Both local, foreign investment dips

July 5, 2008

Both local and foreign investment took a slide in last fiscal year (FY) though the government has aimed at creating about 1 crore jobs in the next three years.

The downtrend in local investment however continued since FY 2006-2007 due to failure in implementing the annual development programme (ADP), an analysis of government data shows.

Besides the downtrend in investment, quality of investment also took a downward dive and it is reflected in the incremental capital-output ratio (ICOR).

The total investment in the last fiscal year was 24.2 percent of the gross domestic product (GDP) which was 24.5 percent in the preceding FY. The investment was 24.7 percent of the GDP in FY 2005-2006.

Public investment was only 5 percent of the GDP in the last FY, while it was 5.5 percent in FY 2006-2007.

Data shows public investment did not see any rise in the last six FYs with significant downtrend in the last three FYs.

Although Tk 19,473 crore was spent in ADP implementation in FY 2005-06, it came down to Tk 17,206 crore in the following fiscal year.

The preliminary figure of ADP implementation in the first 11 months of FY 2007-2008 shows around Tk 14,000 crore was spent.

“If ADP implementation of the whole year is considered, the amount would not cross Tk 16,000 crore,” an official of the planning ministry said seeking anonymity.

Private investment in the last FY has been calculated to be 19.2 percent of the GDP, while it was 19 percent in the previous FY.

However, figure of the first 10 months of FY 2007-2008 of the capital machinery import, which is the indicator to ascertain the status of investment, shows that the import reduced by 10 percent.

The ICOR is the ratio of new investment required to produce an additional unit of output. A high ICOR is often taken as a measure of poor “quality of investment”, the variations in ICOR usually represent the change in capital productivity, according to a report of Centre for Policy Dialogue (CPD).

Recent ICOR trend calculated by The Daily Star shows it was 3.89 in FY 2007-2008, 3.8 in the previous FY and 3.72 in 2005-2006, and 4.09 in FY 2004-2005.

Meantime, according to draft economic review of the finance ministry, the net foreign direct investment (FDI) in 2007-2008 would be $604 million. It was $760 million in the previous FY.

While foreign investment is on the wane, outward transfers of FDI-related investment also shows dismal picture of the country’s FDI situation.

In 2007, outward transfer was amounted to be $705 million against such transfer of $466 million in 2006.

“Reinvestment of profit and income of foreign companies will need to be encouraged although this is related to ensuring conducive business environment in the country,” reads a CPD report on review of Bangladesh economy in FY 2007-08.

The report underscores the need to take a prompt decision with respect to major investment proposals.

According to the National Strategy for Accelerated Poverty Reduction 2009-2011, the government will need to create 7.32 million additional jobs in the three years.

“With current growth rate of 3.32 percent annually, the labour force will grow to 54.6 million in 2008-2009, 56.41 million in 2009-2010 and 58.28 million in 2010-2011 resulting in an incremental labour force of 5.44 million during 2009-2011,” the document reads.

“Similarly, if the prevailing employment growth continues, total employment will increase 52.25 million in 2008-2009, 53.97 million in 2009-2010, and 55.75 million in 2010-2011 with an incremental employment of 5.17 million during the same period. It means that during the existing trends of labour force and employment growth, 7.32 million additional jobs will be created during the period,” it adds.

Low ADP implementation, anti-corruption drive and inflation contributed to the decrease of investment, said Dr Zaid Bakht, research director of Bangladesh Institute of Development Studies.

“To meet the employment need, investment needs to be increased,” he stressed.

Emphasising the need to control inflation to ensure increase in investment, Dr Bakht also pointed out that uncertainty in politics needs to be removed immediately to boost up investment.

Dr MK Mujeri, chief economist of the Bangladesh Bank (BB), said, “Public investment decreased due to depressing ADP implementation.”

Terming the employment target optimistic, he said, “To achieve it, appropriate policy needs to be taken besides increasing investment.”

Another BB official told The Daily Star, “To say the truth, public investment boosts up private investment and employment. So the government machinery should focus more on ensuring an increase in ADP implementation.”

Both local, foreign investment dips

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