err ue Uo ie oes tun tenn 1) X ay 6 i IVE Supply. Chain Social Responsi DYN earns Business & BeyondThe Executive Times ¥. 11, Lssue-V7, January 2013 Founder Editor: Limi S. Mostafa he coming to power of the ‘eat alliance fed by Awami Teague may have been a Editorial Boer Edilor: Mohatned Golam Mo Managing Edlor: Shisin Jahan Advisory Filter Romnel S. Mostsla, Ph.D. tribute to democracy, but most of what has followed since may well portend going back to square one. Many demoeraey lovers Business Strategy: Syed Ayar Rabi ‘Bureau Chief, USA Abu Hena Mestala Kanal, PhD. Healt Dosk: Dr. Pavel Shattior Mo ‘Senior Columnists Rodney Ree, Georg Gadow, PhD. Regular Contributors: Nashuk Rabmar Mastfique Bahu Ad. Neen Hea Mobile o1911771037, 01611771037 Executive, Markotlng: Mohamad Mashing, fend to forget thal the constitution that the UK boasts today is the product of an agonizingly long process since Protec: torate and that the US is constitutionally way too different liom what Philadel- phia Convention originally allowed for We often overlook the fallacy of the ‘middle term in concluding that since de- tuocracy is working in India it will work in Bangladesh, This is not 0 say that Bangladesh should be an undemo- cratic county; she can be more demo- Cover & Graphic Dasign :Shshiel stam Corporate Offee House 3, hoa 15,Secor 11, Urea Disk 230 Phone S| Fae 880-22901856 val eion@eecines com Web swaiencctinescoo arexectiestlnemlt com exectines nila cratic than her neighbour for that mat ler, realities permitting. The point is slemocracy in Bangladesh should evolve naturally i keeping with the nation's indigenous characteristics and not be Gictated by ideological vagaries," ‘The problem with a analyte mind i su unilng customer of conventions UKOtiee Cosel ay Ld lease Mil ise Aberdeen, AD HGEY, UK Phones #40 1224580142 US Bureau Office 3351 Tracy Dr Sania Chae, Ch 95051 Phos (i) 24 3544 le rap fo Aalst Mele, Disks-1207 onl [ana Teade aa Pu Prine s/s. neni, TIS Pakrpt Dae Di The Executive Times Rag, No, DA-62 wisdom, it seeks to see beyond the line drawn, at times by venturing into no-go areas. But while critics have bigger mouths great people criti ized have bigger stomachs and those that are responsible for the deliverance of a nation fom abysmal anarchy are doubtless greater than the great so it should not be too lange a serving for the doliverers, who are politicians by natural choice, to digest if they were deemed incorigibly irvesponsible until the tight moment when they prove the real people wrong by siopping mu EDITORIAL Singing and getting out oF the quagmire of bitter rivalry they are currently bogged down inta, still tomains to be determined whether itis the inkeremt weakness of domoctaey or the passion for power that riceds to be addressed on a priority basis order to forestall yet another political crisis being prognostieated by many an alysts. Aristotle writes, "... desire is a wikl berst and passion perverts. the minds of lets, even ifthey are the best of mien." [And women as well, coustesy of Bangladesh polities.) What the wise philosopher forgets to mention of rather disregards for its being common knowl- ccdge is a notmal human being hs both passion and desire and that rulers ate supposed to be normal human beings. ‘Thetefore, if Aristotle is right — critics are known not 10 have discredited the ‘aphorisin — there has to be some kind of perversion in the psyche of the ruler and ~ by extrapolation ~ there has to be some abuse of power. Abrabamn Lincola's rhetoric ‘the povern- ment ofthe people, by the people, and for the people's at best an etymological Iltustation oF the Greek demokratia with’ relevance only to ancient city stated in Greece. Democracy today is essenfially representative in nature and it is popular in the sense that itis the people who choose their representatives through a process called ‘election’ in valving seetct ballot, Nov if there were to be no guarantee that power is not abused to the extent that election results do t0t reflect the opinion ofthe miajori- ly of the electorate, would demuctacy lovers still have reason to rejoice? combination of exclusive & exquisite apartment * banani « Gendaria « Khilgaon BUILDING FOR FUTURE LTD. Ror arer ect nanir paket ti ieetie Cecn Gaerne CORR TUIEILY LT, Cansei ch ci) Badda Uttara Si atten ne) PEPER » Dhaka Cantonment « Malibagh UENCE BOs Cu eTJanuary 2013 Business & Beyond Editortal.. Readers’ Forum Briefings... Medley... 