Bangladesh Business Second Issue

BANGLADESH

BUSINESS

Editorial Board

Editorial Staff

Cover Photo Additional Photos

Farook Chowdhury Derrick Sanyahumbi Khademul Islam Mostafa Zaki Haider Mushfiq Wahed Zahidul Naim Zakaria Ahsan Sajid Kazi Raisa Ashrafi Tahmina Shafique Mohteshamul Haque Tasmiah T. Rahman Farheen Rahman Shafiq Alam/ Drik/ Majority World Saikat Mojumder Zaqiul Islam Deep M. Yousuf Tushar/ Drik/ Majority World

Publisher Euroconsult/BMB Mott MacDonald 6 Gulshan Avenue Suite D4 (B. Aristocrat) Dhaka-1212, Bangladesh Phone: +880(2) 9880806 +880(2) 8810456 Fax : +880(2)9890977 E-mail: [email protected]

Design and Layout SW Multimedia Ltd. Plot 56/C, Road 132 5th and 6th floors, Gulshan South C/A Gulshan-1, Dhaka-1212, Bangladesh.

Printers

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Binimoy Printers 37/2, Purana Paltan Dhaka-1000, Bangladesh.

BANGLADESH

BUSINESS

Publisher's Note T

he theme of the second issue of Bangladesh Business in a sense was easy to decide. In between the magazine's first issue and this one the nation underwent a fundamental change. The caretaker government, while its tenure admittedly went beyond the constitutional writ, did hold a general election widely held to be credible. In a sweeping change that radically altered Bangladesh's political landscape the Awami League assumed state power and authority in an overwhelming electoral landslide. Now Bangladesh is again a democracy with a functioning parliament. But to the degree this new political dispensation functions, what generally does it mean for the country at large? This particular topic has admittedly been one that has been discussed almost threadbare in various public media and forums, especially during the much-heralded 'first 100 days'. But for us the question was far more specific: what does it mean in terms of the private sector and the country's business community? It was then that we decided to look at some issues which are critical to the private sector in terms of its future role and function, and in relation to the economic issues detailed in the manifesto of the governing political party. The latter exercise was taken in recognition of the fact that the form and nature of political conventions are changing in Bangladesh: detailed party manifestos are a necessity nowadays, debates and talk shows have made them central to public discourses about present conditions and future direction of the nation, and with notions of accountability have now become firmly lodged in the public mind. It was in this context that we decided that this second issue would focus on certain key aspects of the economic section of the manifesto, to explore what has been promised and what that promise actually entails in terms of economic challenges and performances, and to what extent could the business community, whose confidence was shaken during the caretaker government's regime, realistically expect conditions to improve and prosper. In this effort we were considerably aided by the feedback provided us by our readers to the first issue (some of which have been published in the Letters section), who responded with a gratifying enthusiasm and energy. We read their letters and emails carefully, and have incorporated many of their suggestions in this second issue. We thank them all, and hope that this level of response will not only continue, but grow with subsequent issues, especially from our readers within Bangladesh. Finally, we are aware that Bangladesh Business was to be a quarterly magazine, and that this second issue has not met its projected deadline. The delay in publication was because we tried very hard to live up to our commitment of producing a quality publication, one that would articulate and represent the driving ideas and interests of Bangladesh's private sector in a qualitatively different way. It was this striving that was the cause for delay. As always, our readers will be the final arbiter of the extent to which we have failed or lived up to their, and our, expectations. What we can only really hope for is their continued support and indulgence for a publication that is still in the process of defining itself.„

www.bangladeshbusiness.biz

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Letters Success stories Sir - I think the magazine is very professional and informative. However, a couple of suggestions: 1. Instead of three interviews in an issue, one should suffice. 2. An article on investment and growth prospects of certain industries can be published in each issue. 3. Success stories of SMEs operating in Bangladesh can be highlighted, e.g. Micro, the local transformer manufacturer, has ventured into orchid production. 4. Bangladeshi companies participating in international trade fairs can be brought to light. 5. A 'letters to the editor' section can be added. Tonmoy Islam Lexington, KY, USA

Being influential Sir - I'm probably one of the few to share the privilege of reading and making observations on the first issue of the magazine. It can potentially be the only decent business magazine published from Bangladesh. Print quality and management is superlative. I envision this magazine as a source of knowledge, quoted in respectable circles. I liked most the article "Who Should Advocate for the Private Sector". Bangladesh's private sector has grown against all odds but, they have failed to highlight their contributions to the nation's economic growth. This magazine could be a great forum for private sector advocacy and lobbiests. For the magazine to be influential, its circulation will have to be increased. Bangladesh Business should primarily focus on small and medium enterprises. It should inform readers on all aspects of different business cycles from conception, like writing business plans and feasibility studies, to at-times company liquidation. It

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BANGLADESH

BUSINESS should be geared towards aspiring entrepreneurs living at home and abroad. Many Bangladeshi expatriates want a source of information where they can learn about investment opportunities in Bangladesh. A regular feature on personal and company tax issues would be helpful. Articles on tariff, tax and legal issues written by professionals in their respective fields will be great for potential subscribers. Issues on migration due to economic reasons and environmentally sustainable businesses should be addressed. Articles on governance and business ethics are important as well. The website www.bangladeshbusiness.biz is a great site and has the potential to be a useful tool; it could include links to useful and relevant existing sites. It should be widely advertised locally and in cities abroad where many Bangladeshi migrants live. Issues affecting foreign investment and Export Processing Zones should also be addressed with focus on comparative advantages, backed by figures and analyses. Jamil Ahmed Toronto, Ontario, Canada

Teaser line Sir - As soon as I had glanced through the first issue of Bangladesh Business and read a couple of articles, my friend Fahad (a professor of Economics at University of Washington) borrowed it from me and I have not gotten it back yet. My first impression of the magazine is very favourable. I think that there is definitely a need for something like this. I enjoyed the article on Samson Chowdhury with its beginning teaser line about the security guard. I also enjoyed the 'Briefings' section as it gives a good overall picture of what is going on. Khawja Shamsuddin

Analysis versus reporting Sir - I am pleased with the effort put in the magazine and wish it great success. It definitely addresses a gap in the market. I feel that a decision needs to be made whether Bangladesh Business is an English magazine aimed at Bangladeshis or if the target market is international. Given the subject is business rather than politics/news, I think it should be the latter. The reason I stress this decision on target demographic is that some details (analysis vs. reporting, style of writing, etc.) will be impacted by the decision. Secondly, the issue of analysis vs. reporting is important. The articles need more of a slant towards "the implications for Bangladesh, and for investors wherever they may be from" angle, rather than factual reporting. Overall, I was most impressed with the production quality. I had misgivings due to my past experiences with such publications. But the magazine with its quality of paper and gloss was a pleasant surprise. The magazine has potential and I recommend reaching out to South Asian university faculties and trading desks (preferably the perspective of non-Bangladeshi professionals) at investment banks in London, New York etc. for their feedback. Information is readily available on the internet - what's missing is insight and strategic analysis; identifying what the professionals seek would be great. The best of luck with this great initiative. Udayan Chattopadhyay University of Pennsylvania

High quality magazine Sir - I received a copy of Bangladesh Business and am impressed. I know there are a few other English language magazines that focus on business in Dhaka. Nevertheless, there is a need 

Letters

BANGLADESH

BUSINESS  for additional high quality

Sir - I like the look and feel of the magazine and think it's a timely publication. It can potentially serve the business community in Bangladesh and abroad in a coordinated fashion if diversity in content is offered. Some articles are interesting, such as 'Private Sector Development in Bangladesh' by Forrest Cookson. Focusing on the domestic business community is fine, but in today's globalized world that is only a part of the puzzle. I recommend the addition of perspectives on MNCs in Bangladesh, foreign direct investment, SAARC, EU, and trade with North America. I wish you and the editorial team luck, because the survival rate of magazines like Bangladesh Business isn't very high unless a solid business plan has been put together with good financial backing.

in mind that business magazine readers are very busy. One article on a person in the issue, either on Samson Chowdhury or Shabbir Hassan would have been enough. I would like to see articles on the private sector and state-owned enterprises where you could undertake a sort of investigative journalism. The last couple of pages on 'Fundamentals' were good; which you might want to expand with a little more information. I would also like to see a Global/Asia Pacific/South Asian subcontinent business info page. The idea is people will get to know what's happening around Asia and the subcontinent. Everybody cannot afford Business Week or Fortune magazine. The 'Review Notes' section is good. You might want to review more local and global business books. How about pages on NRBs? What they are doing abroad, what they want to do in Bangladesh, and how we can pull them back like China and India has done, etc. I think NRBs are untapped gold mines for Bangladesh and your magazine could push the issue to the forefront. I would like to see some articles on key sectors in every issue, such as garments, outsourcing, leather etc. I hope this helps. Thanks for taking this venture.

Sabir Majumder, Ph.D. Fremont, CA, USA

Reza Kibria Los Angeles, USA

More on NRBs

Covering controversial issues

Sir - The overall get-up is nice and this is a good start. I like the 'Briefings' section. I would suggest adding a page with political news briefings also. You could rename the current page "Business Briefings". While I liked some of the big stories including the cover story, they were also lengthy and dragged on a bit. If you have more than two pages on a topic you might lose the reader. Keep

Sir -I was delighted to see that our book The Bangladesh Economy was reviewed by Farah M. Ahmad in the first issue of Bangladesh Business. I like the stance of the magazine regarding private sector issues. The layout and print quality is great. I liked the interview with Rauf Chowdhury. This is a good way to get bring important issues to the limelight. You could also work with faculties at

publications, given the expected growth of Bangladesh in global business. Good luck on the new enterprise. M. Quddus Dean, College of Business Prairie View, Texas, USA

Wishing you luck

www.bangladeshbusiness.biz

various business schools and publish statistical survey pieces. I encourage you to continue bringing out this magazine with more insight. Visibility may be enhanced by covering 'controversial' issues (e.g. Muhit's statement on market-based valuation of the Taka)! Syed Saad Andaleeb Penn State University USA „

Disclaimer: Letters to the editor, Bangladesh Business should be sent to 6 Gulshan Avenue, Suite D4 (B. Aristocrat), Dhaka 1212, Bangladesh. Email correspondence should be sent to [email protected], with 'Letter to the Editor' in the subject line. All letters should include the writer's name and contact information. Letters may be edited for length and clarity. „

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Briefings BANGLADESH

BUSINESS

UAE to invest further in Bangladesh

FDI

According to Dr. Hasan Mahmud, the state minister for foreign affairs, the United Arab Emirates (UAE) is eager to invest in the hotel, tourism, oil and telecommunications sectors of Bangladesh. He requested that a hospital and nursing institute be established in Chittagong, on a piece of land offered as a token of friendship to the former ruler of UAE, H.H. Sheikh Zayed bin Sultan Al Nahyan. The current UAE investment in Bangladesh totals $2.5 billion. With 7 lakh Bangladeshis sending in $1 billion worth of remittance per year, the UAE is the largest destination for migrant workers after Saudi Arabia. Upon Dr. Mahmud's request that workers' wages be paid on time, the UAE Labour Minister Mr. Saqr Ghobash Saeed Ghobash said that a bank system would be introduced by the end of the year so that employers could not arbitrarily deduct from workers' wages. NRBs should be wooed to invest more and buy premium bonds

NRB

Total remittance to Bangladesh reached $8.9 billion in 2008 as 800,000 Bangladeshis entered the international job market, but the amount is expected to decrease in the months ahead with the second ripple of the global recession. Recommendations on surviving reduction of foreign currency reserves include investments from and sale of premium bonds to non-resident Bangladeshis. Dr. Mohammed Farashuddin, former Governor of Bangladesh Bank, discussed potential instruments to attract NRBs to invest in Bangladesh, including inducements to convert the remittance into equity, leading to higher investment and production. Most remittance earnings are consumed, but if channeled constructively, it could contribute to increased output. The government offers incentive packages for Foreign Direct Investment while the central bank offers US dollar premium bonds at an interest

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rate of 6.5% for NRBs. The forecasted loss in foreign currency reserves could be counterbalanced through these instruments.

Port

Chittagong port pours cold water on shipbuilding industry

Urged by Chittagong-based conglomerates, the Chittagong Port Authority (CPA) has drafted a policy to establish shipbuilding yards upstream of the Karnaphuli River. Once approved by the Ministry of Shipping, companies can set up shipbuilding yards and slipways there. Mr. RU Ahmed, the chairman of CPA, said that the river's downstream, housing key installations like power plants and fertilizer factories, will still be offlimits. This has provoked accusations from leading shipbuilders that the growth of a fledgling industry is being deliberately stunted by prohibiting the use of the downstream, considered the best possible site for shipbuilding due to deep draught and close proximity to the port. About 10 to 12 companies willing to invest $500 million have applied for shipbuilding yards downstream. Beginning in 2007, ocean-going shipbuilding has proven successful in Bangladesh, with its leading shipyard owners, Ananda and Western Marine, bagging export orders worth $600 million. Bangladesh, with its low-wage welders, history of boat-making and network of rivers, can be a top Asian shipbuilding contender alongside South Korea, Japan, China and Vietnam.

