Reports emerged on the press insinuate that government plans to finance huge budget deficit by borrowing more than Tk 470 billion from banks. The ailing banks are facing liquidity crisis. Many private investment projects stalled due to cash crisis. The decision will put the banks further into trouble by diverting funds from investment towards budget financing. In addition, job creation will also be affected as funds for investment and SME opportunities will dry out.
In the wake of withering number of large and medium enterprises, as indicated by another news report, SMEs remain a beacon of hope for employment creation and revenue generation, relieving the worries of cash-strapped government and financial institutions. Perhaps no other sector like the SME adds so much value to the economy. Its small size and dependence on local markets for ingredients and final products make it special. But its glorious journey may come into a halt if government decision comes into effect.
This sector is already a victim of government's biased policy. When it comes to industrial credit, we see that there is discrimination in its disbursement. Moreover, much of the blames for accumulation of bad loans should be attributed to large and medium industries.
Bangladesh Bank SME statistics say that during the July-December in 2017-18 , our banks disbursed Tk 1693.4 billion of industrial credit. Of which Tk 1313.6 billion went to large industrial units, Tk 221.5 billion went to medium units and Tk 158.3 billion went to small industrial units. In 2018-19(Jul-Dec), industrial credits for larger and smaller enterprises increased to Tk 1569.77 billion and Tk 179.62 billion respectively. Whereas medium enterprises’ industrial credit decreased to 203.06 billion.
Now if one takes a look at the default loans, he will be puzzled. In 2017-18 (Jul-Dec), default loan for large industries was Tk 325.09 billion, it was Tk 117.3 billion for medium industries. For small industries , it was Tk 55.18 billion. Within a year, default loans registered an increase. In 2018-29(Jul-Dec), default loans for large, medium and small industries were TK 370.61 billion, Tk 149.09 billion and Tk 76.43 billion respectively. Please note on both occasions default loans for small enterprises were relatively small.
Many of this diverted funds will again be pumped into trouble-ridden banks to keep them operational. And we just see all they did in the past to increase the volume of default loans. Since government is cash strapped and wants to create jobs, it behooves the government to allow FDI in SMEs. There are many unseen benefits.
Recently India allowed FDI in retail sectors. Its impact reached beyond borders. As global supermarket brands are opening their outlets across India, RMG factories witness a jump in orders emanating from India.Bangladesh's recent RMG export growth in India is largely ascribed to this factor. Indians are getting top-notch woven items and Bangladesh gets a chance to diversify its RMG export market.Now more orders mean more jobs and reduction in trade deficits.But the biggest advantage of FDI in SME is superior management, supply-chain network and introduction of new services and technology, which will change the whole industry to the core by bringing professionalism and alleviating worries from market uncertainties.
I have been arguing for FDI on SMEs for quite some time. Government seems busy fetching huge amount of FDI in sectors where value addition to the economy is little and and worsening of government expenditure is on the rise. A recent report says Bangladesh's entrance to LNG market also augments subsidy to Bangladesh Petroleum Corporation as LNG price oscillates between low and high prices in international market. Furthermore, this kind of huge investment only fills the coffers of crony capitalists, who have deep ties with politicians , bureaucrats and defense establishment.
FDI in SME will not be astronomical amount like that in the power or infrastructure sector. But the value they will generate will be enormous. Take for instance the example of our agro-processing and food processing industry. Idea that simple bakery items could be produced using automation never crossed our minds. Quality, price, hygiene and value addition were ensured. Mango pulp and pickle factories or tomato sauce production units in the muffossil towns introduced contract farming model and saved the marginalized farmers from volatility in the market.
I think government should welcome with open arms if a Philippino wants to set up a boutique shop in Dhaka, a Thai wants to launch a food processing business or a Tamil desires to open a restaurant in Dhaka. One may argue Bangladeshis know how to run this kind of business so we do not want any FDI here. Wrong. Better management, introduction of new ideas and technologies, better worker-employer environment are lacking here. Many years ago I read a report on BBC Bangla about a Pakistani RMG exporter based in Adamzee Export Processing Zone. His factory offered salaries more than his Bangladeshi counterparts do in addition to benefits. Plus he is very kind to his Bangladeshi workers and set up a grievance redressed system that took attention to workers' woes.None of his workers descended to street even when unrest broke out in that industrial zone. This kind of management services and good practices will spread to whole industry when others will take notice of them.
But the biggest advantage will be a great leap forward to an intervention free market. Our country is infested with cadre-based political ideologies and unwanted intervention of men-in-uniform and men-in-plain clothes. Businesses incur costs to entertain their demands and the parasite-infested business environment drives the good ones out of the market. FDI in SMEs, it is expected, will significantly improve that climate by acting like a scarecrow. Reason for optimism lies in the examples set by donor-funded projects. Since these projects require a certain degree of accountability and transparency, many government officials are not interested to siphon off money from these projects. On the other hand, quality of solely government funded projects has recently been called into question.
