Naser Ezaz Bijoy, president of the Foreign Investors' Chamber of Commerce and Industry (FICCI), has been working with the Standard Chartered Bank in different countries in Asia, Middle East and Africa for over 29 years. Currently, he is the CEO of Standard Chartered Bangladesh.

He is also involved with the Duke of Edinburgh's Award Foundation Bangladesh, Metropolitan Chamber of Commerce and Industry, Dhaka, and British Business Group (BBG).

In an interview with The Business Standard's Editor Inam Ahmed, Naser Ezaz Bijoy talks about the country's economy and financial sector. TBS Senior Reporter Abbas Uddin Noyon was also present during the interview.

Despite the huge economic losses caused by the Covid-19 pandemic, you are projecting the country's GDP growth at 7.2% this year. What is the basis of this projection?

The whole world is facing unprecedented challenges hence it is not unique to Bangladesh. However, Bangladesh had the highest growth in South Asia in the last three years. At that time, the aggregated growth during 2020-22 in Bangladesh was about 15%, which was not the case for other countries. It proves that the economy of Bangladesh is resilient.

This year, we are observing a huge momentum in the economy. Economic activities have increased after the pandemic and the stagnant demand for capital expenditure has started growing. Investment is being made to increase the capacity to meet the growing demand in the last two years.

You will see that the import growth so far this year is 54% and the export growth is 35%. We think this trend will continue and the target of 7.2% growth is realistic. The projection of the IMF, World Bank or the ADB is between 6.4% and 6.8%. But, the government's projection is a little higher.

What is the impact of the recent rise in commodity prices and inflation in the global market?

What we are talking about is real GDP and inflation is associated with it. The nominal growth is even higher, because inflation has also increased due to rising commodity prices.

Our foreign currency market seems to be volatile. The foreign currency rate has increased suddenly. How do you view that?

We always believe that foreign exchange rates should be market-based. However, the central bank also has other national priorities. The highest priority of most central banks right now is to control inflation. They are now trying to control it due to high imports in Bangladesh. Sometimes, interventions are made through selling dollars to the market. The central bank is doing that too. This year they have sold more than $4 billion. However, the divergence of published rate and the transaction rate are creating some confusion among the importers.

There are two other options. One is to continue selling dollars to the market, but this will have an impact on reserves. The other is to encourage remittances. However, given that external debt to GDP ratio is still at a comfortable level for Bangladesh, there is headroom for additional borrowing with prudence to maintain forex reserves. Incentives can also be given for all exports to encourage inflows by improving competitiveness. But a framework needs to be in place to ensure that these incentives are not abused.

You were talking about a plan of investment. Is it for public investment or for the private sector?

Although this is for both the sectors, we see a significant acceleration of investments in the private sector, after two years of subdued capex. At the same time, the government continues to invest which it did during the pandemic to support job creation and economic activities. On the other hand, export orders have also increased. Naturally, our demand for raw material and employment have also increased. As a result, there has been a need for investment in the private sector, especially in the consumer products and garments/textile sectors. These spikes in orders are driven by a combination of factors e.g. replenishment of depleted stock with stores reopening across the world, the high Covid-19 cases in competitor countries like Vietnam, labour issue in Cambodia, political problems in Myanmar, geo-political tensions amongst a number of countries etc.

Is that why our credit demand has increased?

It is true that our credit demand has also increased this year due to increased investment. However, credit demand has also increased due to increase in commodity prices. This year, we will have to spend an additional $4 billion on oil imports. On the other hand, the spot price at which the government used to buy gas has also shot up by many folds. This has also played a role in increasing credit.

There is a discussion of hedging in this regard. Hedging is not allowed in Bangladesh. But can hedging play a role in the rise in commodity and oil prices?

Hedging can be done primarily for three things – commodity, interest rate and Forex. Oil is a big element of import. At one point, the price of oil turned negative and hedging at that time would have been a benefit. Hedging does not need to be done for 100% stock and it can be done for 25-50% of the requirement and based on importers' views it would have acted as an insurance. Recently, cotton prices have gone up. If there was an opportunity for hedging, textile mills would price the product accordingly to mitigate the risk of an increase in price in the international market. The cost of cotton would have been at a hedged level.

You mean that hedging is an insurance and there is something to understand that it can be bought instantly and stocked?

