"If the government wants to create some space for private sector investment from the money market, it should introduce the National Infrastructure Development Monitoring Advisory Authority Bond"
Shams Mahmud is the newly elected president of the Dhaka Chamber of Commerce and Industry (DCCI).
The Managing Director of Shasha Denims Ltd, Shasha Garments Ltd, Shasha Spinning Ltd and Shasha Textiles Ltd, Shams Mahmud is also the honorary consul of the Federal Democratic Republic of Ethiopia in Bangladesh. He is also in the board of directors of the Bangladesh Textile Mills Association, Dutch-Bangla Chamber of Commerce and Industry, and vice president of the Bangladesh-Philippines Chamber of Commerce and Industry. Jasim Uddin of The Business Standard recently spoke with Shams Mahmud.
TBS: What is your observation about the overall business scenario in Bangladesh?
Shams Mahmud: We observe that the overall business scenario of Bangladesh is good when the global economy is in a slowdown. What Bangladesh has achieved in terms of economic progress is nothing less than a miracle. The economy is becoming stronger. Our per capita income is increasing and so is our GDP growth.
Bangladeshi industries are doing well. However, the lending rate here is the highest across the globe. This is an area of concern because we are competing with those countries which have access to low-cost funds.
We have observed the strength of our economy during the current economic slowdown. Everyone expressed fear the economy would be faded, but showing incredible resistance Bangladesh has made significant progress. Earlier, we experienced such type of fear - after WTO agreement in 2000. After the Rana Plaza incident we have turned around. We have developed our own resilience capacity; the economy is moving forward.
TBS: How would you describe the domestic investment scenario in Bangladesh?
Shams Mahmud: The economic scenario has changed globally. Private sector investment has squeezed everywhere. Most of the investments took place in the last 20 years are mainly in the textile, and the ready-made garments sectors.
Quantities have come down, streamlined by the brands. The size of procurement order is smaller. For instance, a purchase order of 100,000 pieces now has dropped to 5,000 pieces.
There are many players in the market at present. Among them, the good and innovative ones will survive. That's why we are shifting focus from turnover to profit margin which is an indication of economic maturity. What I need for surviving in the market are efficiency and automation.
TBS: Is foreign investments to Bangladesh on the right track?
Shams Mahmud: Any type of foreign direct investment should be welcomed to the country. However, the government needs to be cautious about foreign investments on like-for-like products. For example, if a Chinese SME lured by the GSP facility come to invest in the Bangladeshi garments industry, it will certainly turn into the largest company in the current market scenario. If the government allows them it would create an unfair competition, which will brush aside the local competitors. We will welcome such investments in industries like the diamond cutting industry. We may invite FDIs for non-cotton industries as they are technologically advanced and experienced. It will help in technology transfer, local capacity building and product diversification.
The government should go for an Anti-Competition Law like Vietnam which ensures equal treatment for both local and foreign investors. As I could secure the profit even investing during a serious crisis, it means that business has a future here.
My competition is not with any local textile manufacturer, rather it is with some Turkish textile, where I can offer a fabric at $4 against a Turkish offer of $5.
Investments should have targets after setting specific goals - with whom I will compete and what are my potentials.
TBS: How would you strike a balance among sustainability, environment, and boosting production?
Shams Mahmud: Globally, there has been a growing awareness about environment. In future, nobody would be able to do business without sustainability. From now on, our government should prioritise sustainability, which would be helpful in achieving the SDG targets. The future government policies should be aligned with zero discharge target.
TBS: How would you define the importance of research and development in manufacturing industries?
Shams Mahmud: If you want to get better price for your products, research and development should get more focus. In Bangladesh, we only focus on what a machine can do. The focus should shift to raw material variation - property of raw materials can change the product quality, while machines play only the second part.
I think the government can initiate a collaboration with global brands so that every year they organise some training programmes to develop the skill of the local entrepreneurs.
Most of the global brands are well-wishers of Bangladesh. They want us to be diversified. Research and development should think out of the box. Nothing is possible to change overnight, but we should start right now.
We allege that buyers are not paying us a fair price, and they are opting for Vietnam. This is not that they love Vietnam and are paying them fondly. In fact, Vietnam is attracting buyers by dint of their efficiency.
Here we the local manufacturers compete with each other for price cut. When we fail to survive, we trade blame game holding the brands responsible for low prices.
If an entrepreneur takes order at a low price, it is not possible to hike again.
TBS: How is the private sector enjoying government policy support?
Shams Mahmud: In Bangladesh, the government generally keep distance from the private sector while making policies, which is a negative phenomenon. The government may consider the private sector as one wing to fly forward. The private sector should be engaged in the formulation of any policies. That joint effort will make the policy implementation much easy.
We also observe that the commissions of government policy support are not equal. For example, between textile and readymade garments, the former is the latter is getting more cash incentive. But the textile also should get an equal share.
