Wobbly infrastructure stifles potential

It is universally agreed that Bangladesh has immense potential and the key to unlocking it lies in the pace of enhancement of infrastructure.

The inadequate infrastructure is costing the economy around 2 percent in growth per annum, according to Farooq Sobhan, president of the Bangladesh Enterprise Institute, a research organisation.

And frustratingly, there has not been much improvement since 2009. “It's been a flat line. Actually, the headline numbers over time are getting worse,” Johannes Zutt, country director of the World Bank, said.

The reason being the present level of investment as a percentage of GDP -- which was 28.70 percent in fiscal 2013-14 -- is simply not high enough.

“If you look at the countries in East Asia that have grown at the rates that Bangladesh is aspiring to, which is 9-10 percent, they typically had investment rates of 33 percent. So, you can see there is a large gap there.”

On the flipside, this disparity means there is ample opportunity for private sector investors to park their funds in the infrastructure sector and get attractive returns – and one such opening is in the power sector.

“Everybody knows we have constrained electricity supply -- there just hasn't been enough investment in energy generation. This makes it a very fertile area for public-private partnership.”

Another area ripe for private investment is the Chittagong port, through which 97 percent of the containers are shipped. At present, it is on the verge of bursting at the seams.

Zutt said the Chittagong port's capacity has to grow at roughly 1.5 times the growth of the country. “It is not doing that at the moment and soon it will run out of capacity. It is really and truly an urgent problem, meaning there are lots of opportunities for PPP.”

Meanwhile, Golam Mostafa, chairman of Deshbandhu Group, recommended developing the northern part of Bangladesh, from where the majority of the blue-collar workers hail, into an industrial hub.

“In that way, Dhaka will not be too crowded and the production costs will be kept low as well.”

Nazmul Haque, head of advisory at the Infrastructure Development Company Limited, said the opportunity to invest in the country's infrastructure sector would not be there for an indefinite period of time.

“Whatever gaps are being identified now, if not being met by you, they will be met by somebody else.”

PPP OFFICE

The government set up the Public-Private Partnership Office in 2010 to deliver the infrastructure investments required to become a middle-income country by 2021.

Led by Syed Afsor H Uddin, a former senior adviser of the British government's PPP team, the unit aims to increase infrastructure investment from 2 percent to 6 percent of GDP, with 77 percent of the funds coming from the private sector.

At present, the PPP Office has a total of 39 projects in the pipeline, worth upwards of $10 billion. Of them, eight are due to enter the procurement phase in the next 12 months.

Before the projects are presented to the market, rigorous feasibility studies are conducted.

“Execution is critical to ensuring the growth of infrastructure, but the key to execution is feasibility. Without proper planning, no infrastructure project can be delivered properly,” he said.

Experts, technicians, transaction advisers and consultants from PricewaterhouseCoopers, KPMG, Deloitte and Ernst & Young are brought in to better understand how the projects can be delivered in a robust, accelerated manner.

Issues ranging from project merits to technical viability, outline project designs to environmental impact, among others are examined.

“All the questions that we believe investors would look at in a project are things that we ourselves look at before we enter market -- and all of that takes a long time,” he said. 

“The last thing I want to encourage in the PPP office is present a half-baked project to investors. You will jeopardise a 10-15 year transaction for trying to short cut it by six months.”

Once the feasibility studies are out of the way, advertisements are posted on the PPP Office website and newspapers for investor applications.

After that, it takes 12-16 months for the contracts to be awarded, which, Afsor H Uddin says, is the optimum timescale. It takes 16 months in Canada, 18 months in Australia, 22 in European Union, 24-26 in the UK, 24 in India and 35 in South Africa.

For instance, the PPP Office launched single-stage procurement for a health project in February this year. The evaluation has already been finished and the wing is hoping to award the contract in October. So, the procurement is expected to be done even before its timescale of 12 months.

“So in terms of timescale we are doing alright,” said Afsor H Uddin, who has degrees from the London School of Economics and Harvard Kennedy School of Government.

In terms of framework, the PPP Office follows the best practices around the world and is incorporating international standards in the terms and conditions of the contracts.

“What we have is no different from what other countries that are practising PPP have. There are parts which are specific to our country but broadly it is all consistent with most other countries.”

The government provides a host of financial incentives to investors, which includes subsidy of up to 30 percent of project cost, exemption from income tax, VAT and stamp duty.