Dr. Anu Mahmud
In business and management literature, Corporate Social Responsibility (CSR) has emerged as a key business strategy tool for redefining the role of corporations in the marketplace in today's globalised economy. In developed and developing countries awareness on CSR is attracting the attention of governments, corporations, Non Governmental Organisations (NGOs) and multilateral agencies.
CSR issues in classical economics came to light in the US. Milton Friedman (1970) suggested that business's responsibility was only to make profit for the shareholders. But society's relationship with business receives no significance in his economic argument, though Friedman did not dispute the validity of such actions (Matten, 2006). The debate on CSR mainly highlights that 'the fundamental idea of corporate social responsibility is that business corporations have an obligation to work for social betterment' (Frederick, 1986:4). Furthermore, CSR articulates that business and society are interrelated, not two separate entities (Wood, 1991a). Porter (2003) also agrees that 'social and economic issues are intertwined'.
Globalisation and environmental concerns such as water pollution and carbon emissions are driving corporations to address changing issues in societies in which they are operating (Filho & Pawlak, 2009). It is now expected that corporations should be accountable to other audiences beyond their shareholders and financiers (Reverte, 2009).
For example, Chevron, a US-based energy giant, has developed a strategic plan, 'the Chevron way: to market their business strategy worldwide; it also explains CSR policies. For more than a decade, Chevron was engaged in natural gas exploration and production in Bangladesh. In Bangladesh, they maintain CSR activities in compliance with their global campaign. Donations to flood victims, free health care clinic on exploration sites, donations to education programs and tree plantations (Chevron, 2008). However, in 2014 Chevron Bangladesh decided to spend US$10 million in the next five years under the Bangladesh Partnership Initiative (BPI). The BPI initiative will work with development organisations to assess local needs and establish enterprise and workforce programmes to promote economic stability, create jobs and accelerate growth in communities where Chevron operates. However, Porter and Kramer (2002) suggest that financial contributions and programs in the name of CSR are diffused and unfocused, and are not well thought out in regard to social and business improvements.
Significance of the CSR practices in emerging economies
In emerging economies CSR-related study is gaining attention in business and management literature. The important roles of national and (MNCs) Multi National Companies mean that there is an urgent need to investigate the nature and extent of their CSR practices. Very few corporations are able to operate locally; most need to go regional or global for their production and marketing, and, in order to cope with the cross-border situation, they standardise and adapt their several business issues, such as product or service variation, focus, design, and innovation with the marketplace (Ghemawat, 2007). Often, they fail to cope with the situation in developing countries' realities and fall into enormous reputational risks - for example, consumer protests and boycotts of Nestlé's baby formula and Nike in Africa for ignoring child labour at their outsourced production plant in Asia (Husted & Allen, 2006). Therefore it is important to know the existing CSR practices and their perceived determinants in the context of emerging economies. The understanding of CSR in emerging economies will help the corporations to adapt and practice an appropriate framework of CSR.
Only a limited number of studies have been undertaken in Bangladesh, an emerging economy of South Asia, covering particular issues and practices of CSR (Imam, 2000; Quazi & O 2000; Belal, 2001; Matin, 2002; CPD, 2003; Hossain, Islam & Andrew, 2006). In order to translate the potential of CSR practices into reality, challenges and prospects of the corporate sector in Bangladesh need to be understood. The reason is that Bangladesh desperately needs to facilitate its economic growth process by promoting a private sector-friendly environment and by establishing global management standards for business.
During the last two decades many Asian countries, including Bangladesh, have adopted economic liberalisation, which significantly influenced state functions, away from economic intervention towards regulatory reforms to encourage private sector economic activities (Rahman & Robinson, 2007). A study by PricewaterhouseCoopers on the leading potential emerging countries of the world reveals that Bangladesh will be among the new 30 countries which might grow significantly by the year 2050 (Hawks worth & Cookson, 2006). The study also identifies that Bangladesh has a considerable growth potential which is faster than that of the OECD countries.
By and large, Bangladesh, as a labour-intensive economy, is a potential market for investors, both national and MNCs. According to a study on ease of doing business global ranking by the World Bank (Figure 1.1), Bangladesh ranks in 119th position among 183 economies for the year 2010 (World Bank, 2009). It has a better position in South Asia compared to its neighbours India and Nepal.
