Bangladesh's business climate worst in three years: Survey

Infographics: TBS

Bangladesh's business climate has worsened to its weakest level since 2021 in the ongoing fiscal year, finds a comprehensive survey of a wide range of businesses across the country.

The Bangladesh Business Climate Index (BBX) fell to 58.75 in the fiscal 2023-24 from last year's 61.95, while the survey's first year found the index at 61.01 in FY22, according to the survey jointly conducted by the Metropolitan Chamber of Commerce and Industry (MCCI) and the think tank Policy Exchange Bangladesh.

Of the 11 major pillars considered to build a business climate, only access to land, trade facilitation, and technology adoption saw some improvement this year. Businesses feel the country has deteriorated in terms of ease of starting a business, availability of regulatory information, infrastructure support, labour regulation, dispute resolution, paying taxes, and access to finance.

Access to finance fell to a sorry state amid monetary tightening, with the score falling to 28 from over 50 two years ago. The newly added indicator, environmental regulations and standards, secured a score of over 51.

In his keynote at the report launch event at the MCCI Gulshan office on Thursday, Policy Exchange Chairman and CEO M Masrur Reaz said on a scale of 0 to 100, a score below 20 signifies a difficult environment for business, demanding kick-starting reforms. A score of 21-40 means substantial bottlenecks remain for business, while 41-60 reflects general complexities in the business environment that require regulatory modernization and simplification for improvement.

A score between 61 and 80 reflects an improving business environment that requires continued efforts for further progress, while a score above 80 indicates the country has ensured a business-friendly environment.

Infographics: TBS

Over 500 businesses representing diverse sizes, ages, and geographic distributions across 12 sectors – construction, leather and tannery, food and beverage, ready-made garments, textiles, transport-storage and communication, electronics and light engineering, financial intermediaries, real estate and renting, wholesale and retail trade, agriculture and forestry, and pharmaceutical and chemical – responded to the survey questions.

Businesses in Rajshahi, Dhaka, and Rangpur divisions have seen continuous improvement over the past three years, while Khulna and Chattogram divisions have experienced continuous deterioration, with their scores sliding every year. Meanwhile, Mymensingh, Sylhet, and Barishal divisions showed volatility in their business climate, with scores fluctuating up and down this year. The Barishal region demonstrated the weakest business climate, while Rajshahi led the pack.

None of the sectors observed continuous improvement in their business climate over the past three years due to a series of adversities, starting with the pandemic and worsened by the war in Ukraine, which impacted their businesses. Construction, RMG, and transport and communication sectors, which had some improvement in the business environment in FY23, are now facing a difficult climate again. Conversely, agricultural, wholesale and retail trade, pharmaceuticals, and textile sectors have shown some improvement after a weakened business climate in the past fiscal year.

On the other hand, the leather and tannery, food and beverage, electronics and light engineering, financial intermediaries, and real estate and renting sectors have been facing a continuously deteriorating business climate, according to the BBX Report 2023-24.

Masrur Reaz, in his keynote speech, mentioned that over the three years of BBX, access to finance and paying taxes have experienced a continued decline in scores. Despite improvements in power, telecommunication, and road infrastructure, businesses in the country feel that infrastructure development needs to be more targeted to enhance business competitiveness. Power outages have significantly affected businesses, he added.

More than 70% of respondents noted that the government frequently altered regulations in the past 24 months, which affected their businesses, emphasising the need for predictable regulations. Additionally, 78% of respondents indicated that they have not observed any reduction in the time taken to resolve commercial disputes in Bangladesh over the past 24 months, while over 90% acknowledged the effectiveness of Bangladesh's out-of-court commercial dispute resolution mechanisms.

Over 90% of surveyed individuals encountered moderate to substantial challenges in securing bank loans for their businesses in Bangladesh over the last two years. To unlock the country's potential, Reaz emphasised improving infrastructure and logistics, strengthening financial systems, enhancing legal and regulatory frameworks, and bolstering institutional governance.

Praising the survey's widespread participation, Prime Minister's Private Industry and Investment Adviser Salman F Rahman urged relevant authorities, including the Bangladesh Investment Development Authority (Bida) and the National Board of Revenue, to address business climate issues from their respective parts.

"I always urge the tax authority to widen their net, instead of taxing the existing taxpayers more," he said. He believed that by targeting a business- and investment-friendly landscape, Bangladesh could increase domestic and foreign investments and maintain its growth trajectory.

MCCI President Kamran T Rahman, Bida Executive Chairman Lokman Hossain Miah, Foreign Investors' Chamber of Commerce and Industry President Zaved Akhtar, Country Representative of Japan External Trade Organization Yuji Ando, and former MCCI president Nihad Kabir also spoke at the report launch event.

Yuji Ando said 62% of Japanese companies operating in Bangladesh were expecting to expand their business here, while Zaved Akhtar emphasised the credibility, capability, and consistency of policies, as well as the simplification of customs, tax, and VAT frameworks in Bangladesh.