Good governance must for high growth

Adequate infrastructure, energy, skilled manpower, political stability and investment-friendly climate are the key factors for higher economic growth. However, good governance is the key to ensure all these issues, according to the editorial of the current ICCB News Bulletin (April-June 2014) of International Chamber of Commerce-Bangladesh released on Sunday.

Bangladesh is targeting to become at the lower end of middle income country by 2021. The per capita income of the country, according to 2005-06 base years, has reached to $1,190 in 2014.

ICC BulletinThis performance is much below the potential and lower than the growth rates achieved by China, Malaysia and Korea, who were also low-income countries like Bangladesh in mid seventies. Today, Malaysia and China are at the higher end of the middle-income group and Korea has crossed over to high-income category.

Private sector is considered to be the engine of growth for any country. Similarly, private sector of Bangladesh, over the last two decades, has made tremendous contribution in achieving and maintaining 6% plus GDP. But Bangladesh needs at least 7-8% growth to become a middle-income country and to achieve that growth investment to GDP ratio must be at 30% which needs an enabling business environment. In developing countries like Bangladesh, growth in private sector investment is crucial for achieving the targeted GDP growth. However, growth of private investment has become stagnant in the last couple of years, mainly because of the political instability, lack of good governance and inadequate development of infrastructure.

Foreign direct investment (FDI) has also not been upto the required level although Bangladesh is offering one of the best incentive schemes. One needs to find out whether shortage of physical infrastructure or silent erosion of confidence in the governance or both is responsible for less FDI.

Widening BoP ( Balance of Payment Surplus) is making it difficult for the Central Bank to keep the foreign exchange rate stable and reducing inflationary pressure. The central bank’s buying spree of foreign currency means that the banks are flush with local currency, raising their tendency to lend to non-productive sectors, and, in turn increase inflation. Another cause of rise in surplus is increase in both long-term and short-term foreign loans due to lower interest rates as well as decrease in net trade credit and trade deficit. The commercial banks should actively consider lowering the interest rate to attract investment in basic industries and infrastructure.

According to World Bank, Bangladesh will have to spend $7.4 billion to $10 billion a year until 2020 to bring its power grids, roads and water supplies up to the standard needed to serve its growing population. Bangladesh will have to give the highest priority to its transport sector for which the country needs to spend between $36 billion and $45 billion for expanding its communication network. The power sector will require an investment between $11 billion and $16.5 billion to take credible electricity to the poor in the country where about half of the population is still not connected to the national grid. In addition, improving water supply and sanitation will need a flow of investment of $12 billion to $18 billion, solid waste management $2.1 billion to $4.2 billion, telecom $5 billion, and irrigation $7.7 billion to $11.6 billion until 2020, the report added.

Similarly, Asian Development Bank (ADB) observed that Bangladesh needs to grow rapidly through massive investment in infrastructure, skill development and trade logistics to have a middle income status by 2021.

Considering the positive achievements that Bangladesh has made over the last two decades and its potential to grow at a much higher rate it is of utmost importance to ensure good governance.

-ICC Editorial