Not only the apparel sector, the medium and small industries should receive equal attention. If we can ensure this, the export basket will be diversified and balanced.
There should not be any discrimination to numerous sectors on export facilities. The readymade garments generate employments while the backlink providers remain largely neglected even after almost 60 percent contribution to apparel export retention. This attitude needs to be changed. If the textile falls, it also will prompt a total collapse for the banking system. Now the local textile owners are gravely concerned over the rampant sale of bonded fabrics to local markets.
TBS: What are the challenges for investment?
Shams Mahmud: The next challenges are public sector expenditure, and a lack of infrastructure that is the main cause of for inflow of FDI.
The government is upgrading some four-lane highways between Dhaka and Chattogram to six lanes. The Matarbari coal-fired power plant, Payra Port, Padma Bridge, and 100 economic zones are massive projects.
The quality of power supply is another challenge to FDI inflows to Bangladesh. One of the major challenges for FDI is uninterrupted power and gas supply. If we can privatise the utility transmission and distribution system, we can attract investments for new industries.
TBS: How can the government ensure quality power supply?
Shams Mahmud: I think the government can hand over the distribution job to the private sector. It would be good initiative for ensuring quality and uninterrupted power supply.
This does not require further investment but it will be helpful to encourage FDIs through ensuring quality electricity. The government may also consider forming a regulatory authority to monitor the efficiency of power consumption.
Many of our entrepreneurs are already investing huge to make their industry sustainable and reduce their power consumptions – electricity and gas, as well as water. This is also proving advantageous for the government and environment. The government should recognise those entrepreneurs for their efficiency.
TBS: What is the potentials for trade and market diversifications?
Shams Mahmud: I think we have potentials in African markets. Bangladesh has not explored the market yet, but it can be a lucrative place for our remittance earnings.
Trade between African nations and Bangladesh are yet unexplored. We can look forward to do that.
Bangladesh is a very small country with some short-term problems. But in the long run it has very good potential. It has positive outlook forecast by globally renowned firms.
TBS: What is your observation about implementing single digit lending rate?
Shams Mahmud: The prime minister's decision is time befitting. It will encourage private sector investment. Bank owners are getting huge benefits promising to offer low interest rates but they did not fulfil their words in the last three years.
Bank association had got enough time, but this time it must be ensured the benefit flows down to the entrepreneurs.
I have another observation. This is that the bankers' association may have mixed up SMEs with microcredits. If they meant the microcredits that has nothing to do with us but the banks should not have excluded SMEs in this monetary policy.
We have 78 lakh enterprises. Of them, 68 lakh are small and medium enterprises, and only 5,700 are large business entities.
The whole model of banking is flooding now. As we saw people deposited their money in banks for one year as FDR, but the bank is lending for seven years.
The bankers have determined that it should have positive growth.
If any contraction happens the economy will suffer hugely, which will bring a negative effect that will be beyond the control of entrepreneurs. As it has been in the case of the effects of the USA-China trade war on the global economy. Currently, the overall business is in a slowing trend globally.
TBS: What government measures do you suggest to formalise the growing informal sectors?
Shams Mahmud: All business-related transactions should be brought under the banking networks. It would impact the economy positively and take the country one step forward towards digital Bangladesh. It will be helpful to streamlining VAT, ensuring accountability, getting tax rebates, widening tax net, formalising the informal sectors. It is really the high time to widen banking service coverage for all business transactions.
TBS: Many argue that government borrowing from banks is responsible for shrinking credit growth in private sector. What is your opinion? How the money market can breathe a brief relief?
Shams Mahmud: If the government wants to create some space for private sector investment from the money market, it should introduce the National Infrastructure Development Monitoring Advisory Authority (NIDMAA) Bond. At the same time, it would be a good fund in the stock market. The government may say public limited companies' management may invest a part of their retained earnings in NIDMAA Bond to get the rebate in corporate tax.
It may turn out to be the best source of government borrowing for infrastructure development. The fund may reduce the pressure of government borrowing on the money market.
If the government opens the bond market, foreign institute investors can invest a big amount in that. It will create scope for more FDI inflows into the country. The private sector will get access to foreign funds for browning and the government would not require to borrow from the money market. It will relieve pressure on the country's foreign exchange reserve.
TBS: What measures do you recommend to attract more FDIs?
Shams Mahmud: We have done comparatively well in terms of attracting FDIs. An enhanced economic diplomacy can boost it further.
Uninterrupted power supply is a must for industries. Privatisation of power and gas distribution can play a role here.
The government's initiative for infrastructural development is positive. The type of our airport service and quality needs to be improved. The airport is the first impression to a foreigner to Bangladesh.
The dominance and advantage Vietnam and Pakistan are receiving in readymade garments will not last too long. Pakistan awaits a wage hike which will spoil the facility they are enjoying from currency devaluation.
Meanwhile Japan and South Korea have adopted policies limiting Chinese investments to 10 percent. Vietnam is also following suit.