and in Bangladesh there are unique problems and Bangladeshis have often come up with unique solutions to them. In fact, in many cases, Bangladeshi businesspeople have made the impossible possible, cashing in on the opportunities available in the crises. The successes of Bangladeshi businesses lie more with how they manage crisis. The country has been tagged with the word resilience for reasons that are different from what it usually means in developed countries.
The appreciation for Bangladesh has come from all observers including foreign friends for its capacity to go back to normalcy after disasters – both natural and man-made. The country has survived more than 200 natural disasters. The Bangladeshi businesses, too, have demonstrated an incredible capacity to absorb all kinds of shocks including the ones that originated outside of the country. They have learnt how to cope with challenges at every stage of doing business, including in a volatile atmosphere. Those whose businesses are still thriving after surviving crises say they do not mind a problematic regulatory regime as long as business is profitable.
The businessmen, as part of the greater populace, have earned this capacity from historic experience of Bangladesh’s emergence and adversities in their very surroundings and adjustment with the prevailing situation has been injected into the culture. This has also left negative fallouts, making some people compromise too muchwith questionable practices or reactive to any development instead of being proactive most of the time.
In such a situation, businesses are compelled to focus on crisis management and short-term gains despite their willingness and necessity to attain a higher capacity to face unforeseen challenges. Unexpected stress on companies and small businesses hampers their capacity and space for continuous research and development, be it formal or informal, and ultimately reduces their efficiency and productivity in the competitive market.
Are the Bangladeshi businesses then crossing the limits of elasticity of overcoming business risks and uncertainties? Is the culture of making stop-gap arrangements more often than not exhausting the future potential?
Destiny or choice?
Businesses complain about a wide range of problems from shortage of bankable loans to bureaucratic tangles, from energy deficiency to port inefficiency, from land crisis to policy uncertainty and from labour unrest to political instability, apart from natural disasters and international competition. A country of immense potential, Bangladesh is carrying the legacy of some challenges, still making progress towards prosperity, performance which is dubbed a development puzzle.
The ability of the Bangladeshis to perform even in crisis situations has resulted in what is also called a ‘Bengali rate of growth’ that has accelerated by one percentage point over every decade. ‘Unfortunately the ‘Bengali rate’ has fallen far too short of the rate of expected growth,’ says Dr Zahid Hussain, a senior economist at the World Bank’s Dhaka office. ‘Resilience has kept us afloat in the race on growth while self-made crises have dragged us back and kept us from overtaking our peers.’
Private investment declined by 1 percentage point this year following sluggish trends witnessed since a year before the political unrest running up to the January 5 elections. Businessmen, in almost all recent meetings and discussions in Dhaka, vented their frustration at the lack of investors’ confidence. ‘Address the political crisis today, all other issues will be alright tomorrow – Investments will automatically follow then,’ business leader Manzur Elahi told a pre-budget consultation organised by Maasranga television. Tapan Chowdhury, Managing Director of Square Group, said the alleged flight of capital would stop and immigrants would come back home if a congenial atmosphere is created.
In the past, Bangladesh achieved remarkable development turnaround, denying negative perceptions such as an international ‘basket case’ at her birth in 1971. The country fared better in global development goals with relatively low level of investment compared with the East Asian economies. This country has tripled food production andincreased per capita by 1239% and exports by 10379%. Businesses have flourished from the ruins of a war-ravaged country and despite natural calamities and man-made challenges, thanks to the spirit of entrepreneurs and policy supports if not good governance.
Yet, ‘Bangladesh is one of the hottest emerging markets having the potentials of attracting more foreign investment,’ said Investor Chronicle, a UK-based research organisation. Jeffrey Sachs, Director of the Earth Institute, observed that Bangladesh ‘shows us that even in circumstances that seem the most hopeless there are ways forward if the right strategies are applied and if the right combination of investments is made.’
The country’s main export-earning readymade garments sector has survived in the quota-free regime and become a key source of global supply. Exports beat doomsayers rising at 16% to $23.86 billion in a year between April 2013 to March 2014, despite industrial disasters, such as the Rana Plaza collapse. ‘Our apparel exports are on a growth trajectory as major global brands are working with local garment makers to improve workplace safety,’ said economist Mustafizur Rahman. In spite of challenges, the initiatives of the global retailers and brands to improve compliance sent a positive message to the international community, he said.
Dwelling on business uncertainties, Atiqul Islam, president of Bangladesh Garment Manufacturers and Exporters Association, thinks entrepreneurs are ‘problem solvers’. ‘Of course there is a price to overcome the crisis.As investors we take the risks and once we overcome the crisis we make profit,’ he said about doing business. Zahangir Alam, who runs three garment units, feels that crisis is always an opportunity for entrepreneurs. ‘But uncertainty often breaks down the spirit and nerves and this kind of situation is not encouraging for long-term investment,’ he added.