Agriculture

Agriculture needs massive investments

Mr. Ad Spijkers, Country Chief of the Food and Agriculture Organization (FAO), discussed Bangladesh's need for high investments in agriculture and agroprocessing sectors for economic growth, and for insulation against the global economic downturn. The FAO provides technical assistance in livestock, fisheries and forestry, assisting with programmes on food policy, food safety and natural resources management. He also suggested a Netherlands model for Bangladesh to link consumers and farmers closer

BUSINESS Briefings BANGLADESH

thus increasing public welfare. Under the Insurance Authority Act, a regulatory body will be formed with a chairperson and four members with three-year tenures. The authority will register insurance businesses and renew annual registrations. It will be funded by an insurance regulatory fund, financed by the government and other sources.

PSD

together and to address the gaps in the chain of distribution. He added that input pricing should be cost-effective, while output prices should be fair. He approved of crop insurance schemes and suggested the promotion of strong farmers' organizations, resource endowment in research and extension, education, diversification of crops, introduction of adaptable crops, economical irrigation and efficient management of water, use of fallow land, and the most effective use of fertilizers to maximize agriculture potentials. He urged the government to increase public investment and encourage regulated and supported private sector investment in the agricultural sector. Regulation

Cabinet approves national ICT policy

The cabinet has approved the National Information and Communications Technology Regulations 2009, initiated in 1997, aimed at establishing an accountable and transparent government through expansion of ICT coverage. This will ensure development of human resources, making Bangladesh a leader in ICT skills in the next 30 years. The cabinet meeting, chaired by Prime Minister Sheikh Hasina, also approved the Insurance Act 2009 and the Insurance Authority Act 2009. The new insurance law will allow the expansion of insurance services to remote areas of the country, www.bangladeshbusiness.biz

Government to launch public-private budgetary window

The Finance Minister AMA Muhith said, "The government will provide seed money to foster public-private partnership (PPP) for investments in infrastructure and other sectors." The PPP model, sponsored by the government, will allow participation of both local and foreign investors. In the budget for the next fiscal year, a line item will include PPP in order to direct investments into infrastructure, human resources, education and housing sectors. Crisis

1,600 workers lose jobs as knitwear unit shuts down

Sunshine Knitwear Limited shut down its factory in Tejgaon, resulting in the dismissal of approximately 1,600 workers. The reasons for the shutdown were falling orders and low-priced offers from international buyers. General Manager SNR Towfiq stated that there have been five instances of labour trouble in the last three years, where workers physically assaulted factory officials. He further added that the factory, set up in 1996, boasted a reputation for timely payment of wages, and the disruptions perpetrated by a handful of workers were unjustified. Other units of the company remain in operation, and there are no immediate plans to reinstate the Tejgaon factory. The global crisis is having adverse effects on local firms, especially in the case of export-oriented companies such as Sunshine Knitwear Limited.

Port

More land ports to be privatized this year

The government plans to privatize three land ports this year, under Build-OperateTransfer (BOT) arrangement, for a period of 25 years to help boost cross-border trade. The land ports that will be handed over to private operators are Bhomra in Satkhira, Akhaura in Brahmanbaria and Burimari in Lalmonirhat. The Bangladesh Land Port Authority (BLPA) is conducting the groundwork to privatize the land ports. Earlier, the government decided to handover operations of 12 land ports to private operators, in phases under the BOT arrangement, to foster cross-border trade with neighbouring countries including India and Myanmar.

PSD

IFC to provide $15 million to PRAN Group for a three-year project

The International Finance Corporation (IFC) will provide $15 million to a threeyear expansion project of PRAN, a local agro-processing company. The total investment of the project is $51.2 million and will end in 2011. This loan marks IFC's first entry into the agro-processing sector in Bangladesh. It will support PRAN Group's strategic investment plan in six food categories: beverages, culinary products, confectionaries, dairy products, snacks and premium rice. Major General Amjad Khan Chowdhury (ret'd), CEO of PRAN Group, said that with IFC as a partner, PRAN will continue to seek the highest operational standards and will boost Bangladesh's entire agribusiness sector. For the financial year ending 30 June 2007, PRAN reported total sales of $66.8 million and a net profit before minority interest of $4.2 million. The corporate investment programme will support the continued growth of a leading food company in Bangladesh to expand capacity, improve operating efficiencies and tap into new domestic and export opportunities.

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Briefings BANGLADESH

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Registrar of Joint Stock

Regulation Companies and Firms to be digital in 3 months

Commerce Minister Lt-Colonel Faruk Khan (ret'd) inaugurated the automation of the Registrar of Joint Stock Companies and Firms (RJSCF), and assessed the progress of the reforms being made to simplify the registration process. He said measures to convert the files of RJSCF to a computer-based digital format will be taken within three months. He expects the automation process, to be completed in a year, to benefit the growth of businesses in the country. Using an online process, a new business entity will be able to register with the RJSCF within seven days. There is talk of introducing a desk to permit registration of joint venture and foreign companies in a day. The government will increase human resources and infrastructural facilities for RJSCF and is considering amending the Companies Act 1994 and Societies Registration Act 1860, as the two outdated acts often obstruct the growth of businesses. Under the Ministry of Commerce, the functions of RJSCF are to incorporate limited companies, societies and partnership firms under the Companies Act 1994, Societies Registration Act 1860 and Partnership Act 1932 respectively; their responsibility is to manage and uphold the relevant statutory provisions of these acts and maintain records regarding entities that fall under its jurisdiction. RJSCF is the sole authority with the power to facilitate company formation and keep records of all ownership-related issues, as prescribed by the company law. Energy

Locals, NRBs join hands to produce power in Sylhet

A private sector entrepreneur will invest over Taka 4.5 billion to produce power in the Sylhet region. Backed by investment from NRBs and The Infrastructure Development Company Limited (IDCOL), the Sylhet-based Barkatullah Electro Dynamics Ltd (BEDL) will add 51

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megawatts of electricity to the national grid by May 2009. The company has plans to add another 50 megawatts of electricity by early next year. BEDL is believed to be the first power producer to attract investment from NRBs. It is also one of 11 rental power units contracted out, by the Power Development Board, to supply electricity to the national grid. BEDL has engaged a Thai company to oversee its operation and maintenance. With an authorized capital of Taka 1 billion, BEDL will build and operate the plant over the next 15 years. Gulam Rabbani Chowdhury, Managing Director of BEDL, said, "We want to bring about a renaissance in private power generation." The new plant is expected to emerge as a major competitor to Summit and United, the leading private sector players in the power business. IDCOL, a governmentowned infrastructure lender, is the lead financier for the project, with an investment of Taka 500 million in the company. The company's investment is welcomed in light of the chronic power shortage that has plagued the nation for years. EPZ

Etasia to invest $2.50 million in CEPZ

A local company, Etasia Interlinings Limited, will set up an interlining manufacturing factory in the Comilla Export Processing Zone (CEPZ) with an investment of $2.50 million. The company will create employment opportunities for 94 Bangladeshi nationals. Prasanta Bhushan Barua, member (Investment Promotion) of Bangladesh Export Processing Zones Authority (BEPZA), and Mohammed Ismail Khan, Chairman of Etasia Interlings Limited, signed the agreement on behalf of their respective organizations at the BEPZA Complex. CEPZ, the sixth EPZ of Bangladesh, was established in the old airport area of Comilla by BEPZA for promoting economic development of the region, and is currently spread over an area of 258 acres. An extension of a further 478 acres has been proposed.

Port

Taka 300 crore logistics yard set for launch

KDS Logistics Ltd, one of the biggest inland container depots, has launched a Taka 300 crore logistics yard in Sitakunda, Chittagong. The off-dock facility is spread over 1,465,600 square-feet; designed to handle both empty and laden containers, and is estimated to store 10,000 twentyfoot equivalent units (TEU) in off-dock capacity on any given day. KDS Logistics aspires to provide an assortment of storage programmes and services to customers and a one-stop solution for storage, repair, transportation and chassis handling. Located on a 40-acre site, it's paved, fenced and lighted to Chittagong Customs specifications; it is computerized (inbound/outbound) and provides reports on daily site inventory, gate interchange and damage assessment. The company is equipped with a real-time tracking system for truck unloading and loading, container stuffing and un-stuffing and web access which allows clients to check their cargo's position. Crisis

Businesses ask for Taka 6000 crore bailout

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) sought a Taka 6000 crore rescue package to survive the global economic downturn. They suggested that, if necessary, the rescue fund could be raised through issuing bonds. FBCCI leaders also asked for better foreign relations with neighbouring countries, for Sunday to be the weekly holiday, controlling tender

BUSINESS Briefings BANGLADESH

manipulation, making Bangladesh Better Business Forum (BBBF) and Regulatory Reforms Commission (RRC) active, forming a food security council, and granting one or two years' grace period to the industries that fail to repay loans due to recession. According to Prime Minister Sheikh Hasina, the government will offer "special packages", provide various facilities and incentives to increase the flow of import and export and save the country's business sectors from the global financial crisis. Promising to take every possible measure, the prime minister asked business leaders to invest in proposed economic zones, suggesting that small power stations be set up by the industrialists at their own factories to assist in reducing the power crisis there and in adjacent localities. FDI

Trade with Japan touches $1billion mark

The latest Japan External Trade Organization (JETRO) release on bilateral trade statistics show trade between Bangladesh and Japan at $1.24 billion in 2008. Exports from Japan to Bangladesh grew by 33.9% to $800.93 million while imports from Bangladesh grew by 14.6% to $199.31 million over the course of the year. Import of used cars was the primary factor boosting Japanese exports to Bangladesh. While leather is the top product exported from Bangladesh, Japanese importers also consider Bangladesh as an import source for apparels and leather products. Some Japanese industrial groups may also consider investing directly in Bangladesh. With increased frequency of visits by Japanese importers to Bangladesh in recent months, there are higher chances of them setting up sourcing offices here. Besides apparels, the Japanese market has export potential for jute products, IT services, and food items made in Bangladesh. With JETRO's assistance, four Bangladeshi companies attended a high-profile food show and received praise for the quality of their products. JETRO is also helping an organic tea www.bangladeshbusiness.biz

producer in Bangladesh to explore export opportunities to Japan. Crisis

A dozen garment exporters lose millions as UK retailer busts

Approximately a dozen Bangladeshi RMG exporting companies encountered a total loss of about $20 million after Woolworths, a top retailer in Britain, went bankrupt due to the global economic crisis. The sudden liquidation of Woolworths especially rattled Shanin Group in Dhaka, which lost some $3 million, with most of its shipments now set to be auctioned off in an English port. Woolworths collapsed on a massive £385 million debt, leaving its suppliers' deliveries sitting in ports. Shanin Group did not receive any payment despite three months of frantic shuttling by Bangladeshi negotiators between London and Dhaka. Inter Stoss, another garments manufacturer, has lost nearly a million dollars after Woolworths went bankrupt. Afterwards, Salehuddin Ahmed, ex-governor of Bangladesh Bank, warned exporters to check the financial health of their buyers before making any shipments.

EPZ

Investment in Karnaphuli EPZ

A Hong Kong-Taiwan joint venture company, Bangladesh Pou Hung Industrial Ltd, will manufacture footwear, leather goods and related components in the Karnaphuli Export Processing Zone (KEPZ). This wholly foreign-owned company will invest $43.8 million in setting up their unit, creating employment

opportunities for 3,582 individuals, including 57 foreign nationals. Resource Foam and Accessories, a Bangladeshi company, will set up a foam, garments and shoe accessories factory in the KEPZ. This locally-owned company will invest $3.01 million in setting up their unit and will produce foam, woven labels, poly bags, tags, cartons etc. The company will create employment opportunities for 294 Bangladeshi nationals. Agreements for both these endeavours were signed between the Bangladesh Export Processing Zones Authority (BEPZA) and the respective companies at the BEPZA Complex. The KEPZ was opened in 2006, set on an area of 222.42 acres with 211 plots, with a view to employ 52,000 Bangladeshis. The zone area has been expanded, and is currently 268.32 acres, with 260 industrial plots. It's located in North Patenga and Halishar, within 6 kilometers from Chittagong port. Bangladesh Bank to introduce

Regulation automated clearing house from August 3, 2009

Attempting to facilitate business activities, Bangladesh Bank plans to modernize the payment and settlement system of chequeclearing by introducing Bangladesh Automated Clearing House (BACH) from August 3 of this year. Under the new system, payments will be settled initially using an automated cheque-clearing system and electronic fund transfer among 1050 bank branches in Dhaka. There are plans to further extend the services, in phases, to 7000 bank branches in districts by 2010. Bangladesh Bank has asked CEOs of the commercial banks to introduce the modern payment system, and to procure the necessary software and hardware for establishing links between the bank concerned and the central bank by the stated deadline. According to the central bank, banks are required to make arrangements and develop infrastructure to meet the requirements of the new system. The central bank will adopt necessary regulations and issue operating rules and procedures in this regard.

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Cover Story

2009

Can The Center Hold?

