Bangladesh Business Second Issue

April 200902

BANGLADESH

BUSINESS

Editorial Board Farook ChowdhuryDerrick SanyahumbiKhademul Islam

Editorial Staff Mostafa Zaki HaiderMushfiq WahedZahidul Naim ZakariaAhsan SajidKazi Raisa AshrafiTahmina ShafiqueMohteshamul HaqueTasmiah T. RahmanFarheen Rahman

Cover Photo Shafiq Alam/ Drik/ Majority World

Additional Photos Saikat MojumderZaqiul Islam DeepM. Yousuf Tushar/ Drik/ Majority World

Publisher

Euroconsult/BMB Mott MacDonald6 Gulshan AvenueSuite D4 (B. Aristocrat)Dhaka-1212, BangladeshPhone: +880(2) 9880806

+880(2) 8810456Fax : +880(2)9890977E-mail: [email protected]

Design and Layout

SW Multimedia Ltd.Plot 56/C, Road 1325th and 6th floors, Gulshan South C/AGulshan-1, Dhaka-1212, Bangladesh.

Printers Binimoy Printers37/2, Purana PaltanDhaka-1000, Bangladesh.

www.bangladeshbusiness.biz 03

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Publisher's Note

The theme of the second issue of Bangladesh Business in a sense was easy todecide. In between the magazine's first issue and this one the nation underwent

a fundamental change. The caretaker government, while its tenure admittedly wentbeyond the constitutional writ, did hold a general election widely held to be credible.In a sweeping change that radically altered Bangladesh's political landscape theAwami League assumed state power and authority in an overwhelming electorallandslide. Now Bangladesh is again a democracy with a functioning parliament. Butto the degree this new political dispensation functions, what generally does it meanfor the country at large? This particular topic has admittedly been one that has beendiscussed almost threadbare in various public media and forums, especially duringthe much-heralded 'first 100 days'. But for us the question was far more specific:what does it mean in terms of the private sector and the country's businesscommunity? It was then that we decided to look at some issues which are critical tothe private sector in terms of its future role and function, and in relation to theeconomic issues detailed in the manifesto of the governing political party. The latterexercise was taken in recognition of the fact that the form and nature of politicalconventions are changing in Bangladesh: detailed party manifestos are a necessitynowadays, debates and talk shows have made them central to public discoursesabout present conditions and future direction of the nation, and with notions ofaccountability have now become firmly lodged in the public mind.

It was in this context that we decided that this second issue would focus on certainkey aspects of the economic section of the manifesto, to explore what has beenpromised and what that promise actually entails in terms of economic challengesand performances, and to what extent could the business community, whoseconfidence was shaken during the caretaker government's regime, realistically expectconditions to improve and prosper. In this effort we were considerably aided by thefeedback provided us by our readers to the first issue (some of which have beenpublished in the Letters section), who responded with a gratifying enthusiasm andenergy. We read their letters and emails carefully, and have incorporated many oftheir suggestions in this second issue. We thank them all, and hope that this level ofresponse will not only continue, but grow with subsequent issues, especially fromour readers within Bangladesh.

Finally, we are aware that Bangladesh Business was to be a quarterly magazine, and thatthis second issue has not met its projected deadline. The delay in publication wasbecause we tried very hard to live up to our commitment of producing a qualitypublication, one that would articulate and represent the driving ideas and interests ofBangladesh's private sector in a qualitatively different way. It was this striving thatwas the cause for delay. As always, our readers will be the final arbiter of the extentto which we have failed or lived up to their, and our, expectations. What we can onlyreally hope for is their continued support and indulgence for a publication that isstill in the process of defining itself.

April 200904

Success stories

Sir - I think the magazine is veryprofessional and informative.However, a couple of suggestions:1. Instead of three interviews in anissue, one should suffice.2. An article on investment andgrowth prospects of certain industriescan be published in each issue.3. Success stories of SMEs operatingin Bangladesh can be highlighted, e.g.Micro, the local transformermanufacturer, has ventured intoorchid production.4. Bangladeshi companiesparticipating in international tradefairs can be brought to light.5. A 'letters to the editor' section canbe added.

Tonmoy IslamLexington, KY, USA

Being influential

Sir - I'm probably one of the few toshare the privilege of reading andmaking observations on the first issueof the magazine. It can potentially bethe only decent business magazinepublished from Bangladesh. Printquality and management is superlative.I envision this magazine as a sourceof knowledge, quoted in respectablecircles.I liked most the article "Who ShouldAdvocate for the Private Sector".Bangladesh's private sector has grownagainst all odds but, they have failedto highlight their contributions to thenation's economic growth. Thismagazine could be a great forum forprivate sector advocacy and lobbiests.For the magazine to be influential, itscirculation will have to be increased.Bangladesh Business should primarilyfocus on small and mediumenterprises. It should inform readerson all aspects of different businesscycles from conception, like writingbusiness plans and feasibility studies,to at-times company liquidation. It

should be geared towards aspiringentrepreneurs living at home andabroad.Many Bangladeshi expatriates want asource of information where they canlearn about investment opportunitiesin Bangladesh. A regular feature onpersonal and company tax issueswould be helpful. Articles on tariff,tax and legal issues written byprofessionals in their respective fieldswill be great for potential subscribers.Issues on migration due to economicreasons and environmentallysustainable businesses should beaddressed. Articles on governance andbusiness ethics are important as well.The website www.bangladeshbusiness.bizis a great site and has the potential tobe a useful tool; it could include linksto useful and relevant existing sites. Itshould be widely advertised locallyand in cities abroad where manyBangladeshi migrants live. Issuesaffecting foreign investment andExport Processing Zones should alsobe addressed with focus oncomparative advantages, backed byfigures and analyses.

Jamil AhmedToronto, Ontario, Canada

Teaser line

Sir - As soon as I had glanced throughthe first issue of Bangladesh Businessand read a couple of articles, myfriend Fahad (a professor ofEconomics at University ofWashington) borrowed it from meand I have not gotten it back yet.My first impression of the magazineis very favourable. I think that there isdefinitely a need for something likethis. I enjoyed the article on SamsonChowdhury with its beginning teaserline about the security guard. I alsoenjoyed the 'Briefings' section as itgives a good overall picture of what isgoing on.

Khawja Shamsuddin

Analysis versus reporting

Sir - I am pleased with the effort putin the magazine and wish it greatsuccess. It definitely addresses a gap inthe market.I feel that a decision needs to be madewhether Bangladesh Business is anEnglish magazine aimed atBangladeshis or if the target market isinternational. Given the subject isbusiness rather than politics/news, Ithink it should be the latter. Thereason I stress this decision on targetdemographic is that some details(analysis vs. reporting, style of writing,etc.) will be impacted by the decision.Secondly, the issue of analysis vs.reporting is important. The articlesneed more of a slant towards "theimplications for Bangladesh, and forinvestors wherever they may be from"angle, rather than factual reporting.Overall, I was most impressed withthe production quality. I hadmisgivings due to my past experienceswith such publications. But themagazine with its quality of paper andgloss was a pleasant surprise.The magazine has potential and Irecommend reaching out to SouthAsian university faculties and tradingdesks (preferably the perspective ofnon-Bangladeshi professionals) atinvestment banks in London, NewYork etc. for their feedback.Information is readily available on theinternet - what's missing is insight andstrategic analysis; identifying what theprofessionals seek would be great.

The best of luck with this greatinitiative.

Udayan Chattopadhyay University of Pennsylvania

High quality magazine

Sir - I received a copy of BangladeshBusiness and am impressed. I knowthere are a few other English languagemagazines that focus on business inDhaka. Nevertheless, there is a need

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BUSINESSLetters


for additional high qualitypublications, given the expectedgrowth of Bangladesh in globalbusiness.

Good luck on the new enterprise.

M. Quddus Dean, College of BusinessPrairie View, Texas, USA

Wishing you luck

Sir - I like the look and feel of themagazine and think it's a timelypublication. It can potentially servethe business community inBangladesh and abroad in acoordinated fashion if diversity incontent is offered. Some articles areinteresting, such as 'Private SectorDevelopment in Bangladesh' byForrest Cookson. Focusing on thedomestic business community is fine,but in today's globalized world that isonly a part of the puzzle. Irecommend the addition ofperspectives on MNCs in Bangladesh,foreign direct investment, SAARC,EU, and trade with North America.I wish you and the editorial team luck,because the survival rate of magazineslike Bangladesh Business isn't veryhigh unless a solid business plan hasbeen put together with good financialbacking.

Sabir Majumder, Ph.D.Fremont, CA, USA

More on NRBs

Sir - The overall get-up is nice andthis is a good start. I like the'Briefings' section. I would suggestadding a page with political newsbriefings also. You could rename thecurrent page "Business Briefings".While I liked some of the big storiesincluding the cover story, they werealso lengthy and dragged on a bit. Ifyou have more than two pages on atopic you might lose the reader. Keep

in mind that business magazinereaders are very busy. One article on aperson in the issue, either on SamsonChowdhury or Shabbir Hassan wouldhave been enough.I would like to see articles on theprivate sector and state-ownedenterprises where you could undertakea sort of investigative journalism.The last couple of pages on'Fundamentals' were good; which youmight want to expand with a littlemore information. I would also like tosee a Global/Asia Pacific/South Asiansubcontinent business info page. Theidea is people will get to know what'shappening around Asia and thesubcontinent. Everybody cannotafford Business Week or Fortunemagazine.The 'Review Notes' section is good.You might want to review more localand global business books. How aboutpages on NRBs? What they are doingabroad, what they want to do inBangladesh, and how we can pullthem back like China and India hasdone, etc. I think NRBs are untappedgold mines for Bangladesh and yourmagazine could push the issue to theforefront.I would like to see some articles onkey sectors in every issue, such asgarments, outsourcing, leather etc.I hope this helps. Thanks for takingthis venture.

Reza KibriaLos Angeles, USA

Covering controversial issues

Sir -I was delighted to see that ourbook The Bangladesh Economy wasreviewed by Farah M. Ahmad in thefirst issue of Bangladesh Business. Ilike the stance of the magazineregarding private sector issues. Thelayout and print quality is great. I likedthe interview with Rauf Chowdhury.This is a good way to get bringimportant issues to the limelight. Youcould also work with faculties at

various business schools and publishstatistical survey pieces.I encourage you to continue bringingout this magazine with more insight.Visibility may be enhanced bycovering 'controversial' issues (e.g.Muhit's statement on market-basedvaluation of the Taka)!

Syed Saad AndaleebPenn State UniversityUSA

LettersBANGLADESH

BUSINESS

Disclaimer: Letters to the editor,Bangladesh Business should be sent to6 Gulshan Avenue, Suite D4 (B.Aristocrat), Dhaka 1212, Bangladesh.Email correspondence should be sentto [email protected], with'Letter to the Editor' in the subject line.All letters should include the writer'sname and contact information. Lettersmay be edited for length and clarity.

April 200906

BANGLADESH

BUSINESSBriefings

According to Dr. Hasan Mahmud, the stateminister for foreign affairs, the UnitedArab Emirates (UAE) is eager to invest inthe hotel, tourism, oil andtelecommunications sectors ofBangladesh. He requested that a hospitaland nursing institute be established inChittagong, on a piece of land offered as atoken of friendship to the former ruler ofUAE, H.H. Sheikh Zayed bin Sultan AlNahyan. The current UAE investment inBangladesh totals $2.5 billion.With 7 lakh Bangladeshis sending in $1billion worth of remittance per year, theUAE is the largest destination for migrantworkers after Saudi Arabia. Upon Dr.Mahmud's request that workers' wages bepaid on time, the UAE Labour Minister Mr.Saqr Ghobash Saeed Ghobash said that abank system would be introduced by theend of the year so that employers couldnot arbitrarily deduct from workers' wages.

Total remittance to Bangladesh reached$8.9 billion in 2008 as 800,000Bangladeshis entered the international jobmarket, but the amount is expected todecrease in the months ahead with thesecond ripple of the global recession.Recommendations on surviving reductionof foreign currency reserves includeinvestments from and sale of premiumbonds to non-resident Bangladeshis.Dr. Mohammed Farashuddin, formerGovernor of Bangladesh Bank, discussedpotential instruments to attract NRBs toinvest in Bangladesh, includinginducements to convert the remittanceinto equity, leading to higher investmentand production. Most remittance earningsare consumed, but if channeledconstructively, it could contribute toincreased output. The government offersincentive packages for Foreign DirectInvestment while the central bank offersUS dollar premium bonds at an interest

rate of 6.5% for NRBs. The forecastedloss in foreign currency reserves could becounterbalanced through theseinstruments.

Urged by Chittagong-basedconglomerates, the Chittagong PortAuthority (CPA) has drafted a policy toestablish shipbuilding yards upstream ofthe Karnaphuli River. Once approved bythe Ministry of Shipping, companies canset up shipbuilding yards and slipwaysthere. Mr. RU Ahmed, the chairman ofCPA, said that the river's downstream,housing key installations like power plantsand fertilizer factories, will still be off-limits. This has provoked accusationsfrom leading shipbuilders that the growthof a fledgling industry is being deliberatelystunted by prohibiting the use of thedownstream, considered the best possiblesite for shipbuilding due to deep draughtand close proximity to the port. About 10to 12 companies willing to invest $500million have applied for shipbuilding yardsdownstream.Beginning in 2007, ocean-goingshipbuilding has proven successful inBangladesh, with its leading shipyardowners, Ananda and Western Marine,bagging export orders worth $600 million.Bangladesh, with its low-wage welders,history of boat-making and network ofrivers, can be a top Asian shipbuildingcontender alongside South Korea, Japan,China and Vietnam.

