Bangladesh business

Perception of entrepreneurs on the business environment in Bangladesh

| Update:
04 February 2022 21:23:53

The business environment in Bangladesh saw changes in 2021 when businesses were in an early recovery phase after the covid contamination subsided. However, there were some problematic factors in doing business in 2021. There was no major change in case of major problematic factors in doing business in 2021. According to a survey conducted by the Center for Policy Dialogue, Corruption topped the list in 2021 as it did in previous years. Transparency International’s Corruption Index in 2021 ranked Bangladesh 147th in the world (13th from bottom). The survey found that inefficient bureaucracy and limited access to finance were the second and third most problematic factors, respectively. It indicates that companies have suffered the most due to the combined effect of these three factors.

Business people’s perception of infrastructure has improved – it is ranked fourth among important factors that were previously ranked as the top or second most problematic factors. Large public and private investments in roads, bridges, ports, electricity, gas, rail and water supply have contributed to some extent to the improvement of infrastructure. According to the survey, health emerged as a major problematic factor, followed by tax rate, complexity of tax management, tax regulations, insufficient skilled labor – a new set of challenges for a growing business sector. The majority of businessmen perceived that it would take more than three years for business turnaround. They suggested additional initiatives such as financial incentives, tax cuts, control of corruption, easy access to credit, improved health care, mass vaccination, etc. to support business recovery. Under the clawback mechanism, different companies have adopted different strategies in order to facilitate the clawback process. These include cutting costs, working with new buyers, investing in business expansion, exploring new markets and manufacturing new products. The majority of companies mentioned that the government oversight mechanism for smooth implementation of stimulus packages was somewhat weak. Businessmen have identified digital financial services as a major market for businesses in the next 10 years. Other important markets would be skills capital, data management, plastic recycling, editech and reskilling, care, unemployment insurance, etc.

From the survey, several risks were identified that will pose a critical threat to the country over the next two years. For the economic sector, the main risks were the debt crisis in major economies, the proliferation of illicit economic activities and the bursting of the asset bubble in major economies. Climate action failures and man-made environmental damage are the risks for the environment sector. For the societal sector, it was the jobs and livelihoods crisis, infectious diseases and the collapse of the social security system. For the technology sector, these risks are digital inequality, failure of cybersecurity measures and failure of technology governance.

BANGLADESH’S PERFORMANCE UNDER DIFFERENT PILLARS: The year 2020 has been an unusual year in terms of doing business. The perception of institutions in times of pandemic has changed on a few indicators. The majority of institution-related indicators such as the government’s responsiveness to change, the efficiency of the legal and judicial system, the ability to ensure a stable political environment and the independence of the judiciary have not yet reached the pre- covid. Some improvement in perception was observed in 2021 compared to 2020. These include the ability of private companies to challenge government decisions, ethical standards of politicians, less burdensome compliance of public administration, etc. Over the years, business people have positively acknowledged the government’s long-term vision for economic development. There were difficulties in complying with tax obligations and in combating environmental degradation. The tax structure needs a major overhaul focusing on the fairness of different categories of people. The NBR and the Tariff Commission should jointly review tax expenditures incurred in providing tax incentives and subsidies to different categories of businesses and activities.

The majority of infrastructure-related indicators are seen to have positive changes not only from 2020 but also from 2019 (the pre-Covid period). The quality of road infrastructure, water supply, efficiency of rail and port services have improved. This positive perception is the result of significant public investment in infrastructure development over the past decade. Positive performance was observed in the case of digital platforms providing telecommunications services, retail and provided services, financial services, etc. A lack of development was observed in digital platforms for care services, professional services, transport and shipping services. A number of governance and operational issues related to e-commerce also emerged in 2021, which led to deterioration in consumer confidence. Reducing the pressure on one city, Dhaka, through the decentralization of public services, businesses and other economic activities, is very important.

Safety and security issues have not progressed in 2021 compared to 2020. Organized crime such as mafia racketeering and crime and violence have imposed huge costs on businesses. According to the majority of survey respondents, climate change somewhat increases the cost of doing business. These lead to increased internal migration to urban areas, increased demand for jobs in urban areas, pressure on urban services and increased informal economic activities. Businessmen are of the opinion that there is a lack of transparency, fairness and guarantee of justice in the services provided by law enforcement agencies. Better perception prevailed in the event of costs to businesses of large-scale social and political unrest. The government should take appropriate measures to improve the perception of law enforcement agencies and ensure efficient services to reduce business costs.

The Ministry of Finance has made it mandatory for the NBR to verify the audit reports of business entities using digital platforms, which will improve the transparency of the financial reporting system. However, the majority of business people indicated that SMEs face difficulties in obtaining financing from the financial sector and that progress is rather slow compared to other financial market indicators. Trade and investment related issues are somewhat in recovery from the pandemic. Further initiatives are needed to attract more FDI with regard to taxation, infrastructure and skilled labour. The domestic business environment has improved and surpassed the pre-covid level. However, the overall competitive environment is below the minimum average level. An unbalanced recovery is observed especially in the case of SMEs and informal sector activities.

Business operations in 2021 improved somewhat and broke through the pre-covid level. However, the level of changes in most cases is below the minimum standard. Better performance in business operations has been observed in the case of companies offering equal employment opportunities to women. However, further improvements are needed where companies provide equal opportunities to people from a generally disadvantaged religious, ethnic or racial background. According to the survey, the lack of governance has been a major drawback to ensuring transparency in business operations. Entrepreneurs agreed that the current education and skills development systems are not conducive to the creation of human capital to meet the needs of digital technologies, creativity skills, self-management skills, etc. Studies suggest that development of curricula, improvement of teacher skills and quality, orientation with international skills development system, standardization of national skills and more public investment in vocational and non-vocational institutes are essential.

The survey found that the majority of people do not have sufficient access to unemployment income, training and re-employment assistance, elderly care and mental health care. Not all members of the population yet have access to housing. The government’s initiative for access to housing for all must be accelerated. The government should also gradually introduce universal social protection, employment insurance and unemployment insurance schemes. The businessmen replied that the country’s economic growth and recovery strategy is not so effective. According to the survey, the government’s negligence towards the protection of environmental, natural and cultural heritage assets has also not been appreciated. Bangladesh ranked 162nd out of 180 countries in the Environmental Performance Index 2020 (EPI-2020)

After the pandemic crisis, the recovery of the economy has become a major concern. While businesses have shown signs of recovery in many ways, in most cases it is a disproportionate recovery that largely fails to secure jobs and decent wages, access for marginalized people and ensure social and environmental development. An inclusive recovery plan must be implemented with emphasis on reduction of tax rates, better access to credit facilities, reduction of corruption. Restructuring tax incentives focused on micro, small, independent and emerging businesses is essential; the next national budget should highlight these issues. Debt crises, illicit activities, geopoliticization of strategic assets, climate action failures, man-made environmental damage, jobs and livelihoods crisis and digital inequalities should feature prominently in current and future development policies and strategies and prosperity plan). Otherwise, the disproportionate impact of these risks would lead to the disappearance of many emerging business opportunities and the loss of jobs, especially those of women.

Dr. Khondaler Golam Moazzem is Research Director at the Center for Policy Dialogue. [email protected]

Md Salay Mostofa and Ratia Rehnuma are program associates at the Center for Policy Dialogue