One of the concerns of the central bank is that there will be an incremental outflow over spot if hedging is done especially in the form of hedging premium. But hedging is like an insurance cover, you cover your risk within your appetite at a cost that you are comfortable to pay as premium. So like insurance cover, premium is paid even if there are no accidents but if there is an accident, you get much more than your premium. So you reduce the open position within your risk appetite by hedging.

Would it make sense for major suppliers to stock cotton in Bangladesh to reduce price risk?

It is done by a few countries including China. This helps the textile mills to reduce the lead time thus it reduces the risk of price volatility. Such an initiative was started in Bangladesh before Covid-19. However, during the pandemic, it did not progress. It would be great for entrepreneurs to be able to reduce lead time and cost by stocking for two months. Basically, the government can take this initiative. It can also be like a bonded warehouse. The companies will bring the products and place them on a government-approved platform. They will use it in the factory by paying the tax when needed.

You have investments in the power sector, especially in solar power. Tell us about this sector.

Availability of large parcels of non-agricultural land is a big problem for us in the case of solar power. Four to five acres of land is required to produce one megawatt of electricity. If the power land is closer to the catchment area, the cost of land becomes very high and if the power plant is established far from the catchment area. To reduce the cost of land acquisition, the evacuation lines need to be built which increase the cost. Hence the power tariff for solar is still significantly higher than neighbouring countries. That is why we suggest building a solar park with all infrastructure in place, so that the operators can establish solar power plants like plug and play. Given that the cost of panels and inverters have come down significantly, the tariff will be more competitive, plant commissioning will be faster and the dependency on imported fuel will go down. The government can do it.

Lead time is a crucial issue in readymade garments. Due to lead time, many foreign investors are setting up factories in Ukraine, Vietnam and in some European countries. What is your opinion about this?

I got the opportunity to talk to a lot of investors as the president of FICCI. Foreign investors in the apparel sector come to Bangladesh mainly because of the competitive labour force here and availability of ecosystem. Moreover, the operation cost is also low here. But foreign investors see some gaps between expectations and experiences. They face challenges regarding the ports and customs. We are making good progress in this regard due to the efforts of the Bangladesh Investment Development Authority (Bida). I hope we can overcome these.

We will graduate from LDC in 2026. In that case, the government has to refrain from providing VAT, tax and tariff benefits. Imposing extra tariffs on imported products also has to be stopped. The graduation would reduce many benefits to the local industry. How should we prepare for that time?

We have to prepare from now to face the challenge after LDC graduation. We need to increase product quality and productivity. The majority of our entrepreneurs realise this, but they have not started implementing it at the desired pace. Our export and pharmaceutical sectors shall face more challenges. For this, we have to start negotiations with different countries to do FTA at the earliest as these take a long time. It is very important to pursue joining Asean and assess the benefit of joining the RCEP. Going into contract manufacturing can also be a solution.

We have a vision for 2041. If we want to achieve that vision, we would need a modern state, infrastructure, skilled human resources and transparency. We also have to invent new sectors.

FICCI published a research book with Policy Exchange as the knowledge partner on the 50th anniversary of Bangladesh where we found three sectors with significant potential for growth to deliver aspirations of the prime minister to achieve High Income status for Bangladesh. The first of these is Agriculture. Although the contribution of the agriculture sector to GDP came down to 13% from 17% in the last 10 years, its importance remains significant. Even now, the sector continues to be the largest employer of workforce with 40%. The role of agriculture in ensuring food security for our beloved nation has been invaluable, which helped us to survive during the Covid-19 period and the commodity price shock due to the war in Russia and Ukraine. We still have a huge opportunity to use technology and innovation here.

The second sector is digitalisation and ICT. It is possible to provide financial services to people and increase tax collection through digitalisation. There are huge employment opportunities through ICT. There are also good opportunities for foreign service exports.

The third sector is the green economy. According to an IFC report, Bangladesh has a potential of a $178 billion green economy in the next ten years. One of our studies found that 78% of international brands say that from 2025, they will start removing the suppliers that are slow in implementation of Net Zero transition plan and 62% of global investors will not invest in a company that does not have a Net Zero transition plan. As a result, there will be a huge investment here.

You've talked about the issue broadly. In which particular sectors, like RMG, do we have huge potential in the future.

