Innovative measures to overcome challenges to economy

It is a welcome development that the net industrial credit disbursement has risen in the first half of the current fiscal. It was otherwise a difficult period for the economy, because of the worst kind of political troubles, particularly 'hartal' and siege programmes in the greater part of the period. The adverse knock on effect of such troubles are reflected in the latest assessments based on trend studies by the Bangladesh Bank (BB) and Bangladesh Bureau of Statistics (BBS). Both the agencies have predicted that the country's economic growth will hover between 6.5 per cent and 6.8 per cent in fiscal 2006-07, falling below the projected 7.0 per cent in the budget.

The Asian Development Bank (ADB) has, meanwhile, estimated that the economic growth of Bangladesh would be exactly 6.5 per cent in the current fiscal.

In this backdrop, the momentum in industrial credit disbursement during the first half of the current fiscal is encouraging. Thus, disbursement of industrial credits, according to the latest statistics of the central bank, in the first six months of the year exceeded last fiscal's record of the corresponding period, registering a rise by 18.41 per cent. The ADB's estimate has also indicated that growth of medium and large manufacturing units in the first five months of the current fiscal year (FY) was 12 per cent.

The BBS has assessed that production in similar units rose by 14 per cent in the first quarter of the current Financial Year-the period when politics was gaining heat but was less restive. One may recall that the annual average growth in the manufacturing sector was 10.4 per cent last fiscal. This gives a relatively better picture about performance of the overall industrial sector, so far, during the current fiscal.

Recent reports in the different dailies indicated, quoting the central bank's record, that industrial term loans in the first half of the fiscal stood at Tk. 58.57 billion while it was Tk. 49.46 billion during the corresponding period of the previous year. This indicates a net increase of Tk. 9.11 billion in such credit in the first six months of the year. This, coupled with the latest BBS estimate about the average rise in manufactured products by 3.6 per cent in the first quarter of the current fiscal, are indicative that there is just a mild surge in industrial activities. The BB's assessment stating that economic growth in the year may fall short of projection by 0.02 to 0.04 per cent due to an apprehended shortfall in agricultural production, also lends credence to this observation about the state of industrial production.

Growth in industrial sector does take place cumulatively upon growth by inducing fresh investments. Obviously, the performance of the industrial section up to now has generated some ground to expect that economic growth in the remaining period of the year may record further improvement to reach or exceed the projection. However, the prime condition for this expectation to come true is a congenial peaceful political environment. If it prevails, the economy, given appropriate policy supports, is expected to function optimally.

A creative overall management style of the Caretaker government, able to cushion shocks in a cascade of positive public anticipations, may guarantee such stability to let the economy move at a speedier pace. The government, thus, faces a tough test to prove its effectiveness in balancing between the political expectations of the public and their economic needs and aspiration. The government's recent step in rationing power that is said to have released 400 mw electricity to enable industries to ward off unpredictable shutdowns to some extent may help boost industrial production, at least marginally. It should put into effect some other innovative measures to prove that this country has the capacity to overcome challenges.

The Bangladesh Bank introduced the merger and acquisition (M & A) guidelines for the country's financial sector. From now on, any bank on non-banking financial institution (NBFI) willing to take over or merge with another bank on NBFI will have to follow the guidelines aimed at facilitating corporate restructuring, which is considered one of the ways to adopt to the changes so as to meet the demand of increasing competition, The process also proves to be useful in saving overheads, building strong capital base and improving the operational network, skill and technology.

The M & A, a widely used business practice in the developed countries, is an almost unknown to the fledgling corporate world of Bangladesh. There were a few cases of acquisitions involving foreign bank branches in the recent past.

Until now, there has not been a single case of corporate merger here, notwithstanding the fact a few financial institutions and business operations do need to go through the process for their own good. Though on issues of competitiveness, profitability and marketing. M & A is a wide open option in the corporate world of the West, the businesses in Bangladesh, deliberately or otherwise, are not willing to expose themselves to the same. The chairman of the Association of Bangladesh Bankers (ABB) while commenting on the BB Guidelines of M & A also supported the same view saying that the implications of the guidelines on the banking sector is very difficult to predict at the moment since none in Bangladesh is willing to transfer ownership.

If any business or commercial entity faces serious difficulty in keeping itself afloat for financial reasons, its owners, in most cases, tend to borrow from friends and relatives or banks, thus, complicating the situation further. But in such cases, merger with any entity engaged in the same type of business activity could be a very viable option to help it remain operational. The central bank through the introduction of the M & A guideline has fulfilled a long felt need of the corporate world, particularly in the financial sector. Psychologically, the sponsors of banks and NBFIs may not be ready at the moment to make the best use of the tool. But with competition turning fierce in the market, it may not take too long a time when some of them would find merger as one of the most viable options left before them to reduce overhead costs and strengthen their capital base.

According to the central bank analysis, there are still a few private commercial banks which are yet to come out of the woods, so far as their financial health is concerned. These banks, if necessary, might explore the possibility of merging with other financially stable banks. Some of the NBFIs which are going through severe liquidity problem might try the same process for their own benefit.

Necessary laws and guidelines are also needed for M & A of the business beyond the financial sector. For instance, investors' funds worth billions of takas are now stuck up with a large number of non-performing listed companies operating in other sectors of the economy. One possible option to make those units viable could be merger. A financially strong listed company may be encouraged to merge with or acquire another non-performing listed company engaged in the same type of business. The Securities and Exchange Commission in such cases could play the role of a matchmaker. But, unfortunately, the Commission lacks in the expertise required to accompolish the job.

However, M & A may not be a panacea for all the problems facing business entities. There could be failures because of various factors, including mismanagement, concealment of facts and continuation of redundant staff. Yet, the process is considered an effective means to remain competitive in the world of business. Bangladesh business, whenever necessary, should exploit it to the fullest.