Challenges of Industrial Policy, 2016 of Bangladesh

Kamruzzaman Ishtiak FCS

Kamruzzaman Ishtiak FCS
Published Sep 11, 2018
Introduction
Industrialization is an essential prerequisite for rapid and sustained economic development and social
progress. Industrialization is the process in which a society or country transforms itself from a primarily
agricultural society into an industrial one based on the manufacturing of goods and services.
Characteristics of industrialization include the use of technological innovation to solve problems as
opposed to superstition or dependency upon conditions outside human control such as the weather, as
well as more efficient division of labor and economic growth. The growth of economy, the internal
development of a nation depends upon the development of industrial sector. Bangladesh is predominantly
agriculture base and has limited industrial output and exports. The industrial sector in Bangladesh is a
huge contributor for the country’s economic growth. The country faces severe competition in the world
market to maintain and develop its trade and balance of payment in its favor. The economy is not strong
as the industrial infrastructure and output are not diversified enough. The problems of ensuring primary
energy services are of prime importance to industrial consumers. The Government of Bangladesh has
taken steps to facilitate the industrialization in Bangladesh. The paper addresses the prevailing problems,
prospects and challenges of industrialization in Bangladesh and some policy recommendations are
highlighted.
Extract of Industrial policy 2016 of Bangladesh
In the line with achieving sustainable economic development, the proposed Industrial Policy 2015 has
been drafted to encourage labour intensive SME industries as well as the private sector. The objectives of
the Industry Policy are to increase the industry GDP contribution to 35 per cent from 29 per cent whereas
manufacturing growth be increased to 25 per cent from 18 per cent, employment generation and inclusive
economic growth for vision 2021. The objectives also include encouraging the import substitute and
diversified export oriented industrialization as well as specialized industries in Bangladesh, enhancing
women engagement in the industrial employment of Bangladesh and facilitating the FDI.
A number of courses of action have been considered in the policy. Pro-industry infrastructure is being
prepared and developed to achieve the vision of industrial policy. The authorities should design time-
bound implementation measures on priority, provide cash incentives for small cottage industries and non-
traditional sectors for export-led growth. The industrial growth needs to be streamlined with increasing
export competitiveness and increasing the women engagement in the local industrial process.
Challenges of Industrialization in Bangladesh
Bangladesh is mainly an agricultural country. Agriculture has always been given priority and as a result
industries have been ignored.
Recently some agro-based industries have been set up.
There are some reasons for which the country has lagged behind in heavy and medium-level industries.
Industrialization in Bangladesh faces some challenges due to some structural constraints that hindered
industrial growth. Let us now consider the challenges faced by the industry sector in general.
a) Lack of adequate capital: Bangladesh being a poor country, people’s saving is insufficient. As saving
is poor, investment is also low. Again people’s per capita income is not adequate. So their
consumption is also low. Consequently local market oriented industries are also very thin here.
b) Weak investment base: Due to long colonial rule, economic discrimination and post-liberation
nationalization of industrialization, the growth of entrepreneurship has been slow in Bangladesh.
Besides, due to bureaucratic red-tapes and lack of investment climate, capital investment has not been
developed here.
c) Insufficient Infrastructure: Infrastructural facilities in our country are insufficient. Power supply,
telecommunication, transport, gas, water supply etc. – all facilities are not adequate which have
hindered process of industrialization in Bangladesh.
d) Technological know-how: Lack of proper technological know-how is also another reason of our
industrial backwardness.
e) Lack of adequate resources: Lack of adequate raw materials and natural resources are also
unfavorable for our industrialization.
f) Shortage of Energy: acute shortage of energy and unreliable supply of power and other utilities such
as gas and water.
g) Unskilled human resources
Though Bangladesh has a huge population, most of them are unskilled. Country lacks skilled labor,
specialists, professionals and technologists which also hamper our industrialization.
h) Political instability: A good govt. policy and political stability are precondition for industrialization.