36 CHCA eenrneennrned2 Others. Politics and POWEF. ms The Curse of Simplicity. Supply Chain Social Responsibility... HR's Diary, HICM Professionals’ ‘New Agenda and Challenges.... ECONOMIC OUTLOOK 2013 AB Higher Education in Bangladesh... ‘When the Whim of Humans Combines with that of Nature... Ce Decorating Your HOME... Nail Care, Give Your Business A Professional Touch err fnoare nd xv nH gee pat gig viernes so the f ent on ee Ales ett Pans 6 Co eee InpFvcatin Co Q od Poa at Cornet Apaitment-/2,Gulshan-2, Dakae 212 Laas ese) Por crSTORY COVER Bangladesh Economy Although, compared with the ‘corresponding period in FY2012, remittance increased 7.41 percent standing at USS6110.57 million in the first S months of FY2013, and exports in July 2012-December 2012 registered 7.01 percent growth, these two most vital sectors of the economy are likely (o be affected by the spillover effects fiom the economic slow-dovin in developed countries. Moreover, the country remains vulnerable to political tancertaintes Centre for Policy Dialogue (CPD) holds the view that it is unlikely that the 7.2 pervent growth target will be achieved, The think-tank predicts the gap between SFYP and actual performance will widen ancl ‘conttactionary monetary policy wilh continue, Mustafa K. Mujeri originating from the domestic poi ddovelopments and global eeonomi ainlies, the real GDP growth rate daring FY2013 is somewhat difficult to predict as it could be pushed to quite Expert Input from Dr Mustafa K. Mujeri, Director General, Bangladesh Institute of Development Studies (BIDS) AAs the curtain falls on the year 2012, the eurtent economic trends show mixed outcomes for the Bangladesh economy, Despite significant odds, Bangladesh has maintained « reasonable macroeconomie stability and « good growth momentum. Fiscal discipline has improved and a robust growth in remittances despite slow ‘export growth has ensured a comfortable foreign exch: 4971.06 Tis also important to rem the Bangladesh economy is still struggling to restore its dynamism in the aftermath of the globat economic and financial crisis of 2008-2009. tn axddition, the country now ices the dowaside tisk of a disorderly sovereign debt default in Burope. The economic visks of a deepening euro crisis could | have significant ramifications for the world financial markets and the global economy. This could ereate significant impact on the Bangladesh economy given its close economic and financial linkages to enro zone economies through trade and other channels, 2526.1. i Jn view of the downside risks 18) The Executive Times -_ Bxport Performance for July 2011+ dlavergent paths depending on the nature of outcomes during tine remaining period of the fiscal year, the soclo- political environment does not undergo ny drastic changes an the global economic conditions remain positive, then the GDP growth in FY2013 would be similar to last year's performance and could remain at around 6.5 percent in FY2013, {n 2013, one of the major macroeconomic challenges is to push the economy fo the higher growth path without any further delay as envisaged in the Sixth Five Year Plan. This requires a rapid expansion of proxluetive capacity of the evonomy ‘which at present is determined mostly by factor accumulation rather than growth in factor productivity. The rather stagnant share of investment in GDP at around 24 percent over the last tow years is therefore a major cause for concern, Bangladesh needs to raise its investment rate by at least 3-4 Total expo. 055 1255973 non 4975.89 Knitwear 8 Woven Garments » Others wee 201 muatspanUS$11776s0 me 479153 Knitwear 8 Woven Garments The US economy will grow by 1.8 peteent, with inflation at 1.4 percent > Hurt by deleveraging, the euro area economy will register nogative growth of = 0.3 percent, Inflation is expected to be 2.2-percent » In China growth will slide to 7.4 pereent and inflation will be as high a8 3.0 percent, > The UK: remaining valnerable to an implosion in the euro area economy, the countty’s real GDP growth’ is projected to be 1.1 percent percent, ind inflation 2.2 > Although Germany is experiencing a trend of increase in domestic domand and improvement in the construction sector, growth will be a modest 0.8 percent while inflation will