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Editorial: Engendering Public Procurement

September-October 2018

Public procurement is the operation of a government of purchasing goods, civil works and services directly from suppliers or through contracts with the suppliers under different methods stipulated in the procurement regulations of a country. The United Nations Commission on International Trade Law, 2011 mentioned that the public procurement process should encourage participation of suppliers and contractors ensuring equitable treatment and transparency in the procurement process to achieve public confidence on it.

The national budget in Bangladesh is increasing over the years, of which 51% is spent for Annual Development Program(ADP)  and  about 80% of the ADP budget is spent on procurement either in development or in  the non-development budget. Agencies involved in public procurement are Ministries, their attached departments & directorates, corporations, municipalities, etc. Out of the total procurement nationwide, 70%-80% of total procurement are done by government.

The public procurement system in Bangladesh is regulated by two legal instruments, namely, the Public Procurement Act (PPA) 2006 and Public Procurement Rule (PPR) 2008.  Reform measures adopted by the government to ensure fairness and transparency within the procurement system includes establishment of the Central Procurement Technical Unit (CPTU) in 2002 and introducing an electronic procurement system (e-GP) in 2011, which has brought all procurement within the country under a single portal and has simplified the whole process. Under e-GP system, people interested in submitting tenders need to register themselves first through e-GP.

A recent concern that has arisen is the low engagement of women entrepreneurs (WE) in the public procurement process. In this context it may be mentioned that despite 50% of the population being women, they are unable to develop their entrepreneurial capacity due to which there are only 0.56 million (only 10% of business entrepreneurs) women led enterprises. WEs face social, financial and market access challenges for which they tend to stay in the informal sectors. 

The gender aspect has not been duly addressed in the public procurement regulations of Bangladesh as included in other developing countries like India, Kenya, Brazil etc., which have either kept special provisions for women entrepreneurs in the public procurement regulations or they have kept provisions for small enterprises (SMEs) that are mostly run by women in these countries. A challenge that women face in engaging themselves into government’s procurement system in Bangladesh is the registration process that is required for participating through e-GP, which requires significant level of IT knowledge that most WEs under SMEs may not have adequate knowledge.

BUILD has initiated a series of programmes on the issue in collaboration with IFC-WBG. Consultation meetings and policy dialogues were held for raising this issue in the public sphere for getting attention from stakeholders, WEs and policy makers.

Encouraging WEs in the procurement system requires to create awareness among them and improve their capacity, for which training programmes may be introduced by CPTU and women supporting organizations. WEs can be encouraged to participate in sectors such as IT, intellectual and professional services, consultancy and goods through limited tendering, Quotation or Direct Purchase Method. BUILD is currently working  for recommending a set of policy reforms for CPTU.

Ferdaus Ara Begum, CEO, BUILD

Editorial: Pathway to Environmental Sustainability of the Plastic Sector

July-August 2018 

There are about 5,000 (maximum are SMEs) plastic industries with 1.2 million   employment in the country. It has huge potential after the RMG and leather sectors. Domestic market size of plastic product is about Tk 25,000 crore. The global market is $546 billion, where as the global market of RMG is $444 billion (2016). Bangladesh’s share of plastic export   in the global market is only 0.6%. 

 Ministry of Commerce has initiated a six year project  aiming export diversification that will focus on four priority sectors in which Bangladesh has a demonstrated comparative advantage, these sectors are: (i) Leather and Leather Goods; (ii) Footwear; (iii) Light Engineering; and (iv) Plastics. The project objective is to contribute to export diversification and more and better jobs in targeted sectors. BUILD is implementing a component for policy advocacy through public private dialogue for favourable reforms for these sectors.

Bangladesh has been working hard to diversify its exports to reduce overdependence on the RMG sector. Plastic and plastic articles were the fastest growing among top 10 export categories from 2016 to 2017, up by 8.6% in Bangladesh. Combining direct and indirect export, in the year 2017-18 the export earning is about USD900million.

To accomplish a continuous and unconstrained growth, the sector needs to adhere to the sustainability requirements set by the global brands across the world.  International brands are adopting ‘sustainable procurement practices’ across each node of the production value chain of plastic products. Thus, Bangladesh needs to abide by those to sustain in the global export market.