Garment industry accounts for 84% of our total exports. There are many more sectors out there with strong promises. We have huge potential in light engineering. Automobile industries are growing in the country. Every car requires more than 30,000 parts. We also have many opportunities for exports of footwear, ICT, pharma, agriculture etc. Semiconductors are another great potential for us. The demand for semiconductors will increase globally due to automation and robotics. In this case, those who would do the first design would enjoy the most opportunity. Some local entrepreneurs are coming in this sector but the demand is huge now.

Now, come to the banking sector. There is a lot of discussion about this sector in the country on no provisioning, NPL increasing, non-improving financial health of some banks etc. There is also a lot of discussion about lending criteria. We would like to know your overall thoughts on this sector.

Even before the pandemic, there were concerns about the NPL in the banking sector. The credit risk has elevated during the pandemic. The central bank tried to support businesses and banks to have a softer landing by providing policy support in providing additional time to recognise delinquency of loans. Hence, the actual asset quality may not have manifested on the financial statements for all banks as some banks may have availed the forbearance allowed by policy. But a roadmap is needed to align with the international standards of loss recognition. 

Some of the approaches which will help improve the health of the banking sector, including greater independence of the central bank, greater standard of self-imposed governance by the banks and greater delegation with embedded accountability framework to executive management of banks' board of directors.

Any discussion on economics remains incomplete without the topic of the stock market. The market is in a volatile condition nowadays. What could be the reason for this?

Commercial banks are not meant to provide long term finance as more than 90% of deposits are short term in nature. This creates a mismatch and an inappropriate structuring of loan results in non-performing loans. Actually, bonds are supposed to be an important source to support the long term financing needs of businesses. In a matured capital market, bond portfolios are significantly larger than equity portfolios. However, in Bangladesh, the bond portfolio is tiny. Another issue is that more than 70% of investors are individuals who tend to invest based on far less due diligence compared to institutional investors. This increases the risk of volatility and speculation. In a matured market, the mix of investors are almost opposite i.e. >70% are institutional investors. To improve the depth of the market, there is a need for developing life insurance funds, pension funds, sovereign wealth funds etc. The good news is that the Government of Bangladesh, especially the chairman of the SEC and his leadership team have been actively working in driving these reforms and establishing enablers. There is also an opportunity for utilising unused funds kept to meet statutory liquidity reserve (SLR) by islamic banks investing in Sukuk bonds to be issued by strategically important state-owned enterprises which are currently funded by the Ministry of Finance by issuing treasury bills and bonds or through commercial borrowing from the banking sector. This will help the government to access funds at lower cost than conventional borrowing rate and the unused Funds against SLR will be deployed to reduce pressure on liquidity and lastly the islamic banks will get better returns on SLR which has been traditionally significantly lower than conventional banks. So there is significant upside potential of the capital market if reforms are implemented properly.

Our insurance sector has not grown yet. People felt the need for health insurance during the time of Covid-19. What is your thought about this sector?

Trust is a big problem in insurance in our country. In order to solve this problem, commercial banks are going to start distributing insurance as an agent under Bancassurance guidelines. It will probably be approved in the next Few months. If this happens, 11 crore people with bank accounts will be automatically accessible for availing insurance cover. Bancassurance will allow insurance companies with transparent track record of claim settlement and banks with appropriate governance in distributing insurance products suitable for the clients by the bankers who have accreditation on distribution of insurance. This will expand the insurance coverage which in turn will reduce the insurance premium. This will be a very positive development for the country as it will help transformation of the capital market as well.

Any last thought on the issues we have just discussed?

I am very optimistic about the prospects of the country and a firm believer of the resilience of people as well as entrepreneurs of Bangladesh. I strongly believe that our country has huge unrealised potentials. While Bangladesh has come a long way, I believe that if we can implement reforms with urgency in areas of governance, process simplifications and service mindset, Bangladesh's compelling story of the prosperity journey will continue for long.

Sorce from: Inam Ahmed & Abbas Uddin Noyon (April 19, 2022). Agriculture, ICT, green economy can propel Bangladesh towards Vision 2041: Naser Ezaz Bijoy. The Business Standard. https://www.tbsnews.net/interviews/agriculture-ict-green-economy-can-propel-bangladesh-towards-vision-2041-naser-ezaz-bijoy