Capital Market to reflect Bangladesh Growth
Bangladesh’s impressive scorecard is built on success in terms of attaining a consistently high pace of economic growth and impressive performance in various development indicators, including those relating to the MDGs and SDGs.
The resilience and tenacity of the economy are perceptible even during the coronavirus pandemic. According to a study of Standard Chartered bank Bangladesh is likely to recover faster than its Asian peers from the Covid-19 fallout backed by improving exports, growth in domestic consumption, and remittance inflow. The World Bank has also seen early signs of faster recovery.
The external factors that have weighed down other nations seemed to have little effect on Bangladesh. To add more fuel to the progress and to showcase Bangladesh’s narrative of economic transformation, Bangladesh Securities Exchange Commission (BSEC) has been actively promoting the country as a new frontier of investment. From Switzerland to the UK to the US, to Dubai, BSEC is portraying Bangladesh as the next big investment destination. COLORS Business Magazine’s Advisory Editor Ziaul Karim speaks to Dr. Shaikh Shamsuddin Ahmed, Commissioner of BSEC on Bangladesh’s growth trajectory and whether the capital market is ready to catch up with the country’s real economic growth. Before taking up his role as the Commissioner, Dr. Ahmed served as a Professor of Finance, University of Dhaka, and Senior Economist for the World Bank. His research interest in the capital market, fiscal and monetary policy, economic growth, and human development positions him as a key figure to prepare the capital market of Bangladesh.
Preparedness of the Capital Market
The capital market has been a topic of discussion for Bangladesh and BSEC at every roadshow they went to. The capital market refers to traders buying and selling financial securities like stocks, bonds, etc. In other words, the trade of long-term securities. There are market divisions as well, primary markets and secondary markets, adding layers of opportunities in the capital market. The Commissioner of BSEC, Dr. Shaikh Shamsuddin Ahmed sees a bright future for Bangladesh through the development of the capital market. Dr. Ahmed mentions that “for the capital market to speed up the catching up, it needs to portray specific qualifications through investment-friendly regulatory environment and governance, digitization of the market and substantial branding and promotion of capital market products. We are continuously improving the state of the market through various policy innovations and implementation to enhance the capital market to an engaging, profitable, and sustainable one.” The capital market in Bangladesh currently comprises stocks and bonds. Usually, foreign capital markets tend to have a wide range of investment products. Dr. Ahmed sees the prospect of the capital market at home to have multidimensional investment products including municipal bonds, commodity exchange, derivatives, exchange-traded funds shortly. This will attract foreign investors in greater numbers. BSEC has been introducing various bonds into the market including green bonds, blue bonds, women bonds, and municipal bonds, a key financial tool that developed countries use to spend for infrastructural development. BSEC is also working on promoting the participation of provident funds in the capital market. Bangladesh’s capital market can also expand further if the investment comes from foreign provident funds. Such a spectrum of products will deepen and widen the capital market ecosystem.
Dr. Ahmed mentioned that long-term capital raising and reducing the dependence on the banking sector is a direction that is needed. This is expected to reduce the volume of non-performing loans and relieve the dependency on the banking sector for government finance. “As the capital market gains more participants, the volume of non-performing loans and dependence solely on the banking system would decrease.”
Business information is key for investors to enter the capital market. Investors want to understand the state of companies, their profitability, their market share, and other additional elements that would inform the investors about the risks associated with investments. This is where Dr. Ahmed sees digitization as the catalyst for progress. “All elements of business information have to be accessible. Paperwork and red tapes slow the access to information, and for that, making information digitally available is important. Both the exchanges and the CDBL and CCBL are being digitized. BSEC is actively setting standards for interoperability of the market stakeholders towards a digitized capital market. This application of the fintech board, via taking advantage of blockchain and tokenization, would allow improved monitoring, supervision, and regulation of the market. And as a result, comprehensive digitalization would generate increased confidence and participation in the market.”
