I'm really glad I attended part of yesterday's US-Bangladesh Tech Investment Summit down at TiE Silicon Valley. I didn't do any networking because I don't do business in Bangladesh, but a bunch of other people do and they need to know what's going on. I must say that Bangladeshis need to work on the editing of printed materials and Web content they distribute to an English-speaking audience. The website for this summit had a few grammar and punctuation errors, as did the program booklet they handed out at the summit.
Sajeeb Wazed, the IT advisor to the Prime Minister of Bangladesh, spoke first during the evening session. I also need to say that Bangladeshis need to polish their PowerPoint pitches. This guy said he had a Master's degree from Harvard's Kennedy School but his slides were all text in small type. He could benefit from watching a few Silicon Valley startup pitches. He also didn't mention that he's the Prime Minister's son! Westerners need to know things like that before they sign contracts to do business with Bangladeshi officials. Some Asian countries have hereditary political aristocracies. There's some Internet buzz about his potential for entering politics. No wonder he admitted spending much of his time in Washington, DC. He must be learning the ropes. There's also some buzz about his personal history if you do a Web search of his name. Reading some of the comments in other news articles is informative, with Bangladeshis complaining about his background.
Mr. Wazed made a pitch for foreign investment in Bangladesh as a turnaround story. The latest fad in the investment world is the concept of "frontier markets." These are the least-liquid of the emerging markets that are touted by investment banks as high-yield long-term bets. They also come with a ton of risk. My readers know that when I write about resource sector companies operating in emerging markets, I cite reliable international assessments of those markets' political and economic conditions. Let's do that for Bangladesh. Transparency International rates Bangladesh as 144 out of 174 in its Corruption Perceptions Index. It's tied with the Central African Republic and Syria. You're known by the company you keep. The Heritage Foundation rates Bangladesh as 132 on its Economic Freedom Index. Their score of 52.6 is below the world average score and the regional average score, but hey, at least they beat Cameroon. One data element that should concern foreign investors is the very low score for financial freedom. Note that the World Bank reports Bangladesh's debt/GDP ratio has dropped for 20 years and was 24.2% in 2011. That's good news.
Mr. Wazed claimed that Bangladesh's sovereign debt ratings are second only to India's in the region. The S&P rating is currently BB-. Moody's rates it as Ba3. That's nothing to crow about. His point is that until recently Bangladesh had no sovereign debt rating at all because it was heavily dependent on donor aid, so getting established in the international bond market with a such a poor rating is better than no rating at all. Bangladeshi sovereign debt with such medium to low ratings does pay investors a higher yield to compensate for perilous credit. The country also wants to issue dollar bonds whose greater liquidity will make the country's sovereign debt more attractive to foreign investors.
He said Bangladesh has cellular coverage for 100% of its land mass, which is cool. The government also funded information centers at the municipal level that function as cyber cafes for people who don't own computers. That's cool too. Bangladeshi expats remit money via cell phone transfers. He also mentioned that energy shortages have precluded the establishment of data centers and that the government's desire to save money on its fuel subsidies have prompted regular blackouts. He promised us that new power plants were almost ready to come online. One blackout he did not mention was a Bengali blog blackout in protest of the government's crackdown on blog content that radical Muslims wanted to suppress. That is not cool at all.
Speaking of energy, Mr. Wazed said that arbitration with Bangladesh's neighbors over UNCLOS demarcations would give his country block rights to prospective offshore drilling zones. The competitive advantages he mentioned for Bangladesh include no restrictions on repatriation of invested capital and a cost arbitrage of 40% in overall business costs versus India or the Philippines. My caveat is to read the Heritage Foundation's specific assessments of Bangladesh's economic conditions. The country still has a lot of regulation for FDI projects despite the government's claims of liberalization.
The next speaker was Dr. Atiur Rahman, the Governor of the Bangladesh Bank. In other words, he's their equivalent of Ben Bernanke but without the fixation on printing press technology. I once aspired to be a central banker but eventually figured out that pursuing a PhD in economics would be a waste of time and money. Dr. Rahman mentioned that Bangladeshi inflation closely follows Indian inflation due their long and porous border, which is why his central bank coordinates monetary policy with India's central bank. I'll give you one guess as to which bank is the bigger kid on the block.
Dr. Rahman said the country's currency reserves had risen to $15B. I wonder about the composition. Their interest in issuing dollar bonds means they'll hold more US dollars, not a good move given the US's untenable monetary stimulus. He also said the taka is a strong currency because of their current account surplus but the bank intends to keep it strong by managing the exchange rate. Uh-oh, central bank intervention is not good at all. He did add something to the World Bank figure of debt/GDP I mentioned above; including domestic debt brings the ratio up to 37%. That's still pretty healthy.
He likes the country's liberal FDI policy and claimed simple registration with some government board is all you need to get started. Uh, doc, read what the Heritage Foundation says about your country's simple process to see it through foreign eyes. He mentioned that foreign companies like to reinvest their earnings in Bangladeshi government securities. I can't blame them given the high interest rates but caution is warranted; Bangladesh has used capital controls during part of its modern history. The country is serious about building out its IT infrastructure especially for the last mile of connectivity. This is why they've exempted IT services from corporate taxes and do not impose import duties on servers.
The audience at TiE was very concerned about the Bangladeshi government's response to the collapse of a garment factory that killed hundreds of people. The garment sector is still Bangladesh's biggest driver of GDP and export revenue despite the country's high-tech aspirations. This accident is clearly the result of many years of lax safety standards, inadequate building codes, and a business culture of noncompliance with standards. The panelists seemed to downplay the government's responsibility for requiring tougher construction standards. The businessmen in the audience were particularly unimpressed with the Bangladeshi government's PR response, noting that Western media continues to excoriate the country. The Hoover Institution suggests a way forward. Bangladesh needs a comprehensive solution to a culture of greed that enables compliance shortcuts.
No one mentioned religious tension in the country. Investors must note the paralyzing riots that have shut down the capital city of Dhaka in recent days. A radical Islamic movement is agitating for the implementation of Sharia law. Well, that's just great.
Oh BTW, one more tip from yours truly. If you want to do business in South Asia, get familiar with that region's unique numbering system for large digits. The origin of those figures is fascinating. Some of these ancient Vedic number names like "ogho" for octodecillion are found in the Valmiki Ramayana. Why would ancient writers need to work with numbers so large? Does this mean there's some substance to the theory that ancient Indians had advanced technologies and even fought a prehistoric nuclear war? Maybe I should go to South Asia and find out. I just won't be visiting Bangladesh while its garment factories are collapsing and its radical imams are protesting.
