This year, the Dhaka Chamber of Commerce and Industry (DCCI) celebrates its fiftieth anniversary. As part of the golden jubilee celebrations, a two-day International Business Conference has been organized on the theme “The Next Fifteen Years: A Vision for Growth”. This document, called the “Dhaka Vision”, reflects the conclusions of two days’ deliberations.

Setting the Stage:

The world financial and trading regime is confronted by the worst crisis since the 1930s. Without a doubt, the world will change as a consequence.

The fallout from the crisis is not over. Emerging markets had been relatively immune for most of the year. Sadly, recent events – stock market collapses and/or significant currency devaluations – suggest that these economies are indeed not immune. Analysts forecast worsening economic conditions in most advanced economies, which may gradually spill over to others. The risk of default by some countries is high.

While many countries have taken unprecedented steps to address this problem, the successes of these policies remain to be seen. The vast sums of liquidity pumped into the banking system have not found their way into the real economy. It would appear that any funds the banks now receive are used by them to increase their reserve margins. In contrast, what is now essential is for banks to restore confidence by extending credit to consumers and to businesses, which was exactly the point of the government intervention in the first place.

A question that has not been addressed adequately is what impact the meltdown on the financial side will have on the real economy. Traditionally, manufacturing companies have deployed capital, along with labour and know-how, as a factor of production. They have produced real output, which they have marketed. This link between the banks as the providers of capital and the businesses as producers of real outputs was lost, however, when securities became the primary objective of the banks.

The credit crunch has hit both manufacturers and consumers. Businesses that have required credit for operating capital or for expansion plans can no longer rely on banks to provide the funds. Consumers will not get credit easily, depressing demand. This, in turn, will create a vicious cycle in which manufacturers cut back even further, hurting employment. The steep fall in commodity prices could also lead one to conclude that a sharp slowdown is coming, even in the emerging economies.

International trade would not remain untouched. It has been reported that many banks have been refusing to open or honour L/Cs. Reduced consumer spending in the developed countries will undoubtedly lead to less imports putting further strain on export-oriented economies. The market is signaling that there is a very real threat of a prolonged deep reduction in global trade.

Asian Perspective:

Perhaps this crisis will also lead to modification of global economic power structures. For some time, the world has been gazing more seriously at the Asia-Pacific region, to which the economic center of gravity has been shifting. Economic growth, including export expansion, in this region has been tremendous.

What will be Asia’s role in the changing global financial landscape? Asian countries have already demonstrated that they have an edge in production at competitive prices. They have skilled, cost-effective labour. And, they are quick in acquiring and developing technology and the know-how that is required to compete in a globalized world. In the financial world, their reserves built on oil revenues or export earnings, estimated at over US$ 3 trillion, have created a new player on the global stage: Sovereign Wealth Funds. These funds are eagerly sought investors, and quiet deals are being made. This gives them a potential that they must exploit for the good of humankind.

There are attempts, to coordinate world financial policies. A summit is scheduled for 15th November. Asia should not be a passive bystander. It should lay its influence on any new global financial architecture, commensurate with its increasing importance in the world of finance.

Any vision for Asia must include the growth of individual countries. Such development must be inclusive, allowing the participation of youth, women and the rural areas. Countries need to be careful to shield their economies and peoples from the negative effects of globalization. Environmental challenges, particularly climate change, will need to be factored into future development. The remittances of temporary workers abroad, which currently exceed US$ 250 billion, should be optimally utilized and the rights of the workers protected.

The demography of many Asian countries presents challenges and opportunities. While jobs and livelihood must be secured for millions, their youth and adaptability means that labour will be available for economic growth. The challenge will be convert the labour into a resource.

Increased investment will be the driver of growth. Regional cooperation will be valuable; there is synergy from working together. The benefits of trade will be greater if the larger economies open up to the smaller countries.

Outlook for Smaller Economies:

For smaller countries, such as Bangladesh, challenges from a protracted global recession may be serious. Many have opened up their economies to a remarkable degree, and will face all the consequences that are associated with this. Where exports were important, there will be reduced export earnings; where workers’ remittance was important, there will be declines; where FDI or foreign investment was important, foreign investors may seek to take their funds out or demand extraordinarily high returns.

Policy measures must address the domestic front, as small countries can have little influence on the global scene. Government spending on labour-intensive infrastructure is always recommended during recessionary times. Credit should be made available to SMEs, on easy terms. Spending on non-productive purposes should be drastically cut. Measures to dampen the shocks to the exporting firms are essential. They may scale back their activities, but retain readiness to expand production at the earliest signs of improvement. Of course, the banking sector should follow prudent banking practices, given the unfavourable environment.

While each country would need to devise its own trajectory for economic growth, for most countries, policies for the future should emphasize the real economy. Manufacturing may hold the key to the future. Competitiveness should be developed, particularly through infrastructure and human skills development. Governmental policies complementing the needs of the private sector entrepreneurs, is critical; public-private partnership must be built up. The recent global financial crisis has also vividly demonstrated the importance of sound regulation.

There are a few areas that require targeted attention. The small and medium enterprises (SME), for instance, provide the bulk of our employment, income generation and innovation. In fact, they are the drivers of the real economy. Attention to their needs is vital. For the SMEs in the export trade, the governmental negotiators need to ensure that their interests are appropriately reflected in any multilateral rules negotiated in the WTO or elsewhere.

In matters of the environment, particularly in climate change, our countries have to face the consequences of the actions of others. While sustainable development is the need for the day, those that have polluted the environment must not only take corrective measures themselves, but also shoulder the responsibility to help the late-comers so that the latter do not repeat the mistakes of the past. Moreover global warming is likely to take a heavy toll on business enterprise. Mega deltas like those around Shanghai, Dhaka and Kolkata would impact huge swatch of business. Providing energy, which is vital for development, in an environment-friendly manner is a necessity.

To eliminate poverty and to take the country into the middle-income status, Bangladesh would need to achieve growth rates in excess of seven to eight percent which is a realistic possibility. This growth must be accompanied by investment in energy, including generation of electricity, gas, and coal, and improvement of physical infrastructure such as ports, bridges and highways. Human capacity must be improved, to adapt to the changing needs of the new age. The entrepreneurial spirit of the Bangladesh private sector must be nurtured. A holistic approach to growth and development, with the participation of all groups, particularly women and youth, is vital.

The next fifteen years would be a challenging period. As we overcome the fallout from the global financial meltdown, we must also achieve growth rates commensurate with the needs of our people. This Conference is of the view that it is indeed possible for countries to achieve middle-income status within the next fifteen years.

Dhaka, 1st November 2008