Bangladesh is also one of the less competitive among twenty- one other major countries in Asia in regard to investment-related costs (JETRO, 2005). According to the Global Competitiveness Report 2009-2010 of the World Economic Forum, Bangladesh occupies the 106th position among 133 countries (World Economic Forum, 2009). In addition to cheap manpower, Bangladesh has a huge internal market due to its growing population and has ample facilities for export-oriented industries. At present, many flagship MNCs and large home-grown corporations have invested in the pharmaceutical industry in Bangladesh, such as Glaxo Smith Kline, Reckitt Benckiser, Square and Beximco. This sector has a long corporate history dating back to the 1950s. The leading corporations are listed on the Bangladesh stock market. Due to the WTO-TRIPS agreements for Least Developed Countries (LDCs), Bangladesh has a potential emerging market to export drugs until 2016 (Yusuf & Alam, 2008). In the fiscal year 2008-09, drugs worth $US45.67 million were exported from Bangladesh and this figure is rising significantly every year (Khan, 2010a). Thus, pharmaceutical exports rose to $US7lmillion in fiscal year 2013-14 (Ahmed, 2014; Export Promotion Bureau, 2014). At present, after fulfilling 98 per cent of the domestic demand for drugs, this sector is now exporting drugs and pharmaceutical raw materials to 88 countries and is also the second largest tax-payer in the country (Ahmed, 2014).
In Bangladesh, which suffers significantly through natural disasters like floods, cyclones and storm surges (Sayeed, 2007), corporations are involved in relief distribution as part of their CSR practices. Belal (2001) finds that determinants such as socio-political, economic and regulatory standards have influenced CSR disclosure of corporations. Belal's study also supports Quazi and O'Brien's (2000) research on the food and textile industries of Australia and Bangladesh.
In Bangladesh, Chevron, a global giant in gas and oil exploration, mostly engages in philanthropic activities (building schools, giving merit scholarships) in the name of CSR (Chevron, 2008). Beyond community-level philanthropic activities other aspects of CSR practices such as ethical and environmental responsibilities are overlooked in Bangladesh. But there is evidence in the literature show that Chevron has caused several environmental disasters while doing business in Bangladesh. In 1997, a massive blowout took place in the Magurchhara gas field of Unocal (in which a stake was taken over by Chevron), also a National Park of Bangladesh, severely damaged the bio-diversity and natural life of the park (The Daily Star, 2008a). The disaster of this gas blowout has raised concerns about the health and safety standards of Chevron in Bangladesh. Bangladesh has also claimed US$105 million from Chevron as compensation for the environmental damage (World Ecology Report, 2006). In 2006, Chevron was also accused by the government of Bangladesh of violating the conditions of the government's environmental clearance certificate (The Daily Star, 2008b).
Government in developing countries, as in India, usually promotes Foreign Direct Investment (FDI) for economic development rather than promoting standard CSR practices among corporations (Benigni et al., 2007). Arora and Puranik (2004) argue that in India CSR is viewed as 'profit distribution' only and needs to incorporate CSR policy in the corporation's core business strategy. The Dow Chemical Company has businesses in around 160 countries worldwide, including India. Union Carbide Limited in India is one of their subsidiaries. In 1984, a pesticide plant leakage at Union Carbide plant in Bhopal, India, caused the death of more than 20,000 people and injury to many more; this became known as the 'Bhopal Tragedy' and destroyed the brand reputation of this corporation (Sainath, 2010; Trotter, Day & Love, 1989). The aftermath of the Bhopal tragedy has encouraged developing countries, for example Malaysia, India and Brazil, to introduce tougher regulations to control chemical, petroleum and pharmaceutical industries (Trotter et al., 1989). Dow in India has CSR practices in the name of sustainability; It has a single sustainability standard, like Chevron in Bangladesh, for its global subsidiaries. In India, Dow is mostly focused on community participation, such as assisting the underprivileged in building homes, supporting physically impaired people with artificial limbs, and providing clean drinking water (Dow, 2009). It does not have an India-specific, customised CSR initiative but rather imposes the same CSR policy worldwide. In Sri Lanka, most corporations do not follow a national or international benchmark in practising CSR, and corporations perceive CSR as being practices, such as sponsorship of sporting events, donations to charities, and other social activities (Kumar et al. 2004).
In South Africa, adult literacy is a major problem, which is addressed by corporations as a CSR issue (Arumugam, Craven & Statum, 2007). Imbun (2008) studied CSR activities of Papua New Guinea's mining corporations and finds that the local community's SR awareness campaign activities have a significant role in mining corporations' CSR engagement.