The Bangladesh Bandwagon
The notion of investing in Bangladesh has changed from what it used to be. Before there was much doubt regarding Bangladesh’s investment environment, which has now changed significantly. “Previously, foreign investors had a different picture of Bangladesh. They used to assume that Bangladesh is an economically unstable country, prone to political volatility, and the markets are not up to the mark. However, now investors see Bangladesh as a haven for investment. The country has been on an upward trajectory and will be on it, and now is the right time to invest. With the capital market of Bangladesh stepping into the international capital market, the time is perfect to jump on the bandwagon.” Dr. Ahmed also notes that the policies that are being undertaken will allow greater integration into Bangladesh’s capital market. The credibility of the capital market is contingent on the continuation of economic development policies. Bangladesh has an established Vision 2041 for becoming an advanced economy. The better the policies are dynamically and optimally implemented, the more credible the market will become.
Dr. Ahmed considers that fiscal policies, monetary policies, and capital market policies are intertwined as a triangle. If any of these policies are considered, their effects on the other market need to be assessed. Especially, being the capital market is exceptionally sensitive, monetary and fiscal policies move in coherence with growth aspects of the capital market. The operational circumstances should be made favorable so that the capital market thrives, notes Dr. Ahmed. “The capital market of developed countries enables various economic activities. Bonds and other financial instruments distribute and absorb the pressure of government expenditure financing. Last year the government borrowed heavily from the banking system. But a better bond market could finance a substantial part of it. This would allow more breathing room for investors and the government.” A more proactive initiative that Dr. Ahmed has been propagating across all the roadshows Bangladesh’s fast economic growth, shock-absorbing capabilities from external factors, the stable exchange rate with favorable interest rate trends, and no pre-approval for repatriation. These factors tie back to how the policy framework, corporate governance, and digitization are continuing the growth of Bangladesh. Dr. Ahmed also notes that not all policies are the right fit, rather a trial and error to put the puzzles of development together for Bangladesh. Even more, the size of investment is to be known before the policies can be designed. “To sustain growth, $100bn more has to be invested every year. All this investment cannot solely be through local channels, rather a combination of foreign and local sources. Along with this, we also need to have blockchain inclusion and token usage to pace up work.”
A market that needs awareness of investors
For the second time, the stock market of Bangladesh has crossed the 7,000 points mark in the current price index, meaning the confidence in the capital market is rising for investors. Given that Bangladesh’s economy is already worth more than $400bn with the expectation that it will be more than $500bn by 2023. This has piqued local, foreign, and non-resident Bangladeshi (NRBs) interest to invest in the economy. However, Dr. Ahmed wants investors to be aware of what they are getting into. “The capital market is a completely different market. It isn’t just a day traders’ market, rather a market where long-term investments are primarily made. Maneuvering through the maze of finances and investing wisely is something that investors need to be careful of. Investors behaving like traders with an eye for a quick return will be detrimental for the investor and the market.” To ensure that investors are aware of how to invest in the market, BSEC has been actively pushing for financial literacy through training and online resources.
Dr. Ahmed believes that the capital market should have greater participation from companies to increase their contribution to the economy. “Companies would be incentivized if they are listed. We would also be putting in various matrices to ensure that company enjoying tax benefit is based on the size of float share in the market.”
Dr. Ahmed highlights that Bangladesh is ready for the emergence of the secondary market for treasury bonds and bills. “In association with Finance Ministry and the Bangladesh Bank, we have approved policy and operational guidelines for a secondary market for treasury bonds for all investors including the general public. We have already tried and tested various aspects of this operation and perfected the process. Relevant parties including exchanges and the CDBL are procuring appropriate technological logistics. It’s now a matter of time to launch a secondary government bond market for the public. This will holistically change the capital market.”
Bangladesh has genuinely transitioned from a country with little hope and ambition, to a country that outperforms even the best in Asia. A nation that is in the global spotlight for the right reasons. The capital market is aspiring to exhort its responsibility in the development of Bangladesh.