Mr. Ad Spijkers, Country Chief of theFood and Agriculture Organization(FAO), discussed Bangladesh's need forhigh investments in agriculture and agro-processing sectors for economic growth,and for insulation against the globaleconomic downturn. The FAO providestechnical assistance in livestock, fisheriesand forestry, assisting with programmeson food policy, food safety and naturalresources management. He also suggesteda Netherlands model for Bangladesh tolink consumers and farmers closer

UAE to invest further inBangladeshFDI

NRBs should be wooed toinvest more and buypremium bonds

NRB

Chittagong port pours coldwater on shipbuilding industry

Port

Agriculture needs massiveinvestmentsAgriculture


BANGLADESH

BUSINESSBriefings

together and to address the gaps in thechain of distribution.He added that input pricing should becost-effective, while output prices shouldbe fair. He approved of crop insuranceschemes and suggested the promotion ofstrong farmers' organizations, resourceendowment in research and extension,education, diversification of crops,introduction of adaptable crops,economical irrigation and efficientmanagement of water, use of fallow land,and the most effective use of fertilizers tomaximize agriculture potentials. He urgedthe government to increase publicinvestment and encourage regulated andsupported private sector investment in theagricultural sector.

The Finance Minister AMA Muhith said,"The government will provide seedmoney to foster public-private partnership(PPP) for investments in infrastructureand other sectors." The PPP model,sponsored by the government, will allowparticipation of both local and foreigninvestors. In the budget for the next fiscalyear, a line item will include PPP in orderto direct investments into infrastructure,human resources, education and housingsectors.

The government plans to privatize threeland ports this year, under Build-Operate-Transfer (BOT) arrangement, for a periodof 25 years to help boost cross-bordertrade. The land ports that will be handedover to private operators are Bhomra inSatkhira, Akhaura in Brahmanbaria andBurimari in Lalmonirhat. The BangladeshLand Port Authority (BLPA) is conductingthe groundwork to privatize the landports. Earlier, the government decided tohandover operations of 12 land ports toprivate operators, in phases under theBOT arrangement, to foster cross-bordertrade with neighbouring countriesincluding India and Myanmar.

The International Finance Corporation(IFC) will provide $15 million to a three-year expansion project of PRAN, a localagro-processing company. The totalinvestment of the project is $51.2 millionand will end in 2011. This loan marksIFC's first entry into the agro-processingsector in Bangladesh. It will supportPRAN Group's strategic investment planin six food categories: beverages, culinaryproducts, confectionaries, dairy products,snacks and premium rice. Major GeneralAmjad Khan Chowdhury (ret'd), CEO ofPRAN Group, said that with IFC as apartner, PRAN will continue to seek thehighest operational standards and willboost Bangladesh's entire agribusinesssector.For the financial year ending 30 June 2007,PRAN reported total sales of $66.8million and a net profit before minorityinterest of $4.2 million. The corporateinvestment programme will support thecontinued growth of a leading foodcompany in Bangladesh to expandcapacity, improve operating efficienciesand tap into new domestic and exportopportunities.

Sunshine Knitwear Limited shut down itsfactory in Tejgaon, resulting in thedismissal of approximately 1,600 workers.The reasons for the shutdown were fallingorders and low-priced offers frominternational buyers. General ManagerSNR Towfiq stated that there have beenfive instances of labour trouble in the lastthree years, where workers physicallyassaulted factory officials. He furtheradded that the factory, set up in 1996,boasted a reputation for timely paymentof wages, and the disruptions perpetratedby a handful of workers were unjustified.Other units of the company remain inoperation, and there are no immediateplans to reinstate the Tejgaon factory. Theglobal crisis is having adverse effects onlocal firms, especially in the case ofexport-oriented companies such asSunshine Knitwear Limited.

The cabinet has approved the NationalInformation and CommunicationsTechnology Regulations 2009, initiated in1997, aimed at establishing an accountableand transparent government throughexpansion of ICT coverage. This willensure development of human resources,making Bangladesh a leader in ICT skillsin the next 30 years.The cabinet meeting, chaired by PrimeMinister Sheikh Hasina, also approved theInsurance Act 2009 and the InsuranceAuthority Act 2009. The new insurancelaw will allow the expansion of insuranceservices to remote areas of the country,

thus increasing public welfare. Under theInsurance Authority Act, a regulatorybody will be formed with a chairpersonand four members with three-year tenures.The authority will register insurancebusinesses and renew annual registrations.It will be funded by an insuranceregulatory fund, financed by thegovernment and other sources.

Cabinet approvesnational ICT policyRegulation

Government to launchpublic-private budgetarywindow

PSD

Crisis1,600 workers lose jobs asknitwear unit shuts down

More land ports to beprivatized this yearPort

IFC to provide $15 million toPRAN Group for a three-yearproject

PSD

April 200908

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A local company, Etasia InterliningsLimited, will set up an interliningmanufacturing factory in the ComillaExport Processing Zone (CEPZ) with aninvestment of $2.50 million. Thecompany will create employmentopportunities for 94 Bangladeshinationals. Prasanta Bhushan Barua,member (Investment Promotion) ofBangladesh Export Processing ZonesAuthority (BEPZA), and MohammedIsmail Khan, Chairman of EtasiaInterlings Limited, signed the agreementon behalf of their respectiveorganizations at the BEPZA Complex.CEPZ, the sixth EPZ of Bangladesh, wasestablished in the old airport area ofComilla by BEPZA for promotingeconomic development of the region, andis currently spread over an area of 258acres. An extension of a further 478 acreshas been proposed.

KDS Logistics Ltd, one of the biggestinland container depots, has launched aTaka 300 crore logistics yard in Sitakunda,Chittagong. The off-dock facility is spreadover 1,465,600 square-feet; designed tohandle both empty and laden containers,and is estimated to store 10,000 twenty-foot equivalent units (TEU) in off-dockcapacity on any given day. KDS Logisticsaspires to provide an assortment ofstorage programmes and services tocustomers and a one-stop solution forstorage, repair, transportation and chassishandling. Located on a 40-acre site, it'spaved, fenced and lighted to ChittagongCustoms specifications; it is computerized(inbound/outbound) and providesreports on daily site inventory, gateinterchange and damage assessment. Thecompany is equipped with a real-timetracking system for truck unloading andloading, container stuffing and un-stuffingand web access which allows clients tocheck their cargo's position.

The Federation of Bangladesh Chambersof Commerce and Industry (FBCCI)sought a Taka 6000 crore rescue packageto survive the global economic downturn.They suggested that, if necessary, therescue fund could be raised throughissuing bonds. FBCCI leaders also askedfor better foreign relations withneighbouring countries, for Sunday to bethe weekly holiday, controlling tender

Commerce Minister Lt-Colonel FarukKhan (ret'd) inaugurated the automationof the Registrar of Joint Stock Companiesand Firms (RJSCF), and assessed theprogress of the reforms being made tosimplify the registration process. He saidmeasures to convert the files of RJSCF toa computer-based digital format will betaken within three months. He expects theautomation process, to be completed in ayear, to benefit the growth of businessesin the country. Using an online process, anew business entity will be able to registerwith the RJSCF within seven days. Thereis talk of introducing a desk to permitregistration of joint venture and foreigncompanies in a day.The government will increase humanresources and infrastructural facilities forRJSCF and is considering amending theCompanies Act 1994 and SocietiesRegistration Act 1860, as the two outdatedacts often obstruct the growth ofbusinesses. Under the Ministry ofCommerce, the functions of RJSCF are toincorporate limited companies, societiesand partnership firms under theCompanies Act 1994, SocietiesRegistration Act 1860 and Partnership Act1932 respectively; their responsibility is tomanage and uphold the relevant statutoryprovisions of these acts and maintainrecords regarding entities that fall underits jurisdiction. RJSCF is the sole authoritywith the power to facilitate companyformation and keep records of allownership-related issues, as prescribed bythe company law.

megawatts of electricity to the national gridby May 2009. The company has plans to addanother 50 megawatts of electricity by earlynext year. BEDL is believed to be the firstpower producer to attract investment fromNRBs. It is also one of 11 rental power unitscontracted out, by the Power DevelopmentBoard, to supply electricity to the nationalgrid. BEDL has engaged a Thai company tooversee its operation and maintenance. Withan authorized capital of Taka 1 billion,BEDL will build and operate the plant overthe next 15 years.Gulam Rabbani Chowdhury, ManagingDirector of BEDL, said, "We want to bringabout a renaissance in private powergeneration." The new plant is expected toemerge as a major competitor to Summit andUnited, the leading private sector players inthe power business. IDCOL, a government-owned infrastructure lender, is the leadfinancier for the project, with an investmentof Taka 500 million in the company. Thecompany's investment is welcomed in lightof the chronic power shortage that hasplagued the nation for years.

A private sector entrepreneur will investover Taka 4.5 billion to produce power inthe Sylhet region. Backed by investmentfrom NRBs and The InfrastructureDevelopment Company Limited(IDCOL), the Sylhet-based BarkatullahElectro Dynamics Ltd (BEDL) will add 51

Registrar of Joint StockCompanies and Firms tobe digital in 3 months

Regulation

Locals, NRBs join hands toproduce power in Sylhet

Etasia to invest $2.50million in CEPZ

Taka 300 crore logisticsyard set for launch

Businesses ask for Taka6000 crore bailout

Energy

EPZ

Crisis

Port

Briefings


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manipulation, making Bangladesh BetterBusiness Forum (BBBF) and RegulatoryReforms Commission (RRC) active,forming a food security council, andgranting one or two years' grace period tothe industries that fail to repay loans dueto recession.According to Prime Minister SheikhHasina, the government will offer "specialpackages", provide various facilities andincentives to increase the flow of importand export and save the country's businesssectors from the global financial crisis.Promising to take every possible measure,the prime minister asked business leadersto invest in proposed economic zones,suggesting that small power stations be setup by the industrialists at their ownfactories to assist in reducing the powercrisis there and in adjacent localities.

producer in Bangladesh to explore exportopportunities to Japan.

Approximately a dozen Bangladeshi RMGexporting companies encountered a totalloss of about $20 million afterWoolworths, a top retailer in Britain, wentbankrupt due to the global economiccrisis.The sudden liquidation of Woolworthsespecially rattled Shanin Group in Dhaka,which lost some $3 million, with most ofits shipments now set to be auctioned offin an English port. Woolworths collapsedon a massive £385 million debt, leaving itssuppliers' deliveries sitting in ports. ShaninGroup did not receive any paymentdespite three months of frantic shuttlingby Bangladeshi negotiators betweenLondon and Dhaka. Inter Stoss, anothergarments manufacturer, has lost nearly amillion dollars after Woolworths wentbankrupt. Afterwards, Salehuddin Ahmed,ex-governor of Bangladesh Bank, warnedexporters to check the financial health oftheir buyers before making any shipments.

A Hong Kong-Taiwan joint venturecompany, Bangladesh Pou HungIndustrial Ltd, will manufacture footwear,leather goods and related components inthe Karnaphuli Export Processing Zone(KEPZ). This wholly foreign-ownedcompany will invest $43.8 million insetting up their unit, creating employment

opportunities for 3,582 individuals,including 57 foreign nationals. ResourceFoam and Accessories, a Bangladeshicompany, will set up a foam, garments andshoe accessories factory in the KEPZ.This locally-owned company will invest$3.01 million in setting up their unit andwill produce foam, woven labels, polybags, tags, cartons etc. The company willcreate employment opportunities for 294Bangladeshi nationals.Agreements for both these endeavourswere signed between the BangladeshExport Processing Zones Authority(BEPZA) and the respective companies atthe BEPZA Complex. The KEPZ wasopened in 2006, set on an area of 222.42acres with 211 plots, with a view toemploy 52,000 Bangladeshis. The zonearea has been expanded, and is currently268.32 acres, with 260 industrial plots. It'slocated in North Patenga and Halishar,within 6 kilometers from Chittagong port.

Attempting to facilitate business activities,Bangladesh Bank plans to modernize thepayment and settlement system of cheque-clearing by introducing BangladeshAutomated Clearing House (BACH) fromAugust 3 of this year. Under the newsystem, payments will be settled initiallyusing an automated cheque-clearingsystem and electronic fund transfer among1050 bank branches in Dhaka. There areplans to further extend the services, inphases, to 7000 bank branches in districtsby 2010. Bangladesh Bank has askedCEOs of the commercial banks tointroduce the modern payment system,and to procure the necessary software andhardware for establishing links betweenthe bank concerned and the central bankby the stated deadline. According to thecentral bank, banks are required to makearrangements and develop infrastructureto meet the requirements of the newsystem. The central bank will adoptnecessary regulations and issue operatingrules and procedures in this regard.

The latest Japan External TradeOrganization (JETRO) release on bilateraltrade statistics show trade betweenBangladesh and Japan at $1.24 billion in2008. Exports from Japan to Bangladeshgrew by 33.9% to $800.93 million whileimports from Bangladesh grew by 14.6%to $199.31 million over the course of theyear. Import of used cars was the primaryfactor boosting Japanese exports toBangladesh. While leather is the topproduct exported from Bangladesh,Japanese importers also considerBangladesh as an import source forapparels and leather products. SomeJapanese industrial groups may alsoconsider investing directly in Bangladesh.With increased frequency of visits byJapanese importers to Bangladesh inrecent months, there are higher chances ofthem setting up sourcing offices here.Besides apparels, the Japanese market hasexport potential for jute products, ITservices, and food items made inBangladesh. With JETRO's assistance,four Bangladeshi companies attended ahigh-profile food show and receivedpraise for the quality of their products.JETRO is also helping an organic tea

Trade with Japan touches$1billion mark

Investment in KarnaphuliEPZ

Bangladesh Bank to introduceautomated clearing housefrom August 3, 2009

EPZ

A dozen garment exporters losemillions as UK retailer busts

FDI

Regulation

Crisis

Briefings

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Cover Story

2009

Can The CenterHold?