In Brazil, government encourages and facilitates the corporate sector, particularly pharmaceutical corporations, to offer AIDS drugs at concessional prices in the marketplace (Bennett, Pobbathi, Qui & Takeuchi, 2007). A study on the Nicaraguan banana industry also shows that CSR practices work better if the corporation pays more attention to women workers' sues, such as gender-sensitive practices, sexual harassment, adopting a zero-tolerance policy towards perpetrators, providing childcare facilities and breastfeeding breaks, maternity rights, and redressing gender-based inequalities (Prieto-Carro'n, 2006). Thus, equal opportunity; discrimination and human and labour rights are the major corporate issues in Nicaragua, rather than following a particular global model of CSR practices.
Luis et al. (2009) studied CSR patterns of 46 corporations of Mexico and the results suggest that CSR is not a familiar concept in Mexico, due to lack of awareness (regarding CSR areas, issues), and corporations are focused on health, education and environmental use as their CSR programmes, while consumers' buying habits do t change because of corporations' CSR practices. In Nigeria, the m oil corporation Shell failed to implement better CSR practices due to the country's lack of macroeconomic planning and management initiatives (Ite, 2004).
Extant literature indicates that a religious manager is more ethically and socially responsible in relation to business practices, particularly in acting against corporate fraud or wrongdoing (Keinert, 2008). Peterson and Jun (2009) find a positive relationship between religious commitment of managers and CSR. However, the degree of a corporate manager's responsibility varies with their attitudes towards religion (Brammer, Williams & Zinkin, 2006).
In Malaysia and Pakistan, few corporations are significantly motivated by religious notions and apply Islamic spirituality in particular business practices in their CSR program (Frynas, 2006).
Rise of Pharmaceutical industry:
Corruption is a major concern of business. Studies suggest that in doing business in emerging economies in particulate, both national and MNCs face corrupt behaviour that is sometimes inevitable, and this impedes responsible business practices. So far, corruption appears as a core business issue, which negatively influences corporations' competitive position, increases operational and legal costs, and poses a real threat to operations (Hills, Fiske & Mahmud, 2009). Poor salary structures of both government and corporate employees in emerging economies lead to corruption (Siddiqui, 2007). Therefore anti-corruption issues need to be a part of a corporation's CSR policy and strategy (Hills et al., 2009).
NGOs and Civil Society Organisations (CSOs) are determining factors, along with government and business entities, in promoting CSR in developing countries to match practice in developed countries. In India, large multi-nationals like General Motors (GE) and Ford are working with NGOs to focus their core businesses and to assist communities (Benigni et al., 2007). In Peru, too, NGOs are playing an awareness-raising role in creating environmental consciousness (Gibbons, Lau, McAuliffe & Watson, 2007). CSOs might have a large role in practicing global issues of CSR. They might appear as a pressure group in the external environment of businesses (Rivers, Yang, Ratten & Healy, 2005). In a study on the financial reforms of Bangladesh, Chowdhury (2002) argued that civil society can take an encouraging role in creating awareness in public and private sectors about becoming more ethical in their business and services and refraining from illegal or fraudulent activities. Over time, the media, whether print or electronic, also engage in reporting business activities across geographical locations. As with civil society, the media might be a perceived as a determinant of CSR practices in emerging economies.
Pharmaceutical industry of Bangladesh has been chosen as the area of analysis since the industry is well established since pre partition India. It is observed that many leading multinational pharmaceutical corporations were in Bangladesh long before independence, such as, present day GlaxoSmithKline, Reckitt Benckiser, Imperial Chemical Industries (ICI), etc. Thus a corporate environment, which focused on human resource management practices, workplace environment, and use of modern technology in manufacturing and offering products and services are important in this industry of Bangladesh. Moreover after fulfilling most of the kcal market demand pharmaceutical corporations are exporting drugs to developed and emerging economies. It is the second-fastest pawing industry in Bangladesh. Based on the importance, the pharmaceutical industry has been selected as the unit of study in der to understand state of CSR practices in Bangladesh.
Historical development of CSR practices in contemporary Bangladesh
CSR practices in contemporary Bangladesh (known as Bengal in the ancient times) should be conceptualized in a larger historical context. CSR activities in Bangladesh had been significantly influenced by the social, cultural, economic and political history of India since the former was a part of undivided India until 1947. So, in order to analyze the forms and patterns of CSR practices in Bangladesh one needs to go through some acts of ancient Indian public life as these two countries shared a common past for a long time.
