Bangladesh lags behind Vietnam in reforms to attract FDI

Massive reforms and openness in economic policies helped Vietnam to come to the current stage of development whereas Bangladesh is still lagging behind in those areas and failed to keep pace with Vietnam's development, analysts said.

For instance, Vietnam adopted the Doimoi, an economic policy renovation programme in 1980s, brought a massive reform in turnedthe economic policies and attracted a lot of foreign direct investment (FDI), which eventually  Vietnam a model in FDI destination, they said.

Although the economic position of both Bangladesh and Vietnam was similar even in 1990, Vietnam has achieved a commendable success in many areas, but Bangladesh is still lagging far behind.

For instance, the export of Bangladesh and Vietnam was hovering around $5 billion in 1990s, but last year the figure stood at nearly $38.75 billion for Bangladesh and for Vietnam it crossed $280 billion.

Vietnam could make such a big difference within only 30 years because of their openness in economic and political policies, they added.

A minister, economists, trade body leaders and businessmen made the comments at a webinar on 'Vietnam's superb export performance: Lessons for Bangladesh' organised by the Policy Research Institute (PRI) of Bangladesh on September 17.

Zaidi Sattar, chairman of the PRI, moderated the discussion.
In his keynote paper, Sadiq Ahmed, vice-chairman of the PRI, said Vietnam took strong measures at early stages to stabilise the macro economy and took steps to preserve macroeconomic stability at all stages of the development process.

Tax revenue as a share of the gross domestic product (GDP) is about 9 per cent of GDP in Bangladesh, one of the lowest tax performances globally, as compared with 26 per cent of GDP in Vietnam, Ahmed said, adding Vietnam also maintained a flexible exchange rate and became strong in global value chain.

Vietnam smartly reformed the investment law and adopted the strategic trade policies, which helped Vietnam in attracting the FDI, said Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), a private think-tank.

A smart and strategic trade policy also helped in attaining a favourable tariff regime for Vietnam on overseas trade.

For instance the Most Favoured Nation (MFN) tariff regime for Vietnam is 11.09 per cent on an average, on the other hand Bangladesh's MFN tariff is high in different countries.

Citing examples of Samsung and Youngone, Rehman Sobhan, chairman of the CPD, also said the ease of doing business in Bangladesh is still a major factor for attracting the FDI.

The South Korean mobile tech giant Samsung wanted to invest in Bangladesh in 1996 and another South Korean conglomerate Youngone Corporation, which have big business in the country, negotiated to bring the Samsung in Bangladesh.

Finally, Samsung did not come here as the Youngone could not give land in its export processing zone (EPZ) in Chattogram due to some land related disputes.

Samsung established factory in Vietnam and Bangladesh lost opportunity to host the global electrics company, Sobhan also said.

Why this happened so in Bangladesh, he asked.

He also asked why the diversification did not take place within the garment items in Bangladesh even after the country gets quite a long time to tap more market for apparel trade.

Syed Nasim Manzur, managing director of Apex Footwear Ltd, a leading footwear exporter and local seller, said currently Vietnam is the second largest footwear exporter worldwide with exporting $22.07 billion worth of shoes last year whereas Bangladesh's position in shoe export globally is 17th with exporting a bit more than $1 billion last year.

Manzur, also the former president of Metropolitan Chamber of Commerce and Industry (MCCI), said Bangladesh needs FDI beyond dollar as many globally renowned investors have chosen Vietnam as their investment destination because of its good business climate and openness in trade and economic policies.

He also said better ease of doing business, better connectivity, better exchange rate, a better tariff regime and better customs policies helped Vietnam in attracting FDI whereas Bangladesh cannot perform so well in those areas.

For instance, he said the average goods release time from the customs in Vietnam is 2 to 3 days whereas in Bangladesh the average time for releasing goods from the customs is 2 to 3 weeks.

Rubana Huq, former president of Bangladesh Garment Manufacturers and Exporters Association, said productivity in the manufacturing sector needs to be improved. 

Huq said Bangladesh has the opportunity even within the garment sector like polyester staple fibre. The policy continuation is important for the country, she said, adding that light engineering is another potential sector for the country.

M Syeduzzaman, former finance minister, said Vietnam has been performing strong not only in manufacturing goods but also in agricultural and engineering products.

Vietnam is second in coffee export after Brazil globally and also a very strong country in export of machinery and steel.

The free trade agreements (FTAs) also played a very vital role in envious economic growth of Vietnam. Vietnam is a member of the Association of South East Asian Nations (ASEAN) and it has already signed the FTA with the European Union (EU), which will come into effect soon.

Accession of Vietnam to the World Trade Organisation (WTO) in 2007 has also helped Vietnam to open up its economy and trade, he said.

Nihad Kabir, president of MCCI, said: "We should interview the foreign investors why they are leaving Bangladesh and what are their problems. If we do not ask people what are their problems then how do we go to them," she asked.

She also asked where is the fear in signing the FTAs with major trading partners by Bangladesh. She also shed light on the sick condition of foreign currency exchange rate in business and poor skills of the university graduates.

Nazneen Ahmed, country economist of the United Nations Development Programme (UNDP) Bangladesh office, said the warm foreign relations with different countries also helped Vietnam in attracting FDI.

Apart from trade policies, Bangladesh needs to launch a very warm foreign relation mainly focusing the economic diplomacy.

M Masrur Reaz, chairman of the Policy Exchange of Bangladesh, another private think-tank, said this is high time to develop other sectors other than the garment one to create more jobs for the unemployed.

He also said Bangladesh has the potential in export of electronics and mechanical items. Vietnam will enjoy more trade benefit once the FTA with the EU comes into effect, he added.

Rizwan Rahman, president of Dhaka Chamber of Commerce and Industry, stressed the need for improvement of warehousing, customs and port facilities for easing the business more.

Planning Minister MA Mannan said political culture and continued policy in Vietnam played a vital role for development. Following some wars, Vietnam concentrated on trade and economic development, Mannan said.