be 1.8 percent, > With Australia facing the prospect of a decline in commodity prices that would hhust consumption and investment, the coun be 2.7 percent and inflation 3.0 percent > Growth in Japan will likely be 0.7 pes x real GDP growl is expected to il inflation O'F percent > Russia will ikely registor 3.3 percent growth and 6.6 percent inflaton. > With home prives in South Korea abilizing, the country 34 percent, with inflation at 28 percent. > France will find it difficult to mect it ‘expected to grow by 3 pervent public deficit target for 2013, and is likely to register 0,0 percent growth and 2.1 percent inflation. > With declining exports counterbalanced by i easing domestic demand, Swiss economy will grow by 1.1 percent and inflation in the country will be 0.3 perceat. > With unemployment rising and disposable income shvinking, Italy will see «1.3 percent growth and 1.9 percent inflation, > Spain will register-I.7 percent growth and 2.8 percent inflation The Executive Times [18provide strong perception for not being, tnuich optimistic at this stage about achieving this growth tanget. Pessimism ay prevail on aecount of a slowdown in global economy, especialy ctisis in the Euro zone, poor state of governance, infrastructural problems, political problems etc. A recent report published by Bangladesh Bank projected the country’s real GDP to {g10W at 6.2 percent in fiscal 2013 although the government has set the growth target at 7.2 percent, The Central Bank's forecast was made following the seetoral growth projections and their contributions to {the national income, However, the World Bank earlier projected the Bangladesh economy to grow at 6 percent in the fiscal year 2012-13. Available literalure suggests that the ‘country's real GDP has doubled over the last 20 years. It is necessary to attain investment-GDP ratio up to 30 percent from the existing 24 percent. ‘One of the major challenges of the GDP growth is to combat inflation. Ieis ‘observed that the point to point and the 12: month average inflation rates are expected to remain in single digits in fiscal year 2013. The inflation was recorded at 11.97 percent in September 2011. Recently, ithas been showing @ declining trend, falling to 7.39 percent in September 2012. This may have some positive impact forthe target Gop. ‘The possible hike in fuel price will have negative impact on the overall economy and especially on the attainment of the target GDP. The possibility of upward adjustment of fel prives represents risk to the inflation outlook as does the possiblity of volatility in the global commodity market. Another important Factor determining the GDP growth is to attain the target export level. Export largely depends nainly on two factors, ie, increasing production and maintaining attractive export price in order to be in the competition in the international matket. ‘Aclose study on this issue reveals that there is a slowdown trend in the projected export. A recent report suggests that the estimated! industry growth is in the range of 7.5 percent to 20) The Executive Times COVER STORY 7.15 percent in the fiscal year 2013 which is lower than the sector's growth rate of 9.47 percent attained in the fiscal year 2012. Morcover, uneertainty in Bangladesh's leading trade markets poses risks (0 the attainment of accelerated growth. At present, the country's 60 percent RMG products center the BU, 23 percent goes to the USA, 4.8 percont to Canada and 12,1 percent (0 other destinations worldwide. Adverse globat developments have restricted our exports recently, both RMG and Non- RMG, Moreover, high unemployment, low business and consumer confidence and volatility in the financial sectors remain major threats to Bangladesh's The accumulation of labor and epital is another determinant ofthe GDP growth rate, [n this case sustained higher growth ean be attained from an inctease in Gross Domestic Investment, I's also dependent on the Ineromental Capital Output Ratio, Recent studies show that a decadal average of 4.8 pereent growth inthe 1990s 0 5.8 percent average growth in the last ‘decade was prompted by rise in the investment rate from 17 percent in the fiscal year 1995 to 23 percent in the fiscal year 2000. From both theoretical and practical perspectives, investment is a binding constraint on growth Without resolving this problem there is