It is regrettable that government plans to draw money from banks to finance projects that bear no fruit while neglecting vital sectors like SME. FDI in SME will create the aseptic conditions in our economy, gradually destroying the favorable breeding ground for parasites. At first glance it may appear eccentric. Given the deteriorating business climate, no other solution seems pragmatic and more appropriate beside it.
In the wake of withering number of large and medium enterprises, as indicated by another news report, SMEs remain a beacon of hope for employment creation and revenue generation, relieving the worries of cash-strapped government and financial institutions. Perhaps no other sector like the SME adds so much value to the economy. Its small size and dependence on local markets for ingredients and final products make it special. But its glorious journey may come into a halt if government decision comes into effect.
This sector is already a victim of government's biased policy. When it comes to industrial credit, we see that there is discrimination in its disbursement. Moreover, much of the blames for accumulation of bad loans should be attributed to large and medium industries.
Bangladesh Bank SME statistics say that during the July-December in 2017-18 , our banks disbursed Tk 1693.4 billion of industrial credit. Of which Tk 1313.6 billion went to large industrial units, Tk 221.5 billion went to medium units and Tk 158.3 billion went to small industrial units. In 2018-19(Jul-Dec), industrial credits for larger and smaller enterprises increased to Tk 1569.77 billion and Tk 179.62 billion respectively. Whereas medium enterprises’ industrial credit decreased to 203.06 billion.
Now if one takes a look at the default loans, he will be puzzled. In 2017-18 (Jul-Dec), default loan for large industries was Tk 325.09 billion, it was Tk 117.3 billion for medium industries. For small industries , it was Tk 55.18 billion. Within a year, default loans registered an increase. In 2018-29(Jul-Dec), default loans for large, medium and small industries were TK 370.61 billion, Tk 149.09 billion and Tk 76.43 billion respectively. Please note on both occasions default loans for small enterprises were relatively small.
Many of this diverted funds will again be pumped into trouble-ridden banks to keep them operational. And we just see all they did in the past to increase the volume of default loans. Since government is cash strapped and wants to create jobs, it behooves the government to allow FDI in SMEs. There are many unseen benefits.
Recently India allowed FDI in retail sectors. Its impact reached beyond borders. As global supermarket brands are opening their outlets across India, RMG factories witness a jump in orders emanating from India.Bangladesh's recent RMG export growth in India is largely ascribed to this factor. Indians are getting top-notch woven items and Bangladesh gets a chance to diversify its RMG export market.Now more orders mean more jobs and reduction in trade deficits.But the biggest advantage of FDI in SME is superior management, supply-chain network and introduction of new services and technology, which will change the whole industry to the core by bringing professionalism and alleviating worries from market uncertainties.
I have been arguing for FDI on SMEs for quite some time. Government seems busy fetching huge amount of FDI in sectors where value addition to the economy is little and and worsening of government expenditure is on the rise. A recent report says Bangladesh's entrance to LNG market also augments subsidy to Bangladesh Petroleum Corporation as LNG price oscillates between low and high prices in international market. Furthermore, this kind of huge investment only fills the coffers of crony capitalists, who have deep ties with politicians , bureaucrats and defense establishment.
FDI in SME will not be astronomical amount like that in the power or infrastructure sector. But the value they will generate will be enormous. Take for instance the example of our agro-processing and food processing industry. Idea that simple bakery items could be produced using automation never crossed our minds. Quality, price, hygiene and value addition were ensured. Mango pulp and pickle factories or tomato sauce production units in the muffossil towns introduced contract farming model and saved the marginalized farmers from volatility in the market.
I think government should welcome with open arms if a Philippino wants to set up a boutique shop in Dhaka, a Thai wants to launch a food processing business or a Tamil desires to open a restaurant in Dhaka. One may argue Bangladeshis know how to run this kind of business so we do not want any FDI here. Wrong. Better management, introduction of new ideas and technologies, better worker-employer environment are lacking here. Many years ago I read a report on BBC Bangla about a Pakistani RMG exporter based in Adamzee Export Processing Zone. His factory offered salaries more than his Bangladeshi counterparts do in addition to benefits. Plus he is very kind to his Bangladeshi workers and set up a grievance redressed system that took attention to workers' woes.None of his workers descended to street even when unrest broke out in that industrial zone. This kind of management services and good practices will spread to whole industry when others will take notice of them.
But the biggest advantage will be a great leap forward to an intervention free market. Our country is infested with cadre-based political ideologies and unwanted intervention of men-in-uniform and men-in-plain clothes. Businesses incur costs to entertain their demands and the parasite-infested business environment drives the good ones out of the market. FDI in SMEs, it is expected, will significantly improve that climate by acting like a scarecrow. Reason for optimism lies in the examples set by donor-funded projects. Since these projects require a certain degree of accountability and transparency, many government officials are not interested to siphon off money from these projects. On the other hand, quality of solely government funded projects has recently been called into question.
It is regrettable that government plans to draw money from banks to finance projects that bear no fruit while neglecting vital sectors like SME. FDI in SME will create the aseptic conditions in our economy, gradually destroying the favorable breeding ground for parasites. At first glance it may appear eccentric. Given the deteriorating business climate, no other solution seems pragmatic and more appropriate beside it.
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