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During the last election campaign in December2008, Bangladesh's two major political parties and

their allies published their respective electionmanifestos. Among other things, they outlined theirrespective economic agenda indicating critical areas ofdevelopment and focus. The presentation of economicdevelopment agenda by political parties during electioncampaigning, a definitive first-time act, is in itself amajor achievement. Soon after, predictably enough, aflurry of analyses, studies, reports, and commentariesensued from different stakeholders and sources. Criticsand assorted pundits rushed to question whether theoutlined economic agenda were merely 'wish' lists, a bitof campaign razzle-dazzle, or whether they were

credible documents of objectives, figures and outputsthat the parties seriously intended to live up to andachieve.The ball is now in the court of the current government,whether it is going to implement and execute much ofwhat it so effectively presented to the people or not. TheAwami League's election manifesto detailed 23 areas inwhich substantial changes would be brought about.From these 23 areas, five priority issues were outlined.However, they were given without a particular strategicand policy framework. How will the economic visiontranslate into action? Will there be some continuityfrom the past two years? Will there be bold initiativesthat are truly new?

April 200912

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The global financial crisis makes matters more critical thanthey otherwise would be. Export industries and remittanceflows are the two sectors most vulnerable to the currentglobal crisis. Clearly, therefore, there is a requirement to setout a plan of action that takes cognizance of the exogenousshocks by perhaps undertaking various counter-cyclicalmeasures to promote domestic demand. The government,true to its word, formed a Task Force to manage theeconomy from the impact of the global financial crisis.Researching, learning,monitoring the globalsituation, and advising areall within the scope ofservices of the Task Forceand it has beeninstrumental in unveiling astimulus package valued atTaka 34.24 billion. In lightof the demands forstimulus packages to bailout the export industries,prudent actions arerequired in terms of publicspending and policytradeoffs.Why would the textile andapparel sector get a largesubsidy package, theabsence of which they havebeen vehementlycomplaining about, when itis absolutely essential tobring the energy sector to order first? Also, why would thegovernment underwrite, with public funds, private riskstaken for profit? This may be a deviation from themanifesto's implicit code of fiscal and economic discipline,risking it towards non-fulfillment, imbalance, and ultimatelysocio-political disappointment and failure. Perhaps thecurrent environment provides an opportunity for the textileand apparel industry to reorganize in order to establishmodern corporate structures with appropriate governancecodes. This responsibility is long overdue as many of the fivethousand plus textile and apparel firms are operating at lowcapacity, high percentage of product rejects, lowproductivity, and irregular salary payments to workers,particularly female workers. Under these circumstances, acautious approach to demands for carte blanche loanrescheduling, cash incentives and subsidized feeding ofworkers is required.

Reaction to the crisis must not divert focus away from theneed to undertake long-awaited steps in several critical areasfor economic development of the country. What issignificant is to take steps in order to avoid economicstagnation, bring about rising growth rates in the immediatefuture, ensure food security, and develop a workingframework between the public and private sectors. Manycritical bottlenecks in the economy, if not removed, wouldseriously jeopardize future livelihood and economic

performance. Thesebottlenecks are well known,outlined in the electionmanifesto, and aresomewhat unrelated to theissues of the current globalcrisis. There certainly wouldbe a budgetary constraintand, much as one needs to,all issues cannot be tackledtogether.A plan of action mustprioritize critical issuesclustering thedevelopmental agenda,perhaps leaving otherimportant areas to be dealtat a later stage, or layingfoundations for achievingresults in the long run. Forthe government nothingwould be more importantthan to immediately fix the

energy problem and to ensure that other infrastructuralfacilities are gradually put in place. There needs to be anagenda for implementation of energy and infrastructuraldevelopment plans with a strict timeframe. And that is wheremuch of the effort could be spent in the coming months.The urgency of the energy crisis cannot be neglected; eachday it reaches closer to a catastrophic state, as has beenclearly outlined in the article by Dr. Tamim in this issue ofBangladesh Business. With the passing of 100 days we haveonly seen short-term actions being taken to resolve theenergy crisis.During the last months of 2008, prices of essentialcommodities, such as rice and lentil, exhibited downwardtrends and currently rice is being sold at the market at equalor lower prices than what it used to be before the globalshock. The corner seems to have been turned. The concernnow is on low farm-gate prices impacting the cultivator's

In light of the demands for stimulus

packages to bail out the export industries,

prudent actions are required in terms of

public spending and policy tradeoffs.

Why would the textile and apparel sector

get a large subsidy package, the absence

of which they have been vehemently

complaining about, when it is absolutely

essential to bring the energy sector to

order first? Also, why would the

government underwrite, with public

funds, private risks taken for profit?

BANGLADESH

BUSINESS

April 200914

income negatively enough to incur losses. Bangladeshremains a food-deficit country with 2 to 2.4 million metricton of food grain imports each year. Some 2.5 percent of theannual budget is spent on meeting the deficit. The challengesto managing food balance and food security will remain a keyconcern. Prioritizing agriculture, as Mr. Muhit has stated, isneeded. Though the stimulus package does indeed prioritizeagriculture, the government has not clearly set out what thechallenges are and to merely state increasing attention toagriculture is not the most productive of approaches. Thereis indeed an agricultural endowment fund allocated forKrishi Gobeshana Foundation (Agricultural ResearchFoundation), but to what purposes are unknown.Over the decades the private sector has started to operatesignificantly and in a major way in the farm and non-farmsectors, and these actors cannot be overlooked. Thechallenges are many with raising farm productivity. Arableland is shrinking and demands are rising for non-farmactivities. Feeding a growing population and increasingincome in the rural sector will require increased productionand processing of high value-added crops, with increasedactivities in the rural nonfarm sector. In order to meet withthese challenges the government has to engage the privatesector. So far, we have not seen any plan of action that putspartnership with the private sector in the area of agriculture.An issue not in dispute is the scarcity of land. Only three

percent of agricultural cropped land is not utilized anddemand for land from other users are increasinglythreatening existing cropped area. Decisions have to be madequickly. Should land for agricultural use remain as it is,shrink, or expand? Should more and more land be put to usefor industrial and service sectors? Proper land managementis absent and land utilization is inefficient and wasteful.Unless significantly higher priority is given to immediatelyresolving both the physical and organizational aspects ofland management and use, getting higher levels of bothforeign and domestic investment in this sector in the futurewill remain a fantasy. The government has not recognizedthe critical need for land zoning, allocation, and planning.Indisputably energy, infrastructure, agricultural reform, andland management are key areas where, if foundations forchange and development are not laid, future economicgrowth could very well be jeopardized. So far, and after 100days, we have neither seen an agenda developed for landmanagement nor purposeful continuity of steps taken by theRegulatory Reform Commission established under theprevious Caretaker Government.The Federation of Bangladesh Chambers of Commerce andIndustry, as the predominant voice of the private sector, hasseparately set out an extensive economic policy agenda layingout to the government what they consider to be the mostcritical areas of focus. The agenda covers numerous


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recommendations in all conceivable areas of economicdevelopment from which 18 specific recommendations areput forth as an 'economic roadmap to deliver 8%inclusive growth'. Several of therecommendations correspond to theeconomic agenda set out by the AwamiLeague in its manifesto. Thesignificantly common element inboth these policy visions is thelack of prioritization, an absenceof focus on the most criticalbottlenecks to the long-termeconomic growth and ensuringattention to achieving results inthose areas.So, what are the key, primaryissues that must be addressedfirst? Which actions are to be takenimmediately, and which are to beaddressed in the medium-to-long-term?In the context of systemic limitations interms of funds, a skilled labor force,institutional capacity building, political will, andmanagement abilities, long-listed agenda withoutprioritization amount to virtually meaningless set ofdemands. Given theselimitations, attempting to doeverything at once means adilution of efforts andresources that end upachieving practically nothing interms of our critical nationalneeds. The private sector'svibrancy, growth, adaptability,inherent capacity for initiativeand timely decision-makingmakes it imperative for thegovernment to actively engagewith it in a partnership formeeting the manifoldchallenges of economicdevelopment. How will thispartnership be formed and towhat end? There are growingskill sets, management, andcapital funds in the domain of the private sector and thegovernment would do well to exploit these resources. A planof action to take the declared economic agenda forwardwithin a strict time frame, in terms of short and mediumranges, defining the responsibilities and roles of the private

and public sectors could establish such a partnership. Assuch, it is somewhat disappointing that the government so

far has not even raised the need forcontinuation of the Bangladesh Better

Business Forum, where a platformfor dialogue between the public

and private sectors existedover the last year.

The commitmentspresented in theeconomic agenda of themanifesto are expressedin vague and rhetoricalterms. This raisesquestions. How would

we hold the governmentaccountable for the

deliverables promised to thepeople in the agenda? A

system for monitoring andevaluation is needed in order to

ensure promises are kept within a settimeframe. But before one can monitor and

evaluate, a well-defined, targeted plan of action is necessary.This plan of action, put together within a framework of

dialogue between the publicand private sectors, clearlysetting out the responsibilitiesof each stakeholder, couldthen provide performanceindicators which could beobjectively monitored. As aresult, both the public andprivate sectors could be heldaccountable for the results.It is only through such arational indicator-basedframework that the plan ofaction could be transformedinto a reality. Even after thepassing of 100 days, it is notlate to begin work onprioritizing a few critical areas,perhaps those suggestedabove, in order to set out steps

to immediately address short-term challenges, and preparefor long-term commitments and implementation. Otherwise,as time progresses, the achievements of the economicagenda will merely wind up being predictably emptypromises, and garner strong critiques.

The commitments presented in the

economic agenda of the manifesto

are expressed in vague and rhetorical

terms. This raises questions. How

would we hold the government

accountable for the deliverables

promised to the people in the agenda?

A system for monitoring and

evaluation is needed in order to ensure

promises are kept within a set

timeframe.

April 200916

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The recent flurry of analyses, studies and reports,especially in the business pages of our national dailies,

on the impact of the global financial crisis on the economyof Bangladesh has given rise to confusion and worry in thepublic mind. It is due to the fact that often reports andassociated commentaries tend to conflict and be at oddswith each other. Frequently, within the same 24-hour newscycle, one day exports are buoyant while the very next daythey are said to be severely affected by the global economicdownturn; reports appear that remittances are not affected,to be negated the very next day by a different set of reportsthat overseas jobs are shrinking and workers are returninghome empty-handed. One newspaper will quote fromstudies demonstrating that poor countries will be the onesaffected most during the recession while another paperequably argues that the 'marginal' economies are insulatedfrom the worst effects of the global turndown.Obviously, we are trapped in some sort of speculationoverload here. To a certain extent, it is understandable.Even in the best of times, hard data on critical issues is verydifficult to come by in Bangladesh, and even when one

does, it can be suspect - leading predictably to a situationthat seduces writers, analysts and 'thinkers' into convertingperceptions and intuitions to 'hard' analyses and reports.But at what cost? To take one example, whatever may be theeventual impact and reality in the coming months and yearsof our textile and apparel sector, here and now from Marchof 2009 onwards, with that sector having not beingincluded in the government's STIMULUS PACKAGE,their leaders have lobbied (to use a gentler term than'browbeating') strongly for inclusion in the bailout program.With just about every country nowadays resorting tostimulus packages, why not us, they say. And when 76% ofthe export revenue is coming from the textile and apparelbusiness, who should have been leading the list of sectorsto be in the package but them?Over the last three decades, the textile and apparel sectorhas admittedly been the only manufacturing export industrythat has emerged to provide the bulk of the export revenue,employment, fashion a 'brand' name, and provide somedistant hope that other sectors of the economy couldfollow a similar growth trail. In terms of the above factors

Textile and Apparel Industry:

The Emperor Needs New Clothes


the sector has been the driving force of the economy.However, there are other factors to be considered. Thereare over 5,000 manufacturing units operating in this sectoremploying over 2 to 3 million people. Nobody knows theexact number. From the 5,000 established units only ahandful have a discernable corporate structure, andestablished themselves as leaders in terms of productionprocesses, productivity, compliance issues and qualitycontrol. But these comparative few do not define the norm;they are light years ahead from the rest of the herd.Within much of the sector, small and medium-sized firmsoperate with low productivity, a high share of productrejects (around 30 percent), substantial underutilization ofcapacity, with infrequent, if at all, salary payments toemployees (moreover, being routinely in violation ofgender equality laws and codes by preferring male workersover female workers in terms of salaries and benefits),tolerate and even foster a factory culture where mastaansand hoodlums determine work processes and organization,all of which are antithetical to modern corporate practices.There are innumerable thousands of these small unitsoperating in the industry, living off a labour force forced tolive in squalid conditions - a labour force that is otherwisethe driving force in a labour-intensive sector that claims tobe the driving force of the economy. The majority of theemployees engaged in the apparel and textile sector areworkers who have migrated from rural areas, providing thesector with a constant flow of cheap labour. It is a sectorwhere such a supply of cheap labour is possible also due to

the lack of legal, governmental and political oversights. Thelabour is so cheap (a euphemism for 'ill-paid') that now withthe global financial crisis deepening, the government evenagreed to provide food subsidies for the garment workers -workers employed in the industry that drives the nationaleconomy and yet who cannot afford to buy food. Howtragic! When the market prices for rice is Taka 21/kg,rationing is provided at Taka 18/kg to 300,000 workers withvalid ID cards.There is no doubt that there is a crisis - in what shape andwith what eventual impact no one can clearly foresee sincewe do not have comprehensive firm and industry data. Butone can, and perhaps one should, look at this crisis as anopportunity for the apparel and textile industry to trulybecome the engine of economic growth and facilitator of abetter social order. In order to do that, the industry mustreorganize and restructure itself along modern lines, withfirms operating at good margins, with consequentnegotiating power with buyers, make higher and regularsalary payments with regularized employment contracts,increasing productivity, with superior machinery park aswell as the requisite qualified machine operators/lineinspectors/production workers. Unless the textile andapparel industry reforms its internal structure, system, andoperations, stimulus packages and subsidies would only actas an enabler, helping to sustain the prevailing environment,with a huge portion of the cost being borne by the poorersection of our society by continuing to provide a constantsupply of informal and cheap labour to the industry.


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In the midst of the global financial and economic crisis itis popular to call for more regulation of the private

sector. Such deep suspicion of the private sector flourishesin times of economic distress and bursts out in argumentsfor increased and more intrusive regulation. We investigatesome of the fallacies currently existing in Bangladesh.