BANGLADESH

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D

uring the last election campaign in December 2008, Bangladesh's two major political parties and their allies published their respective election manifestos. Among other things, they outlined their respective economic agenda indicating critical areas of development and focus. The presentation of economic development agenda by political parties during election campaigning, a definitive first-time act, is in itself a major achievement. Soon after, predictably enough, a flurry of analyses, studies, reports, and commentaries ensued from different stakeholders and sources. Critics and assorted pundits rushed to question whether the outlined economic agenda were merely 'wish' lists, a bit of campaign razzle-dazzle, or whether they were

credible documents of objectives, figures and outputs that the parties seriously intended to live up to and achieve. The ball is now in the court of the current government, whether it is going to implement and execute much of what it so effectively presented to the people or not. The Awami League's election manifesto detailed 23 areas in which substantial changes would be brought about. From these 23 areas, five priority issues were outlined. However, they were given without a particular strategic and policy framework. How will the economic vision translate into action? Will there be some continuity from the past two years? Will there be bold initiatives that are truly new?

BANGLADESH

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Reaction to the crisis must not divert focus away from the The global financial crisis makes matters more critical than need to undertake long-awaited steps in several critical areas they otherwise would be. Export industries and remittance for economic development of the country. What is flows are the two sectors most vulnerable to the current significant is to take steps in order to avoid economic global crisis. Clearly, therefore, there is a requirement to set stagnation, bring about rising growth rates in the immediate out a plan of action that takes cognizance of the exogenous future, ensure food security, and develop a working shocks by perhaps undertaking various counter-cyclical framework between the public and private sectors. Many measures to promote domestic demand. The government, critical bottlenecks in the economy, if not removed, would true to its word, formed a Task Force to manage the seriously jeopardize future livelihood and economic economy from the impact of the global financial crisis. performance. These Researching, learning, bottlenecks are well known, monitoring the global In light of the demands for stimulus outlined in the election situation, and advising are manifesto, and are all within the scope of packages to bail out the export industries, somewhat unrelated to the services of the Task Force issues of the current global and it has been prudent actions are required in terms of crisis. There certainly would instrumental in unveiling a public spending and policy tradeoffs. be a budgetary constraint stimulus package valued at and, much as one needs to, Taka 34.24 billion. In light Why would the textile and apparel sector all issues cannot be tackled of the demands for together. stimulus packages to bail get a large subsidy package, the absence A plan of action must out the export industries, of which they have been vehemently prioritize critical issues prudent actions are clustering the required in terms of public complaining about, when it is absolutely developmental agenda, spending and policy perhaps leaving other tradeoffs. essential to bring the energy sector to important areas to be dealt Why would the textile and at a later stage, or laying apparel sector get a large order first? Also, why would the foundations for achieving subsidy package, the government underwrite, with public results in the long run. For absence of which they have the government nothing been vehemently funds, private risks taken for profit? would be more important complaining about, when it than to immediately fix the is absolutely essential to energy problem and to ensure that other infrastructural bring the energy sector to order first? Also, why would the facilities are gradually put in place. There needs to be an government underwrite, with public funds, private risks agenda for implementation of energy and infrastructural taken for profit? This may be a deviation from the development plans with a strict timeframe. And that is where manifesto's implicit code of fiscal and economic discipline, much of the effort could be spent in the coming months. risking it towards non-fulfillment, imbalance, and ultimately The urgency of the energy crisis cannot be neglected; each socio-political disappointment and failure. Perhaps the day it reaches closer to a catastrophic state, as has been current environment provides an opportunity for the textile clearly outlined in the article by Dr. Tamim in this issue of and apparel industry to reorganize in order to establish Bangladesh Business. With the passing of 100 days we have modern corporate structures with appropriate governance only seen short-term actions being taken to resolve the codes. This responsibility is long overdue as many of the five energy crisis. thousand plus textile and apparel firms are operating at low During the last months of 2008, prices of essential capacity, high percentage of product rejects, low commodities, such as rice and lentil, exhibited downward productivity, and irregular salary payments to workers, trends and currently rice is being sold at the market at equal particularly female workers. Under these circumstances, a or lower prices than what it used to be before the global cautious approach to demands for carte blanche loan shock. The corner seems to have been turned. The concern rescheduling, cash incentives and subsidized feeding of now is on low farm-gate prices impacting the cultivator's workers is required.

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income negatively enough to incur losses. Bangladesh remains a food-deficit country with 2 to 2.4 million metric ton of food grain imports each year. Some 2.5 percent of the annual budget is spent on meeting the deficit. The challenges to managing food balance and food security will remain a key concern. Prioritizing agriculture, as Mr. Muhit has stated, is needed. Though the stimulus package does indeed prioritize agriculture, the government has not clearly set out what the challenges are and to merely state increasing attention to agriculture is not the most productive of approaches. There is indeed an agricultural endowment fund allocated for Krishi Gobeshana Foundation (Agricultural Research Foundation), but to what purposes are unknown. Over the decades the private sector has started to operate significantly and in a major way in the farm and non-farm sectors, and these actors cannot be overlooked. The challenges are many with raising farm productivity. Arable land is shrinking and demands are rising for non-farm activities. Feeding a growing population and increasing income in the rural sector will require increased production and processing of high value-added crops, with increased activities in the rural nonfarm sector. In order to meet with these challenges the government has to engage the private sector. So far, we have not seen any plan of action that puts partnership with the private sector in the area of agriculture. An issue not in dispute is the scarcity of land. Only three

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percent of agricultural cropped land is not utilized and demand for land from other users are increasingly threatening existing cropped area. Decisions have to be made quickly. Should land for agricultural use remain as it is, shrink, or expand? Should more and more land be put to use for industrial and service sectors? Proper land management is absent and land utilization is inefficient and wasteful. Unless significantly higher priority is given to immediately resolving both the physical and organizational aspects of land management and use, getting higher levels of both foreign and domestic investment in this sector in the future will remain a fantasy. The government has not recognized the critical need for land zoning, allocation, and planning. Indisputably energy, infrastructure, agricultural reform, and land management are key areas where, if foundations for change and development are not laid, future economic growth could very well be jeopardized. So far, and after 100 days, we have neither seen an agenda developed for land management nor purposeful continuity of steps taken by the Regulatory Reform Commission established under the previous Caretaker Government. The Federation of Bangladesh Chambers of Commerce and Industry, as the predominant voice of the private sector, has separately set out an extensive economic policy agenda laying out to the government what they consider to be the most critical areas of focus. The agenda covers numerous

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and public sectors could establish such a partnership. As recommendations in all conceivable areas of economic such, it is somewhat disappointing that the government so development from which 18 specific recommendations are far has not even raised the need for put forth as an 'economic roadmap to deliver 8% continuation of the Bangladesh Better inclusive growth'. Several of the Business Forum, where a platform recommendations correspond to the for dialogue between the public economic agenda set out by the Awami and private sectors existed League in its manifesto. The over the last year. significantly common element in The commitments both these policy visions is the presented in the lack of prioritization, an absence economic agenda of the of focus on the most critical manifesto are expressed bottlenecks to the long-term in vague and rhetorical economic growth and ensuring terms. This raises attention to achieving results in questions. How would those areas. we hold the government So, what are the key, primary accountable for the issues that must be addressed deliverables promised to the first? Which actions are to be taken people in the agenda? A immediately, and which are to be system for monitoring and addressed in the medium-to-long-term? evaluation is needed in order to In the context of systemic limitations in ensure promises are kept within a set terms of funds, a skilled labor force, timeframe. But before one can monitor and institutional capacity building, political will, and evaluate, a well-defined, targeted plan of action is necessary. management abilities, long-listed agenda without This plan of action, put together within a framework of prioritization amount to virtually meaningless set of dialogue between the public demands. Given these and private sectors, clearly limitations, attempting to do The commitments presented in the setting out the responsibilities everything at once means a economic agenda of the manifesto of each stakeholder, could dilution of efforts and then provide performance resources that end up are expressed in vague and rhetorical indicators which could be achieving practically nothing in objectively monitored. As a terms of our critical national terms. This raises questions. How result, both the public and needs. The private sector's would we hold the government private sectors could be held vibrancy, growth, adaptability, accountable for the results. inherent capacity for initiative accountable for the deliverables It is only through such a and timely decision-making indicator-based makes it imperative for the promised to the people in the agenda? rational framework that the plan of government to actively engage A system for monitoring and action could be transformed with it in a partnership for into a reality. Even after the meeting the manifold evaluation is needed in order to ensure passing of 100 days, it is not challenges of economic late to begin work on development. How will this promises are kept within a set prioritizing a few critical areas, partnership be formed and to perhaps those suggested what end? There are growing timeframe. above, in order to set out steps skill sets, management, and to immediately address short-term challenges, and prepare capital funds in the domain of the private sector and the for long-term commitments and implementation. Otherwise, government would do well to exploit these resources. A plan as time progresses, the achievements of the economic of action to take the declared economic agenda forward agenda will merely wind up being predictably empty within a strict time frame, in terms of short and medium promises, and garner strong critiques. „ ranges, defining the responsibilities and roles of the private www.bangladeshbusiness.biz

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Textile and Apparel Industry:

The Emperor Needs New Clothes T he recent flurry of analyses, studies and reports, especially in the business pages of our national dailies, on the impact of the global financial crisis on the economy of Bangladesh has given rise to confusion and worry in the public mind. It is due to the fact that often reports and associated commentaries tend to conflict and be at odds with each other. Frequently, within the same 24-hour news cycle, one day exports are buoyant while the very next day they are said to be severely affected by the global economic downturn; reports appear that remittances are not affected, to be negated the very next day by a different set of reports that overseas jobs are shrinking and workers are returning home empty-handed. One newspaper will quote from studies demonstrating that poor countries will be the ones affected most during the recession while another paper equably argues that the 'marginal' economies are insulated from the worst effects of the global turndown. Obviously, we are trapped in some sort of speculation overload here. To a certain extent, it is understandable. Even in the best of times, hard data on critical issues is very difficult to come by in Bangladesh, and even when one

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does, it can be suspect - leading predictably to a situation that seduces writers, analysts and 'thinkers' into converting perceptions and intuitions to 'hard' analyses and reports. But at what cost? To take one example, whatever may be the eventual impact and reality in the coming months and years of our textile and apparel sector, here and now from March of 2009 onwards, with that sector having not being included in the government's STIMULUS PACKAGE, their leaders have lobbied (to use a gentler term than 'browbeating') strongly for inclusion in the bailout program. With just about every country nowadays resorting to stimulus packages, why not us, they say. And when 76% of the export revenue is coming from the textile and apparel business, who should have been leading the list of sectors to be in the package but them? Over the last three decades, the textile and apparel sector has admittedly been the only manufacturing export industry that has emerged to provide the bulk of the export revenue, employment, fashion a 'brand' name, and provide some distant hope that other sectors of the economy could follow a similar growth trail. In terms of the above factors

the sector has been the driving force of the economy. However, there are other factors to be considered. There are over 5,000 manufacturing units operating in this sector employing over 2 to 3 million people. Nobody knows the exact number. From the 5,000 established units only a handful have a discernable corporate structure, and established themselves as leaders in terms of production processes, productivity, compliance issues and quality control. But these comparative few do not define the norm; they are light years ahead from the rest of the herd. Within much of the sector, small and medium-sized firms operate with low productivity, a high share of product rejects (around 30 percent), substantial underutilization of capacity, with infrequent, if at all, salary payments to employees (moreover, being routinely in violation of gender equality laws and codes by preferring male workers over female workers in terms of salaries and benefits), tolerate and even foster a factory culture where mastaans and hoodlums determine work processes and organization, all of which are antithetical to modern corporate practices. There are innumerable thousands of these small units operating in the industry, living off a labour force forced to live in squalid conditions - a labour force that is otherwise the driving force in a labour-intensive sector that claims to be the driving force of the economy. The majority of the employees engaged in the apparel and textile sector are workers who have migrated from rural areas, providing the sector with a constant flow of cheap labour. It is a sector where such a supply of cheap labour is possible also due to www.bangladeshbusiness.biz

the lack of legal, governmental and political oversights. The labour is so cheap (a euphemism for 'ill-paid') that now with the global financial crisis deepening, the government even agreed to provide food subsidies for the garment workers workers employed in the industry that drives the national economy and yet who cannot afford to buy food. How tragic! When the market prices for rice is Taka 21/kg, rationing is provided at Taka 18/kg to 300,000 workers with valid ID cards. There is no doubt that there is a crisis - in what shape and with what eventual impact no one can clearly foresee since we do not have comprehensive firm and industry data. But one can, and perhaps one should, look at this crisis as an opportunity for the apparel and textile industry to truly become the engine of economic growth and facilitator of a better social order. In order to do that, the industry must reorganize and restructure itself along modern lines, with firms operating at good margins, with consequent negotiating power with buyers, make higher and regular salary payments with regularized employment contracts, increasing productivity, with superior machinery park as well as the requisite qualified machine operators/line inspectors/production workers. Unless the textile and apparel industry reforms its internal structure, system, and operations, stimulus packages and subsidies would only act as an enabler, helping to sustain the prevailing environment, with a huge portion of the cost being borne by the poorer section of our society by continuing to provide a constant supply of informal and cheap labour to the industry.„

