Fees get the blame for bad spell
As fall in sale rings the alarm bell.
Opaque capital in real estate
Hardly fixes the problem in dire straits.
Real estate sector is going through a bad spell. According to a news report, flat sale took a nose dive in recent months. Reason attributed behind this slump points to National Board of Revenue's policy of doubling the registration fee1. Since Bangladesh is going through budget and current account deficit, cash-strapped govt has no other choice but to raise taxes and fees, except the corporate tax that may see a hike after the election.
Government hoped raising the land and flat registration fees might bring revenues. For far too long,real estate sector has been one of those sectors where opaque capital finds safe sanctuary. NBR does not question about the origin of money being spent in this sector. Government anticipated that any increase in registration fee would not translate into fall in revenue. However, comparison between corresponding months revealed that registration revenue was halved in some cases.
I think NBR may likely to attain the revenue goal from this sector. We are heading towards election. A great deal of uncertainty envelopes many. So a great number of people are not interested to purchase flat.Political impasse also holds back many from investing in flat. A dramatic improvement may be expected after the election.
I had earlier watched a news report where one developer claimed number of unsold flat keeps rising. In addition, somber outlook in flat sale also puts on hold undertaking of new project, which earlier had witnessed fast sale even before completion of the project.
My personal observation is that recent visa restriction, clamp down on illicit wealth in Singapore and UAE may herald new beginning for the real estate sector. High-end flat sale may likely to rise after the election.
However, it is not right to allow clandestine capital in real estate sector without any scrutiny. Prices pushed towards such a level that lower and middle income groups find it hard to avail a flat. Government initiative or Public-Private Partnership in addressing the issue is also conspicuously absent. Meanwhile, allowing opaque capital in real estate is causing political and social tensions.Incidents like slum dwelling as a mean to occupy land,territorial hooliganism, murder,influencing local government election, fire accident,retributive fire attack,extortion etc are on the rise.
Furthermore, there are many empty apartments and commercial spaces. That means the flats and commercial spaces are being owned by someone but there are no occupants. Housing problem remains acute and increasing size of commercial space does not translate into vibrancy in economy.
British travel vlogger Simon Wilson accidentally documented two incidents of illicit funding of real estate sector: one in Cyprus and the other one in Moldova.
I mentioned the Cyprus incident in my piece titled “Investment Should Not Become Liability “ back in September,20222. Sharing parts of it:
“In social media,I watched few videos made by British Travel blogger Simon Wilson who coincidentally/accidentally unearthed how the good intentions of investment may turn ugly. In Cyprus, a British gangster invested in real-estate in a bid to legalize his wealth which he amassed somewhere else. The investment was not properly planned or done with dubious intentions.It led to unsold houses. Some even went to court to sue the gangster for selling one unit of house to multiple clients 3.
In this case,investment did not resolve the housing problem of the Cypriots and the worst part is that criminal activity spread to other part of the Europe. “
In Moldova, many stranded Russians invested in hotel and commercial spaces after US sanctions had made it impossible to transfer dollar to Russia.Result is too many empty commercial spaces at the heart of the country3.
It is absurd to expect that private sector alone will address the housing woes of the poor and lower income group in a country where land prices keep rising. Government should come forward and nudge the private sector to build houses for the underprivileged class. At the same time, NBR' s decision to raise registration fees is right. It will raise the revenue at one hand and help financing programs aimed at vulnerable groups.
Notes And References
“Dhakae Flat-Plot Nibondhon E Dhosh(Registration Of Flat-Plot Plummets In Dhaka)”,Jahangir Shah,Daily Prothom Alo(P-9),August 25,2023
“Investment Should Not Become Liability “,Rezaul Hoque,https://hoquestake.blogspot.com.September 10,2022.For more read at
https://hoquestake.blogspot.com/2022/09/investment-should-not-become-liability.html?m=1
Simon Wilson's video on Cyprus millionaire,"Abandoned Millionaire Ghost Town In Cyprus". For more see https://tinyurl.com/ytjdn9z7
Simon Wilson on Moldova. See the link:
https://tinyurl.com/3wpsweem
Poultry price hike troubles the people,
Hurts protein need of the feeble,
True culprit hides amid the endless squabble.