Traditionally, philanthropy or charity has been the lone long-standing practice of business houses in Bengal in terms of social responsibility. However, philanthropy in the form of giving to the less fortunate is a century-old tradition of the then Bengal now Bangladesh. The notion of philanthropy, which is widely known as 'dan', is so important in the Indian society, that some scholars termed it as a 'kind of special access route to Indian cultural logics' (Copeman, 2011: 1055). Voluntary giving to others in the fields of education, medicine, cultural promotion, and during crisis like famine and droughts has been Contd from page 33
well known and dates back to the middle ages of India (Inamder, 1987). In particular, the merchant class played an important role in popularising philanthropy in the society (Shrivastava and Venkateswaran, 2000). Between 800 1200AD it was observed that the merchants 'spent their wealth in constructing beautiful temples and for other charitable purposes' (Aery and Mathur, 1990: 85). Among them charity was paramount and they were 'sympathetic to beggars, giving them food and in general showing compassion to the oppressed' (Tavernier, 1925: 198- 200). Moreover, the social reputation of a merchant as wealthy and trustworthy depended in the amount and quality of his philanthropic acts (Haynes, 1987; Ellis, 1991). But the voluntary giving in order to improve the social and economic life of the people of Bengal had significantly started during the mid-colonial period (18 lOs) (Jnamder, 1987). During 19th and early 20th centuries, corporate philanthropic practices were institutionalised through trusts, foundations, benevolent committees, etc. where strong nationalistic fervors of India's independence movement also played a vital role (Khan, 2008). It is found that philanthropic activities during the British colonial period were largely concentrated in the education of women and girls; the relief of distress, orphans and abandoned of shelter (Sundar, 1996).
According to Raju (in Copeman, 2011: 1062), 'every vital event of a person's life is an occasion for giving and celebration' during the early life of undivided India. Rajas and Maharaj as were also engaged in philanthropic activities during the British colonial rule and at times they contributed generously to the important events of the British regime. A good example was the Maharaja of Darbhanga, in Bengal. A report was published in The Times of India on January 1888 about his notable philanthropic contribution in the event of the Countess of Dufferin's Jubilee Memorial is as follows:
The Maharaja of Darbhanga, in Bengal, has established a hospital and dispensary for female patients... in the district of Darbhanga, Behar, and is erecting new quarters for its accommodation at a cost of Rs. 55,000, in connection with Lady Dufferin's Medical Aid for Women Fund... he has expended in similar philanthropic works and charity a further sum of about £240,000... has constructed and maintains no fewer than 23 schools... three dispensaries, 23 village schools or "pathsalas"... opened 150 miles of new roads, and planted 20,000 trees on these roads.
It is commonly agreed that furthering social wellbeing through philanthropic practices has a link with religious teachings (Cnaan and McGrew, 2006). Thus religious scriptures were an important source of philanthropic activities for businesspersons in Bengal. For example, the Bhagavad Gita, a Hindu sacred scripture, underscores that 'the ethical and moral imperatives of practicing philanthropy:
datavyamiti yaddaram diyate anupakarine (the meaning of giving is that which is given without any expectations of return and without any strings attached) (dan)' (Raju in Copeman, 2011: 1062). The Hindu clerics also have embedded philanthropic practices into life-cycle rituals and rites of passage (Raju in Copeman, 2011: 1062).
According to Hinduism pilgrimage to Gaya and distributing alms are the two important pathways to achieve salvation (Chunder, 1914). Haynes (1987) found that before 1800AD merchants usually built wells, temples, rest-houses, and sponsored festivals as acts of their propitiation to their deities and as deeds by which they could hope to acquire merit.
Islam also accords a high value to philanthropic acts, for example, The Holy Qur'an emphasizes the importance of Zakat, which literally means 'to thrive or to be wholesome' (Cnaan and McGrew, 2006). Thus Zakat is an unconditional generous contribution for the poor, the needy, those in captivity; debtors, and travelers in need (Zayas, 1960). The Qur'an also directs for the sadaqah which is voluntary alms to those in need (Cnaan and McGrew, 2006). As a part of Islamic religious practices, during the Moghul reign and the initial colonial period several serais and alms-houses were built for the poor and destitute people by the Muslim Moghul princes and rulers (Masselos, 1989). However, it is also observed that people usually prefer to engage in charitable activities silently and selflessly without expecting any paybacks and returns from the alms receivers in India (Copeman, 2011). It may be noted that during British colonial rule in Bengal philanthropy has been seen as a way of attaining honours, rewards, and titles from the British by the rich and merchants, for example, Khan Bahadur, Khan Saheb, Rai Bahadur, Rai Saheb, etc. (Haynes, 1987).
