Many faces of foreign investment

Foreign investment in Japan and South East Asia
Japan imported technology, know-how and expertise after her pre-Meiji forced ending of 215-year isolation in 1854. She introduced from abroad one each of all kinds of highest standard industries and sold them out to private entrepreneurs at low cost in 1880s. Government measures and manoeuvres, fiscal and monetary policies and motivation helped her rapidly industrialise, though she had to sign an imposed, unequal trade treaty with the West in 1858, which deprived her of the right to protect her nascent industries by tariff adjustment up to 1911. She took a small loan to introduce railway in 1870-2 from Britain and a loan of US$40.2 million in 1949 from the then newly formed World Bank for power plant and later for steel plants, which was bitterly criticised in the Japanese parliament. Though Japan got some US aid during the period of occupation by SCAP, she lost all freedom to use her own foreign exchange earnings. Anyway Japan adopted the path of self-reliant industrial, social and economic development very hard way and rationally.

The postwar Japanese companies had owned-capital ratio of 16 20%, which was unthinkable in the west. This was definitely an opportunity for the West to invest in Japan which was under SCAP occupation till 1951, but Japan successfully resisted undesirable foreign investment. This mechanism was rightly put by Chalmers Johnson in his words: "Before the capital liberalization of the late 1960's and 1970's no technology entered the country without MITI's Ministry of International Trade & Industry) approval, no joint venture was ever agreed to without MITI's scrutiny and frequent alteration of the terms, no patent rights were ever bought without MITI's pressuring the seller to lower the royalties or to make other changes advantageous to Japanese industry as a whole; and no programme for the importation of foreign technology was ever approved until MITI and its various advisory committees had agreed that the time was right and that the industry involved was scheduled for 'nurturing'".

The cumulative inward foreign investment in Japan as of 1980 was a meagre US$2,979 million, a figure about one-fourth of what Japan was investing in a single year. Similarly South Korea wisely resisted undesirable foreign investment. Malaysia did allow foreign investment mainly in manufacturing for export. They prepared their ground for absorbing technology. India resisted any foreign investment till recently when they earned some industrial, technological and engineering capability. S. Korea, Thailand, Malaysia and Indonesia were much behind us before liberation. We trained many of their manpower. The leadership of these countries realsed the importance of technology-based industrialisation just in 1960's and 1970's. Today they are enviable achievers.

Our investment priority
After liberation, we have perhaps managed to ill-manage our pre-independence investment, infrastructures, industrial base, institutions, financial systems, banking system, administrative systems, educational systems, judicial system and what not? Our currency is devalued from Taka 7.3 to a dollar in 1971-72 to about Tk.64 to a Dollar in July, 2005. Politicians blame administrative machinery, the administration blames the politicians and even the businessmen, but no one takes the responsibility of getting into the causes and the methods of solving all the solvable problems by revamping the dysfunctional systems and institutions systematically. We have not yet identified what we want as a nation. We have not yet realised or do not have the courage to accept that the 'system' we followed failed for last 34 years and kept us backward by about 40 to 50 years with respect to progress in the contemporary world.

We always tend to put the cart before the horse. We are trying to open up service sector before the secondary and primary industrial sectors are made capable of supporting it. The developed countries which want to pre-empt our right measures had traditionally kept their utility sector, energy sector, financial sector, important industrial sector protected, nationalised or reserved for domestic investment. We also did the same, but before strengthening them to withstand external competition, we are compromising or selling out our national interest for petty personal interest or under intimidation. We fail to understand that we are sabotaging national interest at policy level by closing our industries under some pretexts or other. We sign international treaties or agreements without weighing their merits. As our industrial base is not strong and competitive enough, we should have invested heavily in existing industries and in service sectors like shipping, civil aviation, international banking, education, engineering, and also in civil construction locally and worldwide wherever scope exists. India has now conditionally allowed foreign investment in construction industries, which we may explore.

The small value addition of about 25 percent or so in garment industries, small export of shrimps, leather and tea is a peanut for a country of about 140 million. Our wise leadership and policy makers are now advocating such projects as overhead expressway in Dhaka and Dhaka-Chittagong span on Build-Operate -and -Transfer (BOT) system on 25 to 30 year toll collection term and a tunnel to reduce traffic congestion in front of Prime Minister's office with foreign loan. Their logic is that BOT system does not involve any local finance and that the finance ministry does no allocate fund for real development capacity building. Our economy is already bleeding just at the pressure of repatriation of about $1.0 to 1.5 billion by mobile phone companies, import of luxury items and transfer of ill-earned money. Can we ever think what a national burden it would be when repatriation in foreign exchange will start against these low-tech BOT projects?

