Syed Akhtar Mahmood

Regulatory surprises and the entrepreneurial spirit in Bangladesh

November 25, 2012

6a00e54f766f3988330112793f952528a4-320wiAt first I thought it was a mis-spelling! But then, I did not expect this sub-district, the northern-most tip of Bangladesh, one half of the iconic phrase “From Teknaf to Tetulia” to have anything to do with my neighbourhood grocery in a suburb of Maryland, USA. But there it was, occupying a small part of the tea shelves in Whole Foods, a new brand called “Teatulia”. As I turned the canister, containing a medley of Teatulia tea, I got half the connection – the tea had come all the way from Bangladesh. As I googled later, the other half was revealed; the tea came from an organic farm in the Tetulia region of the greater Dinajpur district. It was a creative twist on the name of this town – the added “a” representing the flavour of the product!  Right now, “Teatulia” occupies only a small space on the shelves of my favourite grocery. But that’s exactly how Bangladeshi garments started their journey twenty or so years ago!

A few years ago, my wife and I had the opportunity to visit a village in Mahasthangarh, Bogra, where, in a place that evokes memories of the past, a group of village women were becoming the harbinger of the future. With enthusiasm and pride they told us about the small business they had started, growing high quality vegetable seeds in their small homestead plots. The initial clients were farmers in the nearby villagers. But a few days before we visited them, one of the budding women entrepreneurs had received a phone call on her mobile. A private TV channel had featured them and a group of farmers in a neighbouring district, having watched the program, had called asking for directions. They wanted to come to Mahasthangarh to check out the product. This confluence of two important developments, private TV and mobile telephony, with a third, i.e., the entrepreneurship of rural women, generated an extraordinary synergy and expanded the horizons. The seed growers of Mahastangarh were crossing borders too!

These are just two small examples of how the entrepreneurial spirit is slowly but surely transforming Bangladesh. In a country long disadvantaged by nature, geography and history, and with a very modest endowment of natural resources, entrepreneurship is perhaps the most important resource we have. In many ways, if fact, the paucity of natural resources is a blessing. We have seen from worldwide experience that such resources often attract the vultures, leaving economies and societies impoverished. By contrast, entrepreneurial resources, where properly nurtured, have triggered creativity and innovation. And the great thing about the entrepreneurial spirit in Bangladesh is that it is not confined to an elite few. Whether it is a state-of-the art garments factory with working conditions that match global standards, or a small dingy factory in congested old Dhaka making innovative light engineering products, whether it is a western educated young man capturing western markets for his organic tea or a poor village women in Bogra with barely a primary education growing high quality seeds in a small plot of homestead land, the entrepreneurial spirit is unleashing the creativity and energy of diverse groups of Bangladeshis – something very welcome not only from the point of view of economics but for social cohesion as well.

And, yet there is a spectre on the horizon!

Bangladesh-is-emerging-global-economy-300x225This is the spectre of regulatory surprises, of uncertainty and hoirani, whose ghostly appearances are common occurrences in the world of enterprise in Bangladesh. If anything stifles the entrepreneurial spirit in Bangladesh this would be it.

We had a reminder of this just the other day when, out of the blue, the cabinet endorsed an amendment to the Company Act with potentially very adverse impact on the private sector. There was no prior analysis that we know of, nor any consultation with stakeholders. The Government may have taken the decision with good intentions but it is clear from the outcry that followed, and its own back-tracking later, that the Government had not thought through the full implications of the proposed measure.

There is nothing intrinsically wrong with regulations; indeed setting regulations and enforcing them is one of the most legitimate functions of government. Business operations should be consistent with society’s aspirations and not harm its interests. The environment needs to be protected, work place safety needs to be ensured and one has to ensure that the products produced or the services delivered do not harm the consumers. Businesses also need to be protected from each other — contracts need to be enforced and anti-competitive practices curbed. Just as football games need rules, so do businesses.

Thus, even in the freest of markets, we see governments enforcing a myriad set of rules and regulations that aim to align business interests with societal goals. So regulations are not the problem. It is the quality of regulations that is critical. Regulations need to be of high quality, both as they are written on the books as well as in their enforcement. Regulatory surprises bring down the quality of the regulatory regime. It creates uncertainty and harassment and increases the costs of doing business. In the world of Bangladeshi business, a new dawn often brings bad news – of a new regulation imposed on them without any prior notice. Government officials often see a problem, want to address it and come up with a new regulation or procedure which they think will do the job. They may be well meaning but a failure to do a prior analysis of the costs and benefits of the regulatory action often means that the core problem remains unresolved while new ones are created.