Are subsidies beneficial?The first regulatory fallacy is the widespread use ofsubsidies. Democratic nations love subsidies, particularly ifthe party in power can direct the benefits to their politicalsupporters. In Bangladesh there are many subsidies, all ofwhich are stunting rather than helping achievement ofeconomic growth. There seems to be far more interest inincreasing subsidies than taking actions to accelerateeconomic growth.Someone pays for every subsidy. So who pays inBangladesh? Of course, it differs from one subsidy toanother. Electricity, for example, is subsidized. This is atransfer to the rich from the poor, leading to an overuse ofelectricity; spreading access to electricity without havingpeople pay for what they use becomes more and moreexpensive and is one of the main reasons that there is solittle progress in the development of the power sector. Butthere are other costs: two important ones are poor qualityelectricity (variable voltage and frequency fluctuations thatare often very destructive to advanced equipment) and poorservice manifesting through frequent power outages. Thereis also the hidden subsidy to those stealing electricity ormanipulating meters. The failure to insist on good qualitypower meters makes it possible for meter readers to fixmeters to modify the record, for a fee paid to them by thepurchaser of the electricity used by consumers or plants.The exposures during the tenure of the caretakergovernment of the extent of this leading to the remarkableacquisition of wealth by the persons concerned showedhow extensive this phenomenon has become. The hiddensubsidy - non payment and stealing - combined with the

official subsidy wreck the electricity system. The continuingsubsidy - all in the name of doing good - is the single mostimportant factor in the total failure and breakdown of thesupply of electricity to the society. The society pays in lesselectricity, poor quality electricity, lack of industrialdevelopment and, for most Bangladeshi households- noelectricity at all.The gas sector is a second example. The subsidy means thatthe gas sector cannot recover its costs leading to lowinvestment, lack of funds for exploration and poormaintenance. The subsidy encourages households to usegas excessively and waste. There is a similar hidden subsidyemerging from stealing gas and tinkering with meters bybribing the meter readers. The cost of the subsidy toBangladesh is now clear. Unable to earn enough money toinvest in the system the nation is completely dependent onforeign donors who, for better or worse, have their ownideas; but the final result is massive underinvestment in thesystem. We all cry out - "where is the gas"; the answer is, byinsisting on subsidies, the companies that manage the gasare undermined financially and not able to do their job. Youget what you pay for.With both electricity and gas, the regulatory authorities areprotecting the people - or so they think - by trying to limitcharges. The regulators have two tasks - to insure that theaccounts of the power and gas companies are correct andrecognizes all of the costs and to insure that the utility ratesare such that all the costs are covered. It is not their task todecide what is fair. The regulators have far exceeded theirresponsibilities.A third example is urea: Who pays for the subsidy? First,one should note that the low cost of urea encouragesfarmers to overuse it. It also encourages the use of thechemical in sectors outside agriculture where thegovernment does not intend to provide subsidy; but in theoperation of the system they inadvertently do so. This mayinclude subsidies to Indian users. Subsidy encourages suchoveruse of urea that it discourages the use of technology

Column

FallaciesForrest Cookson

April 200920

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that achieves the same agronomic results at lowerapplications of the chemical. Rather than seek urea savingtechnologies, the government has consistently done theopposite. Once again the subsidy results in the fertilizerfactories not earning enough to make investments andmaintain factories resulting in low efficiency in convertinggas to urea, wasting the gas. Finally the low price of urealeads to under application of other soil nutrients resultingin low crop yields. The subsidy of urea costs the society agreat deal in wasted gas and encouragement of wrongagricultural technologies.

Regulation with the wrong objectiveAnother frequent fallacy is to regulate with the wrongobjective. One of the best examples is thetelecommunications sector. Since 1971 the objective of thetelecommunications regulation has been to maximizegovernment revenue. Before the establishment of privatemobile phone networks, the government owned most ofthe telephone networks, with the connection fees pricedmonopolistically to maximize profits. Only the rich needtelephones, it was argued, so it is appropriate to keep itexpensive. The importance of telecommunications forbusinesses did not seem to occur to the authorities.For some years, with the emergence of the cellular phonenetworks, the telecommunications market has expandedrapidly and services to the Bangladeshi people has grown

enormously. In this expansion the use of VoIP servicesgrew. This service is tremendously beneficial to ordinarypeople in Bangladesh who have relatives working abroad.The regulatory authorities cut this off to establish a newerregulated version that has met with only modest success.Instead of making it easier to use VoIP they are doing theopposite; instead of making it cheap, they are making itexpensive. This is a consequence of regulations for thewrong objective. The welfare of the people seems to be thefurthest thing from the minds of the regulators. A betterway to proceed is to make it more competitive, not less.

ConclusionsThe irony of these situations is that one set of regulatoryauthorities are hurting the people while trying to help them;the other set is trying to limit economic activity in the nameof good order and high revenues for the government. Boththeir rules fail to encourage private sector investment andinnovation. The bias in both cases has mostly been torestrict investment by government or large companies andto discourage SME and Bangladeshi investors andinnovators.Subsidies and over regulation are fallacies that discourageinvestment, encourage waste, and harm the general public.

Forrest Cookson is an ex-president of American Chamber ofCommerce, Bangladesh.


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How does one read the pulse of our economy? Thetradition is to use broad macroeconomic indicators

like GDP per capita, growth rate, volume of investment,foreign currency reserves, trade etc. But this may not beenough. One should also try tounderstand how the economicagents themselves view theeconomy, as their perceptionsare just as important as hardmacroeconomic data. Indeed,in many instances, the formercould very well explain thetrends of the latter.Recent surveys of a nationallyrepresentative sample ofgeneral people, opinion leaders,businesses, and public officials,conducted by the InternationalFinance Corporation'sBangladesh InvestmentClimate Fund duringSeptember-December, 2008,sheds some light on the pulseof the economy based on theperceptions of these economicagents. These perceptions demonstrate the economicchallenges to be faced by the newly elected government.Survey results indicate that, between September and

December 2008, the general mood of the country hasimproved, although a majority of general people, opinionleaders and businesses still feel that the country is headingin the wrong direction. In December, 61% of general

population and 57% of theopinion leaders believed thatthe country was heading in thewrong direction. Althoughthese percentages havedeclined since September, by17% and 24% respectively, theoverall perception remainsgrim. Similarly, 67% ofbusinesses feel the country isheaded in the wrong direction,which represents a decrease of14% since September. Thesedecreases may be due toincreased optimism about thefuture, in light of the then-impending national elections.Among public officials, incontrast, perceptions are moremixed: 41% believe that thecountry is heading in the right

direction, and 38% believe the opposite.Economic concerns, particularly, high prices,unemployment and corruption, drive this overall negative

The Pulse of the Economy

Economic concerns, particularly,

high prices, unemployment and

corruption, drive this overall

negative mood in the country. 75%

of the general population, 71% of

the opinion leaders, 83% of the

businesses, and 58% of the public

officials believe high prices of

essentials to be the top national

concern. It is therefore

encouraging that high prices have

been one of the top priorities of

the new government.

April 200922

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mood in the country. 75% of the general population, 71%of the opinion leaders, 83% of the businesses, and 58% ofthe public officials believe high prices of essentials to be thetop national concern. It is therefore encouraging that highprices have been one of the top priorities of the newgovernment. It remains to be seen, however, whether theseinitiatives have an impact on people's perceptions in thefuture.Unemployment and corruption are the second and thirdmain concerns of the population, although they are waybehind - 27% of the general population, 29% of theopinion leaders, 27% of the businesses, and 24% of thepublic officials viewunemployment as one ofthe top two nationalconcerns. Similarly, 24%of the general population,35% of the publicofficials, 32% of thebusinesses, and 40% ofthe public officials viewcorruption as one of thekey concerns.The overall negativemood of the countrytranscends to thebusiness environment aswell. 77% of businessesbelieve that the overalleconomic situation inBangladesh is unfavorabletowards their business,whereas 68% believe thatthe situation of theirbusiness is worsecompared to a year ago.The negative perceptionsof the economy amongbusinesses are best reflected in the investment scenariobetween 2007 and 2008. In the third quarter of 2007, 62%of businesses made investments, whereas during the sameperiod in 2008, the exact same percentage chose not toinvest in their businesses.How do we explain this complete reversal in investmenttrends? One might think that high prices should lead tohigher profits for the businesses. However, it appears thatthe multiplier effect of the high price phenomenon hurt thebusinesses in general. And this is due to the simple law ofdemand. An increase in prices reduces the real income ofthe consumers and thus negatively affects their overall

purchasing power. This in turn translates into low demand.In fact, lack of demand was identified as one of the keyreasons for lack of investment. 71% of the businesses thatview the current economic situation as unfavorable believethat high prices is the top reason for an unfavorablebusiness environment.In addition, access to start-up capital, access to loan, ownfear of failure, and learning how to do business appears assome of the biggest challenges to businesses, particularlyamong women-owned or operated businesses. While 34%of all businesses view capital scarcity as the biggestconstraint, the corresponding figure for women-owned

businesses is 62%.Similarly, 67% of women-owned businesses rate"own fear of failure" astheir biggest challenge,compared to thecorresponding figure of46% for all businesses. Allthese reflect the relativelydisadvantaged position ofwomen entrepreneurs inthe society. Indeed, thebiggest challenge torunning a business thatwas identified by womenentrepreneurs wasdiscrimination betweenmales and females.Women entrepreneurs,however, fare better thantheir male counterpart asfar as learning how to dobusiness is concerned.While 41% of allbusinesses view it as oneof the biggest constraints,

this is true for only 27% of women entrepreneurs. This inturn implies the huge potential for women as successfulentrepreneurs with proper support from family and society.Access to loans is a well-known constraint in Bangladesh,and some recent initiatives have been taken targetingdevelopment of the SME banking sector. However, itappears that, for both SMEs and large firms, this constraintis equally predominant. 61% of the SMEs and 63% of thelarge firms find it difficult to get a loan.Consultations with stakeholders suggest that most bankloans and SME loans go to traders instead ofmanufacturers. While 63% of trade and 59% of service

The new government faces an

environment where consumer and

business confidence is low but improving.

To tackle the general pessimism regarding

the country's future direction, it is

necessary for the new government to

tackle burning issues like high prices of

essentials, unemployment, facilitating

women entrepreneurship and improving

access to finance for businesses urgently.

They must also create an environment

that is conducive to investment and

business growth.


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sector businesses find it is easy to get a loan, 64% ofmanufacturing firms find it difficult. This may havenegative long-run consequences in terms of the country'sindustrial development.In this backdrop of current economic and businessenvironment, a strong voice for business reforms seems toresonate among all stakeholders, despite the fact that asignificant fraction of them - 67% of the general people,40% of the opinion leaders, 51% of the businesses, and44% of public officials - have heard about or seen little orno business reforms at all. Nonetheless, among those whohave seen or heard about business reforms, most of them -89% of general people, 86% of opinion leaders, 75% ofbusinesses, and 74% of public officials - expressed thenecessity for business reforms in Bangladesh.Irrespective of whether or not one has heard aboutbusiness reforms, 88% of the general people, 90% of theopinion leaders, and 74% of the public officials believe thatbusiness reforms are likely to have a significant impact ontheir lives. Similarly, 72% of the businesses believe thatbusiness reforms are likely to have a significant impact ontheir businesses.

Why is there such an overwhelming demand for businessreforms? Consultations with stakeholders suggest that theybelieve business reforms can result in better and more jobs,as well as more competition and thus reduced prices. As wehave seen, a reduction in prices can benefit both producersand consumers, due to the increase in purchasing power.What do all these perceptions mean for the country? Thenew government faces an environment where consumerand business confidence is low but improving. To tackle thegeneral pessimism regarding the country's future direction,it is necessary for the new government to tackle burningissues like high prices of essentials, unemployment,facilitating women entrepreneurship and improving accessto finance for businesses urgently. They must also create anenvironment that is conducive to investment and businessgrowth. Such measures are critical to restoring businessconfidence in light of the transition to a politicalgovernment and the financial crisis that has been wreakinghavoc across the globe. Future surveys will reveal whetherthe new government has been responsive to the demandsof the people, and whether they have had a positive impacton the perceptions of its citizens.

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Bangladesh is facing an enormous shortage ofconventional primary energy. Primary energy exists in

many forms such as chemical, oil, gas, coal, nuclear, solar,thermal, hydro, and wind. Humans extract energy fromnature in the raw form known as'primary' energy, then process andtransform it to 'intermediate' and finallyusable energy forms like electricity andheat. The conventional primary sourcesof energy like oil, gas, and coal haveconversion limitations and are used togenerate electricity from centralizedplants. Furthermore, it is difficult anduneconomical to use such primarysources for rural electrification ofBangladesh. The environmentaldimension of energy is a key issue ofenergy planning. The option ofalternative energy resources like renewable and nuclearenergy which emit low greenhouse gases (GHGs) isimportant. A strategic action plan of sustainable energy for

poverty reduction and environmental protection shouldnecessarily enter into any calculation of an energy-baseddevelopment framework of Bangladesh.Primary renewable energy like sunshine and bioenergy is

abundantly available all overBangladesh, decentralized andenvironment-friendly. Although they arealso not free from conversionconstraints, they can be used to generatesmall and medium amounts of power inmost locations within a very shortamount of time. A centralized powerplant using conventional primary energyneeds three to five years to startproduction. A nuclear power planttakes eight to ten years to start trialproduction. Bangladesh's climate isquite suitable for production of power

and heat from Solar Photovoltaic (PV) cells, since itsprimary source is sunshine. Bioenergy and biogas are alsosuitable for Bangladesh due to easy availability of raw

Whither Renewable Energy?Dr. Saiful Haque

April 200924

The PV system's abilityto produce electricityproximate to, or at thepoint of consumption

means minimum systemlosses, thereby

promoting energyefficiency.