Expatriate remittance and external borrowing alone cannot and should not give comfort to national finance managers. We may have to stop real future development due to shortage of foreign exchange. Taking the involved technology seriously, we can have an international competitive edge in construction and infrastructure fields. Our civil engineers and architects may look back to the example created by their old colleague in American skyscraper history. South Korea earned about US$ 9.0 billion a year in Middle East construction job when their other industries were just picking up. We had better opportunities.

Service sectors like mobile phone and telecommunication, road transport, railway, banking system, and energy sector, infrastructures and other low-tech fields are the areas where our own people can be economically engaged for years to improve our own standard of living.

We may allow or even invite foreign investment in the field of electronics, mobile phone manufacturing, automobile, automobile engine , automobile components, railway components, shipbuilding, joint research and many other manufacturing industries that will supplement , not compete with, our national investment and industries. As we don't have any substantial mineral resources, except for some small amount of gas, we must develop high-value-added industries in a selective way in right priority to build our capacity to help ourselves. The replacement of GATT by WTO has put more negative conditionality on us. We must act more wisely, cautiously and quickly enough.

Public-private sector complementarity
The responsibility of the government is to ensure public welfare and national security -- economic, physical and social. The entire nation has got to be involved through a system of complementarities, not rivalry. The rule of the game has to be sound and self-correcting. We must learn and practice how to trust our own people. We must prepare an atmosphere and ground for local investment. Foreign investment shall compete to come under our terms and in joint venture, and we can be selective.

Confusion and over-enthusiasm about foreign investment
It seems some people are getting mad about TATA investment, at the very figure of some $ 2.5 billion. TATA is mainly a steel producer. They have improved and modernised their technology recently. Steel is a basic low value-added industry. There is also a worldwide shortage of quality steel supply. We don't have iron ore. We can supply only the energy part at the best. We cannot probably get the job of the plant construction. It is basically a high-pollution industry. There is a necessity of maintaining pollution control at ISO level. There remains a question of guaranteeing the technology level, R & D facilities, quality of products, pricing of iron ore and other raw materials and finished products, besides the pricing of energy and rent for leasing of the land. How the procurement of plant machinery shall be done, how the finance shall be arranged, whether plant machinery shall be mortgaged for finance and whether there will be involvement of international or multinational financial institutions, etc., must be ascertained and agreed upon. Whether TATA can invest the amount straight by remitting the whole amount to Bangladesh to open letter of credit for import on competitive basis need be clarified.

Bangladesh is a land-starved country with highest population density in the world. The intrinsic value of our land is many many times that of India. We cannot sell land at any price. If all other questions are resolved we may at best lease only required size of land for 10-15 years with advanced rental payment which we may put up as our equity share. We must evaluate as to whether we end up with getting less than the value of gas supply only at the end of the day. We must do our home work properly and prepare our application form seeking all information necessary for evaluation of the project. As India is our valuable neighbour we cannot make any commitment that might prove unacceptable to the general people of both the countries at some later stage and embitter the mutual relation, which might be too costly.

If this project finally proves workable, we may propose to invest in a similar project in India near the source of raw materials or other convenient location. We may supply energy and India shall supply raw materials on mutually acceptable formula. The management procedures may be worked out in details.

The proposed investment in power and fertilizer plants is altogether a different investment. There is no connection with steel plant. We must go by our open procedures, taking into consideration all our experience and international situation.

Coal mining is not an urgent matter to be decided hurriedly. If the Bangladeshi royalty is just 6 percent, a question remains whether turning the vast area into an undesirable lake, and probable loss of life chronically associated with coal mine all over the world will be justified. We must evaluate all technical, ecological, and economic aspects for national interest. We must make it clear that no emotion or immediate personal interest may influence decisions against long term national interest or neighbourly relation. There should not be any place for superficiality in our own decision making.

Nonproductive foreign loan and our own responsibility
We must have courage to bring about educated, drastic reform and restructuring with bold initiative. The leadership may immediately streamline all development policy instruments and put them to implementation with courageous dedication. Policies must be development- and welfare-oriented, not loan-dictated. We must realise that it is a national insult to ask for foreign loan for appointing foreign consultants to advise our ACC, to prepare our voter list, to prepare our identification cards, to plan our city, to privatise our public entities, to modernise our judiciary and the like. We cannot say whether this is a real need or a mechanism for kickback or bribing in foreign exchange. Let us believe that our leadership shall not act against the interest of the people and the state knowingly.

Mustafizur Rahman, Ph.D is Chairman, Institute of Development Strategy, Dhaka. The views expressed are his own, and not necessarily of the organisation he represents. E-mail: idsrahman@msn.com