the government likes to call it “prioritizing thrust sectors”. donors prefer “diversifying the export basket”. by whichever name you call it, the fundamental issue is the same: everyone agrees that bangladesh needs to start exporting some product or the other that isn’t garments (or manpower, for that matter). bangladesh also needs to start creating millions of jobs – with the population edging towards 165 million, most of whom are young, a massive social crisis may just be around the corner.
and so, every five years or so, the government unveils a new industrial policy. the policy sets out a group of “thrust sectors”, which, despite the suggestive name, are theoretically the sectors that the government believes have the strongest investment potential, and in which bangladesh has a comparative advantage. information technology and pharmaceuticals are some of the usual suspects, whereas others, like shrimp and ship-building, make random guest appearances on the list. this year’s list includes the following:
- agro-products, food and agro-business
- manpower export
- ship building and environmentally friendly ship-breaking
- renewable energy
- basic chemicals, paint and chemical products
- ict products and services
- active pharmaceutical ingredients and radio pharmaceuticals
- homeopathic medicines
- polymer production
- leather and hides
- hospitals and clinics
- energy efficient appliances/electronics/electronic materials
- frozen fish
- home textiles
- tissue grafting and biotechnology
- container services
- new innovative and import substituting industries
- cosmetics and toiletries
- light engineering
the launch of new industrial policies is accompanied by a series of fervently organized seminars and workshops, but the vast majority of the debate centers not on the logic or premise behind the selection of these particular sectors, but rather the future of the state-owned enterprises or what to do about “sick industries” (which, frankly, is often the same debate).
once these sectors are defined
and meekly accepted, the next step is often the introduction of a package of incentives for these businesses. the package generally takes the form of a tax holiday of some sort, or removal of duties on certain raw materials. the problem is, since these sectors are defined generally by political will or traditionalist thinking rather than by some level of public consultations, the incentive package turns out to be quite ineffective.
for example, recent research i came across indicates that while solar panels (thrust sector #3) can be imported with low or no duties, one of the fundamental problems is the import duty levied on other necessary components. most importantly, solar panel importers who want to supply the technology are forced to buy or import batteries at high tax or duty rates, thereby driving up their own costs. without the battery, a solar panel is useless – the power it generates throughout the day cannot be stored anywhere and is essentially lost. since our national grid does not currently allow us to sell excess power back to it, the benefits of solar power are lost without the use of a battery. so solar panel distributors (and therefore the users) have to knuckle down to quite high costs to pay for the already-expensive panel and the unnecessarily-expensive battery.
obviously, high prices are a major deterrent to greater adoption of solar power, and so solar power remains the bastion of either very remote areas with no national grid access (serviced by ngos at subsidized rates), or the domain of the very rich and environmentally-conscious (which effectively means nobody). oh, and the government itself. but the enormous and growing middle class in dhaka – the biggest consumer group – remains aloof from the potential of solar power.
of course, i’m not insinuating that making these batteries tax-free will lead to a drastic drop in the price of solar panels. solar panels themselves represent the lion’s share of the high set-up cost associated with using solar power, and are quite expensive to begin with. my point, instead, is that if the government talked to business before coming up with the list and the incentive packages, they would have known that one of the major constraints currently affecting the sector is this high tax on batteries. therefore, the incentives package that was designed for the sector should have included something along these lines.
this myopic approach plagues many of the other sectors as well. the tourism industry is frustrated with the frequent change in tourism secretaries, and the overwhelmingly negative attitude of those who occupy this position. the pharmaceutical industry has been lobbying for an industrial park to produce their own active ingredients, with a view to reducing imports and prices, for the better part of the last six years. export-oriented it companies are still unable to legally earn or have foreign currency paid into their local accounts in exchange for their services. and why, precisely, would a biotechnology company set up in bangladesh?
so instead of just declaring thrust sectors in policy and hastily assembling a tax holiday package, the government should talk to the industry, see what their problems are and figure out a way to solve these problems, if their objective is to realize the full potential of these sectors. this requires a detailed understanding of the sector, its value chains, its players and its potential markets, which sadly is beyond the current ability of most of the ministry of industry. but there are plenty of people around who can tell them these things: they just need to be willing to listen. also, understanding the sector well would mean that they’d be better able to make sure the sectors do succeed in reality, both in creating jobs and even diversifying exports.
thankfully, the government has five more years to figure these things out before they have to compile the next set of…umm…sectors in which to trust. and that’s more than enough time to learn.