Currently, garment makers are working on relocating risky factories to safer buildings in line with national and global efforts to meet conditions for improving working conditions. Some factories were declared closed and more might be shut down in view of faulty structures, BGMEA leaders said referring to recommendations by inspection teams. Global retailers and buyers are allegedly using the Rana Plaza issue as a plea to offer lesser prices for Bangladeshi garment products. ‘We could have grabbed more orders and expanded market, had there been no industrial accidents and political unrest,’ said Atiqul Islam.
Given the slower growth in garments in recent times, Abdus Salam Murshedy, managing director of Envoy Group, said the sluggish growth is expected to continue until September due to this negative image. However, Mustafizur Rahman, however, expressed the hope that once the inspection is over, Bangladesh has immense potential to increase its apparel exports due to quality and competitive costs of products. ‘If we can brand Bangladesh as a compliant country, many orders, especially from China, will pour in.’
Issues of recent unrest
Hartal as an effect of political crisis is not expected by anyone but still the country is experiencing it bitterly. The turmoil cost loss of lives and damage to, and a halt in economic activities.The two main parties that alternately governed the country in the past two decades have enforced hartal, failing to work out workable relations between them in the game of power politics.
The big question is: How can a country of 160 million people with a density of 1,000 people per square kilometre, and with 31.5% people still living below the poverty line, afford to undergo many days without economic activities, production in factories, and closure of educational institutions?
In a recent statement, the International Chamber of Commerce, Bangladesh estimated that the country lost around $200 million every hartal day. The President of the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) Kazi Akram Uddinn described the political violence as more than a cancer for the economy. ‘It’s high time to ban hartal. Otherwise, the country’s so-called prospect will remain a dream merely,’ he told ICE Business Times. FBCCI kept the records of 84 days of hartal from October 2013 to January 2014 that caused an estimated loss of Tk. 100,000 crore.
Dhaka Chamber of Commerce and Industry (DCCI), too, have made an estimate of the impacts of hartal as follows:
(Figures are in Crores)
|Sectors||Loss per day||Loss per year||%of GDP@day||% of GDP loss@year|
|Whole sale market, shopping mall, and small shops||600||24,000||22.37||2.45|
This, said the World Bank’s Zahid Hussain, is a failure of ‘our collective political process, a failure of political choices arising from myopic and narrowly self-interested behaviour’. ‘Living with crisis cannot be a destiny and Bangladesh deserves a lot better,’ he expressed his views. Abul Basher, a researcher at Bangladesh Institute of Development Studies (BIDS), noted that Bangladesh has already exhausted the dividend of policy reforms of the early and mid-1990s. ‘We need a second generation intervention, this time focusing on capacity building to thrive in the competitive world. No ad hoc-ism and fire-fighting mode will work,’he added.
In the age of globalisation when more than 50% of the Bangladesh economy is integrated, risks and uncertainties coming from outside cannot be ignored. Rather it is essential to take a stock of the situation in the international arena and get ready for future challenges.
‘Global Trends 2030: Alternative Worlds’, a publication of America’s National Intelligence Council, has presented a number of scenarios that are important for considering policy choices to overcome unforeseen business challenges and grab opportunities. The trends that are likely to shape most countries’ economic and politicalconditions and relations among countries include aging, cross-border migration, and growing urbanisation.
‘Owing to rapid urbanisation in the developing world, the volume of urban construction for housing, office space, and transport services over the next 40years could roughly equal the entire volume of such construction to date in world history,’ forecasts the US report.It added that the middle class most everywhere in the developing world are poised to expand substantially interms of both absolute numbers and the percentage of the population that can claim middle class status during the next 15-20 years.
The international economy almost certainly will continue to be characterised by various regional and national economies moving at significantly different speeds—a pattern reinforced by the 2008 global financial crisis, said the report. ‘The key question is whether the divergences and increased volatility will result in a global breakdown and collapse or whether the development of multiple growth centres will lead to resiliency. The absence of a clear hegemonic economic power could add to the volatility.’
No end to crisis
Businesses need to have an idea about the future and when our future looks uncertain, it is difficult to take an informed decision, or demonstrate sufficient courage to take risks. In addition to a number of barriers to business, the issue of political transition through acceptable elections every five years remains unresolved. So, the risk of recurrent crises remains potent.
