It's corruption that bites business harder: CPD

Three highlights 

• Bribery common for businesses in getting utilities, tax payments and external trades 
• Other key obstacles are poor infrastructure, limited financing and inept bureaucracy   
• Soaring inflation, depleting forex and policy instability worsened the situation  

Corruption is the greatest impediment to conducting business in Bangladesh, overshadowing issues such as liquidity crisis and soaring inflation, according to a survey released on Sunday.

Conducted by the Centre for Policy Dialogue (CPD) in partnership with the World Economic Forum, the survey finds that 64.6% of the respondents think corruption is the biggest obstacle to doing business in the country as they had to bribe even for tax payments, licences and utilities.

During the survey in April-July 2022, CPD interviewed some 74 senior officials of 74 enterprises to understand their perception on the state of business competitiveness, factors and institutions responsible for long-term growth, especially during the post-pandemic period.

According to the report, the business environment in the country did not show any considerable progress during 2021-22, attributing it either to stagnation or deterioration compared to the previous year.

Khondaker Golam Moazzem, research director of CPD, presented the survey findings at a programme in Dhaka on Sunday, while Fahmida Khatun, executive director of CPD, chaired it.

Moazzem said nearly 75% respondents said bribes are somewhat common in connection with imports and exports and over 61% said it is common with the public utilities. Nearly 59% of the respondents said bribery is common when it comes to tax payments.

He said though corruption remains the most problematic factor for doing business for the majority of enterprises, the severity of its impact has been gradually spread to other structural and newly emergent issues.

Of the other major setbacks, the report found include inadequate infrastructure, limited access to finance and inefficient bureaucracy. The emerging factors include inflation, foreign currency instability and policy instability – hence the already existing challenges are intensified by new factors, according to the report.

In 2022, the situation of government instability, crime, and theft became worse.

"Bangladesh is lagging behind in almost all indicators related to business operation and governance compared to other comparable countries," the report reads.

Fahmida Khatun said, "The current situation is unstable. There is inflationary pressure on one side, while the Ukraine-Russia war shocks on the other. Also, there are geopolitical factors for which even big economies are going through recessions."

She said many international organisations like the World Bank and the International Monetary Fund (IMF) have forecasted that many economies, including large ones, will enter into recessions. "The whole world is struggling, people in Bangladesh are also struggling with high food and fuel prices. Individuals as well as businesses are facing pressure due to this," she added.

Top 3 risks for Bangladesh

The CPD in the survey found that rapid and sustained inflation, debt crisis and severe commodity price shocks remain the top three risks for Bangladesh in upcoming days.

On the other hand, the top three societal risks for upcoming years are: cost-of-living crisis, employment and livelihood crisis.

Measures regarding money laundering highly inefficient

Some 44.1% of businessmen perceived that money laundering through various channels is largely pervasive in the country.

Also, 42% expressed their view that a large part of economic activities are undocumented and unregistered.

What needs to be done

In the wake of worsening inefficiencies and weaknesses in the institutions and its adverse impact on small and medium-sized enterprises (SMEs), the CPD said a major reform needs to be ensured, especially relating to public institutions dealing with private investments.

The think tank was surprised to see that businessmen still suffer from poor infrastructure despite having substantial investments over the last decade through some positive changes. Accordingly, it suggested that a major focus should be provided on improvement in infrastructure efficiency, urban development with less pollution and traffic congestion, and clean energy development.

Issues like the safety and security-related topics concerning organised crime, climate-related business risks, poor quality services by law enforcement agencies, social and political unrest need special attention, particularly in a year just before the next national election.

CPD says institutional reform is needed for ensuring better services of law enforcement agencies.

Financial sector needs major overhauling

Financial sector needs major overhauling which could be initiated as part of complying with the International Monetary Fund's loan conditionality, said CPD.

Amendment of bank company act, lifting the cap on lending to ensure access to finance by SMEs, transparency in outstanding loans and the effective oversight role of the central bank are also critically important.

Also, the Bangladesh Security and Exchange Commission and Insurance Development and Regulatory Authority have to be strengthened, noted the think tank.

The report said that the competitive environment in businesses has further deteriorated due to the lack of proper practices of corporate governance, weak regulatory oversight and lack of corporate ethics.

"The Competition Commission, the Directorate of National Consumers' Right Protection, central bank, the revenue board and the Ministry of Finance should play their due role in ensuring competition in the market," CPD said, adding that companies playing the role of "dominant market player" need to be regularly monitored.

The report also added that business-related information needs to be disclosed in an integrated information and data system to review the operations of players in the supply chain.

In order to ensure a breakthrough, public and private investment (including FDI) is needed in digital and technological development, skill development, innovation and creativity improvement

Farid Uddin, a former revenue board member, agreed with the CPD findings on corruption in import, export or payment of taxes. 

"Corruption or irregularities related to the revenue board is one of the biggest hurdles in doing business in Bangladesh. Of the collusive and coercive corruption, the later one is more frequent here," he told The Business Standard. 

He stressed on legal and policy reform, and digitisation and integrated tax management. "It will not be possible without a firm political commitment."

Where has Bangladesh improved?

Bangladesh is better performing in four indicators compared to its peers which include wage polarisation, cooperation in labour-employer relationship and ease of finding skilled employees.

Businessmen's perception regarding high tax rate, however, has further improved. It is ranked the eighth important factor, which was earlier ranked fourth problematic factor.

"Perception regarding the use of bribes in export and import trade has improved in the period perhaps due to gradual rise of digital practices," mentions the report.

Businessmen over the years positively acknowledged the government's long-term vision for economic development. The perception level has improved, which is due to business-focused public policies and their implementation over the years.