Photo: Creative Communication Limited

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materials and the relatively simple technology.Usually, solar PV technology is used as a stand-alone systemfor providing electricity to areas where the electricity gridnetwork is absent. In rural areas of Bangladesh, about threehundred thousand households are already connected to PVpower systems. These systems can power two lights and ablack-and-white television and recharge mobile phonebatteries. The costs of installation vary from taka twenty-five thousand to taka forty-five thousand depending onoptions chosen. The initial installation cost is high, but thetradeoff is the large saving afforded the economy's powergrid since each household with a PV solar home system(SHS) is actually the owner of an individual PV powerplant. This 'power plant' supplies uninterrupted fuel-free

electricity for 25 years with negligible maintenance costs(battery replacement costs come by every three years). Atthe current growth rate of SHSs, it is expected that powergenerated by photovoltaic cells will exceed 300 MW withinthe next couple of years.Diversification and use of PV installations in solarirrigation, solar mini-grid for rural street lighting, villagemarketplaces, and urban energy consumption could see aradical growth. Globally, grids connected to solar PV,popular due to negligible greenhouse gas emissions, aresurpassing the number of the stand-alone PV systems bymore than double. To study the suitability of such a grid

connection, a model 1.1kW solar PV system was installed atthe rooftop of the Renewable Energy Research Centre(RERC) of Dhaka University on April 2008. The model ransuccessfully. More such systems should be installed onrooftops at different city locations to study the suitability ofthis system. If pilot models are found to be suitable, a grid-connected photovoltaic system could be installed on allcommercial buildings of Dhaka.According to the model, only forty building rooftops wouldbe required to generate 1MW electricity using the solar PVsystem. If there are two hundred thousand buildings inDhaka city, then all the rooftops connected to a PV gridcould generate about 3000 MW electricity! This powercould be fed to the national power grid every day during

daytime. To popularize this system, the government mustcome up with an affordable pricing strategy for PV-generated power from rooftops.In the case of larger power plants the average cost of PVinstallation would be less. A distributed PV system ofsmaller capacity provides the opportunity to integratephotovoltaic cells into the very architecture of buildings.Thus, the technology is a dual-purpose one, both as abuilding element and electricity source, something which inthe trade is known as Building Integrated Photovoltaic(BIPV). Although BIPV is still expensive, its costs aregradually decreasing. The BIPV system's merits are that it



April 200926

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Bangladesh Scorecard


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relies solely on sunshine to generate power; no other fuelsource is required. Its operation is noise free, there are noharmful emissions and it requires minimum maintenance.The PV system's ability to produce electricity proximate to,or at the point of consumption means minimum systemlosses, thereby promoting energy efficiency. This particularpower system could be a major small-scale power source forhouseholds and businesses in Bangladesh.The prospect of bioenergy, especially biogas, is very brightin Bangladesh. Biogas plants convert litter into gas forthermal use such as cooking and heating. This gas is alsoused in gas generators to produce electricity. Its by-product,organic fertilizers, (or bio-slurry, to use techie lingo!) areproduced both in liquid and dried form. Biogas technologyis locally developed and available to users through thegovernment's BCSIR and IDCOL, Grameen Shakti, BRAC,and German Technical Cooperation (GTZ, KFW, etc).There are about thirty thousand biogas plants installed allover Bangladesh, mostly in the rural areas. Almost ninetypercent of them are operational at present.A small percentage of installations are inoperative becauseof faulty designs by unqualified professionals or lack of

diligence on the owner's part in terms of maintenance. Therule of thumb for power generation using biogastechnology is that 1 kW requires approximately onethousand poultry bird's feces (one Watt per chicken). InBangladesh, there are about a hundred and fifty thousandpoultry firms, with at least ten percent of them with morethan five thousand birds each. So right there, clucking awayunawares, we have the potential for 50 MW of off-gridpower generation! Taking all city wastes, kitchen waste, ricehusk, and poultry wastes into account, there is a potentialfor generating 1000 MW electricity from bioenergy sourcesin the country, keeping its use as cooking fuel intact. Amedium-sized biogas plant setup is cheap, costing aroundTaka twenty thousand only and can be made with localmaterials. Power generation using solar PV and biogas canbe explored as immediate or medium-term solutions.For planning a long-term solution to Bangladesh's energycrisis, the following renewable energy technology (RET)options should be explored: biogas, solar, hybrid system,wind, hydro, human paddle charging, electric hybrid three-wheelers, solar vehicles, and co-generation. There is also aneed to learn and adopt Energy Conservation (EC) and

Rahimafrooz: Will the Sun Do?

Rahimafrooz Renewable Energy (RRE) Ltd. is asubsidiary of Rahimafrooz group. Starting as a small

trading company in 1954, Rahimafrooz is now one of thelargest and most successful private sector business groups inBangladesh. Since 2006, RRE is providing solar powersolutions for residences, for irrigation in the agriculturalsector, clinics, schools and village marketplaces. Theincreasing use of off-grid solar energy is rooted in the fact

that grid electricity covers only 35% of Bangladesh, andsupplies only 70% of the total electricity demand. 85% ofthe power plants in our country generate electricity byburning natural gas, 6% by coal, 4% by hydro power and 4%by oil. Such fossil-fuel-fed electricity generation is fraughtwith environmental pollution. The search for viable,alternative sources of energy for a resource-poor but energy-hungry, developing country like Bangladesh is now anecessity, and one of the leaders in this emerging field isundoubtedly Rahimafrooz Renewable Energy Ltd.RRE has been growing at nearly 50% annually since itsinception, with a yearly turnover of more than Taka 50 crore.It provides solar power solutions such as solar home lightingsystem, solar hot water system, solar refrigerators and solarstreet lights. RRE's mainstream project is the solar homelighting system, a product subsidized by The InfrastructureDevelopment Company Ltd. (IDCOL). The company hasalready installed more than 60,000 solar units under theprogram, which generates 300MWp electricity. It is estimatedthat this project alone saves the earth from 13,064 tons ofcarbon dioxide emissions per year.

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Energy Efficiency (EE) mechanisms - the two are known as'third fuel' or 'Negawatt'- to stop wastage. By conservingpower through energy-efficient devices, fifteen percent ormore electricity can be saved and therefore virtuallygenerated!It is very important that those who are active in the field ofpromoting renewable energy should themselves practice itsuse on a smaller scale. Instead of lamenting powershortages and sitting in the dark, we should take matters inour own hands. Each one of us has a role to play. Educationand research institutes should engage themselves in energy-related research based on local demand and materials sothat innovations, and innovative ways of thinking, can takeplace within existing technology frameworks.Large investment funds are required from financialinstitutions for research, technology transfer, developmentof skilled renewable-energy professionals, correctdissemination of simple and inexpensive technology andpurchase of RET products for household and commercialapplications. The government should come forward withincentive packages, adequate funding, enabling laws, anddistribution of funds for building Clean Development

Mechanisms (CDMs). Awareness building regarding carbontrading and climate change issues have to be undertaken ata national level to scale up the use of renewable energy.Consumers should be geared towards utilizing renewableenergy wherever possible. Renewable-energy traders shouldoffer the best quality products at affordable prices andprovide dependable after-sales services. They should try todevelop RET locally to minimize dependence on dwindlingconventional sources of energy, and enhance energysecurity.The obvious, visible impact of energy security will be in thegrowth of industry. We have reached the tipping point andmust switch from a fossil-fuel-based economy to a solar-energy-based economy in order to both protect ourincreasingly endangered planet and forge aheadeconomically.

Dr. Saiful Haque is Professor, RET, University of Dhaka, andMember, National Committee of Renewable Energy.

Table: Specifications of Solar Home Systems (SHSs) available in the market*

*Source: Market Survey (April 2009)

Some key installations of RRE:

2007: Solar system on a moving boat, BBC WorldService, 1.2 KWp

2007: Telecom solution for Grameenphone atPaharpur, Habiganj, 8.25KWp

2006: Bangladesh Power Development Board(BPDB) at Borkol, Rangamati, 10 KWp

2005: Solar submersible water pump solution atBarinda

2005: Solar centralized solution at Chakaria, Cox'sBazar, 5 KWp

Solar-powered hot water system for Aloha Hospitalat Naogaon, 1.95 KWp

RRE envisions the first ever grid-connected photovoltaicsolution which would feed into the national grid directly toensure smooth supply of electricity. This will reduce thedemand-supply gap of electricity in Bangladesh and reducepollution. RRE is working towards new and innovative solarsolutions such as a 'Solar Pump' for drinking water andirrigation purposes, solar-powered billboards, solar securitylights and solar traffic signal lights. In 2006, RahimafroozBatteries Ltd. won the "Ashden Award" for its promotion ofsustainable green energy and alleviation of Bangladesh'senergy crisis.

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"The truth is, we areback to square one"

Hossain Khaled is a young businessman who is alsothe ex-president of Dhaka Chamber of Commerce

and Industry (DCCI) and co-chair of the InfrastructureWorking Group of the Bangladesh Better Business Forum(BBBF), the first public-private forum in Bangladesh. In aninterview with Bangladesh Business, he speaks about hisexperiences as a member of BBBF, its potential, challengesand the need for continuation.

How did you enjoy your time working at DCCI?It was definitely a new challenge and experience, especiallybeing the youngest president and being able to run thechamber of the upper most echelon in Bangladesh. I feel, inmy capacity as the president, I was able to set an examplefor the next generation and reiterate the fact that we are thebackbone of the country. With the 50th anniversary eventof DCCI and especially the success of its InternationalBusiness Conference, I feel that I ended my term on amemorable note.

What in your mind was the most significantachievement for DCCI during the three-day longevent?First of all, we were able to set the example that aninternational conference of such scale can take place inBangladesh. We were successfully able to coordinate thelogistics, and at the same time bring together prominentbusinessmen, economists and academics from more than 30countries. We were lucky to receive immense support fromorganizations such as yours (BMB Mott MacDonald) andothers, as well as the government. To answer your question,I think we were able to set out a vision for Bangladesh, buildawareness, and set out a track for diplomacy. In a sense,

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through this conference we presented a vision for businessin Bangladesh and made recommendations. I think, fivemonths down the line, our predictions have been proventrue - unfortunately the government did not reach out to usthen and have not done so yet.

You represented DCCI in BBBF as a member of theInfrastructure Working Group. What is your view ofBBBF?I am glad that a public-private forum was formed inBangladesh. A number of organizations, chambers,academics, and think tanks were able to come together onthe same platform to share their views. Over the pastdecades, all these groups have had differing views at times,and the forum actuallyopened the floor forconstructive discussionamong us, leading to verysignificant recommendations.Personally and professionally,I feel that the forum was ableto address several issueswithin quite a short period oftime and that it should not betime-barred. It shoulddefinitely continue and bechaired by the head of thestate or prime minister.

Could you explain the workings of BBBF to us?The forum was composed of five working groups focusedon broad thematic areas, namely Business Finance,Infrastructure, Business Entry and Operations,Macroeconomic Policy, and Skills Development. Themembers of this forum were drawn from businesscommunities, the public sector, chambers, academics, andothers. In meetings, chaired by the caretaker government,the problems would be discussed and recommendationswould be tabled by each group. The recommendationswere filed in the form of reports and placed to the chiefadviser. The CG office would review this and the statuswould be distributed. If a decision was made there was nopoint in going over it any further. The approvedrecommendations would be sent to relevant ministries. Theimplementation process was to be carried out by theseministries or organizations in, say, three months. Whatdidn't happen was the follow-up. At a stage of severeeconomic crisis, it would have been the right time to workon those five issues. With the prime minister and financeminister in place, now is the right time to set outappropriate reforms.

How was the Regulatory Reform Commission (RRC)related to the implementation process?There was a great degree of confusion concerning this. Inreality, the RRC was separate from BBBF. However, therewere several instances when we would forward approvedrecommendations to relevant entities, and we would be toldit is RRC's work and at other times, it would be the otherway round. It was a confusing issue altogether. However, anumber of recommendations were indeed sent to RRC forimplementation and follow-up.

Were any of the recommendations implemented?Not that I know of.

Were you happy with the composition of the BBBF?Do you think the privatesector was weaklyrepresented?I think the composition wasgood. There are differences ofopinion concerning thecomposition. I agree that thereshould have been morerepresentation of privateentities in this forum. But, for astart, I felt that it was all right.It should be noted that therewere individuals who were not

representing any specific organization or body. I am notquestioning their intellect in any way, but at the same time Ifeel that this forum should have been more organizationallyrepresentative. In some special cases individualrepresentation made sense, such as in the case of Manzoor-E-Elahi who is a former adviser and a legendarybusinessman. Regardless of success, had I not been thePresident of DCCI representing the chamber, my presencewould be questionable. I would then be representing myselfand expressing my individual views and not a trade body's.

What would have been, according to you, an adequatecomposition?I would say more trade bodies and representation fromorganizations or groups rather than individuals.

BBBF's chairperson mentioned that he would not letBBBF become a talking shop. Do you think his wordscame true?The chief adviser would often open the floor for discussionand there would be diversions from the core topic. Time ismoney and we used to go there to present ourrecommendations in a systematic way, which didn't happen.Often, until or unless there were questions, the discussionswould go on.

BBBF was the dawn of anew forum for us to worktogether. If it continues, it

will become more precise interms of its operation and

effective in terms of impact.

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The procedure for this forum should have been that two tothree working groups would come and present theirrecommendations in the meetings and discuss views,following which a report would be submitted for makingdecisions. That did not happen. Often the presentationswould be too long or discussions would divert and go on.We needed appropriate time allocation and a professionalapproach to these meetings. One can summarize orhighlight the important issues, instead of going overcountless recommendations ina haphazard manner.

Could you tell us some ofthe significantachievements of BBBF?BBBF was a success story forall of us. All therecommendations putforward, I felt, were quitepertinent. Many may say it wasjust a talking shop, but thetruth is that BBBF was thedawn of a new forum for us towork together. If its continuityis ensured, it will become more precise in terms of itsoperation and effective in terms of impact. I speak onbehalf of everyone when I say this.For the past year, we were working on both micro andmacro levels and we have done the groundwork. We cannow work on a policy level. For example, we could set agoal of bringing down processing of company registrationto no more than three days. We could also objectifysimplification of the procedure and move unnecessaryforms out of the equation. What is extremely important isthat we must have an appropriate feedback or follow-upprocedure. Within the forum, we would not have follow-ups in next meetings. This should be taken into accountupon continuation of the forum.I feel that one of the major issues was the absence ofownership. We did not have a secretariat in place.