Unfortunately political instability has always been a common phenomenon here. This is a major
hindrance towards the advancement of the industry sector of Bangladesh. Frequent strikes result in
disruption of daily business. This hampers the smooth running of industries, they are unable to
procure raw materials in time hence their production and even transportation is delayed. The
politicians only think about themselves. As such, our industry cannot progress and compete with the
outside world.
i) Labor Unrest: There is a lack of trained workers in this country. Thus, there is a decline in the
efficiency of the company. The companies also need to provide training (apprenticeship) to these
laborers and hence quite an amount of money and time is spent on them. This challenge is faced by
every company or firm in Bangladesh.
j) Limited access to credit, its high cost, legal or illegal, and procedural complexities in obtaining credit
from banks
k) Competition from dumped and smuggled imports
l) Lack of adequate law and order conditions
m) Growing incidences of crime and extortion at every stage starting from production to distribution and
marketing of the products.
Success of present Government
Recommendations
Industry sector is one of the major sectors for income source in Bangladesh. There were many flaws in
this sector but Bangladesh could come up with phenomenal results for the enrollment of people and to
come out Bangladesh from poverty though this Industry sector. Some recommendations to improve the
condition of industrialization in Bangladesh are as follows:
Ø Develop and implement a good investment friendly environment so that foreign direct investment
increases here
Ø Proper industrial environment should be maintained that will increase the productivity
Ø Set up new export processing zones to improve infrastructural facilities
Ø Political stability must be ensured
Ø Political issues should not affect the industrial activity
Ø The human resources should be made skilled and more trained
Ø Technical institute should be set up for training human resources
Ø Scientific method of management should be introduced
Ø Industries should look for more technologically advanced equipment
Ø Government should take lots of steps for building up the Industry sector; they even should thought to
build up a city only for the industries, so that the people can easily get into the job site easily
Ø There is a need to attract more investment and production in our industrial sector
Ø Necessary arrangements should be taken to make small and medium enterprises (SMEs) profitable
Ø Government should make rule to put a barrier for import of foreign low quality product
Ø The Industrial Policy should be implemented properly and effectively
Ø Special economic zones should be established in the underdeveloped region or less industrialized
districts with some subsidies
Ø Bangladesh govt. should encourage foreign investment to accumulate capital and for technology
transfer.
Ø Backward linkage and forward linkage industries should be set up in garments sector with state support
Ø Wages of worker should be increased to contribute to higher value added activities
Ø The emphasis on Public Private Partnership (PPP) in the proposed industrial policy is laudable but the
concept is still in a rudimentary stage. Government will need to act expeditiously to devise a transport
mechanism and frame well-defined rules for participating in and mobilizing funds for the PPP projects.
Concluding Observations and Suggestions for Improvements
General Observations
All successive governments in the country since independence announced policies and strategies for
accelerating the process of economic growth through the development of the industrial sector, but the
growth of the industrial sector has remained slow.
One may attribute this slow growth to factors like energy shortage, reduced availability of bank credit,
poor inflow of foreign direct investment (FDI), labor unrest, poor law and order conditions, as so on, but
no less responsible were the inconsistent policies, which vitiated the overall business environment,
discouraged investors, and hindered industrial activity in the country.
It is the considered view of experts that in order to pave the way for strong growth and expansion of the
industrial sector, industrial policies periodically announced by government, should contain appropriate
measures to address the aforementioned problems.
Specific Observations
The proposed industrial policy 2010 contains provisions, which appeared in almost all past industrial
policies starting from the New Industrial Policy of 1982 to the Industrial Policy of 2005.
To name a few, the common provisions relate to expanding private sector participation in manufacturing,
increasing the efficiency of public sector enterprises, liberalizing the import regime, providing incentives
to exporters, liberalizing the foreign investment regime, and offering attractive incentives to foreign
investors.
However, these provisions achieved little by way of raising investment levels or achieving sustained
industrial growth.
Major Structural Constraints impeding industrial growth
Major Structural Constraints that hindered industrial growth include limited access to credit, its high cost,
legal or illegal, and procedural complexities in obtaining credit from banks
a) poor physical infrastructure
b) acute shortage of energy, and unreliable supply of power and other utilities such as gas and water
c) lack of skilled labor and the tendency for labor to be militant
d) competition from dumped and smuggled imports
e) pervasive corruption in bureaucracy, particularly in the administration responsible for delivery of
public services
f) poor law and order conditions, and
g) growing incidences of crime and extortion at every stage starting from production to distribution
and marketing of the products.