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Column

Fallacies Forrest Cookson

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n the midst of the global financial and economic crisis it is popular to call for more regulation of the private sector. Such deep suspicion of the private sector flourishes in times of economic distress and bursts out in arguments for increased and more intrusive regulation. We investigate some of the fallacies currently existing in Bangladesh. Are subsidies beneficial? The first regulatory fallacy is the widespread use of subsidies. Democratic nations love subsidies, particularly if the party in power can direct the benefits to their political supporters. In Bangladesh there are many subsidies, all of which are stunting rather than helping achievement of economic growth. There seems to be far more interest in increasing subsidies than taking actions to accelerate economic growth. Someone pays for every subsidy. So who pays in Bangladesh? Of course, it differs from one subsidy to another. Electricity, for example, is subsidized. This is a transfer to the rich from the poor, leading to an overuse of electricity; spreading access to electricity without having people pay for what they use becomes more and more expensive and is one of the main reasons that there is so little progress in the development of the power sector. But there are other costs: two important ones are poor quality electricity (variable voltage and frequency fluctuations that are often very destructive to advanced equipment) and poor service manifesting through frequent power outages. There is also the hidden subsidy to those stealing electricity or manipulating meters. The failure to insist on good quality power meters makes it possible for meter readers to fix meters to modify the record, for a fee paid to them by the purchaser of the electricity used by consumers or plants. The exposures during the tenure of the caretaker government of the extent of this leading to the remarkable acquisition of wealth by the persons concerned showed how extensive this phenomenon has become. The hidden subsidy - non payment and stealing - combined with the www.bangladeshbusiness.biz

official subsidy wreck the electricity system. The continuing subsidy - all in the name of doing good - is the single most important factor in the total failure and breakdown of the supply of electricity to the society. The society pays in less electricity, poor quality electricity, lack of industrial development and, for most Bangladeshi households- no electricity at all. The gas sector is a second example. The subsidy means that the gas sector cannot recover its costs leading to low investment, lack of funds for exploration and poor maintenance. The subsidy encourages households to use gas excessively and waste. There is a similar hidden subsidy emerging from stealing gas and tinkering with meters by bribing the meter readers. The cost of the subsidy to Bangladesh is now clear. Unable to earn enough money to invest in the system the nation is completely dependent on foreign donors who, for better or worse, have their own ideas; but the final result is massive underinvestment in the system. We all cry out - "where is the gas"; the answer is, by insisting on subsidies, the companies that manage the gas are undermined financially and not able to do their job. You get what you pay for. With both electricity and gas, the regulatory authorities are protecting the people - or so they think - by trying to limit charges. The regulators have two tasks - to insure that the accounts of the power and gas companies are correct and recognizes all of the costs and to insure that the utility rates are such that all the costs are covered. It is not their task to decide what is fair. The regulators have far exceeded their responsibilities. A third example is urea: Who pays for the subsidy? First, one should note that the low cost of urea encourages farmers to overuse it. It also encourages the use of the chemical in sectors outside agriculture where the government does not intend to provide subsidy; but in the operation of the system they inadvertently do so. This may include subsidies to Indian users. Subsidy encourages such overuse of urea that it discourages the use of technology

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that achieves the same agronomic results at lower applications of the chemical. Rather than seek urea saving technologies, the government has consistently done the opposite. Once again the subsidy results in the fertilizer factories not earning enough to make investments and maintain factories resulting in low efficiency in converting gas to urea, wasting the gas. Finally the low price of urea leads to under application of other soil nutrients resulting in low crop yields. The subsidy of urea costs the society a great deal in wasted gas and encouragement of wrong agricultural technologies.

enormously. In this expansion the use of VoIP services grew. This service is tremendously beneficial to ordinary people in Bangladesh who have relatives working abroad. The regulatory authorities cut this off to establish a newer regulated version that has met with only modest success. Instead of making it easier to use VoIP they are doing the opposite; instead of making it cheap, they are making it expensive. This is a consequence of regulations for the wrong objective. The welfare of the people seems to be the furthest thing from the minds of the regulators. A better way to proceed is to make it more competitive, not less.

Regulation with the wrong objective Another frequent fallacy is to regulate with the wrong objective. One of the best examples is the telecommunications sector. Since 1971 the objective of the telecommunications regulation has been to maximize government revenue. Before the establishment of private mobile phone networks, the government owned most of the telephone networks, with the connection fees priced monopolistically to maximize profits. Only the rich need telephones, it was argued, so it is appropriate to keep it expensive. The importance of telecommunications for businesses did not seem to occur to the authorities. For some years, with the emergence of the cellular phone networks, the telecommunications market has expanded rapidly and services to the Bangladeshi people has grown

Conclusions The irony of these situations is that one set of regulatory authorities are hurting the people while trying to help them; the other set is trying to limit economic activity in the name of good order and high revenues for the government. Both their rules fail to encourage private sector investment and innovation. The bias in both cases has mostly been to restrict investment by government or large companies and to discourage SME and Bangladeshi investors and innovators. Subsidies and over regulation are fallacies that discourage investment, encourage waste, and harm the general public.„

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Forrest Cookson is an ex-president of American Chamber of Commerce, Bangladesh.

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The Pulse of the Economy

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December 2008, the general mood of the country has ow does one read the pulse of our economy? The improved, although a majority of general people, opinion tradition is to use broad macroeconomic indicators leaders and businesses still feel that the country is heading like GDP per capita, growth rate, volume of investment, in the wrong direction. In December, 61% of general foreign currency reserves, trade etc. But this may not be population and 57% of the enough. One should also try to opinion leaders believed that understand how the economic Economic concerns, particularly, the country was heading in the agents themselves view the high prices, unemployment and wrong direction. Although economy, as their perceptions corruption, drive this overall these percentages have are just as important as hard declined since September, by macroeconomic data. Indeed, negative mood in the country. 75% 17% and 24% respectively, the in many instances, the former of the general population, 71% of overall perception remains could very well explain the grim. Similarly, 67% of trends of the latter. the opinion leaders, 83% of the businesses feel the country is Recent surveys of a nationally businesses, and 58% of the public headed in the wrong direction, representative sample of which represents a decrease of general people, opinion leaders, officials believe high prices of 14% since September. These businesses, and public officials, essentials to be the top national decreases may be due to conducted by the International increased optimism about the Finance Corporation's concern. It is therefore future, in light of the thenBangladesh Investment encouraging that high prices have impending national elections. Climate Fund during Among public officials, in September-December, 2008, been one of the top priorities of contrast, perceptions are more sheds some light on the pulse the new government. mixed: 41% believe that the of the economy based on the country is heading in the right perceptions of these economic direction, and 38% believe the opposite. agents. These perceptions demonstrate the economic Economic concerns, particularly, high prices, challenges to be faced by the newly elected government. unemployment and corruption, drive this overall negative Survey results indicate that, between September and

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BUSINESS purchasing power. This in turn translates into low demand. mood in the country. 75% of the general population, 71% In fact, lack of demand was identified as one of the key of the opinion leaders, 83% of the businesses, and 58% of reasons for lack of investment. 71% of the businesses that the public officials believe high prices of essentials to be the view the current economic situation as unfavorable believe top national concern. It is therefore encouraging that high that high prices is the top reason for an unfavorable prices have been one of the top priorities of the new business environment. government. It remains to be seen, however, whether these In addition, access to start-up capital, access to loan, own initiatives have an impact on people's perceptions in the fear of failure, and learning how to do business appears as future. some of the biggest challenges to businesses, particularly Unemployment and corruption are the second and third among women-owned or operated businesses. While 34% main concerns of the population, although they are way of all businesses view capital scarcity as the biggest behind - 27% of the general population, 29% of the constraint, the corresponding figure for women-owned opinion leaders, 27% of the businesses, and 24% of the businesses is 62%. public officials view Similarly, 67% of womenunemployment as one of The new government faces an owned businesses rate the top two national "own fear of failure" as concerns. Similarly, 24% environment where consumer and their biggest challenge, of the general population, compared to the 35% of the public business confidence is low but improving. corresponding figure of officials, 32% of the 46% for all businesses. All businesses, and 40% of To tackle the general pessimism regarding these reflect the relatively the public officials view the country's future direction, it is disadvantaged position of corruption as one of the women entrepreneurs in key concerns. necessary for the new government to the society. Indeed, the The overall negative biggest challenge to mood of the country tackle burning issues like high prices of running a business that transcends to the was identified by women business environment as essentials, unemployment, facilitating entrepreneurs was well. 77% of businesses discrimination between believe that the overall women entrepreneurship and improving males and females. economic situation in access to finance for businesses urgently. Women entrepreneurs, Bangladesh is unfavorable however, fare better than towards their business, They must also create an environment their male counterpart as whereas 68% believe that far as learning how to do the situation of their that is conducive to investment and business is concerned. business is worse While 41% of all compared to a year ago. business growth. businesses view it as one The negative perceptions of the biggest constraints, of the economy among this is true for only 27% of women entrepreneurs. This in businesses are best reflected in the investment scenario turn implies the huge potential for women as successful between 2007 and 2008. In the third quarter of 2007, 62% entrepreneurs with proper support from family and society. of businesses made investments, whereas during the same Access to loans is a well-known constraint in Bangladesh, period in 2008, the exact same percentage chose not to and some recent initiatives have been taken targeting invest in their businesses. development of the SME banking sector. However, it How do we explain this complete reversal in investment appears that, for both SMEs and large firms, this constraint trends? One might think that high prices should lead to is equally predominant. 61% of the SMEs and 63% of the higher profits for the businesses. However, it appears that large firms find it difficult to get a loan. the multiplier effect of the high price phenomenon hurt the Consultations with stakeholders suggest that most bank businesses in general. And this is due to the simple law of loans and SME loans go to traders instead of demand. An increase in prices reduces the real income of manufacturers. While 63% of trade and 59% of service the consumers and thus negatively affects their overall

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sector businesses find it is easy to get a loan, 64% of manufacturing firms find it difficult. This may have negative long-run consequences in terms of the country's industrial development. In this backdrop of current economic and business environment, a strong voice for business reforms seems to resonate among all stakeholders, despite the fact that a significant fraction of them - 67% of the general people, 40% of the opinion leaders, 51% of the businesses, and 44% of public officials - have heard about or seen little or no business reforms at all. Nonetheless, among those who have seen or heard about business reforms, most of them 89% of general people, 86% of opinion leaders, 75% of businesses, and 74% of public officials - expressed the necessity for business reforms in Bangladesh. Irrespective of whether or not one has heard about business reforms, 88% of the general people, 90% of the opinion leaders, and 74% of the public officials believe that business reforms are likely to have a significant impact on their lives. Similarly, 72% of the businesses believe that business reforms are likely to have a significant impact on their businesses.

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Why is there such an overwhelming demand for business reforms? Consultations with stakeholders suggest that they believe business reforms can result in better and more jobs, as well as more competition and thus reduced prices. As we have seen, a reduction in prices can benefit both producers and consumers, due to the increase in purchasing power. What do all these perceptions mean for the country? The new government faces an environment where consumer and business confidence is low but improving. To tackle the general pessimism regarding the country's future direction, it is necessary for the new government to tackle burning issues like high prices of essentials, unemployment, facilitating women entrepreneurship and improving access to finance for businesses urgently. They must also create an environment that is conducive to investment and business growth. Such measures are critical to restoring business confidence in light of the transition to a political government and the financial crisis that has been wreaking havoc across the globe. Future surveys will reveal whether the new government has been responsive to the demands of the people, and whether they have had a positive impact on the perceptions of its citizens.„

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Whither Renewable Energy? Dr. Saiful Haque

Photo: Creative Communication Limited

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poverty reduction and environmental protection should angladesh is facing an enormous shortage of necessarily enter into any calculation of an energy-based conventional primary energy. Primary energy exists in development framework of Bangladesh. many forms such as chemical, oil, gas, coal, nuclear, solar, Primary renewable energy like sunshine and bioenergy is thermal, hydro, and wind. Humans extract energy from abundantly available all over nature in the raw form known as Bangladesh, decentralized and 'primary' energy, then process and The PV system's ability environment-friendly. Although they are transform it to 'intermediate' and finally to produce electricity also not free from conversion usable energy forms like electricity and heat. The conventional primary sources proximate to, or at the constraints, they can be used to generate small and medium amounts of power in of energy like oil, gas, and coal have point of consumption most locations within a very short conversion limitations and are used to generate electricity from centralized means minimum system amount of time. A centralized power plant using conventional primary energy plants. Furthermore, it is difficult and losses, thereby needs three to five years to start uneconomical to use such primary promoting energy production. A nuclear power plant sources for rural electrification of takes eight to ten years to start trial Bangladesh. The environmental efficiency. production. Bangladesh's climate is dimension of energy is a key issue of quite suitable for production of power energy planning. The option of and heat from Solar Photovoltaic (PV) cells, since its alternative energy resources like renewable and nuclear primary source is sunshine. Bioenergy and biogas are also energy which emit low greenhouse gases (GHGs) is suitable for Bangladesh due to easy availability of raw important. A strategic action plan of sustainable energy for