BBBF was the first time where the private and publicsector came together in such important dialogue. Doyou think it was adequately promoted and the generalpublic was aware of it?In the initial period, there was much confusion concerningthe workings of BBBF and its exact goals. I feel, at least themajor stakeholders, including the business community, wereaware of this initiative very well.

From the statistics we have, it seems that over 56% of

the total recommended and approved reforms dealtwith infrastructure issues. Would you like to commenton this?I guess we were more aggressive! It was also becauseinfrastructure is such a wide topic. We had divided it intofive sections, namely ICT, power and energy, roads andhighways, ports and tourism. This allowed us to make veryspecific recommendations.

Much of the reform issues handled by theInfrastructure WorkingGroup dealt with ICT. Whywasn't the focus on themore pressing need of whatwe call 'physicalinfrastructure' such aspower, roads, and portfacilities?The first sets ofrecommendations were ofICT, since we decided to giveICT infrastructure the firstand foremost priority. In caseof power, there is just one

major recommendation: we need power, we need newenergy sources, and it's about time we paid some attentionto it. There were a number of issues that were addressed inother components of infrastructure as well.

Do you think establishment of economiczones/industrial parks are critical for our futureeconomic development, attracting foreigninvestments, and simply for zoning land forindustrial/manufacturing operations?There is a proven track record in every country that it iscritical. In fact, we had recommendations that supportedzoning. But, what I do not agree with are the differencesmade between companies in the zone, and those outside.We are already providing a number of facilities - taxholidays, for example. Why can't a 100% export-orientedfirm outside the zone get the same facilities? This particularissue was raised by DCCI and several recommendationswere also made for the ports.

Why do you think charging lower interest ratecompared to market rate can develop our SME sector?Is finance the only issue for SME development?One of the major obstacles is the access to finance, andalso the cost of finance. SMEs must put forward collateralto take loans and this adds to the challenges SMEs face.The irony is that we charge corporate establishments a

Often the presentationswould be too long or

discussions would divert andgo on. We needed

appropriate time allocationand a professional approach

to BBBF meetings.


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much lower interest rate than we charge SMEs. Finance,however, is not the only issue. But it is related in the sensethat with better finance, you can actually ensureproductivity.

Many say DCCI is a champion of SME development!Could you explain this to us more?From its very inception DCCI's focus has been to supportSME businesses. It was with this perspective that we hadstarted. In the last 50 years, we certainly have been able togain extensive experience and understanding of the SMEsector. With 75% of DCCI members being SMEs, we havebecome their voice. If we do not channel their views andrecommendations, they will not get things done. Advocacyfor SMEs has to be done withsupport from everyone. All thechambers should come together.Unfortunately, in Bangladesh, weharbor jealousy rather than thewillingness to work together.

Did you know that many ofthe Business Finance WorkingGroup recommendations thatare mentioned as approvedand implemented are actuallyold and was presented by theSME Advisory Panel (nowdefunct) in 2006 and 2007?These are issues that are beingraised continuously. These arenot recommendations placed justby the SME Advisory Panel, butby many others as well. It's a sign that the government didnot react to these then and have not done so yet.

What do you think is happening with the change inregime, now that we have a democratically electedgovernment? Will this dialogue between the privateand public sector continue?Well, hopefully, under a democratic governmentdiscussions will be better. We hope this will not be anautocratic government.

Do you think it is necessary for the dialogue tocontinue? Like I said, it is a continuous process. We will improve withtime. You cannot fix this country in a single attempt. Manymay ask the reasons for the existence of this forum since itis true that we have trade organizations and other bodiesthrough which you can make recommendations. Why do

you need to go through a forum? It is simply because ofthat general consensus, which you will not find elsewhere.We all had one voice, and that is what was needed. Thiskind of a forum exists in many countries across the globeand it is a platform where you have the presence of boththe sectors. I feel this forum has great future potential.

If this continues, do you have something to say aboutchanges that may help future processes? As of now, we do not know for sure if we even existanymore! But, given that we do exist and given that we docontinue, BBBF must have a secretariat. Another way toapproach this would be that individual working groupscould maintain their own recommendations and then

follow-up, at least on thedecisions that have been made.Organizations and trade bodiescan be given responsibility and asa result a sense of ownership willbe created. For example, DCCIcould have a cell for TheInfrastructure Working Groupand they would provide allsecretarial services for thisworking group. The forum needsto have ownership and power;the members need to have thatmentality and a sense ofcommitment. The image ofBBBF may need to be rebuilt toportray that it is not just a talkingshop or made up of people who

only recommend.

On a last note to this Q&A, what is your wish anddedication to the future of this country?We have fallen behind on growth. We need to ensure thatafter this economic crisis is over, we are able to accelerategrowth. My wish is to be a responsible citizen and worktowards the development of my country.

We thank you immensely for being so patient andgiving us your valuable time. One last word: Who isHossain Khalid? Hossain Khalid is a very humble individual! I like challenges. I was educated in the USA and came backafterwards to ensure that I make a difference here. I choseto be a policy maker, and I feel I have been able tocontribute to some extent and I wish to continue doing so.

I do not agree with the

differences made

between companies in

the zone, and those

outside. Why can't a

100% export-oriented

firm outside the zone get

the same facilities?

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AmjadKhanChowdhuryCEO of PRAN

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The Chief Executive of PRAN-RFL Group Major-General (retired) Amjad Khan Chowdhury is a

cautious man. Or a precise one. Our session in his officesset in the teeming caterwaul of R K Mission Road startedoff with him asking us probing questions about ourbackground, education and present work. He listenedcarefully to our answers and, judiciously pursing his lips,took down notations on our personal cards. Only then,presumably reassured about our bona fides, did he unbendfor a conversation enlivened by the occasional affable grinand flashes of self-deprecating humour.Amjad Khan Chowdhury was born in Natore in 1940, butleft his Bengali boyhood for the PAF school in Sargodha,and subsequently the Pakistan Military Academy at Kakul.He was commissioned into the Pakistan Army as an officerin 1958, and seemed to havethrived in that particularorganization - by 1968, at acomparatively young age, hewas a brigade major atRangpur. The PMA longcourse is meant to leave itsindisputable imprint, and eventoday there is something ofthose army days in him, ofAbbotabad and Risalpur andPindi, hints of it in the clippedmoustache, his English, andbearing. In 1973, he wasrepatriated back to Bangladeshand its army. During ZiaurRahman's rule GeneralChowdhury seems to havecome into his own, playing animportant role in the army'supgrading and reorganization,instrumental not only in establishing the BangladeshMilitary Academy but also in modernizing and rebuildingthe army cantonments at Jessore and Bogra. In 1981, whilestill merely 41 years old, he retired with the rank of majorgeneral whose last post had been as the army'sQuartermaster-General.After retirement he went into business. Amjad Chowdhuryis disarmingly frank about the move: He needed to makesome serious money. But the road to it, and PRAN Group,was no primrose path. His first venture, building tube wellsat his newly established Rangpur Foundry Ltd, lost money.It has since been turned around substantially, producingagricultural machinery as well as having established itselfas one the largest producer of plastic pipes and fittings.Next he turned to building apartments (one of the first in

Bangladesh to do so), a concern that is still ongoing, andwas also the founder-president of REHAB (thedevelopers' trade body). By this time, he says, he wasbeginning to learn how to be a businessman in Bangladesh,how the game was played. It was, he concedes, a steeplearning curve.Notwithstanding the burgeoning if narrow-basedmanufacturing sector, agriculture is the dominant fact ofBangladeshi national life, not just in economic terms but inshaping Bengalis, from their songs of harvest to the greenof their flag. General Chowdhury turned his attentiontowards agriculture, saying that he read a famous bookabout trading in products where the country has acomparative advantage. His decision was quick: theagriculture sector had the comparative advantage in

Bangladesh and agriculture waswhere he wanted to be. Anadditional fact was that notonly was he from Natorehimself, but his army postingin North Bengal had made himsee firsthand how armydevelopmental activities hadaided Bangladesh's traditionallymost underdeveloped region,with its seasonal monga andlack of economic oppor-tunities. Agriculture inBangladesh is a stagnant sector,symbolized most perhaps withthe single dismal statistic thatwhile it employs 60 percent ofthe labour force it contributesonly 20 percent to the nation'sGDP, a sector wheresubsistence farming, func-

tionally landless peasants, and structurally ineffective, ifwell-intentioned, NGO interventions dominate thepicture.Enter PRAN, and the beginning of the food processingindustry in Bangladesh. Pointing to a plaque in theconference room General Amjad solemnly intoned thatPRAN stood for 'Program for Rural AdvancementNationally'. He read more books, consulted with experts(he is, however, dismissive of our agricultural university,saying that its tradition-bound teachers and researchers hadnot been of any use to him) and toured countries fromPakistan to the Philippines to learn how to do things, to seethe latest in food-processing technology and managementpractices and how to organize the business. Agribusiness,to him, came to mean "adding value and shelf life" to

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Only after being

reassured about our

bona fides, did General

Amjad unbend for a

conversation enlivened

by the occasional

affable grin and flashes

of self-deprecating

humour.

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agricultural produce. Crudely put, it means that selling araw, perishable agricultural good, say potatoes, is to be atthe bottom of the food-selling chain. The name of thegame is to join the big boys. Take those potatoes, peel them,liquefy and extrude them into 'chips', put in additives andpreservatives for taste and long shelf life, package themattractively, brand them with slick ad campaigns and shipthem out to supermarket shelves where they can be boughtand consumed even three months later. Later on, aim formarkets abroad, which means shipping beyond borders,meeting stiff international quality control standards andpromoting with even slicker ad campaigns.A business concept is easy enough, but putting it intopractice is, as they say, a whole different ballgame. It was amessage that General Chowdhury kept repeating to us. InBangladesh each stage of the supply chain is subject topressures: The problems inensuring quality crops, thelack of proper infrastructure,the absence of power forcold storage, the lack ofknowledge by farmers ofmodern marketing methodsor information and the lackof access to credit by farmersfrom financial institutions.Add to it the inertia ofgovernment officials, theextra cost of corruption pay-offs, the lack of skilledmanagement and labor, andthe list can seem endless. Forexample, just gettingaccredited by internationalcertification bodies is a majorhurdle for food processingfirms of Bangladesh sincethe Bangladesh Standards and Testing Institution (BSTI),responsible for certifying products, is as yet not capable ofproviding internationally recognized food and healthcertificates. And yet PRAN, with an easily recognizablebrand name, under Amjad Chowdhury's leadership, hasovercome these hurdles to become one of the biggestplayers in the food and processing sectors of Bangladesh.The current turnover of PRAN Group is US $ 200 million;its exports have climbed in Taka terms from 214 million in2005 to 1200 million in 2008. It has established offices inIndia and UAE and is the largest exporter of food andplastic items to over 70 countries - including USA andEurope. It is also transforming itself from being primarily aproducer and exporter of snack foods, fruit juices andbeverages into a true agribusiness concern. Examples of it

are its intention of entering the dairy products and thearomatic rice production business in a big way, in itsincreased ability to anticipate changes in the consumptionhabits of middle-class Bengalis (which is a crucial driver inthe expansion of the processed food industry), its linkingup with organized retail chains, and in its aiming for foreignmarkets outside of the Bengali immigrant enclaves.Furthermore, PRAN has commenced a $51 million project(out of which IFC is giving 15 million - the first instance ofIFC financing a project in Bangladesh's agribusiness sector)to expand capacities and improve operating efficiencies, aproject that, according to a company official, is expected"to produce agro-based products worth Taka 2 billionannually."PRAN's transforming drive is also apparent in its efforts toensure a smooth, steady supply of raw material by initiating

contract farming. The latterpractice is expanding inBangladesh, as it already hasin India, with not only PRANbut with other companiesand business houses such asACI, Bengal Foods, BRAC,and which will radically alterthe current rural landscape ofsmall-scale, self-sufficienthousehold farming. Thoughcontract farming is notwithout its critics, AmjadChowdhury amongst othersargue that by providing seeds,guaranteeing crop sale andstabilizing farmer-agribusiness partnership itcan initiate true modern-ization of our agriculturalsector. It may have its costs,

but modernization must come to Bangladeshi agriculture.As the saying goes, only the future will tell. In themeantime, both PRAN group and its CEO Amjad KhanChowdhury seem unstoppable. He had not only the visionof a modernized, alternative agricultural sector inBangladesh allied with a high-value, high-earning andemployment-generating food processing industry, but thecourage to follow his convictions. The time may come inthe future for the torch to be handed over to youngerentrepreneurs in the agribusiness sector, but as our talk withhim winded down it was impossible to avoid the notion thateach and every one of those younger entrants into thebusiness is unlikely to forget who was the first man to showthem the way ahead.

PRAN has commenced a

$51 million expansion

project which is expected

"to produce agro-based

products worth Taka 2

billion annually."


