Bangladesh updatePublished by MAC on 2007-06-05
5th June 2007
Five-points against Tata Projects in Bangladesh
Economists are famous for making ambiguous, guarded, and qualified statements. At times a spade needs to be called a spade. In that consideration economist S.Nazrul Islam presents 5-points against the Tata investment proposal in Bangladesh.
By S. Nazrul Islam
5th June 2007
Economists are famous for making ambiguous, guarded, and qualified statements. However, at times a spade needs to be called a spade. Press reports indicate that the wheels of the government machinery are turning towards an approval of the Tata investment proposal.
This is one such occasion when clear statements need to be made, and here is one statement -- the Tata investment proposal is not good for Bangladesh, and neither the current (unelected) nor the future (elected) government should approve it. Since this is not the place for a detailed and technical discussion, I will present 5-points against the Tata investment proposal in the following blunt manner.
*Export of gas in embodied form*
The Tata investment proposal is basically a proposal to export Bangladesh's gas in another form. Under this proposal, the gas will be used to produce steel and fertiliser, much of which will be exported to India and other parts of the world.
How can Bangladesh agree to such a proposal when she herself is in dire need of her limited gas reserves to meet current and, in particular, future domestic demand? According to reports, Tata is demanding a 20 year guarantee of gas supply at a concession price.
The Daily Star of May 15 reports that the executive chairman of the Board of Investment (BOI) is advocating Kafco formula as the model to follow in deciding the price at which gas will be supplied to Tata plants.
This is tragic indeed! He should read some of the articles written by Prof. Nurul Islam to know that Kafco has proved, and is proving, a bleeding wound for the government exchequer. Extension of the Kafco formula to Tata will simply increase the bleeding.
The proposed Tata investment is of the predatory type, aimed at taking away the limited amount of non-renewable mineral resource (namely gas and coal) that the country has. It is, therefore, not a good idea.
*Very limited employment expansion *
The proposed Tata investment will not lead to any sizeable employment expansion, and hence, there will not be any appreciable "trickle down" benefit from this investment. The steel plant, the fertiliser plant, and the power generation plant, are all very capital intensive, employing at best a few thousand people, many of whom will be coming from outside the country.
In a country of 150 million, several thousand jobs will hardly make an impact. Tata investment is not aimed at utilising Bangladesh's renewable and abundant resource, namely the labour force.
The Tata investment is, therefore, entirely different from foreign investments coming to the garments, textile, and other labour-intensive industries (in SEZ and EPZs) which together are creating hundreds of thousands of job for Bangladeshis.
While Bangladesh may welcome foreign investment aimed at utilising the country's renewable resource, labour, it should be equally wary about Tata's predatory proposal. Equating these two types of foreign investments would be a grave mistake for Bangladesh.
*Very feeble forward and backward linkages *
The Tata investment will benefit Bangladesh very little in terms of forward and backward linkages. The reach and width of the forward linkage is very limited because most of the steel and gas produced will actually be exported to India and other destinations.
There is not much of backward linkage either. All the machineries for the plants will basically come from outside. There will be very little input demand to be met from Bangladesh's domestic sources, other than, of course, gas and coal.
So, instead of providing a big boost to the entire economy, the Tata plants will remain as an enclave without much of a link with the rest of the economy, an enclave whose main purpose will be to siphon away the country's mineral energy resources.
*Wrong industrial structure *
Tata investment will be a step toward a wrong industrial structure in Bangladesh. The other day even Indian Prime Minister Manmohan Singh lamented India's oligopolistic and government patronage-dependent industrial structure (see The Daily Star of May 14). Being one of the largest industrial houses of India, Tata is the pre-eminent member of this oligarchy.
When India herself is regretting, it will be a grave mistake on the part of Bangladesh to gravitate toward an oligarchic industrial structure by approving the Tata investment proposal.
In the case of Bangladesh, the damage will be all the greater because Tata is a foreign entity. If allowed to go ahead, Tata investment will lead to a lopsided industrial structure dominated by a foreign giant.
This is exactly the kind of industrial structure that Bangladesh should avoid. Bangladesh may, instead, follow Taiwan's example of fostering a non-oligarchic industrial structure populated by numerous small and medium sized plants and companies.
Taiwan's non-oligarchic and more competitive industrial structure has served her well, as the comparative experiences of Taiwan and Korea in the face of the Asian financial crisis at the end of the 1990s amply demonstrated.
While the chaebols-dominated Korean economy plunged into a deep recession, Taiwan was hardly affected by the crisis. Chaebols were oligarchic and dependent on government patronage, exactly the characteristics of the proposed Tata investment.
In the case of Korea, at least the chaebols were national companies. In case of Bangladesh, Tata is a foreign company.
*Worrisome influence on the nation's body politic *
The final point arises from the fact that, in many respects, Bangladesh is still a weak state. This state already finds it difficult to withstand the predatory onslaughts of domestic capitalists.
It will find it even more difficult to withstand the influence and pressure of a giant like Tata, which will in general enjoy the support and sympathy of the state of India. In fact, the commercial interest of Tata may emerge as an additional complication in the good neighbourly relationship between Bangladesh and India.
Having occupied a significant industrial and physical space inside the country, the company will be in a position to exert considerable influence on the state and body politic of this nation, and it is difficult to be sure that this influence will always be beneficial.
The way Tata is trying to get its investment proposal approved during the tenure of the current interim, unelected government does not bode well in that respect.
Above are the 5-points against Tata. Of course, all these points can be further elaborated and substantiated. In fact, Prof. Wahiduddin Mahmud's report on the Tata investment proposal, published earlier by this newspaper, does so in many respects.
There are also other discussions and analyses available. However, the important point is that if bureaucrats and other decision makers develop private interests in the project, then no amount of argumentation and analyses will help, because they will simply play deaf and blind and do their own thing.
The current government's anti-corruption drive has been targeted so far mainly toward politicians. However, many bureaucrats, too, had an important role in the corruption, embezzlement, and selling-out of national interests to foreign companies that the nation witnessed in the past years. It is difficult to believe that they have all rectified themselves.
The present government has set the good precedence of confiscating ill-gotten wealth and bringing such wealth back to the country from outside. What this means is that, sooner or later, those who want to enrich themselves at the expense of the nation can be brought to book.
They should know that the people of Bangladesh, including non-resident Bangladeshis (NRBs), are watching. The remittance money sent home by NRBs has now reached almost $6 billion per year, exceeding the country's combined net export!
Tata's total investment figure, which many suspect looks bigger on paper than its actual worth, pales by comparison with the investment that NRBs are making in their country each year, and they are not planning on remitting the investment income!
So, for the Bangladesh economy, NRB remittance is the real source of investment, and the authorities should try to make the best use of this resource.
NRB remittance, together with the garments export earning, is keeping Bangladesh afloat. Both of these owe to Bangladesh's main renewable resource, namely labour. The government should focus on making the best use of investment, both domestic and foreign, that is labour-intensive.
It should save the country's limited quantity of mineral resources for optimum domestic use. It should, therefore, say "Thank you, but no!" to the Tata investment proposal.