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materials and the relatively simple technology. Usually, solar PV technology is used as a stand-alone system for providing electricity to areas where the electricity grid network is absent. In rural areas of Bangladesh, about three hundred thousand households are already connected to PV power systems. These systems can power two lights and a black-and-white television and recharge mobile phone batteries. The costs of installation vary from taka twentyfive thousand to taka forty-five thousand depending on options chosen. The initial installation cost is high, but the tradeoff is the large saving afforded the economy's power grid since each household with a PV solar home system (SHS) is actually the owner of an individual PV power plant. This 'power plant' supplies uninterrupted fuel-free

connection, a model 1.1kW solar PV system was installed at the rooftop of the Renewable Energy Research Centre (RERC) of Dhaka University on April 2008. The model ran successfully. More such systems should be installed on rooftops at different city locations to study the suitability of this system. If pilot models are found to be suitable, a gridconnected photovoltaic system could be installed on all commercial buildings of Dhaka. According to the model, only forty building rooftops would be required to generate 1MW electricity using the solar PV system. If there are two hundred thousand buildings in Dhaka city, then all the rooftops connected to a PV grid could generate about 3000 MW electricity! This power could be fed to the national power grid every day during

Photo: Creative Communication Limited

electricity for 25 years with negligible maintenance costs (battery replacement costs come by every three years). At the current growth rate of SHSs, it is expected that power generated by photovoltaic cells will exceed 300 MW within the next couple of years. Diversification and use of PV installations in solar irrigation, solar mini-grid for rural street lighting, village marketplaces, and urban energy consumption could see a radical growth. Globally, grids connected to solar PV, popular due to negligible greenhouse gas emissions, are surpassing the number of the stand-alone PV systems by more than double. To study the suitability of such a grid

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daytime. To popularize this system, the government must come up with an affordable pricing strategy for PVgenerated power from rooftops. In the case of larger power plants the average cost of PV installation would be less. A distributed PV system of smaller capacity provides the opportunity to integrate photovoltaic cells into the very architecture of buildings. Thus, the technology is a dual-purpose one, both as a building element and electricity source, something which in the trade is known as Building Integrated Photovoltaic (BIPV). Although BIPV is still expensive, its costs are gradually decreasing. The BIPV system's merits are that it

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Bangladesh Scorecard

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relies solely on sunshine to generate power; no other fuel source is required. Its operation is noise free, there are no harmful emissions and it requires minimum maintenance. The PV system's ability to produce electricity proximate to, or at the point of consumption means minimum system losses, thereby promoting energy efficiency. This particular power system could be a major small-scale power source for households and businesses in Bangladesh. The prospect of bioenergy, especially biogas, is very bright in Bangladesh. Biogas plants convert litter into gas for thermal use such as cooking and heating. This gas is also used in gas generators to produce electricity. Its by-product, organic fertilizers, (or bio-slurry, to use techie lingo!) are produced both in liquid and dried form. Biogas technology is locally developed and available to users through the government's BCSIR and IDCOL, Grameen Shakti, BRAC, and German Technical Cooperation (GTZ, KFW, etc). There are about thirty thousand biogas plants installed all over Bangladesh, mostly in the rural areas. Almost ninety percent of them are operational at present. A small percentage of installations are inoperative because of faulty designs by unqualified professionals or lack of

diligence on the owner's part in terms of maintenance. The rule of thumb for power generation using biogas technology is that 1 kW requires approximately one thousand poultry bird's feces (one Watt per chicken). In Bangladesh, there are about a hundred and fifty thousand poultry firms, with at least ten percent of them with more than five thousand birds each. So right there, clucking away unawares, we have the potential for 50 MW of off-grid power generation! Taking all city wastes, kitchen waste, rice husk, and poultry wastes into account, there is a potential for generating 1000 MW electricity from bioenergy sources in the country, keeping its use as cooking fuel intact. A medium-sized biogas plant setup is cheap, costing around Taka twenty thousand only and can be made with local materials. Power generation using solar PV and biogas can be explored as immediate or medium-term solutions. For planning a long-term solution to Bangladesh's energy crisis, the following renewable energy technology (RET) options should be explored: biogas, solar, hybrid system, wind, hydro, human paddle charging, electric hybrid threewheelers, solar vehicles, and co-generation. There is also a need to learn and adopt Energy Conservation (EC) and

Rahimafrooz: Will the Sun Do?

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ahimafrooz Renewable Energy (RRE) Ltd. is a subsidiary of Rahimafrooz group. Starting as a small trading company in 1954, Rahimafrooz is now one of the largest and most successful private sector business groups in Bangladesh. Since 2006, RRE is providing solar power solutions for residences, for irrigation in the agricultural sector, clinics, schools and village marketplaces. The increasing use of off-grid solar energy is rooted in the fact

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that grid electricity covers only 35% of Bangladesh, and supplies only 70% of the total electricity demand. 85% of the power plants in our country generate electricity by burning natural gas, 6% by coal, 4% by hydro power and 4% by oil. Such fossil-fuel-fed electricity generation is fraught with environmental pollution. The search for viable, alternative sources of energy for a resource-poor but energyhungry, developing country like Bangladesh is now a necessity, and one of the leaders in this emerging field is undoubtedly Rahimafrooz Renewable Energy Ltd. RRE has been growing at nearly 50% annually since its inception, with a yearly turnover of more than Taka 50 crore. It provides solar power solutions such as solar home lighting system, solar hot water system, solar refrigerators and solar street lights. RRE's mainstream project is the solar home lighting system, a product subsidized by The Infrastructure Development Company Ltd. (IDCOL). The company has already installed more than 60,000 solar units under the program, which generates 300MWp electricity. It is estimated that this project alone saves the earth from 13,064 tons of carbon dioxide emissions per year.

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Energy Efficiency (EE) mechanisms - the two are known as 'third fuel' or 'Negawatt'- to stop wastage. By conserving power through energy-efficient devices, fifteen percent or more electricity can be saved and therefore virtually generated! It is very important that those who are active in the field of promoting renewable energy should themselves practice its use on a smaller scale. Instead of lamenting power shortages and sitting in the dark, we should take matters in our own hands. Each one of us has a role to play. Education and research institutes should engage themselves in energyrelated research based on local demand and materials so that innovations, and innovative ways of thinking, can take place within existing technology frameworks. Large investment funds are required from financial institutions for research, technology transfer, development of skilled renewable-energy professionals, correct dissemination of simple and inexpensive technology and purchase of RET products for household and commercial applications. The government should come forward with incentive packages, adequate funding, enabling laws, and distribution of funds for building Clean Development

Mechanisms (CDMs). Awareness building regarding carbon trading and climate change issues have to be undertaken at a national level to scale up the use of renewable energy. Consumers should be geared towards utilizing renewable energy wherever possible. Renewable-energy traders should offer the best quality products at affordable prices and provide dependable after-sales services. They should try to develop RET locally to minimize dependence on dwindling conventional sources of energy, and enhance energy security. The obvious, visible impact of energy security will be in the growth of industry. We have reached the tipping point and must switch from a fossil-fuel-based economy to a solarenergy-based economy in order to both protect our increasingly endangered planet and forge ahead economically.„ Dr. Saiful Haque is Professor, RET, University of Dhaka, and Member, National Committee of Renewable Energy.

Table: Specifications of Solar Home Systems (SHSs) available in the market*

*Source: Market Survey (April 2009)

Some key installations of RRE: „

2007: Solar system on a moving boat, BBC World Service, 1.2 KWp

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2007: Telecom solution for Grameenphone at Paharpur, Habiganj, 8.25KWp

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2006: Bangladesh Power Development Board (BPDB) at Borkol, Rangamati, 10 KWp

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2005: Solar submersible water pump solution at Barinda

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2005: Solar centralized solution at Chakaria, Cox's Bazar, 5 KWp

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Solar-powered hot water system for Aloha Hospital at Naogaon, 1.95 KWp

RRE envisions the first ever grid-connected photovoltaic solution which would feed into the national grid directly to ensure smooth supply of electricity. This will reduce the demand-supply gap of electricity in Bangladesh and reduce pollution. RRE is working towards new and innovative solar solutions such as a 'Solar Pump' for drinking water and irrigation purposes, solar-powered billboards, solar security lights and solar traffic signal lights. In 2006, Rahimafrooz Batteries Ltd. won the "Ashden Award" for its promotion of sustainable green energy and alleviation of Bangladesh's energy crisis.„

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"The truth is, we are back to square one"

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ossain Khaled is a young businessman who is also the ex-president of Dhaka Chamber of Commerce and Industry (DCCI) and co-chair of the Infrastructure Working Group of the Bangladesh Better Business Forum (BBBF), the first public-private forum in Bangladesh. In an interview with Bangladesh Business, he speaks about his experiences as a member of BBBF, its potential, challenges and the need for continuation. How did you enjoy your time working at DCCI? It was definitely a new challenge and experience, especially being the youngest president and being able to run the chamber of the upper most echelon in Bangladesh. I feel, in my capacity as the president, I was able to set an example for the next generation and reiterate the fact that we are the backbone of the country. With the 50th anniversary event of DCCI and especially the success of its International Business Conference, I feel that I ended my term on a memorable note. What in your mind was the most significant achievement for DCCI during the three-day long event? First of all, we were able to set the example that an international conference of such scale can take place in Bangladesh. We were successfully able to coordinate the logistics, and at the same time bring together prominent businessmen, economists and academics from more than 30 countries. We were lucky to receive immense support from organizations such as yours (BMB Mott MacDonald) and others, as well as the government. To answer your question, I think we were able to set out a vision for Bangladesh, build awareness, and set out a track for diplomacy. In a sense,

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through this conference we presented a vision for business in Bangladesh and made recommendations. I think, five months down the line, our predictions have been proven true - unfortunately the government did not reach out to us then and have not done so yet.

How was the Regulatory Reform Commission (RRC) related to the implementation process? There was a great degree of confusion concerning this. In reality, the RRC was separate from BBBF. However, there were several instances when we would forward approved recommendations to relevant entities, and we would be told it is RRC's work and at other times, it would be the other way round. It was a confusing issue altogether. However, a number of recommendations were indeed sent to RRC for implementation and follow-up.

You represented DCCI in BBBF as a member of the Infrastructure Working Group. What is your view of BBBF? I am glad that a public-private forum was formed in Bangladesh. A number of organizations, chambers, Were any of the recommendations implemented? academics, and think tanks were able to come together on Not that I know of. the same platform to share their views. Over the past decades, all these groups have had differing views at times, Were you happy with the composition of the BBBF? and the forum actually Do you think the private opened the floor for sector was weakly constructive discussion represented? BBBF was the dawn of a among us, leading to very I think the composition was new forum for us to work significant recommendations. good. There are differences of opinion concerning the Personally and professionally, together. If it continues, it composition. I agree that there I feel that the forum was able will become more precise in should have been more to address several issues terms of its operation and representation of private within quite a short period of entities in this forum. But, for a time and that it should not be effective in terms of impact. start, I felt that it was all right. time-barred. It should It should be noted that there definitely continue and be were individuals who were not chaired by the head of the representing any specific organization or body. I am not state or prime minister. questioning their intellect in any way, but at the same time I Could you explain the workings of BBBF to us? feel that this forum should have been more organizationally The forum was composed of five working groups focused representative. In some special cases individual on broad thematic areas, namely Business Finance, representation made sense, such as in the case of ManzoorInfrastructure, Business Entry and Operations, E-Elahi who is a former adviser and a legendary Macroeconomic Policy, and Skills Development. The businessman. Regardless of success, had I not been the members of this forum were drawn from business President of DCCI representing the chamber, my presence communities, the public sector, chambers, academics, and would be questionable. I would then be representing myself others. In meetings, chaired by the caretaker government, and expressing my individual views and not a trade body's. the problems would be discussed and recommendations What would have been, according to you, an adequate would be tabled by each group. The recommendations composition? were filed in the form of reports and placed to the chief I would say more trade bodies and representation from adviser. The CG office would review this and the status organizations or groups rather than individuals. would be distributed. If a decision was made there was no point in going over it any further. The approved BBBF's chairperson mentioned that he would not let recommendations would be sent to relevant ministries. The BBBF become a talking shop. Do you think his words implementation process was to be carried out by these came true? ministries or organizations in, say, three months. What The chief adviser would often open the floor for discussion didn't happen was the follow-up. At a stage of severe and there would be diversions from the core topic. Time is economic crisis, it would have been the right time to work money and we used to go there to present our recommendations in a systematic way, which didn't happen. on those five issues. With the prime minister and finance Often, until or unless there were questions, the discussions minister in place, now is the right time to set out would go on. appropriate reforms. www.bangladeshbusiness.biz

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The procedure for this forum should have been that two to three working groups would come and present their recommendations in the meetings and discuss views, following which a report would be submitted for making decisions. That did not happen. Often the presentations would be too long or discussions would divert and go on. We needed appropriate time allocation and a professional approach to these meetings. One can summarize or highlight the important issues, instead of going over countless recommendations in a haphazard manner.

the total recommended and approved reforms dealt with infrastructure issues. Would you like to comment on this? I guess we were more aggressive! It was also because infrastructure is such a wide topic. We had divided it into five sections, namely ICT, power and energy, roads and highways, ports and tourism. This allowed us to make very specific recommendations.