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In the second half of 2007, with the twin floods andcyclone (Sidr) devastating much of Bangladesh's rural

areas and the coastline, people wondered whether a foodcrisis would hit Bangladesh. Indeed, an estimated twomillion tons of rice production was lost and the need forimports became urgent. Importing the required rice volumewould not have been an issue, if unfortunately enough atthe same time global food and commodity prices had notskyrocketed. That made not only import bills pinch thecoffers of the Ministry of Finance, but also stoppedtraditional rice exporting countries' national sellers fromexporting rice in order to avoid any unforeseen shortageswith their own stock of food grains. India, for instance,over a period of six months, more than doubled its rice(coarse/non-basmati) export price and finally banned allcoarse rice exports. As food grain shortages hit markets theworld over, the market price of coarse rice in Dhakaincreased to Taka 38 per kg from the pre-crisis rate of Taka20 per kg.The genesis of the food crisis is symptomatic of a much

deeper problem with the agriculture sector. It broughtabout a realization that the sector cannot be left to its owndevices and that intervention by the government is criticalin bringing about a brighter agricultural landscape. Theincumbent political party, while on the election campaigntrail, was quick to dwell on the high prices of food grains,on the promise of availability of food for all, and on settingthe agenda for improving the prospects for growth in theagricultural sector. Thanks to the winter rice (Boro)production of some 17.8 million tons, rice supply in thecountry is currently plentiful and prices have also decreasedto the pre-crisis level. But questions remain: What indeed isthe future of the agriculture sector? What about the 70percent of Bangladesh's population who eke out a living infarm and non-farm activities? Over the last two decades, the rural landscapes havedramatically changed. Bangladesh's population isundergoing increasing urbanization; there are more non-farm employment and production opportunities andgrowing infrastructure linkages between rural and urban

Food, And More, for All!

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centers. More importantly, private sector businesses,although still in a nascent stage, are reshaping theagribusiness sector and farmer-market linkages. Theperformance of the rural non-farm sector is robust, withthe growth rate over the last decade exceeding 8 percentand accounting for over 56 percent of the total ruralincome. But the growth of the non-farm sector criticallyhinges on the expansion of high value-added agricultureand related agribusiness.In recent years, developments within the fish, livestock,poultry, fruits, spices, and vegetables products' sectors areencouraging. With a growth rate of 73 percent over thecorresponding period, Bangladeshi exporters shippedprocessed foods worth about $48 million during the 2007-08 fiscal year. PRANpioneered commercial ex-ports of this sector fromBangladesh and nowexports about half thecountry's processed food.According to industrysources, at least 20 agro-processing companies,including Square Con-sumer Products and BDFoods, have significantexport volumes and areactively in pursuit offoreign markets. However,it is not export, ratherchanging consumption anddemand patterns in thedomestic market that iscausing shifts in the farmand non-farm landscape.Additional demand arisingfrom consumer foodconsumption patterns over the next 10 to 12 years is valuedat US $8 billion in 2005 constant prices. Here one has toadd that these are only projections of consumer fooddemand. The real extent to which the share of the growingmarket can be captured by domestic producers will bedetermined by how the agribusiness industry organizescompetitive facilities for production and marketing andgenerates momentum.The development focuses since Bangladesh's independencehas always been increasing food grain production throughthe introduction of high-yielding varieties and associatedimproved technologies with 'seed-fertilizer-irrigation'interventions in crop production. The objective has beenthe achievement of self-sufficiency in food grain

production. Bangladesh has been able to achieve close toself-sufficiency in major cereal grains production. Totaldomestic production of major cereals (rice plus wheat) was29,775,000 metric ton in 2007-08. However, domesticproduction has always been supplemented by food importsfor maintaining a buffer stock for use at times ofemergency.Times are changing, though. With increasing populationand higher income levels as well as changing foodconsumption, the lack of a comprehensive agriculturalreform could drive the country into a state of permanentfood crisis, with its corollaries of food insecurity andincreased vulnerability of large marginal sections of thepopulation. Lack of resources, vulnerability of the

agricultural productionsystem to the naturalhazards like floods,droughts, cyclones, etc.,decreas ing/s tagnat ingproductivity plus shrinkingland for crop production asdemand for other uses riseare the major bottleneckshindering the progress ofthis sector. Rapidurbanization - the urbanpopulation has more thandoubled since indepen-dence - resulting in morehousing, roads, andindustrial development isshifting land use patternsand reducing the netcultivable land area byabout one percentage pointannually.With such limits on the net

cultivable area and the net sown area, any goal to attainfood security by improving domestic production wouldlargely have to rely on productivity growth. FAO dataindicates that rice yields in Bangladesh are 45, 20 and 25percent lower than in China, Vietnam and Indonesia, whilewheat yields are about 30 and 15 percent lower than in Indiaand Pakistan, and are less than half of those in China.Bangladesh enjoyed high yields in the past but those levelsof productivity have stagnated. Without continuousimprovements in yields, the danger of not being able tofeed the growing number of mouths is a real one. Over theyears, institutional inefficiencies and neglect by successivecentral governments have created much of the problem.The Departments of Agriculture Extension, of Livestock

The performance of the rural non-

farm sector is robust, with the growth

rate over the last decade exceeding 8

percent and accounting for over 56

percent of the total rural income. But

the growth of the non-farm sector

critically hinges on the expansion of

high value-added agriculture and

related agribusiness.


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Services, of Fisheries, and various agriculture researchinstitutes have not functioned as expected and have failedto introduce new technologies, ensure their adoption,increase farmer engagement in high-value commoditieswith effective, dependable market linkages, and increase thelevel of agricultural productivity.With the changed agricultural landscape, public institutionsmust now work together with the private sector groupsrepresented by both the business world and the non-governmental organizations. The government could set outa solid basis for agriculture and agribusiness growth bymaking sure that the Krishi Gobeshana Foundation and theHorticulture Export Development Foundation (HORTEX)operate transparently, hand-in-glove with the private sector,and by ensuring that research, extension facilities, andsupply chain management are rooted in the needs ofthousands of small farmers. "The private sector has limitedcapacity to undertake agricultural research and thegovernment must support research and extension servicesin a more comprehensive way by joining hands with theprivate sector," says the Director of Operations of ACIFoods Limited. The decline of a once very productiveagriculture research system must be arrested, and thenrejuvenated so that it can respond to current developmentchallenges.There are issues of institutional changes, governance,autonomy in decision-making, and funding and allocationof resources within and outside the public rules andregulations. Without reforming institutions and changing

fixed mindsets to focus on all the sectors and not just cerealcrops, the possibility of increasing research outputs andreducing the gap between actual farmer yields and researchstation experimental yields is indeed low. The small farmersneed to organize themselves into producer organizationsand form common interest groups to improve supplychains, yields, and income levels. The participation of non-governmental organizations as service providers to farmersover the years have shown high benefits and supportingtheir further involvement, coupled with the operations ofthe larger corporate businesses, could bring about andsustain an environment conducive to changes in smallfarmer yields and supply chain management.The immediate past caretaker government and the presentone have done well, with a little bit of luck on their side, inensuring that the worst effects of the recent past food crisiswere mitigated and that food prices were brought down tonormal levels. They expanded the food distribution systemthrough open market sales, set high procurement prices(procurement price of rice was fixed at Taka 28 per kgwhen average cost of production was Taka 21 per kg), andinitiated measures to improve timely delivery of crucialinputs such as seeds, fertilizers, electricity, and diesel to thefarmers. It is hoped that working together with the privatesector groups to which could be added a timely dose ofluck, as General (retired) Amjad of PRAN pointed out in arecent discussion, success in business can be an iffy thing;government intervention in agriculture this time couldusher in a new era for its farm and non-farm sectors.

April 200942

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‘Thailand Exhibitionin Dhaka’

Commemorating 36 yearsof bilateral trade &

investment relations

On October 5, 1972, only a year after its independence,Bangladesh had established diplomatic ties with

Thailand. With a new 'Look-East' foreign policy initiated bythe then brand-new state of Bangladesh, the government-to-government and people-to-people relationship withThailand has been strengthened for over three decades now.The 'Thailand Exhibition in Dhaka' held from 11th to 14thMarch 2009 commemorated this 36-year relationshipbetween Bangladesh and Thailand. Forty-two participatingcompanies exhibited a diverse range of products such asfood and beverages, health and beauty products, garmentsand machinery, gift and decorative items, household andelectrical products, chemical products, stationery, gems andjewelry, auto parts and accessories, and tour packages. Thefair attracted not only business people, but also crowds whocame by to check Thai consumer products, and enjoyauthentic Thai cuisine offered by @Corner.Bangladesh-Thailand relations is sustained both at thediplomatic and commercial levels. Trade levels between thetwo countries have been increasing over the years; currentlyit stands at approximately $600 million, with Bangladeshincurring a large trade deficit. Bangladesh's main tradingpartners are, of course, India and China with imports in2008 from those countries being $3324.8 million and $3074million, respectively, while comparatively imports fromThailand stood at $490 million. The major imports fromThailand in 2008 included cement, primary forms ofethylene polymers, propylene and woven fabrics. The majorexports to Thailand in 2008 included chemicals, yarn andfibers, and frozen seafood, valued at $6.4 million, $4.1million, and $2.5 million, respectively. Bangladeshiexporters have substantial opportunities to exploit thecompetitive Thai markets and increase trade volumes. TheThai government has given duty concessions to over 250Bangladeshi products and Thai investors have exhibitedinterest in exploring potential business markets in

Bangladesh. On the occasion of the Thailand Exhibition inDhaka held over four days, Bangladeshi exportersexpressed their interest in the renewal of a proposal for abilateral free trade agreement with Dhaka. Thai investorsalso expressed the interest to import 10 million pieces ofjute sacks from Bangladesh and set up a number of hotelsand resorts valued at around Taka 30 billion.Bangladesh has a high potential to become an investmentdestination for Thai investors because of the advantage itholds in terms of labor costs. C.P. Bangladesh Co. Ltd.,specializing in agricultural products and services and animalfeed, has large investments in Bangladesh, along with@Corner, a restaurant business. A power cablemanufacturing plant in the country, also with 100 percentThai investment, is currently being set up. However, a poorinvestment climate and weak infrastructure, coupled withprocedural complexities are the major drawbacks inattracting Thai investment to Bangladesh. Despite theseshortcomings, Thai investors are keen to review investmentopportunities in Bangladesh's fisheries sector. Incidentally,some investors at present have joint-venture investments inthe industrial sector and partial investments in a few shoefactories and sugar factories in Chittagong. Skilled andprofessional consultants from Thailand are employed in theconstruction sector; Bashundhara City being a primeexample of such Thai participation.The success of the Thailand exhibition in Dhaka lay inhaving achieved its objective of furthering the trade andinvestment relations between Bangladesh and Thailand.Apart from celebrating and commemorating the existingtrade and investment relations, the exhibition alsopromised of mutual and increased initiatives in exploringnew markets and commercial ties for lucrative trade andinvestment relations between Bangladesh and Thailand inthe future.

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At a time when it is becoming increasingly uncertainfor export industries to increase or sustain current

sales volumes, many voices are assertively speaking forindustrial growth based on the domestic market. It couldvery well be that export industries will face a slowdownfrom shrinking overseas markets,decreasing prices, and large lay-offs.Does the future for businessenterprises lie in looking inwardand focusing on the burgeoningdomestic market? Is the domesticmarket robust enough to supportindustrial growth? ACI believes so.With four business units and elevensubsidiaries, ACI has concentratedin the domestic market and seen itsnet sales grow to Taka 10.3 billionin 2008. "Bangladesh has a largemarket; per capita income is risingeach year, and the country is stillrural and agriculture-based," said asenior officer at ACI. Only a handful of enterprises havesuccessfully entered and prospered in the rural markets,and none more than ACI, with its firm vision, focus, andattention to integrating several business lines within asingle plan framework.It was back in 1968 when Imperial Chemical Industries

(ICI) began its operation in the then East Pakistan. Afterindependence the company was incorporated inBangladesh on the 24th of January 1973 as ICIBangladesh Manufacturers Limited and also as a publiclimited company. Although ACI - formed when ICI

handed over its operation to localmanagement - focused for a whileon pharmaceuticals, it also as amatter of course developed anetwork with farmers for cropprotection that would soon evolveinto a wide range of farm and non-farm related businesses. With arapidly growing pharmaceuticalbusiness, ACI has now expandedinto agribusiness and what arecalled Fast Moving ConsumerGoods (FMCG), meaning homecare and personal care products.Recently ACI entered into foodproducts, providing consumers

with a range of food products (flour, spices, salt) under itscatchy brand name 'PURE'. Given the existing gaps indemand and supply along the various stages in the nationalfood value chain, the case for investments in agriculture isstronger than ever.Over 2007 and 2008 net sales of the company have grown

Advanced Chemical Industries LimitedReady for the Recession

April 200944

No enterprise has

successfully entered and

prospered in the rural

markets more than ACI,

with its firm vision, focus,

and integration of several

business lines within a

single plan framework.