The afore-mentioned structural impediments continue to vitiate the business climate and dissuade
entrepreneurs to bring in new investment or expand the existing ones. This also explains why foreign
investors are not willing to invest in this country despite the availability of attractive incentives. Foreign
investors want a congenial, secure, business environment, not just incentives. If the local investors are
hesitant to invest, why will the foreigners invest in this country?
Policy Failures that affected Industrial Growth
Apart from the structural constraints mentioned in the foregoing, manufacturers faced a number of
problems, induced by policy failures.
Many entrepreneurs, in particular the foreign investors, complain that most policy reforms in this country
are incomplete and remain only in paper.
For example, during the early 1990s, the government opened up the economy, lowered tariffs, eliminated
quantitative restrictions, and used the floating exchange rate mechanism to promote exports. But the
progress in these reforms was not maintained.
Moreover, the lack of complementary reforms to improve the conditions of power infrastructure,
telecommunications and financial services has meant below potential benefits from increased openness.
Suggested Remedies for Structural and Policy-induced Constraints
The proposed 2010 Industrial Policy does not appear to address the above-mentioned structural and
policy-induced problems very seriously.
Some of the measures proposed in the policy are largely peripheral in nature. For example, the decisions
to have large thrust/service/regulated sectors or to give new definitions to industry do not address the
genuine problems of the industrial sector.
In order to take full advantage of emerging global opportunities, Bangladesh needs to remove the
structural impediments and address the weaknesses in its domestic policy environment.
The root causes of the problem lie in the fundamental governance issues in power infrastructure, finance,
enforcement of law and order, and eradication of corruption.
Without improvements in these areas, the mere announcement of an ambitious industrial policy with lofty
objectives is unlikely to help achieve a sustained growth of the country’s industrial sector.
Addressing Sector-specific Problems
Apart from addressing the broader issues centering structural and policy-related constraints, the proposed
industrial policy should also address the sector-specific problems faced by different industries.
While the most common problems faced by all industries are those of infrastructure, capital and
technology, some of the problems are specific to particular industries.
The proposed industrial policy should incorporate appropriate provisions to periodically monitor and
address the specific industry related problems.
Policy toward Foreign Direct Investment (FDI)
Industrial policy should not consider FDI merely a means of complementing domestic resources for
industrialization. It should also ensure that foreign investors bring in new technology in the country. A
strict screening of FDI would therefore be necessary.
To that end, the proposed industrial policy should clearly lay down that foreign investors shall not be
accorded permission to invest and conduct business in this country unless they brought the latest
technology.
Protection of the Environment
The proposed industrial policy lays strong emphasis on the protection of the environment and directs
manufacturing enterprises to control environmental pollution by setting up effluent treatment plants
(ETPs) and strictly comply with environment-related laws and regulations.
While the emphasis on environmental protection is highly welcome, it will be necessary for the
government to adopt appropriate measures that will make the private sector enterprises’ tasks easier to
take effective steps against environmental pollution and desist from such activities as may cause
environmental pollution.
Industrial Policy needs to be simple and easily implementable
The test of a good policy lies in its simplicity and implementability.
With 16 elaborate chapters, the proposed industrial policy document appears to be rather large.
Unduly long and elaborate policy documents may have the unintended effect of the crucially important
objectives getting lesser priority.
As regards implementation, the availability of adequate resources, whether institutional, financial, or
human, will be crucially important.
There will be the need for better coordination among concerned ministries and implementing agencies to
improve policy implementation.
Improving Governance
The implementation of industrial policy in Bangladesh remained weak in the past because of inherent
bureaucratic complexities, red tape, and delays in decision-making. The proposed industrial policy will
need to address these problems seriously.
Conclusion
Given the slow growth experience of the industrial sector over the past three decades, the target of raising
the industrial sector’s share to 40 percent of GDP by 2021 may appear a little ambitious.
Nevertheless, if the state machinery were able to improve the quality of governance, and if all structural
and policy obstacles to industrial expansion as identified in the foregoing could be overcome, Bangladesh
could expect to achieve a double-digit industrial growth in the coming years and move closer to achieving
the target of raising the industry sector’s share in GDP to 35-40% in the next decade as set by the 2010
industrial policy.