litle hope for reaching the height of 7-8 two major export markets, Europe and percent GDP growth, essential to the USA, accelerate the target growth of “Observations & Roreeasts made by the UN: + During 2012, global econiomie growth has weakened futher. A growing number ‘of developed economies have fallen into a donble-dip recession. «Growth of world gross product (WGP) is’ expected to: yeacl 2.2 per-eent in 2012and is forecast to remain well below potential at 24 por cent in 2013 ‘> For many developing countries, thé global slowdown will imply a inuch slower pace. of poverty eduction and narrowing: of fiscal space for investments in ‘education, Health, basic. sanitation and other ctitical. aveas’ needed. for acoelerating the: progress: toechieve the Millennium Development Goals (MDGs). «Inthe baseline outlook for the euro area, GDP is expected (0 grow by only 0.3 per cont in 2013, ‘© In the baseline’ outlook, GDP. growth in’ the United States. is forecast to decelerate to-1.7 per cent in'2013 from an already: anemic pace of 2.1 per cent in 2012, ‘» The economies ofthe least developed countries (LDCs) are expected to rebound in 2013. GDP growth is projected to average 5.7 per cent in 2013, up from 3.7 por cent in 2012, 4 Japan's GDP is forecast to grow at 0.6 por cont in 2013, + On average, economies in Affica are forecast to see a slight moderation in output growth in 2013 to 4.8 per cent, down from 5.0 par cont in 2012. «The economies in developing Asia have weakened considerably during, 2012 as the region's growth engines, China and India, both shifted into Lower gear. + GDP growth in Latin America and the Caribbean decelerated notably dving 2012, Jed by weaker export demand. ‘Among economies in transition, growth in the economies of the Commonwealth of Independent States (CIS) has continued in 2012, although it moderated in the second half of the yeat: «GDP for the CIS is expected to grow by 3.8 per cent in 2013, the same as in 2012, © ‘The world is far from. being on track (0 reduce emissions to the extent considered necessary for keeping carbon dioxide (CO2) equivalent concentrations to less than 450 parts per million (consistent with the target of stabilizing global warming at a 2°C temperature inerease, oF less, from pre- industrial levels) January 2013‘A.A:Mahboob Uddin development, Favorable policies and stitutions are requited to address these issues. Analyzing the present situation it can be said that Bangladesh faces a lot of challenges in attaining her target GDP and if the country can face these challenges efficiently it would be possible to attain a GDP growth rate of around 6 percent in the fiseal year 2013. “The year 2012 was one of the challenging years for Bangladesh from the economic perspective, The banking industry was one of the much talked about issues in the history o Bangladesh, Interest rate deregulation along, with the setting up of banks in the private sector led to an inorease in the real fending rates. The widespresd coltare of loan default has led to arise ina high cost of financial intermediation by financial institutions reflected by the large spread between the deposit and fending rates of interest. Because of the inefficient and cortuption-ridden banking system, a large part of the eredit flow would turn into bad loans, Recent studies reveal that bad loans increased by Taka 7,282 crore to Taka 36,282 crore in the third quater tll September 2012 as a significant amount of loan related to the rocent scams was rendered classified. ‘That excludes the more than Taka 3600 crore that Hall Mark and five other companies swindled out of the Sonali Bank Limited. The Figure would rise to 40,000 crore when the amount is January 2013 co Mahfuz Kabie added to the classified category. Waves of scams in state-owned banks, involving thousands of crores of Taka have shaken up the industry as well as the regulators. Much of the money went out of the bank's coffers in the name of Joan against forged documents Non repayment of bank and other Financial institutions’ loans also create severe problems for recycling loanable funds for financing nev investients and the effectiveness of loan utilization is reduced by low equity participation and by diversion of funds for non investment purposes. The reasons for foan default on such a targe scale ate also aggravated by politically