Businesses find corruption, energy crisis key concerns for coming years: CPD

Businessmen identify uncertainty over adequate energy supply as the biggest risk in the next two years and corruption as the foremost obstacle in doing business in the country, according to a survey report.

The report revealed that 67.61% of respondents considered corruption as the biggest impediment to doing business, while 66.20% expressed concerns over uninterrupted energy supply amid the ongoing gas crisis.

Conducted by the Centre for Policy Dialogue (CPD) in collaboration with the World Economic Forum (WEF), the Executive Opinion Survey gathered responses from 71 senior officials of private companies in Dhaka, Gazipur, and Savar. Dr Khondaker Golam Moazzem Research Director, CPD, presented the findings of the report titled 'Bangladesh Business Environment 2023' during a media briefing on Wednesday (17 January).

Within the top three concerns, inefficient government bureaucracy (54.9% of respondents) and foreign currency instability (noted by 46.5%) emerge as the two additional critical factors posing challenges to businesses. The severity of these top three problematic factors has increased compared to the previous years.

Before 2022, foreign currency instability ranked among the bottom three, which jumped to the top five in the last two years, according to the survey findings.

It's corruption that bites business harder: CPD

Golam Moazzem said businessmen expressed concern over gas supply in May-June of the previous year, and currently, there is a clear energy crisis with the government rationing gas, prioritising export-oriented and large industries.

Businessmen also perceive economic uncertainty, market demand reduction, inflation, inequality, unemployment, and environmental pollution as significant concerns for the next two years, the CPD research director said.

They believe Bangladesh might encounter geopolitical risks such as sanctions, tariffs, and non-tariff barriers in the next two years, he added.

In the survey, businessmen reported that the majority of corruption is prevalent in sectors such as the tax system, export-import contracts, registration, and licensing.

On a positive note, businessmen's perception regarding inadequate infrastructure, which was usually considered one of the top three problematic factors, has slightly improved (4th in ranking).  Public investment in developing and expanding national and regional highways, and constructing new infrastructure such as elevated expressways, metro-rails, tunnels, airports, and port facilities partly contribute to smoothening business activities.

Similarly, the severity of the problem eased in case of policy instability, limited access to financing, complexity of tax regulations, high tax rates and poor public health.

The CPD Research Director also highlighted significant challenges faced by small businessmen, including a lack of funding, bureaucratic complexity, and institutional inefficiency.

He mentioned that 30% of traders reported no significant change in their production or sales over the past year, while only 6% experienced business growth.

The survey report indicated minimal development in institutional skills and other areas over the last 5 years, with the government's political vision being the only aspect viewed positively by businessmen. The survey also unveiled a concerning trend as the bribery situation has worsened from negative to even more negative over the last 6 years.

Businessmen acknowledge some improvement in corporate activity, yet express concerns about the sluggishness in the startup ecosystem, found the report. Sixty-one percent of respondents note that business is predominantly dominated by large groups, posing challenges for small and medium enterprises.

The tax structure remains less environmentally friendly, with a carbon tax introduced by the government a few years ago yet to be implemented. Supply chain and production processes lack an environmentally friendly tax structure. A notable 58% of businessmen believe that monitoring and supervision in the banking sector are weak.

However, businessmen are optimistic about private sector involvement in the aviation sector and express satisfaction with road and rail connectivity. However, opinions on water supply remain negative among businessmen.

While there have been improvements in digital infrastructure, particularly in hotels, restaurants, and financial services, the business community indicates that sectors such as healthcare, education, and transportation are still lacking in this regard.

Golam Moazzem mentioned that businesspeople perceive a stagnation or deceleration in the financing process, calling for strengthened audits to address the situation. The ease of obtaining equity finance remains a concern, with 58% of traders identifying money laundering as a significant challenge, according to the report. Additionally, 60% of traders believe that tax evasion accounts for 30% of the total tax.

Regarding the IMF's loan conditions, 38% of businessmen expressed concern that the removal of energy subsidies would make doing business difficult and costly, while 47% of traders believe that eliminating capacity payments would reduce subsidies.

The government is urged to gradually transition to renewable energy, particularly in areas where existing initiatives fall short, said the CPD Research Director.

Half of the businessmen participating in the survey report difficulties in making international payments due to the dollar crisis, and there are also challenges observed in the capital market. They say while some positive changes have been noted in human resources and skills, there remains a shortage of required skilled manpower.

They say there is a need to enhance critical thinking, problem-solving, and innovation capabilities. Despite expectations, the envisioned collaboration between academic organisations and the private sector on research has not materialised.

The WEF has collected data from 11,000 respondents from 112 economies during 2023. The survey covered the issues related to global competitiveness, such as infrastructure, safety and security, financial system, trade and investment, competition, business operations, governance and innovation, institutions, building human capital, working and employment, and managing economic recovery and risks.

CPD's recommendations

Golam Moazzem said the government's election manifesto strongly aligns with the demands of businessmen. He highlighted the manifesto's commitments to ensuring transparency, accountability, the rule of law, individual privacy, and information security, with law enforcement agencies aimed at being people-friendly.

In addition to displaying zero tolerance for corruption, the manifesto includes initiatives for water supply, waste management, youth employment generation, market access for agricultural products, and financing for SMEs, along with steps to recover defaulted loans – all of which are in line with the desires of the business community, he said.

Golam Moazzem said CPD has presented ten suggestions to the new government, considering the overall business environment and potential future risks. The recommendations encompass the announcement of 100-day, 3-year, and 5-year action plans for government institutions, incorporating a robust monitoring system.

CPD advocates for the establishment of an independent ombudsman to combat corruption, proposing the appointment of ombudsman in each public office or sector for specific oversight, he said.

Additionally, CPD recommends the creation of an integrated financial transaction framework to monitor all types of financial transactions, and a comprehensive overhaul of the public procurement system. Among other suggestions, CPD calls for strengthening institutions that ensure competition and making necessary changes in rules and regulations, he added.

Golam Moazzem said that according to the World Economic Forum report, Bangladesh is trailing behind at the regional level and compared to other countries in Asia, lacking a competitive environment. He pointed out that Bangladesh is behind Vietnam, India, Thailand, and Indonesia, with Vietnam outperforming Bangladesh in nearly all indicators.

Bangladesh has made progress compared to Thailand and Indonesia in the sustainability index, but other countries are more advanced in smart technology, he said.

Moazzem added that Bangladesh is not well-positioned in South Asia in indicators other than sustainability and resilience, although it performs fairly well in the endurance index. He noted that Bangladesh ranks fourth in the sustainability index