Creating a better business environment
THE Bangladesh Better Business Forum (BBBF) is an unprecedented organising apparatus for partnership between the public and private sectors in Bangladesh. It aims to implement reforms to improve the business environment. BBBF planned to achieve concrete results in the short-term through ministerial action, and a pragmatic and focused approach was taken, knowing that certain long-term reforms would require legislative action.
BBBF seeks to brand a stronger Bangladesh to foreign investors and to improve the overall business climate in this country with short-term high-value policy decisions, also initiating long-term structural improvements in a various areas that affect doing business. The result should be an increase in business activity, investment, domestic demand and well-being by building up local enterprises.
For example, an incubator for SMEs with proper policy support could develop industrial clusters with agglomeration economies and the associated positive externalities, where collocation of firms generate substantial direct and indirect employment, give rise to numerous links including fiscal links, and crowd in many other services such as value added supply chains.
BBBF seeks progress and solutions through building coalition of partners in national development among a broad range of relevant stakeholders rather than capture and confrontation. Stakeholder consultation has brought in diverse range of interests and views to the table. The stakeholder process was based on a sufficiently broad balance of interests to give BBBF recommendations the economic and social support it needs. We focused on priorities, and deliver time-bound and workable action plans. Recommendations cut across government jurisdictions with the aim of unifying the government behind a common set of goals.
BBBF has been in operation since mid-December 2007. In the last six months, the members of all five working groups worked diligently and through numerous interactions and iterations of public-private partnership dialogue, and finalised several recommendations.
Many of the BBBF recommendations for streamlining tax administration, and eliminating non-conforming fiscal policies are reflected in FY08-09 national budget. Additional recommendations shall be presented to BBBF on an ongoing basis.
The business finance working group, in consultation and partnership with the respective line ministries, made 41 recommendations and received approval for the majority of them. Salient reforms include the following: require accounting and financial audits of business enterprises by accredited accounting firms only, take punitive action against fraudulent audits, Bangladesh Bank (BB) will advise all commercial banks and financial institutions (FI) to reduce and rationalise their interest rate charges so that the weighted average spread is less the 5.00%, and reduce L/C charges and various fees.
For SME financing, as per the business finance working group recommendations, BB will advise FIs to allocate 40% of their SME loanable funds to Small Enterprises and 60% to Medium Enterprises; re-finance increased amounts of loans for the SME sector; provide necessary permissions to FIs to set up Medium Enterprise Service Centres; recommend FIs to provide preferential treatment to women entrepreneurs; and allow a lower 1% provisioning for SME loans instead of the usual 2%.
The business entry and operations working group, in consultation and partnership with the respective line ministries, made 22 recommendations and received approval for most of them.
The infrastructure working group also has a mission to enhance the national logistics system as a comprehensive approach the operating infrastructure that supports production and trade. This working group, in consultation and partnership with the respective line ministries, made 28 recommendations and received approval for most of them.
The macro-economic policy working group, in consultation and partnership with the respective line ministries, made 24 recommendations regarding the investment and tax policy environments. Reforms include: Bangladesh Bank to put moral pressure on banks/FIs to reduce lending rates and spreads; NBR will ensure that import duty on raw materials is lower than finished goods in every industry, and provide facilities to publicly listed companies to plough back profits into industry; and many more.
The skills development working group has a mission to create an enabling environment for competitiveness through human resources development. This working group, in consultation and partnership with the respective line ministries, made 14 recommendations and received approval for 3 of them with regard to various timeframes for implementation. The rest of the recommendations will be presented upon further deliberation among the working group and concerned ministries.
In line with Bangladesh’s national development plan, BBBF aims to improve the business environment and create conditions conducive to faster private sector-led growth that can be sustained, consistent with our private sector development strategy.
BBBF recommendations reflect not only the realities of the market, but also the priorities and values of the country and its capacity to adapt to change. As the private sector becomes more competitive, coherent and carefully planned reforms are expected to produce benefits faster.
We are focusing on execution effectiveness through an orderly approach, which helps to reduce the risks and costs of adjustment. BBBF is poised and determined to improve private sector performance with a two-pronged approach. First, freeing up the market and stimulating competition so that enterprises can adapt and innovate more quickly, and second, by enhancing the capacity of the public sector to provide an enabling environment of sound regulation and efficient public services.
Broad support is necessary to sustain the reforms initiated, and the professional civil servants who are essential to its success might need incentives to be tied to performance results. At BBBF, we are cognizant that in such reforms piecemeal efforts are less successful than a comprehensive set of reforms. Institutions are key to the quality of the investment climate, while early and broad-based stakeholder engagements leading to a shared commitment to an action plan are a sine-qua-non. The BBBF consultative process was therefore at multiple levels.
Governments influence the quality of their investment climates through policies, institutions, and their relationship with the private sector. Not until the formation of the BBBF has there been a structured public-private partnership initiative in Bangladesh, which aims to design integrated strategies and to balance the private sector perspective with broader economic and social goals.
Although Asian countries have been slow to adopt comprehensive competition policies, a new “Competition Policy” is contemplated for Bangladesh by way of a Competition Commission, which will be a watchdog ensuring fair-play and efficiency in the market that ultimately benefits the consumer.
In addition, a Bangladesh Economic Zone Ordinance 2008 is in the final stages of approval for beginning the process of formation of Special Economic Zones (SEZs) such as Export Processing Area (EPA), Domestic Processing Area (DPA), Commercial Area and Warehouse (CAW), and Non Processing Area (NPA). A one-stop single-window service will be provided to investors who will also receive various fiscal incentives and regulatory allowances.
The design of the operational model for Private Sector Development (PSD) strategies is certainly the first step, but lack of implementation due to weak institutional capacity has been a major cause of the failure of PSD strategies in many countries. Implementation of BBBF recommendations is therefore being enhanced by follow-up projects and capacity building components.
We intend to streamline the engagement processes and facilitate enhancement of institutional capacity building so that public service becomes more efficient in serving the investors. Institutionalising the PSD administrative responsibilities within the permanent civil service is essential for sustaining the PSD strategy process across political cycles.