influenced loan given by publie sector loans and insider loans given to owner director by private sector banks and the ‘weakness of legal and institutional provisions for loun recovery. Phe recent VER STORY A.E.M,Ataur Rahman Hall Mark scam will severely affect the total financial sector Analysts observe that in the case of Sonali Bank the top management hias demonstrated its sheer negligence in safeguarding depositors’ money, What 8 worse, some, ofthe officials joined hhandls with the scamsters, making the swindle all {oo easy. Thus, the role of the board, the management and the central bank are questionable in the tind of general people, policy makers, planners and others concerned. tis the foremost need of the time to lake up the natler very seriously and take stern ‘tion against the involved and recover the money within the shortest possible time. Otherwise, the total economy and financial sector will have to pay a huge price fori In addition, the stock market has been 400% 3.90% 3.80% 370% 360% Global Growth Rates ‘Original Revised 3.90% 350% 340% 330% 320% 2.1085 3.00% ‘The Executive Times eLpassing through 1 recession for the last two years, Apparently, there is no indieation of recovery yet. The Government and the regulators were giving us hope of early recovery but there is not much (alk about it any more. Investors are perhaps too frustrated 10 hold protest rallies in front of the exchanges. Thousands of them are back home after losing their capital and in some cases borrowed capital Stock market index started declining at the end of 2010 andl the process is still continuing, Seventeen new securities, sixteen equity stocks and one mtu fund, raised 1,186 crore from the stock snarket through Initial Public Offerings (POs) this year according to Dhaka Stock Exchange Limited. However, the now IPOs were not sufficient to inject vigour into the market, which is characterized by volatility with the key index remaining in the ted for the second year since a price debacle in January last year: Although the Bangladesh Securities and Exchange Commission modified the books building method, a price discovery system for IPOs, no company used the mechanisin. Finaneial experts hold that the number of new IPOs could have been higher in 2012 if the market remained stable. Moreover, due to availability of securities in terms of both quantity and quality, and organizational and legal restrictions on 24) The Executive Times Scourity investnent, it was reveated that institutional investors ae not active in the market, To improve this station the supply dP secutites can be increased by giving incentives for ising of securities and by off-loading government shares tothe stock tnarkets, Another important challenge is ‘government revenue, In Bangladesh, ‘only one million people are paying tax ‘ona regular basis, leading to a poor tax-GDP ratio, The major sources of revenue ate from value added tax i.e, indirect tax. Moreover; the wealth distribution is not equitable. Only 5 percent of the country’s total population are the owners of 40 percent assets, Ili desirable to come Forward with appropriate policies to minimize the ‘gap to the desired fevel thus increasing ‘government revenue that ean be used for the evonomie development process ‘The overall budget deficit forthe Fiscal year 2012-2613 has been projected at 5 percent of the GDP. To bridge the deficit the government's domestic: borrowing from tion banking sources has been projected at Taka 104.84 billion For fiscal year 2012-2013 which is Taka 51,30 billion higher than the level of Taka 53.54 billion undee the revised budgct for the oulgoing fiscal, ‘Moreover, the government borro. from the banking sector may limit the credit flow to theprivate sector and limit the target expansion of economic: activity. The government has to address this issue seriously so the eredit flows to private entrepreneurs are not hampered. ‘The Central Bank should undertake appropriate Monclary Poliey by considering the realistic need of the financial sector. They should be more vigilant in the market — something that was absent int the past A tion-performing regulatory framework is evident in the financial seotor of Bangladesh. The reasons rest fon the fact that Bangtadesh went for financial liberalization without providing adequate regulation and supervision for the financial