The environmental performance of the plastic sector needs (a) enabling regulatory framework by the policy makers and (b) various initiatives by the private sector. Some more necessary steps to be taken immediately,  which includes a clear regulatory framework for plastic waste management rules; Groundwater abstraction be limited by regulation, manufacture, storage and import of Hazardous Chemicals needs to be governed; a guideline for disposing industrial solid waste etc..

BUILD has been working on the issues of sustainable performance, environment-safe business practices and compliance issues of the plastic sector. The SME Development Working Committee  has done a study on the compliance and quality constraint issues of the sector and the recommendations of which are well-accepted by the Ministry of Industries. BUILD is working with BSTI, BPGMEA, BGAPMEA and export-oriented plastic industries to facilitate the sector. BUILD is also working with the Sustainable Finance Department of Bangladesh Bank to allow plastic sector for the Green Transformation Fund (GTF) and sent a concept note already.

In addition to that, the Sustainability and Green Growth Working Committee(SGGWC)  of BUILD has been working on another policy paper titled ‘Environmental Sustainability in the Plastic Sector of Bangladesh.’ This study focuses on the sustainable performance, environmental criteria, policy requirements and reform scopes in making the plastic sector green and non-hazardous. 

In its recent  SGGWC meeting BUILD recommended for a  comprehensive Plastic Policy with special emphasis on Plastic recycling as presently most of the recycling is done in an unorganized manner. A comprehensive zero-waste action plan is very much required. It also mentioned that some incentives to the unrecognized recycling players such as feriwallas/tokais to collect the waste in a more sustainable, safe and healthy way.  The study also puts emphasize on the harmonization needs of the standards for export competitiveness. In the leather sector, there is an international forum named Leather Working Group, similar type of organization for plastic can be helpful. There are a number of recycling association, these are not well organized, these types of associations would need to have access to the international organization to understand the gaps and advocate policies in this respect. .

Ferdaus Ara Begum, CEO of BUILD

Editorial: Budget 2018-19 and Investment Targets

May-June 2018 

The budget for FY 2018-19 themed as ‘Bangladesh on a Pathway to Prosperity’ has been passed with a growth target of 7.8%. Among the key strategies, the budget included support for reducing infrastructural gaps for encouraging more private investment, human resource development, employment generation and promoting export competitiveness and diversification. Bangladesh is in the process of up-gradation of its status from LDC to a MIC. Hence, in order to increase income status importance of investment is significant. In the year 2017-18, public investment was 8.22% of GDP against 23.25% from the private sector. In total it was 31.47%, which needs to be raised to at least 35%  whereas for 2018-19, projected investment target is 33.54%. Target for per capita GDP  is $ 1,956  for the running fiscal.

It follows from the above that in 2017-18, the requirement of investment were 20.64billion and 63.24 billion, respectively from public and private sectors, target of which has been raised to 24.58Bn and 73.58bn, thus total required investment needs to grow from 83 bn to  100 bn, i.e, 20.5% higher. The budget does not clearly identify sources of the additional investment. The capital market is not an effective channel for mobilizing investment while the banking sector is beset with an array of problems.  With this business confidence is also not at a required level because of the investment supportive policy measures are not adequately incorporated in the budget. Hi-tech park is one of the examples, the government has announced some policy supports, some foreign investors have shown their interests, but because of required initial funding, these parks cannot move further.

Tax-GDP ratio is a challenge that presently needs to increase at least to 15-16% from 9-10%. Corporate tax is one of the most debated issues and one of the highest in the country in comparison with other similar countries. In the budget, for the first time the number of  VAT slabs have been reduced to  five. Now slabs are 2%, 5%, 7%, 10% and 15%. Some of the slabs such as; 1.5%, 3%, 4%, 4.5%, 6%, 7.5% have been dropped. It is observed that in  all the  cases VAT rate has been increased to make the services costlier, indirectly impacting on investment.

Investment is a long term venture. In order to mature an investment decision in Bangladesh takes at least three years. During this time if policies are not consistent, investors endure hesitation to initiate the long time venture. In the changing pattern of business, compliance and other related global issues are causing delays in taking investment decisions.
The target of export of goods and services  to be attained by the next fiscal is $44 billion, while the target  for 2021  is $ 60 billion with an addition of $40 billion export in the economic zones. The growth target for export has been set at 7.4% in FY 2019 in place of 6.7% achieved up to May 2018. This export growth has been driven by export growth of RMG (9.8%)  while growth of non RMG (-6.6%) is negative.