BANGLADESH/The way new regulations are formulated, or amendments made to existing ones, is a very important aspect of the quality of a country’s regulatory system.  We often talk about streamlining the existing stock of regulations. This is indeed a top priority. But we also need to think about the quality of new regulations. If the flow of new regulations is of poor quality, the stock will remain bad. It is like cleaning the water in a swimming pool. No use doing that if you cannot ensure that the new water flowing in is also clean.

The time has thus come to seriously think about instituting a system of regulatory impact assessments in the country. We can begin with the most important regulatory proposals, and subject them to an impact analysis. The idea of an impact analysis is not novel in Bangladesh. When a government agency does a project, say a road, a hospital or a power transmission line, it is required to carry out a cost-benefit analysis and justify the planned investment. The Planning Commission then reviews the analysis, and approves or rejects the project. Whether these exercises are done properly is of course a matter of debate – Bangladesh is replete with examples of projects that were done on purely political considerations with little analysis of the costs and benefits to society. But the rules of business of the government do require such analysis.

If a cost-benefit analysis is required of projects, why shouldn’t one insist on something similar for rules and regulations? The responsibility for preparing the analysis may lie with the line ministry or agency which is proposing the law, rule or regulation. The analysis, or at least a summary of it, can then be attached to the regulatory proposal when it goes for review to appropriate reviewing body, be it the cabinet, parliament or any other body. A central unit, such as the Prime Minister’s Office, the Board of Investment or the Law Ministry, can oversee this process. It can develop a set of criteria to decide which rules and regulations will be subjected to the impact analysis.  This unit may also provide training and technical support to the line ministries and agencies in preparing the impact assessments.

Such impact analysis will ask a few important questions. For example, what problem is being addressed and does solving it require a regulation? If high prices are a problem, the solution is often more competition, not regulation. In many cases, though, regulations will be required. Here, the impact analysis will look at the costs and benefits to the regulated parties, whether businesses, consumers or other citizens. It will also study the costs and benefits to the regulator. Enforcement of regulation is not costless and sometimes the costs of enforcement may not justify the benefits. An integral part of the analysis is consultation with stakeholders. Typically, regulatory impact assessments summarize the feedback from stakeholders and explain how the feedback has been incorporated and if not, why not.

Some may say that these practices are appropriate for developed countries and the time has not yet come for us to bother about such niceties. Well, here is a food for thought. Just last month, the government in another country issued a document called the National Handbook for Public Policy Making. This important document imposes a discipline on the government; it stipulates that before enacting any major policy, law or regulation, the government shall carry out a thorough analysis of the impact and implementation challenges of the proposed measure and involve all relevant stakeholders in the process.  That country is not in the developed world, nor does it represent the major emerging economies of the world. That country is Kenya. Tomorrow, it may be Uganda and next week, perhaps Cambodia. Even the developing world is moving towards smart regulations. Will we be left behind?

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Syed Akhtar Mahmood works for an international development agency in Washington DC.

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5 Responses to “ Regulatory surprises and the entrepreneurial spirit in Bangladesh ”

  1. Minhaz Anwar on November 26, 2012 at 1:14 pm

    Akhtar Bhai, Very topical and succinct depiction of what we feel and share among our community. I hope your well thought through advice do not go waste. Please keep on writing on this issue. Best. Minhaz

    • Akhtar Mahmood on November 27, 2012 at 1:13 am

      Minhaz, Many thanks for reading the article, which, coincidentally, was published the same day we all came to know about the horrible tragedy in Savar. The context in which I wrote the article is different and I focused more on the way regulations need to be formulated. But, more broadly, the arguments were about the quality of regulatory regimes, of which enforcement is an important dimension. Indeed, the two go hand-in-hand; a regulation will not be well written if one has not thought through the challenges of enforcement when writing it.

      I shall indeed continue to write about these issues. Bringing about the changes that we are talking about is like running a marathon, not a sprint. Or perhaps, it is like running a relay race where one set of runners pass on the baton to others. So, I hope, others, such as you, will take up the pen as well.

  2. Golam Arshad on November 25, 2012 at 11:19 pm

    Bravo! Excellent write up! We can do BETTER! This should be our MOTTO!

    • Akhtar Mahmood on November 27, 2012 at 1:16 am

      Mr. Arshad, Thanks a lot for your kind comments! Yes, we can certainly do better and that means thinking through the pre-requisites carefully and implementing the necessary actions in a painstaking and diligent manner. We, Bangladeshis, need to be more process-conscious and less event-focussed.

      • Golam Arshad on November 28, 2012 at 12:06 pm

        You are right, coining the verbage of “Process-Concious”. Good job!!

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