‘Bangladesh’s biggest focus should be getting into ASEAN’
The Business Standard spoke with Abul Kasem Khan, Former Chairperson of Business Initiative Leading Development (BUILD) and Managing Director of AK Khan Telecom Ltd, on signing FTAs, joining regional economic blocs and other steps Bangladesh can take to offset the risks associated with graduating from Least Developed Country
Bangladesh is lagging far behind her rivals like Vietnam when it comes to Foreign Direct Investment (FDI), an essential source of investment for any developing economy.
Meanwhile, we are also trying to sign fair trade agreements (FTA) in preparation for the benefits we will lose when we get official developing country status.
The Business Standard spoke with Former Chairperson of Business Initiative Leading Development (BUILD) and Managing Director of AK Khan Telecom Ltd, Abul Kasem Khan, to find out how we navigate a promising yet uncertain future.
Bangladesh is in talks with Eurasian Economic Union (EAEU), Canada and Mercosur, as well as other countries, about signing Free Trade Agreements (FTA). How important are such agreements for us?
We have to sign FTAs. When we graduate to the status of a developing country in 2026, we will lose a lot of facilities so we have to diversify our exports. Our export basket, at the moment, is very limited, our garments contribute 85 percent of all exports, while the rest are not up to mark.
The government has given a lot of importance to export diversification and identified seven to eight sectors. We have to sign FTAs and the knowledge we have from them will help us in dealing with bigger countries.
In regards to the smaller countries, with which we have little trade deficit, we will let in imports duty-free and they will also let in our products without tariffs. How consumers from different countries accept that needs to be monitored.
What else can Bangladesh do to rise to the upcoming challenges as we graduate to the status of a developing country in 2026?
The biggest focus should be getting into the Association of South East Asians Nations (ASEAN), which is a huge market. There are 10 countries in it and their income levels are rising. Bangladesh can play an important role in ASEAN. Not only as a consumer market but also as a production facility.
Only Myanmar could provide what Bangladesh offers, but their economy is not doing well due to their internal political instability. Bangladesh can become a very good partner to ASEAN in terms of market - we have the eighth largest population, eighth largest labour force, 30th [33rd] largest economy, huge per capita consumer demand, which is increasing. As one of the fastest-growing middle class our income levels are on the rise.
Therefore, to ASEAN, Bangladesh is very attractive.
SAARC is no longer effective as there is a political dimension there, we should rather focus on ASEAN. Not only will it benefit our trade facilitation and export, it will help with our country branding as well.
Another development we should keep an eye on is Regional Comprehensive Economic Partnership (RCEP) where China is involved. Their members include ASEAN, China, South Korea and Australia.
RCEP is also inviting Bangladesh as far as I know. If we join RCEP, not only will it open up new opportunities for the Bangladeshi economy, it helps Bangladesh's branding as a country. Investors see which bloc a country is involved with before investing.
When a country becomes a part of ASEAN, it has to maintain a lot of things, like tax compliance, product compliance, a certain level has to be established in order to comply and maintain the membership.
If you comply with the membership rules investors see that, and they get the confidence to invest in your country. The Philippines has an advantage as they are a member of ASEAN. They get a lot of intra-ASEAN investment from countries like Singapore, Malaysia, etc.
The target should be getting Bangladesh into ASEAN. Bangladesh has applied for the status of Secretarial Dialogue Partner of ASEAN. Economic diplomacy has to be done correctly, if we can convince them of Bangladesh's capability, then both parties will be benefitted.
RCEP is a game-changer. China, Japan and South Korea are three technologically advanced countries. If we can join this bloc there will be more opportunities to receive big investment. They can benefit sectors like production, textile, engineering/light engineering, automobile.
For heavy industries like infrastructure ports, roads and airports, Bangladesh has not received a lot of investment. The only such investment we have is in the elevated expressway. But we need more, we will need many more expressways.
Our infrastructure is not on the level of a developing middle-income country. Take Thailand for example, we need infrastructure like theirs. We need that quality, that standard in Bangladesh, that will increase our competitiveness. And that investment has to come in the form of foreign investment.
Foreign investors are mostly investing one-on-one here; they are setting up their own factories, creating production facilities and going for manufacturing. That is a good and necessary step but investment on heavy industry or infrastructure has yet to arrive. It will change one day. Only then will private investors fund expressways, airports and train stations to benefit from trade.
The government can't allocate all resources to infrastructure since they have limitations as well. They have to invest in sectors like social sectors, education; so where will the investment for infrastructure come from?
Our investment requirement is 6-8 percent in proportion to our GDP. If our GDP is $400 billion at the moment and if you take 6 percent of that, a sum total of $24 billion needs to be invested into infrastructure, today. But in reality, how much are we getting?
We are not able to exceed anymore than $6-7 billion; the government is trying but there is still a deficit. Foreign investors need to fill in that gap. We are getting $2-3 billion
FDI at the moment but if we can get around $20 billion, for the infrastructure included, the whole economic climate will change overnight.
Just imagine receiving $20 billion instead of $2 billion! Our GDP growth will increase by 1-2 percent. According to the World Bank, our growth should be around 10 percent for the next 10 years. It will actually propel Bangladesh into a modern economic powerhouse.
Most countries from ASEAN have gotten investment in infrastructure through the PPP modules like Build-Own-Operate model, Build-Own-Transfer model; they [private partners] build it, operate it for 30 years with government assistance, and then hand it over to the government.
The government investment in such projects is zero.
If we get big investments that come through PPP and use project delivery mechanisms like Build-Own-Operate, Build-Own-Transfer, we will face some issues. We have some weaknesses on that front, as Bangladesh has not started that practice yet.