January 2013institutions. Notable examples are the share market debacle in 1996 and 20(0, Destiny seam and the recent Hall Mark scam, For tte stock market tnanipulation the enquiry reports were not taken into consideration and the responsible persons and institutions behind the game were not punished. ‘These have had adverse impact on the stock market, The role and steps taken by Bangladesh Securities and Exchange Commission (BSEC) were not up to the desired level to address the issue. Appropriate steps need t0 be undertaken to bring back the lost confidence of the investors by addressing the issucs and their eoncem properly. ‘The success of the economic activity depends on good governance. It is necessary to exercise the economic, Political and administrative authority to manage @ country’s affairs. Good governance is thas @ much talked about issue in the development context of a country intespective of its nature, Bangladesh, being one of the corrupt ‘counties in the world, needs to focus special attention on this issue. The recent Padma Bridge issue also has negative impact at national and international levels. It is expected that the government should address the issue property. Otherwise, the external Financing from abroad will not be available as and whon required, which may create severe financial constraints for the economy and the country as a whole, In view of the above analysis it is suggested that underiaking appropriate policy measures and their proper enforcement and utilization, inex public awareness and development of governance sinucture i, enforcing regulation, ensuring transparency, increasing efficiency, ensuring regulatory watchdog, supportive adininistrative culture, efficient institutional framework, restricting financial malpractice and any for of market manipulation are essential for addressing the maero economic challenges that the country és facing in her development process. If we ean auddress these issues rightly then the economy will be able to step 10 its sound footings and realize its dream for development in the years to come. weed January 2013, 8 TO RY : COVER Expert input from Dr He Change iver | Mahfuz Kabir, Senior Research Fellow, Bangladesh Institute of International and Strate Studies Growth is indeed one of the most debated and sensitive questions at national policy level and amongst influential international communities like World Bank (WB), International Monetary Fund (IMF) and Asian Development Bank (ADB). In early October 2012, IME predicted the growth in FY 2013 to be 6.1 percent, while in late-October WB saiel the economy would grow at a rate around 6 Percent, significantly lower than the government's projection of 7.2 percent, because of ongoing global fixancial crisis, ADB was a litle bit generouts in catly-December ? it predicted the GDP srowth to be 6.2 percent. ‘What do these numbers mean? The mighty global players are ercating an autifivial pressure on Bangladesh Bureau of Statistics (BBS) on exer its ‘objective! authority in national income accounting, In fect, Bangladesh isa land ofall possibilities that boldly trashed s0 called hypothesis, ‘test case of developmen’. Even thew the major determinants of cconomi growth performed gloomily in the frst half of FY2013, there is still a chance for the economy to return to the stipulated growth path with the blessings of stimulating remittance inflow and positive change in expps in the last months 6F the outgoing FY and the first few months of current FY was really frightening but now it has come back to the positive track, In July-Novemiber 2012 exports eaming was around 44 poreent higher than that of the kat yeuts period, while November 2012 ‘alone experienced nearly UI pereent higher export earning than that ofthe same month Of the previous year, Our ccconomiy is highly linked with the slobal economy in almost all aspects, imports follow exports, and vibration of dlomestie economy depends largely on external sector; this retum will greatly help in economic performance if it suistains along with greater remitianee inflow and agricultural production ng Growth is exogenous in the Figure 2: Actual and Projected Real GDP 4450 4500 “4150 4000 3850 3700 13550 3400 = Projected. aoe m= Obserbed a 2010-11 2011-12. 2012-13 2008-09 2009-10 are Bast on the Sint Five Your Plan (20112018), The Executive Times 23