Poultry market has become volatile again. This time soaring price of egg is squeezing the pockets of the consumers. Egg is being sold at taka 15 apiece,almost loosing the title of “cheapest source of protein”.Back in March, broiler chicken caused storm into tea cup after 1 kilo had been sold at more than taka 300 per kilo.
Consumers’ Right Protection body inspected the market and found blank receipt /receipt without price and date at the wholesale market. Clear indication of opaque transaction taking place in a country that aspires to become a knowledge based economy. Some wholesalers and dealers put the blame on corporate poultry farms. However,money receipts shown and the so-called representatives of poultry industry interviewed do not belong to the top 15 corporate poultry farms.
In brief, following points emerged out of the egg price debacle:
1 Poultry feed accounts for 70% of the cost and corn and soya account for 85% of the poultry feed. Bangladesh has to import key ingredients of poultry feed and depreciation of taka affected the poultry feed price1. Recent restriction on import by Bangladesh Bank also played a role.
2. Egg substitutes like lower-end fishes (Telapia,Pangush) registered increase in their prices. One kilo is now being sold at taka 200-250. Earlier the prices varied between taka 120 and 130.
3. Ministry of livestock set the price of egg at taka 12 apiece.
4. One industry representatives in a press conference said that egg production dropped because of extremely hot weather in this summer time. Chicken consumes lots of water than feed during this time.
5. Following govt intervention, egg price fell to taka 165/ dozen
Some points need serious scrutiny. Corn prices are falling over the last 10 months.Poultry meat has become cheaper,now taka 160/kilo.According to a news report,students living in hostels found poultry meat cheaper than dozen of egg as more meal can be prepared with the poultry meat.Moreover, quail egg is still cheaper,it is not a popular substitute though.So there are substitutes of egg and they are still cheap. This ultimately stem formation of any cartel.
Price fixing by ministry of livestock to some extent set the narrative against the consumer.
Back in March I wrote “Poultry Meat Gets Costlier”2.Sharing parts of it again:
“Dutch embassy in Bangladesh commissioned a study on poultry sector of Bangladesh. The study revealed that all the farms produced 525 million broiler chicken annually. There are 300/500 farms that have on average 15000 birds and 18000 contract farms that have the capacity to raise around 3000 birds 3.Apart from that there are small and household level farms that raise chicken under open sky. The big farms and the contract-farms jointly account for 62% of the total broiler meat production. Any successful cartel requires that organizational cost be lower and punishment be lower among other things. With so many contract farmers ,it is impossible to enforce such a cartel. And why the big farms shoot their own feet by taking a stance that ultimately allows entry of chicken from neighboring India that has cost-effective solution to rear chicken. People will switch to eat fish and egg if poultry meat stays out of their reach. In that case ,revenue loss will compound problems of the poultry farmers who are indebted to banks,cooperatives and dear ones. The big farms are subject of regular audit by the chartered accountants. Govt ,Competition Commission can check those audit reports to see how much they earn and how they do that. It is not easy to make windfall gain in poultry farming.
However, there is a possibility to influence the pricing of poultry meat.There are 15 big farmers.Interestingly, they also on the list of top 15 Breeders and Hatchers. These farms also furnish chicks to other farmers. It is not known how many of them in feed business. I do not know whether they acquire any hatchery or breeding farm. But their sheer capacity is influencing the input market price. Similarly, it is not known whether these farms have already purchased other farms. But news reports say nature of contract they place before other farms does not allow them to sell their products at their will in a profitable way.Subcontracting farms' profitability shrinks significantly. There is some kind of “tie-in” in that contract.That means nature of the contract to some extent shapes the poultry meat prices. Close scrutiny of the contract between big farms and other farms is needed. Back in 2012,Bangladesh introduced Competition Act 2012. It prohibits "combination" (cartel/alliance) that adversely effects competition in a commodity market(section-21) 4Bangladesh Competition Commission may intervene here.