Similarly, Haji Muhammad Mohsin (1732-1812) was a merchant and one of the most prolific philanthropists of Bengal. In 1806, he has created the idea of a Waqf a trust and put his entire wealth to charity He donated this money for education and religious programmes, for pensions to the elderly and disabled. His most notable contribution was during the great famine of Bengal (1769-70). After his death in 1812, the government of Bengal (then the British East India Company) took over the management of the trust and many educational institutions were started with the grants from the trust. Government Haji Muhammad Mohsin College at Chittagong is a unique example of Mohsin's philanthropy, which was started as Chittagong Madrasa in 1874.
During the 1810s and 1820s, missionaries started promoting Christianity in this region and in order to strengthen relationships with the local people they voluntarily initiated philanthropic activities and started building schools, colleges, dispensaries and orphanages (Natarajan, 1962; Pande, 1967; Singh, 1968; Inamder, 1987; Sen, 1992). Interestingly, these voluntary activities of the Christian Missionaries had their impact on the local elites in Bengal who soon took up similar philanthropic practices. In particular, a renowned social reformer Raja Ram Mohan Roy played a catalytic role in this effort (Natarajan, 1962; Sen, 1992).
Sir Adamjee Haji Dawood was one of the wealthiest businessmen in the region. He created the famous House of Adamjee which was later on named as the Adamjee group." Adamjee was a prominent and highly reputed name amongst the business circles of the British India throughout the 20th century. As a philanthropist he assisted and established a number of educational institutions. In recognition of his services, the British government knighted him in 1938. His son late Abdul Wahid Adamjee established the Adamjee Jute Mills' in Narayanganj, Bangladesh in 1951 and later the mill became the largest jute mill in the world preceding the jute mills of Kolkata, India, and Dundee, Scotland. As a conglomerate, the Adamjee group contributed to several philanthropic activities. They have established schools, colleges, medical institutions, for example, Adamjee Cantonment School was established in early 1960, which is now renamed as Adamjee Cantonment College.
Another example is Late Ranada Prasad Saha popularly known as, RP Saha is a symbol of philanthropy in Bangladesh. He became a very wealthy businessman in Bengal during the British time. He generously donated his wealth in social wellbeing. He established 'Kumudini Welfare Trust of Bengal' (KWS) in 1947. KWS is the oldest corporate endowment in Bangladesh. He endowed his whole property and business earnings for building schools, hospitals, orphanages and religious charities. KWS is still active in running socially responsible enterprises. His notable philanthropic acts were: a 750-bed free hospital named Kumudini Hospital, Bharateswari Homes (to promote female education), Kumudini Girls' College, Debendra College, etc. Along with earlier activities, currently KWS is running a women's medical college, a nursing school and a nursing college.'
Several business people were known for philanthropy in the pursuit of social responsibility during the years Bengal was part of Pakistan (1947-1971). For example, Late Mirza Ahmad Ispahani was a renowned industrialist and philanthropist of the then East Pakistan. In 1960, he established the Ispahani Eye Hospital (now the Ispahani Islamia Eye Institute and Hospital) in Dhaka, which is the largest and oldest specialised eye hospital in Bangladesh. Apart from its basic ophthalmic services, it also pioneered various tertiary ophthalmic super-specialties. It is a non-profit organisation since Ispahani wanted to contribute to the well-being of the poor. He also established a well-known educational institution named Ispahani Public School and College at Chittagong in 1979.
In recent times, some local and multinational corporations are practicing CSR in Bangladesh. For example, during the last couple of years MNCs like British American Tobacco Company Limited (BATCO) has undertaken large social forestation projects in different areas of Bangladesh. In 2000, The Daily Prothom Alo, a popular Bangla daily newspaper of Bangladesh, started to raise funds as a part of their corporate philanthropic activities for the victims of acid violence, which was at that time on the increase in Bangladesh. As of today they have assisted 230 acid victim women to settle through a sustainable income generating programme. In recognition of their corporate philanthropic acts, they have received 'The Gold Standard Award' by the Foreign Correspondence Club of Hong Kong in 2010.16
In 2010, The Daily Star, national English daily of Bangladesh took up a philanthropic initiative named 'Chaps 21 Spelling bee for both Bangla and English medium students. The programme focuses on encouraging students to learn beyond their textbooks, particularly in the areas of Mathematics, Science, General Knowledge, IQ, and Current Affairs as their extra-curricular activities.'