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by 35 and 80 percent respectively, indicating thatdiversification and expansion of business, based on aninvestment outlay of Taka 1.7 billion, is paying off. ACI hasdiversified into three major businesses: pharmaceuticals,agribusiness, and consumer brands and commodity products.The recent expansion in commodity products such as salt,flour, and spices has already established the ACI brand as oneof the more trusted, quality names. High-value agriculturalproduce such as vegetables, fish, livestock, fruits, spices havean estimated market potential of US $8 billion in terms of2005 prices. Although several other large enterprises dooperate in the agriculture and agribusiness market sector, andare planning for expansion of operations, competition in thesector is not yet robust. "Competition is good for the sector,we would like to see more firms entering the market," says Dr.Arif Dowla, Managing Director of ACI. "We have beenaggressive in the past few years and we believe the marketoutlook is strong with great potential. Bangladesh is at a stagewhere effective implementation of projects is the key forsuccess. Bangladesh is not in the forefront of innovation, thatis not our game, but implementing projects efficiently and ina timely manner can provide us with the opportunity tothrive."The plot line on the pharmaceuticals market runs alongsimilar lines. The Drug Control Ordinance of 1982 providedprotection to the domestic market and the robust market hasseen several enterprises seemingly come from nowhere orcome from behind, such as Incepta, Opsonin, and Renata, tobecome one among the top 10 leading firms. ACI, however,with a tradition going back to ICI (now part of the AkzoNoble Corporate) has a specific expertise and base to which ithas added to over the years. Employing 2,000 workers andmanufacturing 160 products in 357 different dosages (475registered dosages), the pharmaceutical operation hasmaintained a healthy growth of some 25 to 38 percent duringthe last two years. While Square Pharmaceuticals leads the way,the remaining top 10 firms are in a competitive position witheach other, sharing a Taka 47 billion domestic drug market.While the pharmaceutical industry is poised to enter theexport market, entry has been hampered by the need to obtainGMP/cGMP certification, or more importantly,

USFDA/UKMHRA/TGA licenses, along with a host ofother issues the industry is attempting to address. Amongthose issues are critical ones such as production facilities forActive Pharmaceutical Ingredient (API) and the establishmentof bioequivalence laboratories.Although ACI pharmaceutical facilities comply with cGMPstandards, it is yet to obtain USFDA/UKMHRA/TGAcertification. In fact, quality is a core objective and strategy inACI. It has been one of the first corporate businesses inBangladesh to obtain ISO 9001 and ISO 14000 certifications

for quality and environmental management. More funds arebeing allocated to R&D, quality management and control.This is a particularly encouraging and progressive step inthe context of a domestic market that has no regulatory


ACI Foods

200 400

Premiaflex Plastics

Pharma Factory

ACI Pure Flour

ACI Salt

Investment in Recent Years (Million BDT) Market Share (%) Sale Contribution (%) by Business Units, 2008

ACI Foods (Spices)

50% 100%

ACI Limited: Business Unit Products

Pharmaceuticals

Consumer Brands& CommodityProducts

Agribusinesses

Over 400 products covering all majortherapeutic areas

Home Care Product: ACI Aerosol, ACIMosquito CoilAir Care Product: Angelic Fresh AirFreshenerHygiene Products: Savlon Liquid Antiseptic,Savlon Antiseptic Cream, Savlon FamilyProtection Soap, Savlon Femme SanitaryNapkin, Vanish Toilet CleanerInternational alliances: Colgate Palmolive(oral care), Nivea (personal care), Godrej (haircare)

Crop Care & Public Health: Insecticides,herbicides & fungicidesSeeds: Hybrid rice, vegetables and maize seedsCropEx: Commodity buying, storing, preserving& sellingLivestock & Fishery: High-qualitynutritional, veterinary, poultry medicines andvaccines; proposed - pisiculture, cattle rearing,cattle fattening & integrated fisheries andlivestock project Fertilizer: Micronutrient & foliar fertilizers,zinc sulphate, magnesium sulphate, ammoniumsulphate, boron, sulphur 90% and sulphate ofpotashMotors: Agri-machineries, tractor, power tiller,engine and harvester

ACI Salt

Air Freshener

Savlon Antiseptic (Cream)

Savlon Antiseptic (Liquid)

ACI Mosquito Coil

ACI Aerosol

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system for quality compliance, control of food-bornerisks, and health hazards posed by adulterated products.ACI's senior management is acutely aware that food safetycan only be guaranteed by the integration of controlsystems in the complete food chain ‘from stable to table’.ACI could take this lead to a higher level by raisingconsumer consciousness regarding food-borne illnessesand related health hazards by designing consumereducational programs and disseminating proper guidelineson such issues.ACI has recently established its chain of retail outlets byopening several stores in and around Dhaka. Its subsidiaryconcern, ACI Logistics, is poised to open 17 outlets in themonths to May under the brand name of 'Fresh 'N Near'.It is part of an aggressive strategy to provide affordable,quality food and household products to urban low andmiddle-income consumers. While Meena Bazaar, Nandan,and Agora are decidedly upscale, ACI wants to providebetter facilities and products to mass consumers - to givethem a credible alternative to the traditional unhygienicand poorly organized kitchen markets of Dhaka. It will bea big challenge for ACI, since Agora, one of the firstsupermarkets in Dhaka, aimed at the high-end market,reportedly is yet to operate profitably.The shortage of supply of breeder-seed in the country isacute. Some say this is due to the excessive reliance onimported seed. The assertion is open to dispute but it istrue that the Seed Certification Agency has not functionedproperly for many years. The use of hybrid seed does haveits opponents, who caution that it causes the topsoil toturn barren within a few years. But, with the scarcity of

breeder-seeds and the urgent, continual need for high cropyields to feed a growing population, the use of hybridseeds will not abate in the near future. ACI has establishedresearch and development centers in Bogra, Gazipur andMymensingh in order to carry out adaptability tests forseed performance. Its management is fully aware of thevarious issues relating to hybrid seed and is engaged intaking appropriate measures and policies to ensure thebest possible outcome of the seed supply shortage.ACI is highly leveraged, a condition arising from its recentexpansion and investments. In order to manage its debtposition the company has turned to innovative measures,particularly in seeking instruments to attract investors."We had to look for different financing approaches likedirect listing, trading corporate bonds", said Muallem A.Choudhury, Executive Director of the company. ACIFormulation undertook direct listing of 5,267,150 shares


Corporate Strategy - ACI Limited

Aggressive Strategy

Consumer chain stores

Sustained Strategy

Crop protectionPharmaceuticalsSalt and FlourFast moving consumergoodsAir care productsAnimal Health Products

Planned Strategy

LivestockFisheriesSugarEdible oil

Moderate Strategy

SeedJoint ventureCROPEXFertilizer


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with a par value of Taka 10 each in Dhaka and Chittagongstock exchanges (DSE and CSE), the first private companyto do so. "Market response was excellent. We got overTaka 150 premium per share on average," he said. "But wewould not get more than Taka 30 premium if we had gonefor IPO." Now each share sells for Taka 191 in thesecondary market. ACI Limited also pioneered the issue ofthe first tradable bond in DSE and CSE. The 20%Convertible Zero Coupon Bond will allow holders toexchange 20% of par value of thebond for the company's stock atan exercise price. "The strikingprice will be well below the marketprice and significantly higher thanface value. So exercising the optionwill result in significant capitalpremium. The dilution of sharewill be only 6% over a five-yearperiod." If everything goesaccording to plan, ACI Limitedwill be able to raise around Takaone billion through this bondissuance. Large and establishedbusiness houses need to initiateand utilize modern corporatepractices not only for their ownbenefit, but also in order toprovide examples ofprofessionalism, sound structure, and governance in thesociety at large. It is praiseworthy that ACI has taken thelead in many such areas.Bangladesh has a severe shortage of high- to mid-levelprofessionals and attracting them from existing sources isa key challenge. Led by a young, dynamic, and visionarymanaging director, ACI has built a competent team ofprofessionals to oversee and operate its wide range ofdiversified businesses and products. With over 4,948

permanent and contractual employees, a large number ofpart-time workers as well as five to six hundredagronomists, veterinarians, animal husbandry experts,team management is critical to the firm. ACI'smanagement board is fully aware of this dimension andhas put in place an empowerment policy that enablesemployees to freely share their views with management,creating a vital synergy between management decisionsand employee opinions. "Team work, motivation, rewards,

and a constant education onbehavioral and organizationalissues is what we seek to provideour employees," said a seniorcompany HR executive. Thecompany management has set outsix values: quality, transparency,fairness, customer focus,innovation and continuousimprovement. "The entireSoutheast Asia region is movingforward, Bangladesh will notremain behind and ACI believes itcan change the nation," declaredDr Dowla.By transforming the domesticmarket in terms of providingconsumers with quality products,playing a critical role in terms of

better healthcare, attempting to ensure farmers livelihoodand promoting the use of modern farm technology, ACIhas set standards for existing companies, as well as for newentrants. And by vividly demonstrating what home-growncompanies can do in terms of the domestic market, jobcreation and consumer confidence, it could also very wellserve as a guide to other companies on how to survive,and even achieve healthy growth, in these leanrecessionary years.

By transforming the domestic

market in terms of providing

consumers with quality

products and better healthcare,

attempting to ensure farmers

livelihood and promoting the

use of modern farm technology,

ACI has set standards for

existing companies, as well as

for new entrants.

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Back in 2001 the Bangladesh government, wishing tojumpstart investments in agribusiness and IT sector,

established an Equity and Entrepreneurship Fund (EEF).Over six years, some Taka 400 crore had been disbursed to212 projects. These numbers are tentative since informationon EEF operations is hard to acquire. Even BangladeshBank does not provide any information on EEF; this canbe verified by checking the Bank's website. Reportedly, the'Fund' has been mismanaged and only a fraction of thebeneficiaries actually operate a fully functional business.Among them is a crocodile farm that has garnered mediacuriosity and attention for its success. An appraisal of theEEF indicates that poor investment decisions coupled withlong delays in processing, incomplete understanding ofmarkets, a lack of competence on the part of promoters,and the inability of financial institutions to soundly appraisebusiness plans hampered operations of the EEF, shroudingit in a lack of transparency and making it ineffective. InJanuary 2009 it was reported that EEF would be transferredto the Investment Corporation of Bangladesh with theexpectation that a better and more transparent operation ofthe fund could be established. We only know that theInformation and Communication Technology operation of

EEF has been transferred to the ICB and not theagribusiness operation. Under these circumstances one canonly welcome the entry of Venture Investment PartnersBangladesh Limited (VIPB), a private equity fund.VIPB promotes equity investments in Bangladesh,hopefully setting a better and more competitive example toEEF. It started as a public limited company, registered onOctober 22, 2006. Mr. Zia U Ahmed, the chairman ofVIPB, said, "We realized the opportunity and startedapproaching institutional investors both in and outside thecountry." It was set up as a joint venture between USA-based non-resident Bangladeshi (NRB) institutionalinvestors and investors in Bangladesh. "Our total paid-upcapital is Taka 12.5 crore with Taka 7.5 crore raised fromlocal sponsors and the rest from NRBs." VIPB investsthrough direct equity and quasi-equity instruments. Hefurther elaborated, "Under direct equity investment, VIPBusually buys up 5%-30% of the company and is entitled toreceive an equal percentage of profit." VIPB takes nocollateral in direct equity investment. On the other hand, aquasi-equity loan is offering one part of the funding as astructured debt, meaning that there is a certain fixedmonthly rent of the investment. The other part is an equity

VENTURE CAPITAL INVESTMENTSNew Kid on the Block

April 200948

Photo: VIPB


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investment. As an equity holder, VIPB owns preferredshares with limited risks and shares revenue earnings. SinceMarch 2008, VIPB has already invested in around 200 smallbusinesses. It primarily targets rural, non-farm businesseswith an internal rate of return of around 30% and apotential to grow five times over five years. "Ourinvestment range is from Taka 2 lakh to Taka 1 crore withan average of Taka 8 lakh per investment. Most of theinvestments are medium-term, of 3 to 5 years." VIPBcarefully scrutinizes each investment project and takesdecisions after a thorough field investigation, a procedurethat should have been followed by EEF.Until now, and before the advent of EEF, venture capitalinvestment had been an unexplored avenue in Bangladesh.In a country where mostly bank financing and personalsources of capital dominate investment decisions, equityfinancing is yet to attract theattention of entrepreneurs. Theopportunities for business and thecorollary need for finances,however, are changing this practiceand driving entrepreneurs to lookfor alternative sources of finance.During our visit to the VIPB officein Gulshan, Mr. Zia U Ahmed, said,"Many small businesses show signsof high growth potentials.Naturally they come embeddedwith high levels of business risk."He inferred that the unwillingnessof traditional lenders to invest inrisky projects or an inability toretain adequate collateral translatesinto the fact that promising newbusiness ideas never get the opportunity to launch andbecome successful. VIPB has invested in The ChargramFisheries Project with a stake of Taka 75 lakh. This businessproject is located near Daudkandi, where local NGOscombined six villages into a kind of cooperative to utilizethe flood plain area for the common good. The formationof the cooperative, instead of individual fishing efforts, hasbrought with it economies of scale such as lowering rawmaterial (larvae, fish-feed, etc.) costs. VIPB claims theproject has 100% returns. VIPB is sensitive to social andenvironmental concerns and damage mitigation is high onits agenda, though it does list commerce and business as itsfirst priority. This is reflected from projects such as theRajshahi Briquette Project, a Taka 10 lakh facility set up totransform rice husks (wastage of rice mills) into ‘briquettesand poultry feed’. Previously, the millers simply burnt the

waste, causing air pollution. The Dhara Stitch project inJessore has created employment opportunities for over ahundred women where VIPB has a quasi-equity investmentof Taka 15 lakh.EEF has a first preference to share disposal, but storiesabound on how difficult it has been to exit from initialequity investments with EEF since so few of itsinvestments have materialized into viable operations. Equityfinancing, particularly in Bangladesh, should require astructure for monitoring operations; in fact, there should bequite a heavy involvement with the operational ends ofbusinesses. Even a close scrutiny of the EEF's proceduresand modalities does not reveal any involvement of itsshareholder, i.e. the Bangladesh Bank. VIPB, on the otherhand, is more astute, with a mature awareness of the natureof business operations in Bangladesh and therefore has

made it mandatory to "hold minorbut significant stakes, so theentrepreneur has full control butwe still preserve the right to advisewith more effective strategies forlong-run benefits, if required.Company and TIN registrations area must. We teach all entrepreneurshow to maintain books of accounts(especially cash book) and employour trained local representatives tomonitor them." The approachrequires more work, but it isundeniably a sincere and genuineattempt at assisting newentrepreneurs and looking out fortheir interests. There is much to becommended in this approach,

which our high-flying financial institutions would do well toemulate. And what is VIPB's exit strategy? Like any otherventure capital firm, VIPB expects to make a profit throughthe future sales of stakes in the firms it has invested in.VIPB's exit strategy includes sales of its shares either to athird-party organization, through possibly a public offeringof the company in the stock market or through an optionto sell back to the principal entrepreneur at a previouslyagreed price. "So far we have only 3 to 4 firms with IPOpotential in our investment portfolio. We are thinking ofexercising our put option to sell back to entrepreneurs,"said Mr. Ahmed. It seems that the state-run EEF has muchto learn from the privately operated VIPB, in the context ofNRBs willing to invest their money and capitalknowledgeably combined with the willingness to challengeold ways of investment thinking and practices.

VIPB carefullyscrutinizes each

investment project andtakes decisions after a

thorough fieldinvestigation, a

procedure that shouldhave been followed by

EEF.

April 200950

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Fundamentals


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Economic Indicators

April 200952

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Review Notes

Documents

Bangladesh Business Second Issue