Govt may also intervene to set up hatchery and breeding unit across the country so that marginalized poultry farmers get chicks and poultry feeds at affordable price. If govt can intervene in telecommunications market then it can also take initiatives to ensure protein for the poor. I think it is not pragmatic to report on commodity prices at retail level. Many western media broadcast prices at wholesale level. Dissemination of retail price and breakdown of production costs through media to some extent sets the “narrative” against the consumers and validates unreasonable price hike.”
Profiteering is pretty common in this part of the world. And we have witnessed how perishable kitchen commodities went through unreasonable price hike. Price hike taking place at a moment when purchasing power of people has fallen and election is knocking on the door. Businessmen were demonized right and left in our command and control economy. I fear this may be used as a pretext to demand election money from the corporate poultry farms. Do not forget ruling party leaders warned loyalists against extortion ahead of August 15, National Day of Mourning. Corporate farms do not control the local bazaars and streets. Whatever outlets they had were shut down, hinting unfavorable business environment.
Policy support towards the poultry industry is what we needed.Just a year ago America made offer to import soy meal from them.I think we have to make strategic ties in this kind of sector instead of military. If we get soya at a convenient price that makes our poultry feed and fish feed cheaper, we could meet our protein need at a cheaper cost as well as capture part of the foreign market.
Central bank may also step forward to their aid by providing subsidized credit or access to export assistance fund. This will help them expanding their farm size as well as bringing the cost of production to a competitive level.
Blame game and witch hunting have become the trend ,which only hides the true reason. Without deep digging into an issue, any kind of character assassination only complicates the problem.
Notes And References
”Eggonomics 101:How Do India, China Keep Egg Price In Check When Bangladesh Fails?”,Masum Billah and Shawkat Ali,Business Standard, August 17,2023. For more read at
https://www.tbsnews.net/features/panorama/eggonomics-101-how-do-india-china-keep-egg-prices-check-when-bangladesh-fails
”Poultry Meat Gets Costlier “,Rezaul Hoque,https://hoquestake.blogspot.com,March 31,2023.
For more read at
https://hoquestake.blogspot.com/2023/03/poultry-meat-gets-costlier.html?m=1
"Poultry Sector Study Bangladesh", Larive International B.V. and LightCastle Partners Ltd,May,2020
Huge pressure of debt obligation,
Govt is in a precarious position.
Downgrading of Bangladesh's credit rating by Moody’s and S&P cast shadow over economy. In addition, Fed's policy rate hike also contributed to raise the international lending rate. Many Bangladeshi companies borrowed heavily from international banks at market rate.
Several news reports indicate that Bangladesh has to pay $12 billion this year alone to respect its debt obligation. Govt has to pay $3 billion and the rest will be paid by the private sector. Dwindling reserves, now stand somewhere around $20 billion, gives little room for optimism that Bangladesh will overcome the debt hurdle1.
Meanwhile, govt keeps raising the fuel price but it is unlikely to get the next tranche of IMF credit package.
Earlier Bangladesh’s repeated failures to clear energy dues had drawn media attention. Govt intervened to settle the matter. This ultimately led to downgrading of credit rating.
Bangladesh Bank removed all kinds of cap on lending and deposit rates in the midst of soaring inflation, aggravated by macroeconomic mismanagement. Consequently, SME credit rate has also increased. Being one of the crucial sectors for creating jobs and economic activities, SME sector also witnessed slow down in growth.