‘We are tired of fighting the age-old hurdles in doing business. We have come to this business knowing that we have to undergo harassment and we find a solace in overcoming the barriers,’ said Mir Nasir Hossain, ex-president of FBCCI. He maintained that the Bangladeshi entrepreneurs ‘understand very well that they have to wait a long time to have it all set, all in order’.
The World Bank’s Doing Business Report 2014 shows notable progress in reforms, especially in the areas of registration, process simplification, and automation. This reduced time required to obtain trading licenses and complete tax and value added tax registrations. ‘But to realise its full growth potential, Bangladesh needs to do more to improve its investment climate and to promote the country as an attractive destination for investors and entrepreneurs.’ said WB lead economist Zahid Hussain.
Bangladesh has performed the worst in providing electricity and gas connection to the entrepreneurs, who had to wait 404 days to light up their businesses, according to the International Finance Corporation (IFC). Despite certain improvement in electricity generation capacity, there is still a problem of bribery. In fact, Bangladesh has made ‘insignificant’ progress in its fight against corruption, according to global reports.
Why no departure from the past
Regulatory barriers, poor governance, anarchic and unregulated practices, policy inconsistencies and uncertainties, unhealthy competitions, political instability, hartal and violence have all been common problems for entrepreneurs with no end in view. ‘This is mainly because of a lack of any change in the attitude of our leaders. We were taught to dream big; we were told about Vision 2021. But the leaders lack the vision about what needs to be done to realise those dreams,’ said Abul Basher adding that the leaders have not graduated from old politics characterised by intolerance, castigation, corruption and misuse of power.
Former president of Foreign Investors’ Chamber of Commerce and Industry (FICCI) Syed Ershad Ahmed is afraid of the second generation in business. ‘My son and grandsons won’t continue to undergo the same barriers that I am facing for my survival,’ he said adding that the next generations would not accept the inability and lack of commitment from any side, be it the government agencies or the private parties.
Businessmen cannot do much about problems in politics that affect businesses, said immediate past president of DCCI Sobur Khan maintaining that entrepreneurs learn from the past and live for the future. Confident about solutions to the issues Khan mentioned that many private organisations, companies and institutions are actively working to improve the overall conditions of the country in different sectors. ‘Entrepreneurs try to find their own ways to deal with the situation.’
However, high visibility issues and security threats and concerns may not always pose key problems for modern-day businesses. Economist Intelligence Unit, in a 2007 study on business resilience pointed out that even mundane incidents, could be just as damaging to the wellbeing of an organisation. ‘Power outage, data loss, application failure and human error may not grab the headlines, but they can have devastating consequences,’ it added. Quoting respondents of the survey, the EIU said they (75%) increased the amount of time and resourcesthey dedicate to operational risk management.
Balance in approach
Revolutionary changes are sometimes required for making improvements. A stable business regime as measured in prevalence of peace, order, discipline, policy consistency and good governance can help ensure smooth operations of businesses and further growth. The interests and aspirations of entrepreneurs need to be accommodated through building institutions to deliver required services.Until that happens, entrepreneurs need to live with the situation and still become successful.
As Bangladesh is on the road to becoming the middle income country it needs to increase investments. Fahmida Khatun, an economist working at Center for Policy Dialogue, (CPD), blamed policy inconsistency for the dearth of investment, especially foreign direct investment. Referring to the official GDP growth target at 8% by 2015,she said it requires raising investment to 32.5% of GDP. ‘Low domestic investment has been a cause for concern as this also holds back foreign investment,’ she said. Emphasising the need for improving the environment, she regretted, ‘If Dhaka continues to remain one of the worst cities to live in, hardly any foreigners would come and invest here.’
Finance Minister AMA Muhith, too, admits the failure in increasing private investments but said lower private investment has been compensated by increased public investment. Asked if the entrepreneurs are tired of challenges and are perhaps losing their zeal, he said, ‘No.’ Muhith often describes Bangladesh as a land of impossible attainments. He, however, expressed helplessness in corruption. Dwelling on regulatory barriers, the finance minister reiterated that land reforms and reforms in administration were in his agendas for improving the service delivery.
In given circumstances, business continuity is considered to be a key challenge, not just as part of a disaster recovery plan but also as business practices in ‘business-as-usual’ situations. The EIU report said the successful management of operational risks andbusiness continuity requires companies to conduct athorough assessment of the risks and vulnerabilities.
Corporate executives, too, need to take preparations for managing both external and operational risks and maintaining continuity – expansion, merger, acquisition and all that. In Bangladesh, entrepreneurs and business executives need to be a bit more careful, cautious, courageous and probablyadventurous to become successful by overcoming challenges.