Thursday, September 25 2014

VOL 21 NO 309 REGD NO DA 1589 | Dhaka, Thursday, September 25 2014

http://www.thefinancialexpress-bd.com/2014/09/25/58082

Bangladesh needs strategic plan for investment

M S Siddiqui

All, from Adam Smith to the present time-economists, are now focussed on specialisation and
division of labour for efficiency and economic growth. The neoclassical economists' emphasis is
on investment in physical capital and infrastructure and, more recently, on other mechanisms
such as education and training, technological progress, macro-economic stability, good
governance, transparent and well-functioning institutions, firm sophistication, demand
conditions, market size, and many others.

The relationship among competition, competitiveness and development is receiving increased
attention in the light of globalisation and its implications for sustained economic growth and
welfare. The determinants of competitiveness are many and complex.

The Global Competitive Index (GCI), measured by the World Economic Forum (WEF), gauges
national trade competitiveness and future challenges of different economies. Competitiveness is
defined by level of productivity with which a nation utilises its human, capital and natural
resources.

The national competitiveness is the ability of nation-states to produce, distribute and service
goods in the world economy in competition with goods and services produced in other countries,
and to do so in a way that earns a rising standard of living. Definitions of national
competitiveness place emphasis on maintaining and expanding domestic real incomes. The
Organisation for Economic Co-operation and Development (OECD) defines competitiveness as
'the ability of companies, industries, regions, nations or supranational regions to generate, while
being and remaining exposed to international competition, relatively high factor income and
factor employment levels on a sustainable basis'.

A country's competitiveness is widely accepted as the key driver for sustaining prosperity and
raising the well-being of its citizens. Enhancing competitiveness is a long-term process that
requires improvements across many areas as well as long-lasting commitments from relevant
stakeholders to mobilise resources, time and effort.

Trade liberalisation and open market of foreign direct investment have created opportunity and
challenge for enterprises in developing economies. They are taking policy measures to face the
challenge and take the advantage of free market entry. One of the main policy issues that the
competitiveness of business enterprises integrate into the world economy depends to a large
extent on their acquiring the necessary capabilities to apply available technologies and innovate,
and on the domestic availability of competitive supporting infrastructure, human and financial
resources and services.

The other measures are (i) supply capacities at the systemic level, (ii) concentration of market
power, which is both an outcome of global competition and a threat to global competition and
(iii) the consequent need for the strengthened application of competition principles.

The WEF adapts to a methodology with three stages of advance in terms of competitiveness that
are defined by the different pillars integrating each stage: (1) the factor-driven stage; (2) the
efficiency-driven stage and (3) the innovation-driven stage.

The WEF, in its different reports of assessment of global competitiveness, used 12 pillars for
competitiveness divided into three groups. The Global Competitiveness Report 2014-2015
revealing GCI index assesses the competitiveness of 144 economies, providing insight into the
drivers of their competitiveness, productivity and prosperity. The study was conducted by the
Centre for Policy Dialogue (CPD) and it has been simultaneously presented to media by the CPD
along with other partners of the WEF in 140 countries. Bangladesh ranks 109 in this survey.

These different pillars affect different countries differently. According to the GCI, in the first
stage, the economy is factor-driven and countries compete based on their factor endowments,
primarily unskilled labour and natural resources. The enterprises in business of manufacturing
products and services stationed in different countries compete on the basis of cost of products
and prices they can offer to global buyers. The enterprises in developing countries work with
their low productivity reflected in low wages. They can maintain their competitiveness at this
stage of development relying primarily on well-functioning public institutions, well-developed
infrastructure, a stable macroeconomic framework, and a healthy and skilled workforce.
Bangladesh naturally falls in the factor-driven group.

The GCI, determined by weighted average of different components, means the 12 pillars of
competitiveness. The first group is related to the basic parameters: institutions, infrastructures,
macroeconomic stability, health and primary education. The second group represents the sources
of efficiency, efficiency of health and primary education, efficiency of markets and products,
efficiency of labour markets, sophistication of the financial markets, opening up to technology
and size of the market. The third group concerns the sources of efficiency: sophistication of the
enterprises and innovation.

The WEF views competitiveness as the potential of a country to grow in a sustained way over
the medium to long-term and thus create prosperity for its citizens.

The GCI defines competitiveness as a set of institutions, policies, and factors that determine the
level of productivity of a country. The level of productivity, in turn, sets the sustainable level of
prosperity that can be earned by an economy.

The World Economic Forum calculated the GCI for measuring national competitiveness, which
captures microeconomic and macroeconomic foundations of national competitiveness. The
Global Economic Forum (GEF) defines competitiveness as a set of institutions, policies, and
factors that determine the level of productivity of a country. The level of productivity, in turn,
sets the sustainable level of prosperity that can be earned by an economy.

Nations determine status factor-driven stage of development on the basis of two independent
criteria. The first criterion is the level of GDP per capita income of minimum US$2,000. A
second criterion measures the extent to which countries are factor-driven. It is measured by the
share of exports of primary goods in total exports (goods and services) and it assumes that
countries that export more than 70 per cent of primary products are to a large extent factor-
driven. Bangladesh is exporting basic garments in global market and the share of garment export
is 76 per cent of the total exports.

Some of those including Bangladesh along with other 38 economies are in the factor- driven
stage where the countries depend crucially on their endowments -the sub-index is built over basic
requirements including institutions, infrastructure, macroeconomic environment and health and
primary education. These are features of some basic conditions of development; in this stage,
most of the countries are low-middle income economies.

Secondly, in the efficiency-driven stage, countries compete on quality and their production
processes are improved; the sub- index of this stage is efficiency enhancers and contains pillars
higher education and training, good market efficiency, labour market efficiency, financial market
development, technological readiness and market size.

The middle income countries (MICs) are mainly oriented by this efficiency-driven motivation
since most of the countries in the group are placed in this stage. China and other 31 economies
fall under this stage.

The third stage is more sophisticated since it is innovation-driven, a stage where countries must
try to replace technology imitation strategies and they should definitively embark on innovation.
All the developed and some other 37 economies including Malta, Puerto Rico, Trinidad and
Tobago are in innovation-driven stage of development.

The Bangladesh economy has been integrated to global economies about 65 per cent by joining
global supply chain, particularly readymade garments. It is still the supplier of low-cost garments
and has much more opportunities to make the most of its export opportunities on the changing
international playing field.

Bangladesh's average annual GDP growth is more than 6 per cent. The past decade's boom in
exports, particularly the apparel sector, is very significant to the country's economic growth. The
GDP growth has been impressive over the decade, and could have been even higher but for
policy and institutional weaknesses in important investment areas that have been identified as
main barriers for economic growth.

But Bangladesh has a GDP growth of about 6 per cent and the Global Competitiveness Index
around 110 indicates a stagnancy in both the indicators. The improvement of competitiveness of
enterprises and by default competitiveness of the economy will increase the growth of GDP
further and can achieve the middle-income status in future.

The proven studies of the World Economic Forum and the GCI suggest that Bangladesh needs to
follow a strategic plan for investment on basic requirements including government institutions,
infrastructure, macroeconomic environment, health and primary education.
The writer is a legal economist.
shah@banglachemical.com