More recently, a series of scam in Islami Bank,one of the biggest provider of SME credit,cast shadow over SME business. One little known Nabil Group swallowed taka 9.5 billion.Apart from that upstart companies and employees took loan in the name of other people who do not know nothing about the loan. In addition, directors of the bank are also accused of corruption and money laundering.So the management board decided to curb the power of branch manger and made it mandatory to take board's prior approval in taking loan excess of taka 5 million. This will evidently lower the pace of credit to SME sector, which is getting less credit as govt and public institutions borrow heavily from the banks.
Meanwhile, harsh climatic conditions augur ill for food security. India banned export of all kinds of rice except basmati. It may also stop exporting sugar as heavy downpour cast a bad spell for sugarcane cultivation. Thailand refused to make early commitment as it anticipates further rise in price of rice.
Despite this upward pressure on price levels, many countries managed to contain the inflationary pressure. In Bangladesh ,inflation shows no sign to abate.
Since govt has huge debt obligation, there is no other option to print money. Loan gets costlier due to credit rating downgrade. So inflation may soar further,which may be ensued by further rise in interest rate. One silver lining is that a participatory election may improve the situation. But if no drastic reform program is taken, economic situation may further deteriorate. Big depreciation of taka may also happen.
Limited access to foreign credit and rising inflation may put further hurdle in economic recovery. Tougher economic policies lie ahead whatever political creed will form the govt.
Notes And References
”Agami Char Mashey Baro Billion Dollar Shodh Korte Parbe Bangladesh?(Can Bangladesh Pay $12 billion In The Next Four Months?)”,BBC Bangla,August 2023.
https://www.bbc.com/bengali/articles/ck7v03wz00vo
Huge subsidy and social security
Sometimes proved their futility.
For the sake of a balanced budget
Cut spending for social pocket.
A recent news report divulged that taka 503 crores of social security spending in support of the poor and underprivileged was marred in corruption. The projects were undertaken by Ministry of Social Welfare and Ministry of Planning own probe found gross irregularities in those projects ranging from no presence of greenhouse supposed to augment income earning opportunities, inadequate training programs, misappropriation of funds and so on. As project budget less than taka 500 million does not require cabinet’s approval, these projects were subject of widespread corruption1.
Back in August last year,I penned this piece titled “Flawed Incentive Programs”2 to highlight the ineffectiveness of social security spending due to unwarranted corruption. Sharing it again:
In recent weeks, series of reports laid bare flaws and inefficiencies attached to social security programs and incentive packages designed to assuage Corona-battered business community. Built-in corruption in management and disbursement of funds of the programs, as exposed by the news reports, once again undermines people’s trust on government at a moment when it badly needed their support to mobilize resources on measures to restore COVID-hit economy.
A news report divulged that Ministry of Social Welfare detected some 87,000 fake beneficiaries who swallowed benefits under social security programs3. The matter surfaced when the ministry is implementing digitization of accounts of beneficiaries. So far 7.6 million accounts have been digitized and 2 millions await to join the list.
Another program designed to augment income-earning opportunities for the poor has come under criticism after a government report found irregularities. The 12-year-long "Amar Bari ,Amar Khamar( My Home,My Farm)" benefited 5.7 million people,but 1 million beneficiaries were identified as affluent, not eligible for such program4. Department of implementation,monitoring and evaluation of Ministry of Planning in its report found that 1 million ,17% of the total beneficiaries, fake beneficiaries took interest-free credit reserved for the poor under the “Amar Bari,Amar Khamar” Project(2009-2021) ,costing TK 78.85 billion of taxpayer’s money. Some swindled the credit for 12 years.
Not only social security programs, irregularities can be traced even in Corona incentive packages for businessmen. Government allotted credit of Tk 300 billion for big businesses and credit of Tk 150 billion for SMEs at subsidized rate of interest. According to a news report, many businessmen misused the credit by repaying old debts,investing in share market and purchasing flat 5. It derailed the objectives,propelling economic activities, the credit package initially conceived of. Instead of bringing the pace in manufacturing, retail and SME activities, misuse of the fund makes it unlikely to avail more soft credit in the future. So cash-strapped SMEs will face further problems to manage working capitals for their businesses.