the reform issues handled by the Infrastructure Working Group dealt with ICT. Why wasn't the focus on the Could you tell us some of Often the presentations more pressing need of what the significant would be too long or we call 'physical achievements of BBBF? discussions would divert and infrastructure' such as BBBF was a success story for power, roads, and port all of us. All the go on. We needed facilities? recommendations put appropriate time allocation The first sets of forward, I felt, were quite recommendations were of pertinent. Many may say it was and a professional approach ICT, since we decided to give just a talking shop, but the to BBBF meetings. ICT infrastructure the first truth is that BBBF was the and foremost priority. In case dawn of a new forum for us to of power, there is just one work together. If its continuity major recommendation: we need power, we need new is ensured, it will become more precise in terms of its energy sources, and it's about time we paid some attention operation and effective in terms of impact. I speak on to it. There were a number of issues that were addressed in behalf of everyone when I say this. other components of infrastructure as well. For the past year, we were working on both micro and macro levels and we have done the groundwork. We can Do you think establishment of economic now work on a policy level. For example, we could set a zones/industrial parks are critical for our future goal of bringing down processing of company registration economic development, attracting foreign to no more than three days. We could also objectify investments, and simply for zoning land for simplification of the procedure and move unnecessary industrial/manufacturing operations? forms out of the equation. What is extremely important is There is a proven track record in every country that it is that we must have an appropriate feedback or follow-up critical. In fact, we had recommendations that supported procedure. Within the forum, we would not have followzoning. But, what I do not agree with are the differences ups in next meetings. This should be taken into account made between companies in the zone, and those outside. upon continuation of the forum. We are already providing a number of facilities - tax I feel that one of the major issues was the absence of holidays, for example. Why can't a 100% export-oriented ownership. We did not have a secretariat in place. firm outside the zone get the same facilities? This particular issue was raised by DCCI and several recommendations BBBF was the first time where the private and public were also made for the ports. sector came together in such important dialogue. Do you think it was adequately promoted and the general Why do you think charging lower interest rate public was aware of it? compared to market rate can develop our SME sector? In the initial period, there was much confusion concerning Is finance the only issue for SME development? the workings of BBBF and its exact goals. I feel, at least the One of the major obstacles is the access to finance, and major stakeholders, including the business community, were also the cost of finance. SMEs must put forward collateral aware of this initiative very well. to take loans and this adds to the challenges SMEs face. The irony is that we charge corporate establishments a From the statistics we have, it seems that over 56% of

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much lower interest rate than we charge SMEs. Finance, however, is not the only issue. But it is related in the sense that with better finance, you can actually ensure productivity.

you need to go through a forum? It is simply because of that general consensus, which you will not find elsewhere. We all had one voice, and that is what was needed. This kind of a forum exists in many countries across the globe and it is a platform where you have the presence of both the sectors. I feel this forum has great future potential.

Many say DCCI is a champion of SME development! Could you explain this to us more? If this continues, do you have something to say about From its very inception DCCI's focus has been to support changes that may help future processes? SME businesses. It was with this perspective that we had As of now, we do not know for sure if we even exist started. In the last 50 years, we certainly have been able to anymore! But, given that we do exist and given that we do gain extensive experience and understanding of the SME continue, BBBF must have a secretariat. Another way to sector. With 75% of DCCI members being SMEs, we have approach this would be that individual working groups become their voice. If we do not channel their views and could maintain their own recommendations and then recommendations, they will not get things done. Advocacy follow-up, at least on the for SMEs has to be done with decisions that have been made. support from everyone. All the Organizations and trade bodies chambers should come together. I do not agree with the can be given responsibility and as Unfortunately, in Bangladesh, we a result a sense of ownership will harbor jealousy rather than the differences made be created. For example, DCCI willingness to work together. between companies in could have a cell for The Did you know that many of Infrastructure Working Group the zone, and those the Business Finance Working and they would provide all Group recommendations that secretarial services for this outside. Why can't a are mentioned as approved working group. The forum needs and implemented are actually 100% export-oriented to have ownership and power; old and was presented by the the members need to have that SME Advisory Panel (now firm outside the zone get mentality and a sense of defunct) in 2006 and 2007? commitment. The image of the same facilities? These are issues that are being BBBF may need to be rebuilt to raised continuously. These are portray that it is not just a talking not recommendations placed just shop or made up of people who by the SME Advisory Panel, but only recommend. by many others as well. It's a sign that the government did On a last note to this Q&A, what is your wish and not react to these then and have not done so yet. dedication to the future of this country? What do you think is happening with the change in We have fallen behind on growth. We need to ensure that regime, now that we have a democratically elected after this economic crisis is over, we are able to accelerate government? Will this dialogue between the private growth. My wish is to be a responsible citizen and work and public sector continue? towards the development of my country. Well, hopefully, under a democratic government We thank you immensely for being so patient and discussions will be better. We hope this will not be an giving us your valuable time. One last word: Who is autocratic government. Hossain Khalid? Do you think it is necessary for the dialogue to Hossain Khalid is a very humble individual! continue? I like challenges. I was educated in the USA and came back Like I said, it is a continuous process. We will improve with afterwards to ensure that I make a difference here. I chose time. You cannot fix this country in a single attempt. Many to be a policy maker, and I feel I have been able to may ask the reasons for the existence of this forum since it contribute to some extent and I wish to continue doing so.„ is true that we have trade organizations and other bodies through which you can make recommendations. Why do

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Amjad Khan Chowdhury CEO of PRAN

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he Chief Executive of PRAN-RFL Group MajorGeneral (retired) Amjad Khan Chowdhury is a cautious man. Or a precise one. Our session in his offices set in the teeming caterwaul of R K Mission Road started off with him asking us probing questions about our background, education and present work. He listened carefully to our answers and, judiciously pursing his lips, took down notations on our personal cards. Only then, presumably reassured about our bona fides, did he unbend for a conversation enlivened by the occasional affable grin and flashes of self-deprecating humour. Amjad Khan Chowdhury was born in Natore in 1940, but left his Bengali boyhood for the PAF school in Sargodha, and subsequently the Pakistan Military Academy at Kakul. He was commissioned into the Pakistan Army as an officer in 1958, and seemed to have thrived in that particular organization - by 1968, at a comparatively young age, he was a brigade major at Rangpur. The PMA long course is meant to leave its indisputable imprint, and even today there is something of those army days in him, of Abbotabad and Risalpur and Pindi, hints of it in the clipped moustache, his English, and bearing. In 1973, he was repatriated back to Bangladesh and its army. During Ziaur Rahman's rule General Chowdhury seems to have come into his own, playing an important role in the army's upgrading and reorganization, instrumental not only in establishing the Bangladesh Military Academy but also in modernizing and rebuilding the army cantonments at Jessore and Bogra. In 1981, while still merely 41 years old, he retired with the rank of major general whose last post had been as the army's Quartermaster-General. After retirement he went into business. Amjad Chowdhury is disarmingly frank about the move: He needed to make some serious money. But the road to it, and PRAN Group, was no primrose path. His first venture, building tube wells at his newly established Rangpur Foundry Ltd, lost money. It has since been turned around substantially, producing agricultural machinery as well as having established itself as one the largest producer of plastic pipes and fittings. Next he turned to building apartments (one of the first in

Bangladesh to do so), a concern that is still ongoing, and was also the founder-president of REHAB (the developers' trade body). By this time, he says, he was beginning to learn how to be a businessman in Bangladesh, how the game was played. It was, he concedes, a steep learning curve. Notwithstanding the burgeoning if narrow-based manufacturing sector, agriculture is the dominant fact of Bangladeshi national life, not just in economic terms but in shaping Bengalis, from their songs of harvest to the green of their flag. General Chowdhury turned his attention towards agriculture, saying that he read a famous book about trading in products where the country has a comparative advantage. His decision was quick: the agriculture sector had the comparative advantage in Bangladesh and agriculture was where he wanted to be. An additional fact was that not only was he from Natore himself, but his army posting in North Bengal had made him see firsthand how army developmental activities had aided Bangladesh's traditionally most underdeveloped region, with its seasonal monga and lack of economic opportunities. Agriculture in Bangladesh is a stagnant sector, symbolized most perhaps with the single dismal statistic that while it employs 60 percent of the labour force it contributes only 20 percent to the nation's GDP, a sector where subsistence farming, functionally landless peasants, and structurally ineffective, if well-intentioned, NGO interventions dominate the picture. Enter PRAN, and the beginning of the food processing industry in Bangladesh. Pointing to a plaque in the conference room General Amjad solemnly intoned that PRAN stood for 'Program for Rural Advancement Nationally'. He read more books, consulted with experts (he is, however, dismissive of our agricultural university, saying that its tradition-bound teachers and researchers had not been of any use to him) and toured countries from Pakistan to the Philippines to learn how to do things, to see the latest in food-processing technology and management practices and how to organize the business. Agribusiness, to him, came to mean "adding value and shelf life" to

Only after being reassured about our bona fides, did General Amjad unbend for a conversation enlivened by the occasional affable grin and flashes of self-deprecating humour.

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agricultural produce. Crudely put, it means that selling a raw, perishable agricultural good, say potatoes, is to be at the bottom of the food-selling chain. The name of the game is to join the big boys. Take those potatoes, peel them, liquefy and extrude them into 'chips', put in additives and preservatives for taste and long shelf life, package them attractively, brand them with slick ad campaigns and ship them out to supermarket shelves where they can be bought and consumed even three months later. Later on, aim for markets abroad, which means shipping beyond borders, meeting stiff international quality control standards and promoting with even slicker ad campaigns. A business concept is easy enough, but putting it into practice is, as they say, a whole different ballgame. It was a message that General Chowdhury kept repeating to us. In Bangladesh each stage of the supply chain is subject to pressures: The problems in ensuring quality crops, the lack of proper infrastructure, the absence of power for cold storage, the lack of knowledge by farmers of modern marketing methods or information and the lack of access to credit by farmers from financial institutions. Add to it the inertia of government officials, the extra cost of corruption payoffs, the lack of skilled management and labor, and the list can seem endless. For example, just getting accredited by international certification bodies is a major hurdle for food processing firms of Bangladesh since the Bangladesh Standards and Testing Institution (BSTI), responsible for certifying products, is as yet not capable of providing internationally recognized food and health certificates. And yet PRAN, with an easily recognizable brand name, under Amjad Chowdhury's leadership, has overcome these hurdles to become one of the biggest players in the food and processing sectors of Bangladesh. The current turnover of PRAN Group is US $ 200 million; its exports have climbed in Taka terms from 214 million in 2005 to 1200 million in 2008. It has established offices in India and UAE and is the largest exporter of food and plastic items to over 70 countries - including USA and Europe. It is also transforming itself from being primarily a producer and exporter of snack foods, fruit juices and beverages into a true agribusiness concern. Examples of it

are its intention of entering the dairy products and the aromatic rice production business in a big way, in its increased ability to anticipate changes in the consumption habits of middle-class Bengalis (which is a crucial driver in the expansion of the processed food industry), its linking up with organized retail chains, and in its aiming for foreign markets outside of the Bengali immigrant enclaves. Furthermore, PRAN has commenced a $51 million project (out of which IFC is giving 15 million - the first instance of IFC financing a project in Bangladesh's agribusiness sector) to expand capacities and improve operating efficiencies, a project that, according to a company official, is expected "to produce agro-based products worth Taka 2 billion annually." PRAN's transforming drive is also apparent in its efforts to ensure a smooth, steady supply of raw material by initiating contract farming. The latter practice is expanding in Bangladesh, as it already has in India, with not only PRAN but with other companies and business houses such as ACI, Bengal Foods, BRAC, and which will radically alter the current rural landscape of small-scale, self-sufficient household farming. Though contract farming is not without its critics, Amjad Chowdhury amongst others argue that by providing seeds, guaranteeing crop sale and stabilizing farmeragribusiness partnership it can initiate true modernization of our agricultural sector. It may have its costs, but modernization must come to Bangladeshi agriculture. As the saying goes, only the future will tell. In the meantime, both PRAN group and its CEO Amjad Khan Chowdhury seem unstoppable. He had not only the vision of a modernized, alternative agricultural sector in Bangladesh allied with a high-value, high-earning and employment-generating food processing industry, but the courage to follow his convictions. The time may come in the future for the torch to be handed over to younger entrepreneurs in the agribusiness sector, but as our talk with him winded down it was impossible to avoid the notion that each and every one of those younger entrants into the business is unlikely to forget who was the first man to show them the way ahead. „

PRAN has commenced a $51 million expansion

project which is expected "to produce agro-based products worth Taka 2 billion annually."