The growth target for import has been set at 12% in FY 2019.   Total import growth was 25.2% up to April FY 2018, it is believed that a huge amount of capital machineries has been imported for the mega projects being implemented in the country. We understand the present current account balance will not be a problem when the benefits of the mega projects will start reaping benefits towards meeting the infrastructural problems.  But until such time we need to be cautious about the current account deficit issues.   

Some environment friendly steps have been taken to make single-use plastic or polyethylene bags at distribution level  costlier, reduction of SD on  hybrid motor cars, import duty exemption for all fire safety equipment and systems which are mandatory to comply with international safety standards. VAT Exemption on local Motorcycle and parts manufacturers has also been implemented as per BUILD’s reform proposal. In order to build confidence among potential investors, policies  would need to be consistent and prior discussion with the business can help prepare business friendly policies.

Ferdaus Ara Begum, CEO of BUILD

Editorial: Battery Run Three Wheeler in Bangladesh Needs Policy Support

March-April 2018

The increasingly popular Battery-run Three Wheeler (BRTW) vehicles could be a useful means of transport generating better environmental sustainability along with socio-economic benefits. There are around half a million BRTWs currently running in Bangladesh, predominantly in district towns and rural areas.

The cost of traveling in BRTW for less than 5 km distance is one-fourth of the cost of equivalent distance in Rickshaw and half of that in CNG. BRTWs or the easy bikes currently transport 2.5 crore passengers in both urban and rural areas every day and has created jobs for about 30 lakh people. The BRTWs consume around 450MW of electricity per day, charged often through the domestic electricity line in the absence of clear monitoring and regulations as well as in absence of charging stations.

In India, there are around 1.85m BRTWs which are called e-Rickshaws there. The Government of India (GoI) took a clear view of the benefits of e-Rickshaws, that include higher mobility for citizens, saving of foreign currency due to reduced import bill for LNGs, energy security, generation of employment, improved urban air quality and reduction in GHG emission. The GoI therefore quickly brought in clear policies and regulations for these vehicles. The government instituted registration and licensing procedure for e-Rickshaws to be done by Regional Transport Office under India Road Transportation Awards  and International Centre for Automotive Technology respectively. India has adopted a National Electric Mobility Mission Plan and Faster Adoption & Manufacturing go Hybrid and Electric Vehicle scheme to promote electric vehicles with an intention to replace fuel-based vehicle in the coming decades.

Comparison between the scenario of BRTWs in India and Bangladesh shows that although in terms of adoption of e-Rickshaws per 1,000 people, Bangladesh has higher level of adoption of BRTWs. India has developed a detailed policy framework to regulate and promote BRTWs, while Bangladesh has not made progress in that respect. Bangladesh can follow the Indian example in promoting FDI and local content manufacturing. Eventual transition to lithium-ion battery and renewable energy technology could be kept in the horizon in planning the pathway for BRTWs.

From the conservative estimation, it is seen that the government can earn BDT 5500 from a single battery run three wheeler every year through the registration fee, route permit, fitness certificate, driving license examination fee, tax token and route permit. So, after formalization of this sector, the government of Bangladesh can earn about BDT 2.7 billion from the existing half a million BRTWs. Considering the annual growth of 35,000 BRTWs, it is estimated that around BDT 192 million will be added as government revenue every year from all the relevant fees. A detailed cost-benefit analysis can be done in that respect to assess the actual return of formalization of the sector.

It is thus an urgent priority that the BRTWs are regularized in view of economic, social, and environmental benefits. Vehicular pollution is a key source of environmental pollution and BRTWs reduce pollution on the road. Bangladesh can save USD 200m to 800m per year with the reduction of air pollution in four major cities.

BRTWs create social inclusion through enhancing mobility of ordinary people, including women. There are also manifold economic benefits, as BRTWs provide jobs, save the fuel import bill, and so on. On the policy side, the government should develop an interim mechanism to ensure smooth transition to regularization of BRTWs. The national policy should be revised to promote BRTWs through subsidies and other incentives. Registration, certification, licensing, and permit procedures should be instituted and regularized.

Ferdaus Ara Begum, CEO, BUILD