Earlier 22000 fake freedom fighters had been detected in freedom fighter allowance program. Facing a barrage of criticism, government hardened the procedures for identifying the true freedom fighters and discarded the fake ones from the list.
Even corruption mars "home for the homeless" project,which is being implemented by Prime Minister’s Office. Use of substandard materials, project site on flood-prone land and bribery called into question the objective of the whole project.Even PM' s office has started probe in 36 upazilas6.
My own survey on rickshawpullers for my site reveals that only a minority of the true target population receives the social security programs. I interviewed 43 rickshawpullers and only three subscribed to any of these programs. And all of them were relatives of local representatives who are responsible for running the operations of social security programs at grass root level. 7
The revelations expose inefficient management of public funds and waste of taxpayer’s money. This will further hold back widening of social security programs and implementation of post-COVID efforts.
One thing is apparent that most of the scams in social security programs got exposed while digitizing the database. If mobile operators and mobile financial service providers can sell SIM and open accounts with biometric verification why can the government not go for this step to identify the beneficiary population?Bangladesh runs an array of social security programs from allowance for senior citizens to allowance for freedom fighters. These programs cost Tk 641.76 billion in 2018-19(Source: Bangladesh Economic Review 2019) and in 2021 rose to Tk 955.74 billion. Even tiny scam could wipe out thousands of crores of taxpayer’s money. Seldom heard or reported in the press about the fact that other government agencies had given prior information about murky affairs or shoddy dealings in various programs run by ministries. This fund may fall in wrong hands and may be used to stir trouble at home or abroad or weaken democracy and democratic institutions. So there is no reason to take wasting of taxpayer’s money slightly.
Ensuring accountability of all government organizations is the key to plug the holes /leakages in management of public fund and resources. If this continues without any checks, people’s trust on government and government institutions will erode and their support on undemocratic forces may rise. Just throwing the money in gutters in the name of ineffective social security and corona incentives only swell the pockets of a certain quarter who excel the art of misappropriating public funds and those who have evil intentions to cause trouble at home and abroad. Amending the laws to hold all the quarters accountable to constitutional bodies is the first step to stem corrupt practices.
It appears that mismanagement and misuse of public money have become contagious. This tendency only wastes our valuable resources. “Public investment” at the end of the day is just a big failure and a waste of time and money. In a country where caring of public resources, accountability are absent, there is no point to run subsidy and social security programs that hardly meet the intended goals. Removing/downsizing some of the social security programs and cutting subsidy will be a much more desirable move in the wake of growing budget deficit and current account deficit8.
“Flawed Incentive Programs”,Rezaul Hoque,https://hoquestake.blogspot.com,August 08,2021. For more read at
https://hoquestake.blogspot.com/2021/08/flawed-incentive-programs.html?m=1
”87000 Bhatabhogir Khonj Nei(No Trace of 87000 Beneficiaries)”, Najnin Akhter,Daily Prothom Alo, July 26,2021.
“Gorib Sajlen 10 Lakh Sochchhol(1 Million Affluent People Played Poor)”,Arifur Rahman,Daily Prothom Alo,August 02,2021.
“Pronodonar Taka Noy Chhoy(Misuse of Incentive Money)”, Daily Prothom Alo,July 26,2021.
“ Ashrayan-2 Project Scam: 36 Upazilas Under Scanner”,Ali Asif Shawon, Dhaka Tribune,July 06,2021. For more read at https://www.dhakatribune.com/bangladesh/2021/07/06/arshrayan-2-project-scam-36-upazilas-under-scanner
"Another Flawed Incentive Program?",Rezaul Hoque,June 10,2022,https://hoquestake.blogspot.com.For more read at
https://hoquestake.blogspot.com/2022/06/another-flawed-incentive-program.html?m=1