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Food, And More, for All! I

n the second half of 2007, with the twin floods and cyclone (Sidr) devastating much of Bangladesh's rural areas and the coastline, people wondered whether a food crisis would hit Bangladesh. Indeed, an estimated two million tons of rice production was lost and the need for imports became urgent. Importing the required rice volume would not have been an issue, if unfortunately enough at the same time global food and commodity prices had not skyrocketed. That made not only import bills pinch the coffers of the Ministry of Finance, but also stopped traditional rice exporting countries' national sellers from exporting rice in order to avoid any unforeseen shortages with their own stock of food grains. India, for instance, over a period of six months, more than doubled its rice (coarse/non-basmati) export price and finally banned all coarse rice exports. As food grain shortages hit markets the world over, the market price of coarse rice in Dhaka increased to Taka 38 per kg from the pre-crisis rate of Taka 20 per kg. The genesis of the food crisis is symptomatic of a much

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deeper problem with the agriculture sector. It brought about a realization that the sector cannot be left to its own devices and that intervention by the government is critical in bringing about a brighter agricultural landscape. The incumbent political party, while on the election campaign trail, was quick to dwell on the high prices of food grains, on the promise of availability of food for all, and on setting the agenda for improving the prospects for growth in the agricultural sector. Thanks to the winter rice (Boro) production of some 17.8 million tons, rice supply in the country is currently plentiful and prices have also decreased to the pre-crisis level. But questions remain: What indeed is the future of the agriculture sector? What about the 70 percent of Bangladesh's population who eke out a living in farm and non-farm activities? Over the last two decades, the rural landscapes have dramatically changed. Bangladesh's population is undergoing increasing urbanization; there are more nonfarm employment and production opportunities and growing infrastructure linkages between rural and urban

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centers. More importantly, private sector businesses, production. Bangladesh has been able to achieve close to although still in a nascent stage, are reshaping the self-sufficiency in major cereal grains production. Total agribusiness sector and farmer-market linkages. The domestic production of major cereals (rice plus wheat) was performance of the rural non-farm sector is robust, with 29,775,000 metric ton in 2007-08. However, domestic the growth rate over the last decade exceeding 8 percent production has always been supplemented by food imports and accounting for over 56 percent of the total rural for maintaining a buffer stock for use at times of income. But the growth of the non-farm sector critically emergency. hinges on the expansion of high value-added agriculture Times are changing, though. With increasing population and related agribusiness. and higher income levels as well as changing food In recent years, developments within the fish, livestock, consumption, the lack of a comprehensive agricultural poultry, fruits, spices, and vegetables products' sectors are reform could drive the country into a state of permanent encouraging. With a growth rate of 73 percent over the food crisis, with its corollaries of food insecurity and corresponding period, Bangladeshi exporters shipped increased vulnerability of large marginal sections of the processed foods worth about $48 million during the 2007population. Lack of resources, vulnerability of the 08 fiscal year. PRAN agricultural production pioneered commercial exsystem to the natural ports of this sector from hazards like floods, The performance of the rural nonBangladesh and now droughts, cyclones, etc., exports about half the decreasing/stagnating farm sector is robust, with the growth country's processed food. productivity plus shrinking According to industry land for crop production as rate over the last decade exceeding 8 sources, at least 20 agrodemand for other uses rise processing companies, are the major bottlenecks percent and accounting for over 56 including Square Conhindering the progress of sumer Products and BD this sector. Rapid percent of the total rural income. But Foods, have significant urbanization - the urban export volumes and are population has more than the growth of the non-farm sector actively in pursuit of doubled since indepenforeign markets. However, dence - resulting in more critically hinges on the expansion of it is not export, rather housing, roads, and changing consumption and industrial development is high value-added agriculture and demand patterns in the shifting land use patterns domestic market that is and reducing the net related agribusiness. causing shifts in the farm cultivable land area by and non-farm landscape. about one percentage point Additional demand arising annually. from consumer food With such limits on the net consumption patterns over the next 10 to 12 years is valued cultivable area and the net sown area, any goal to attain at US $8 billion in 2005 constant prices. Here one has to food security by improving domestic production would add that these are only projections of consumer food largely have to rely on productivity growth. FAO data demand. The real extent to which the share of the growing indicates that rice yields in Bangladesh are 45, 20 and 25 market can be captured by domestic producers will be percent lower than in China, Vietnam and Indonesia, while determined by how the agribusiness industry organizes wheat yields are about 30 and 15 percent lower than in India competitive facilities for production and marketing and and Pakistan, and are less than half of those in China. generates momentum. Bangladesh enjoyed high yields in the past but those levels The development focuses since Bangladesh's independence of productivity have stagnated. Without continuous has always been increasing food grain production through improvements in yields, the danger of not being able to the introduction of high-yielding varieties and associated feed the growing number of mouths is a real one. Over the improved technologies with 'seed-fertilizer-irrigation' years, institutional inefficiencies and neglect by successive interventions in crop production. The objective has been central governments have created much of the problem. the achievement of self-sufficiency in food grain The Departments of Agriculture Extension, of Livestock

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Services, of Fisheries, and various agriculture research institutes have not functioned as expected and have failed to introduce new technologies, ensure their adoption, increase farmer engagement in high-value commodities with effective, dependable market linkages, and increase the level of agricultural productivity. With the changed agricultural landscape, public institutions must now work together with the private sector groups represented by both the business world and the nongovernmental organizations. The government could set out a solid basis for agriculture and agribusiness growth by making sure that the Krishi Gobeshana Foundation and the Horticulture Export Development Foundation (HORTEX) operate transparently, hand-in-glove with the private sector, and by ensuring that research, extension facilities, and supply chain management are rooted in the needs of thousands of small farmers. "The private sector has limited capacity to undertake agricultural research and the government must support research and extension services in a more comprehensive way by joining hands with the private sector," says the Director of Operations of ACI Foods Limited. The decline of a once very productive agriculture research system must be arrested, and then rejuvenated so that it can respond to current development challenges. There are issues of institutional changes, governance, autonomy in decision-making, and funding and allocation of resources within and outside the public rules and regulations. Without reforming institutions and changing

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fixed mindsets to focus on all the sectors and not just cereal crops, the possibility of increasing research outputs and reducing the gap between actual farmer yields and research station experimental yields is indeed low. The small farmers need to organize themselves into producer organizations and form common interest groups to improve supply chains, yields, and income levels. The participation of nongovernmental organizations as service providers to farmers over the years have shown high benefits and supporting their further involvement, coupled with the operations of the larger corporate businesses, could bring about and sustain an environment conducive to changes in small farmer yields and supply chain management. The immediate past caretaker government and the present one have done well, with a little bit of luck on their side, in ensuring that the worst effects of the recent past food crisis were mitigated and that food prices were brought down to normal levels. They expanded the food distribution system through open market sales, set high procurement prices (procurement price of rice was fixed at Taka 28 per kg when average cost of production was Taka 21 per kg), and initiated measures to improve timely delivery of crucial inputs such as seeds, fertilizers, electricity, and diesel to the farmers. It is hoped that working together with the private sector groups to which could be added a timely dose of luck, as General (retired) Amjad of PRAN pointed out in a recent discussion, success in business can be an iffy thing; government intervention in agriculture this time could usher in a new era for its farm and non-farm sectors.„

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‘Thailand Exhibition in Dhaka’ Commemorating 36 years of bilateral trade & investment relations

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n October 5, 1972, only a year after its independence, Bangladesh had established diplomatic ties with Thailand. With a new 'Look-East' foreign policy initiated by the then brand-new state of Bangladesh, the governmentto-government and people-to-people relationship with Thailand has been strengthened for over three decades now. The 'Thailand Exhibition in Dhaka' held from 11th to 14th March 2009 commemorated this 36-year relationship between Bangladesh and Thailand. Forty-two participating companies exhibited a diverse range of products such as food and beverages, health and beauty products, garments and machinery, gift and decorative items, household and electrical products, chemical products, stationery, gems and jewelry, auto parts and accessories, and tour packages. The fair attracted not only business people, but also crowds who came by to check Thai consumer products, and enjoy authentic Thai cuisine offered by @Corner. Bangladesh-Thailand relations is sustained both at the diplomatic and commercial levels. Trade levels between the two countries have been increasing over the years; currently it stands at approximately $600 million, with Bangladesh incurring a large trade deficit. Bangladesh's main trading partners are, of course, India and China with imports in 2008 from those countries being $3324.8 million and $3074 million, respectively, while comparatively imports from Thailand stood at $490 million. The major imports from Thailand in 2008 included cement, primary forms of ethylene polymers, propylene and woven fabrics. The major exports to Thailand in 2008 included chemicals, yarn and fibers, and frozen seafood, valued at $6.4 million, $4.1 million, and $2.5 million, respectively. Bangladeshi exporters have substantial opportunities to exploit the competitive Thai markets and increase trade volumes. The Thai government has given duty concessions to over 250 Bangladeshi products and Thai investors have exhibited interest in exploring potential business markets in

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Bangladesh. On the occasion of the Thailand Exhibition in Dhaka held over four days, Bangladeshi exporters expressed their interest in the renewal of a proposal for a bilateral free trade agreement with Dhaka. Thai investors also expressed the interest to import 10 million pieces of jute sacks from Bangladesh and set up a number of hotels and resorts valued at around Taka 30 billion. Bangladesh has a high potential to become an investment destination for Thai investors because of the advantage it holds in terms of labor costs. C.P. Bangladesh Co. Ltd., specializing in agricultural products and services and animal feed, has large investments in Bangladesh, along with @Corner, a restaurant business. A power cable manufacturing plant in the country, also with 100 percent Thai investment, is currently being set up. However, a poor investment climate and weak infrastructure, coupled with procedural complexities are the major drawbacks in attracting Thai investment to Bangladesh. Despite these shortcomings, Thai investors are keen to review investment opportunities in Bangladesh's fisheries sector. Incidentally, some investors at present have joint-venture investments in the industrial sector and partial investments in a few shoe factories and sugar factories in Chittagong. Skilled and professional consultants from Thailand are employed in the construction sector; Bashundhara City being a prime example of such Thai participation. The success of the Thailand exhibition in Dhaka lay in having achieved its objective of furthering the trade and investment relations between Bangladesh and Thailand. Apart from celebrating and commemorating the existing trade and investment relations, the exhibition also promised of mutual and increased initiatives in exploring new markets and commercial ties for lucrative trade and investment relations between Bangladesh and Thailand in the future.„

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Advanced Chemical Industries Limited Ready for the Recession

A

t a time when it is becoming increasingly uncertain (ICI) began its operation in the then East Pakistan. After for export industries to increase or sustain current independence the company was incorporated in sales volumes, many voices are assertively speaking for Bangladesh on the 24th of January 1973 as ICI industrial growth based on the domestic market. It could Bangladesh Manufacturers Limited and also as a public very well be that export industries will face a slowdown limited company. Although ACI - formed when ICI from shrinking overseas markets, handed over its operation to local decreasing prices, and large lay-offs. management - focused for a while No enterprise has Does the future for business on pharmaceuticals, it also as a enterprises lie in looking inward matter of course developed a successfully entered and and focusing on the burgeoning network with farmers for crop domestic market? Is the domestic protection that would soon evolve prospered in the rural market robust enough to support into a wide range of farm and nonmarkets more than ACI, industrial growth? ACI believes so. farm related businesses. With a With four business units and eleven rapidly growing pharmaceutical with its firm vision, focus, subsidiaries, ACI has concentrated business, ACI has now expanded and integration of several in the domestic market and seen its into agribusiness and what are net sales grow to Taka 10.3 billion called Fast Moving Consumer business lines within a in 2008. "Bangladesh has a large Goods (FMCG), meaning home market; per capita income is rising care and personal care products. single plan framework. each year, and the country is still Recently ACI entered into food rural and agriculture-based," said a products, providing consumers senior officer at ACI. Only a handful of enterprises have with a range of food products (flour, spices, salt) under its successfully entered and prospered in the rural markets, catchy brand name 'PURE'. Given the existing gaps in and none more than ACI, with its firm vision, focus, and demand and supply along the various stages in the national attention to integrating several business lines within a food value chain, the case for investments in agriculture is single plan framework. stronger than ever. It was back in 1968 when Imperial Chemical Industries Over 2007 and 2008 net sales of the company have grown

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by 35 and 80 percent respectively, indicating that diversification and expansion of business, based on an investment outlay of Taka 1.7 billion, is paying off. ACI has diversified into three major businesses: pharmaceuticals, agribusiness, and consumer brands and commodity products. The recent expansion in commodity products such as salt, flour, and spices has already established the ACI brand as one of the more trusted, quality names. High-value agricultural produce such as vegetables, fish, livestock, fruits, spices have an estimated market potential of US $8 billion in terms of 2005 prices. Although several other large enterprises do operate in the agriculture and agribusiness market sector, and are planning for expansion of operations, competition in the sector is not yet robust. "Competition is good for the sector, we would like to see more firms entering the market," says Dr. Arif Dowla, Managing Director of ACI. "We have been aggressive in the past few years and we believe the market outlook is strong with great potential. Bangladesh is at a stage where effective implementation of projects is the key for success. Bangladesh is not in the forefront of innovation, that is not our game, but implementing projects efficiently and in a timely manner can provide us with the opportunity to thrive." The plot line on the pharmaceuticals market runs along similar lines. The Drug Control Ordinance of 1982 provided protection to the domestic market and the robust market has seen several enterprises seemingly come from nowhere or come from behind, such as Incepta, Opsonin, and Renata, to become one among the top 10 leading firms. ACI, however, with a tradition going back to ICI (now part of the Akzo Noble Corporate) has a specific expertise and base to which it has added to over the years. Employing 2,000 workers and manufacturing 160 products in 357 different dosages (475 registered dosages), the pharmaceutical operation has maintained a healthy growth of some 25 to 38 percent during the last two years. While Square Pharmaceuticals leads the way, the remaining top 10 firms are in a competitive position with each other, sharing a Taka 47 billion domestic drug market. While the pharmaceutical industry is poised to enter the export market, entry has been hampered by the need to obtain GMP/cGMP certification, or more importantly,

