Feb 22
Local Import Substitute Industries In Oblivion PDF Print E-mail

By Apu Ahmed

The country could not stop its relegation in the ease of doing business ranking against the backdrop hurdles like corruption, bureaucratic bottlenecks and lack of good governance. The curse has impacted directly on the foreign direct investment in the resource deficit county like us. The greater impact for difficulties in doing business is that it is leading the country to depend more on imports for its growing consumer class created because of shift towards manufacturing sector from traditional agriculture in the last three decades. But the manufacturers are mainly focused on export markets and hardly cared about the local market. As a result, a large amount of foreign currency earned from the export of ready-made garment, leather, and frozen food and inflow of remittance is spent for electronics, automobiles, luxury items, machines and kits in absence of import substitute industries.


Ease of Doing Business


Bangladesh has slipped further in the World Bank's ranking of ease of doing business released on November 1. Days before the release of the annual survey report two diplomats in the capital said graft is scaring off foreign investors. Lack of foreign investments especially in import substitute industries is forced the country to increase dependency on foreign goods to meet the growing internal demands. For example, Indian engineering companies’ exports to Bangladesh nearly doubled in the last five years which meant that the country’s people were contributing to employment in that country. But time has come to review the trade and the economic policies so that import substitute industries can be flourished to check draining out of foreign currency against the backdrop of slow-down in export and negative growth of remittance.




The country failed to improve its ranking in the WB’s ease of doing business mainly due to hurdles that businesses face here at the start of their operations. The latest WB report shows that starting business here is difficult, particularly because the initial spending on getting licence and permits is very high. The country holds 177th position among 190 economies while it ranked 176th last year going two notches up from the previous year. The ease of doing business provides an important signal for the foreign investors about the investment climate of a country. Bangladesh has long been regarded as a suitable investment destination for cheap labour. But the country has failed to tap its potential because of lack of policy that lacked thrust on substituting imports of many products. According the WB, the country’s rank in the ease of doing business has been deteriorating since the present political regime took the power in 2009 for the back-to-back five –year tenures. The Washington based multilateral agency found that ease of doing business averaged 143.90 points from 2008 until 2017, reaching an all time high of 178 in 2015 and a record low of 115 in 2008.


US View


On October 29, US ambassador in Dhaka Marcia S Bernicat said improving business climate in Bangladesh was important for attracting foreign direct investment, including from the US investors.  High Tariff, unnecessary and arbitrary regulations, corruption, cumbersome customs procedures, bureaucratic complexities and in some cases sanitary requirements were the most unfair trade barriers for US companies in the country, she said at a luncheon meeting of the American Chamber of Commerce in Bangladesh against the backdrop that the Foreign Direct Investment inflow into Bangladesh rose by 4.38% to US$2.33 billion in 2016. But the increase was mainly because of higher FDI in telecommunications sector that hardly created bigger scopes for employment, a highly critical for the populous country like Bangladesh.

German View


On October 25, German ambassador Thomas Prinz in a meeting of Foreign Investors' Chamber of Commerce and Industry at a city hotel identified corruption in Bangladesh as the main barrier to attracting foreign investment from Germany. Germans are extremely careful about this kind of non-compliance behaviour, he said, adding that attracting foreign investment was an uphill battle. If structural reforms were not brought about here, he said, it will be extremely difficult to convince investors. Zahid Hussain, lead economist at the WB, Dhaka office said Bangladesh needed to move much faster in implementing the reform being taken by Bangladesh Investment Development Authority through better interagency coordination and more intensive monitoring of reform efforts. In other words, the country’s potential of attracting massive FDI because of its cheap labours and suitable location between two big economic powers-China and India- could not be tapped.


Indian Exports Grow


Indian High Commissioner in Dhaka Harsh Vardhan Shringla on November 3 said the Indian engineering companies were gaining acceptance as the exports of their products to Bangladesh have nearly doubled in the last five years. India is one of the most important suppliers of many products to the Bangladesh. In the last five years, our engineering exports to Bangladesh have nearly doubled to $2 billion, he said while speaking at an exhibition in Dhaka that exhibited a wide range of products, including auto-parts, medical devices, electrical machinery and components, light engineering, and food processing machinery by some 100 Indian engineering companies. Not only electrical items but the country also relies on imports on many goods which can easily be substituted here. The country’s import of powdered milk, driven by increased industrial use and home consumption, almost doubled in the three years to 104,000 tonnes in 2015-16 from 56,330 tonnes in 2009-10, according to the Bangladesh Bureau of Statistics. Asif Iqbal, executive director for marketing at Meghna Group of Industries said industrial demand to make sweets, bakery and ice cream has played a key role in driving consumption.


MAC Grows


The consumption of many imported goods is now limited within the middle-class and affluent consumers known as MAC in the corporate world. The country’s consumer class is swelling. Although only 7 per cent of the country’s current population can be classified as MAC, compared with 38 per cent in Indonesia, MAC in Bangladeshis is likely to grow 17 per cent by 2025. Within next decade, according to corporate executives, 63 out of 64 districts will have MAC populations of at least 100,000, compared with 36 now. The government has lot of things to do including checking consumption of unnecessary products to keep the balance of payment unhurt. the country’s trade gap widened by 133 per cent or $2.08 billion during first quarter (July-September) of the current fiscal year 2017-18 compared with that in the same period of FY17. The country’s current account balance also registered a deficit of $1.79 billion, surpassing the $1.48 billion deficit registered in whole-financial year of FY17 due to growing spending to meet-up payments for rice import and other consumer goods. The gap between import payments and export earnings — increased to $3.65 billion in July-September of FY18 against that of $1.56 billion in the corresponding period of FY17. During Q1, import payments grew by 28.38 per cent while export earnings increased by only 7.7 per cent, the central bank data showed. The gap between export earnings and import payments has been on the rise this fiscal year due to sharp increase in import of rice and other consumer goods. The central bank officials said the deficit in the current account would grow further because of lower than expected FDI, slowdown in exports and negative inflow of remittance.




Check Unnecessary Imports


Bangladesh’s average gross domestic product growth was around 1.1 per cent in the period of 1971–80, 3.7 per cent in the period of 1981–90, 4.8 per cent in the period of 1991–2000 and 5.8 per cent in the period of 2001–10 and 6 per cent in recent years. Building on strong export growth and higher remittances, Bangladesh has successfully transformed its economic structure since the 1980s, graduating to middle-income status as average annual growth remained strong at 5–6 per cent. The country’s ambitious goal to become an upper-middle-income country by 2021, as part of Vision 2021, will require even stronger annual growth of over seven per cent. The country’s economic growth on the back of buoyant export and healthy inflow of remittance during the last two decade is facing challenge. So, is it not proper time for the government to check the unnecessary imports to pave the way for establishing industries to substituting those imports?