Investment in Recent Years (Million BDT) 200 ACI Foods

USFDA/UKMHRA/TGA licenses, along with a host of other issues the industry is attempting to address. Among those issues are critical ones such as production facilities for Active Pharmaceutical Ingredient (API) and the establishment of bioequivalence laboratories. Although ACI pharmaceutical facilities comply with cGMP standards, it is yet to obtain USFDA/UKMHRA/TGA certification. In fact, quality is a core objective and strategy in ACI. It has been one of the first corporate businesses in Bangladesh to obtain ISO 9001 and ISO 14000 certifications ACI Limited: Business Unit Products Pharmaceuticals Consumer Brands & Commodity Products

Agribusinesses

Home Care Product: ACI Aerosol, ACI Mosquito Coil Air Care Product: Angelic Fresh Air Freshener Hygiene Products: Savlon Liquid Antiseptic, Savlon Antiseptic Cream, Savlon Family Protection Soap, Savlon Femme Sanitary Napkin, Vanish Toilet Cleaner International alliances: Colgate Palmolive (oral care), Nivea (personal care), Godrej (hair care) Crop Care & Public Health: Insecticides, herbicides & fungicides Seeds: Hybrid rice, vegetables and maize seeds CropEx: Commodity buying, storing, preserving & selling Livestock & Fishery: High-quality nutritional, veterinary, poultry medicines and vaccines; proposed - pisiculture, cattle rearing, cattle fattening & integrated fisheries and livestock project Fertilizer: Micronutrient & foliar fertilizers, zinc sulphate, magnesium sulphate, ammonium sulphate, boron, sulphur 90% and sulphate of potash Motors: Agri-machineries, tractor, power tiller, engine and harvester

for quality and environmental management. More funds are being allocated to R&D, quality management and control. This is a particularly encouraging and progressive step in the context of a domestic market that has no regulatory

Market Share (%)

Sale Contribution (%) 50%

400

Over 400 products covering all major therapeutic areas

by Business Units, 2008

100%

ACI Foods (Spices) ACI Salt

Premiaflex Plastics Pharma Factory ACI Pure Flour

Air Freshener Savlon Antiseptic (Cream) Savlon Antiseptic (Liquid) ACI Mosquito Coil

ACI Salt

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ACI Aerosol

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system for quality compliance, control of food-borne risks, and health hazards posed by adulterated products. ACI's senior management is acutely aware that food safety can only be guaranteed by the integration of control systems in the complete food chain ‘from stable to table’. ACI could take this lead to a higher level by raising consumer consciousness regarding food-borne illnesses and related health hazards by designing consumer educational programs and disseminating proper guidelines on such issues. ACI has recently established its chain of retail outlets by opening several stores in and around Dhaka. Its subsidiary concern, ACI Logistics, is poised to open 17 outlets in the months to May under the brand name of 'Fresh 'N Near'. It is part of an aggressive strategy to provide affordable, quality food and household products to urban low and middle-income consumers. While Meena Bazaar, Nandan, and Agora are decidedly upscale, ACI wants to provide better facilities and products to mass consumers - to give them a credible alternative to the traditional unhygienic and poorly organized kitchen markets of Dhaka. It will be a big challenge for ACI, since Agora, one of the first supermarkets in Dhaka, aimed at the high-end market, reportedly is yet to operate profitably. The shortage of supply of breeder-seed in the country is acute. Some say this is due to the excessive reliance on imported seed. The assertion is open to dispute but it is true that the Seed Certification Agency has not functioned properly for many years. The use of hybrid seed does have its opponents, who caution that it causes the topsoil to turn barren within a few years. But, with the scarcity of

Corporate Strategy - ACI Limited Sustained Strategy „ „ „ „

„ „

Crop protection Pharmaceuticals Salt and Flour Fast moving consumer goods Air care products Animal Health Products

Moderate Strategy „ „ „ „

Seed Joint venture CROPEX Fertilizer

Aggressive Strategy „

Consumer chain stores

Planned Strategy „ „ „ „

Livestock Fisheries Sugar Edible oil

breeder-seeds and the urgent, continual need for high crop yields to feed a growing population, the use of hybrid seeds will not abate in the near future. ACI has established research and development centers in Bogra, Gazipur and Mymensingh in order to carry out adaptability tests for seed performance. Its management is fully aware of the various issues relating to hybrid seed and is engaged in taking appropriate measures and policies to ensure the best possible outcome of the seed supply shortage. ACI is highly leveraged, a condition arising from its recent expansion and investments. In order to manage its debt position the company has turned to innovative measures, particularly in seeking instruments to attract investors. "We had to look for different financing approaches like direct listing, trading corporate bonds", said Muallem A. Choudhury, Executive Director of the company. ACI Formulation undertook direct listing of 5,267,150 shares

Photo: Creative Communication Limited

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with a par value of Taka 10 each in Dhaka and Chittagong permanent and contractual employees, a large number of stock exchanges (DSE and CSE), the first private company part-time workers as well as five to six hundred to do so. "Market response was excellent. We got over agronomists, veterinarians, animal husbandry experts, Taka 150 premium per share on average," he said. "But we team management is critical to the firm. ACI's would not get more than Taka 30 premium if we had gone management board is fully aware of this dimension and for IPO." Now each share sells for Taka 191 in the has put in place an empowerment policy that enables secondary market. ACI Limited also pioneered the issue of employees to freely share their views with management, the first tradable bond in DSE and CSE. The 20% creating a vital synergy between management decisions Convertible Zero Coupon Bond will allow holders to and employee opinions. "Team work, motivation, rewards, exchange 20% of par value of the and a constant education on bond for the company's stock at behavioral and organizational By transforming the domestic an exercise price. "The striking issues is what we seek to provide price will be well below the market our employees," said a senior market in terms of providing price and significantly higher than company HR executive. The face value. So exercising the option company management has set out consumers with quality will result in significant capital six values: quality, transparency, products and better healthcare, fairness, premium. The dilution of share customer focus, will be only 6% over a five-year innovation and continuous attempting to ensure farmers period." If everything goes improvement. "The entire livelihood and promoting the according to plan, ACI Limited Southeast Asia region is moving will be able to raise around Taka forward, Bangladesh will not use of modern farm technology, remain behind and ACI believes it one billion through this bond issuance. Large and established can change the nation," declared ACI has set standards for business houses need to initiate Dr Dowla. existing companies, as well as and utilize modern corporate By transforming the domestic practices not only for their own market in terms of providing for new entrants. benefit, but also in order to consumers with quality products, provide examples of playing a critical role in terms of professionalism, sound structure, and governance in the better healthcare, attempting to ensure farmers livelihood society at large. It is praiseworthy that ACI has taken the and promoting the use of modern farm technology, ACI lead in many such areas. has set standards for existing companies, as well as for new Bangladesh has a severe shortage of high- to mid-level entrants. And by vividly demonstrating what home-grown professionals and attracting them from existing sources is companies can do in terms of the domestic market, job a key challenge. Led by a young, dynamic, and visionary creation and consumer confidence, it could also very well managing director, ACI has built a competent team of serve as a guide to other companies on how to survive, professionals to oversee and operate its wide range of and even achieve healthy growth, in these lean diversified businesses and products. With over 4,948 recessionary years.„ www.bangladeshbusiness.biz

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Photo: VIPB

VENTURE CAPITAL INVESTMENTS New Kid on the Block

B

ack in 2001 the Bangladesh government, wishing to jumpstart investments in agribusiness and IT sector, established an Equity and Entrepreneurship Fund (EEF). Over six years, some Taka 400 crore had been disbursed to 212 projects. These numbers are tentative since information on EEF operations is hard to acquire. Even Bangladesh Bank does not provide any information on EEF; this can be verified by checking the Bank's website. Reportedly, the 'Fund' has been mismanaged and only a fraction of the beneficiaries actually operate a fully functional business. Among them is a crocodile farm that has garnered media curiosity and attention for its success. An appraisal of the EEF indicates that poor investment decisions coupled with long delays in processing, incomplete understanding of markets, a lack of competence on the part of promoters, and the inability of financial institutions to soundly appraise business plans hampered operations of the EEF, shrouding it in a lack of transparency and making it ineffective. In January 2009 it was reported that EEF would be transferred to the Investment Corporation of Bangladesh with the expectation that a better and more transparent operation of the fund could be established. We only know that the Information and Communication Technology operation of

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EEF has been transferred to the ICB and not the agribusiness operation. Under these circumstances one can only welcome the entry of Venture Investment Partners Bangladesh Limited (VIPB), a private equity fund. VIPB promotes equity investments in Bangladesh, hopefully setting a better and more competitive example to EEF. It started as a public limited company, registered on October 22, 2006. Mr. Zia U Ahmed, the chairman of VIPB, said, "We realized the opportunity and started approaching institutional investors both in and outside the country." It was set up as a joint venture between USAbased non-resident Bangladeshi (NRB) institutional investors and investors in Bangladesh. "Our total paid-up capital is Taka 12.5 crore with Taka 7.5 crore raised from local sponsors and the rest from NRBs." VIPB invests through direct equity and quasi-equity instruments. He further elaborated, "Under direct equity investment, VIPB usually buys up 5%-30% of the company and is entitled to receive an equal percentage of profit." VIPB takes no collateral in direct equity investment. On the other hand, a quasi-equity loan is offering one part of the funding as a structured debt, meaning that there is a certain fixed monthly rent of the investment. The other part is an equity

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waste, causing air pollution. The Dhara Stitch project in investment. As an equity holder, VIPB owns preferred Jessore has created employment opportunities for over a shares with limited risks and shares revenue earnings. Since hundred women where VIPB has a quasi-equity investment March 2008, VIPB has already invested in around 200 small of Taka 15 lakh. businesses. It primarily targets rural, non-farm businesses EEF has a first preference to share disposal, but stories with an internal rate of return of around 30% and a abound on how difficult it has been to exit from initial potential to grow five times over five years. "Our equity investments with EEF since so few of its investment range is from Taka 2 lakh to Taka 1 crore with investments have materialized into viable operations. Equity an average of Taka 8 lakh per investment. Most of the financing, particularly in Bangladesh, should require a investments are medium-term, of 3 to 5 years." VIPB structure for monitoring operations; in fact, there should be carefully scrutinizes each investment project and takes quite a heavy involvement with the operational ends of decisions after a thorough field investigation, a procedure businesses. Even a close scrutiny of the EEF's procedures that should have been followed by EEF. and modalities does not reveal any involvement of its Until now, and before the advent of EEF, venture capital shareholder, i.e. the Bangladesh Bank. VIPB, on the other investment had been an unexplored avenue in Bangladesh. hand, is more astute, with a mature awareness of the nature In a country where mostly bank financing and personal of business operations in Bangladesh and therefore has sources of capital dominate investment decisions, equity made it mandatory to "hold minor financing is yet to attract the but significant stakes, so the attention of entrepreneurs. The entrepreneur has full control but opportunities for business and the VIPB carefully we still preserve the right to advise corollary need for finances, scrutinizes each with more effective strategies for however, are changing this practice long-run benefits, if required. and driving entrepreneurs to look investment project and Company and TIN registrations are for alternative sources of finance. takes decisions after a a must. We teach all entrepreneurs During our visit to the VIPB office how to maintain books of accounts in Gulshan, Mr. Zia U Ahmed, said, thorough field (especially cash book) and employ "Many small businesses show signs investigation, a our trained local representatives to of high growth potentials. monitor them." The approach Naturally they come embedded procedure that should requires more work, but it is with high levels of business risk." have been followed by undeniably a sincere and genuine He inferred that the unwillingness attempt at assisting new of traditional lenders to invest in EEF. entrepreneurs and looking out for risky projects or an inability to their interests. There is much to be retain adequate collateral translates commended in this approach, into the fact that promising new which our high-flying financial institutions would do well to business ideas never get the opportunity to launch and emulate. And what is VIPB's exit strategy? Like any other become successful. VIPB has invested in The Chargram venture capital firm, VIPB expects to make a profit through Fisheries Project with a stake of Taka 75 lakh. This business the future sales of stakes in the firms it has invested in. project is located near Daudkandi, where local NGOs VIPB's exit strategy includes sales of its shares either to a combined six villages into a kind of cooperative to utilize third-party organization, through possibly a public offering the flood plain area for the common good. The formation of the company in the stock market or through an option of the cooperative, instead of individual fishing efforts, has to sell back to the principal entrepreneur at a previously brought with it economies of scale such as lowering raw agreed price. "So far we have only 3 to 4 firms with IPO material (larvae, fish-feed, etc.) costs. VIPB claims the potential in our investment portfolio. We are thinking of project has 100% returns. VIPB is sensitive to social and exercising our put option to sell back to entrepreneurs," environmental concerns and damage mitigation is high on said Mr. Ahmed. It seems that the state-run EEF has much its agenda, though it does list commerce and business as its to learn from the privately operated VIPB, in the context of first priority. This is reflected from projects such as the NRBs willing to invest their money and capital Rajshahi Briquette Project, a Taka 10 lakh facility set up to knowledgeably combined with the willingness to challenge transform rice husks (wastage of rice mills) into ‘briquettes old ways of investment thinking and practices.„ and poultry feed’. Previously, the millers simply burnt the www.bangladeshbusiness.biz

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Fundamentals

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Economic Indicators

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Review Notes

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