The Dutch-Bangla Bank Limited, a joint-venture private bank in Bangladesh is sponsoring a Math Olympiad, providing generous merit-based scholarships to poor and destitute students, offering free health camp for poor and special need people like plastic surgery for burn patients, clef leap operation etc. It was found that in 2012, all the scheduled banks spent Tk 3.05 billion for their CSR practices, which is 7.5 times higher than in 2008 (Tk 410 million), and 32 percent of the amount is spent for education (Rahman, 2013). In an order on 20 March 2013, the Bangladesh Bank (BB) directed all scheduled banks to establish day-care centres for the children of their female employees as a social responsibility practice (The Financial Express, 21 March 2013).
Lest we associate philanthropy and charity in Bangladesh only with the well-to-do, it needs to be pointed out that it is practiced by even common men and women. For example, the practice of collecting Mushti Bhikha in the mosque for work of charity is quite well known. Contd from page 34
Similarly, in certain districts, there is the well- known tradition of Jaghir by which senior high school/college poor students are provided with food and accommodation in lieu of offering tuition to young children.
On 16 December 1971 Bangladesh gained Independence from Pakistan. Before 1971 the country was known as East Pakistan and the current Pakistan was known as West Pakistan. An undivided Pakistan was created in 1947 as a consequence of partitioning of India by the British, who ruled the sub-continent India for almost 190 years. Bangladesh inherited an industrial legacy from British colonial rule in India. Developments that occurred during 190 years of British rule in Bangladesh have had an observable impact on the policy, economy and society of Bangladesh (Baxter, 1997).
Bangladesh as a Least Developed Country (LDC) is situated in the north-eastern part of South Asia; it is 147,570 square kilometres in area and has a population of 146.6 million (BBS, 2009). It is one of the most densely populated countries in the world. The country has a huge, unused, cheap pool of skilled and unskilled labour.
It is predominantly an agriculture-based country; however, the industrial sector is emerging and is making a significant contribution to the national economy. During fiscal year 2008-2009, the private sector in Bangladesh contributed almost 81 percent of the total national investment, or 19.55 percent of GDP (BOI 2010a; Bangladesh Economic Review, 2009). In the period 2007-2008, GDP growth was 6.21 percent and the per capita income was $US690 (BBS, 2009).
In Bangladesh the main industries are readymade garments, jute, textiles, pharmaceuticals, tea, cement, fertilizer, sugar, leather and consumer products. Figure 2.1 shows exports of major products in the fiscal year 2006-2007.
In recent times Bangladesh has shown remarkable growth in socio-economic development, such as disaster management, girls' education, microcredit management, women's empowerment, Readymade Garment (RMG) manufacturing, Foreign Direct Investment (FDI) and formation of exclusive export processing zones for investors (Bhuyan, 2005). At present, the RMG sector is the main export-oriented industry, followed by jute, pharmaceuticals, leather, tea, fertilizer and fish. For example, in 2008-2009, the RIvIG sector was the highest export earner at $U512.7 billion, with a 60 percent market share in the EU (BOI, 2010b) In 2008-2009, Bangladesh also ranked third after China and Turkey in the global market for its knitwear exports (Harmachi, 2009). In 2015, Bangladesh ranked second in the global market and has set a vision to reach $50 billion of RMG exports by 2012 (BGMEA, 2015).
According to Goldman Sachs and JP Morgan, Bangladesh is one of the least urbanized countries in the world and hence has a significant opportunity space for investment (Rashid, 2010a). The country is rich in reserves of natural gas and coal, with a large domestic market; there is a growing middle class with rising disposable income and purchasing power (Rashid, 2010a).
Industrial reforms in Bangladesh
Bangladesh has shown modest achievement in food production, education and culture. However, the corporate history of Bangladesh is not very old. In the pre-Independence period the country did not have many large corporations. Only a few entrepreneurs from the then West Pakistan were engaged in business activities in East Pakistan (now Bangladesh). After the partition of India and Pakistan in 1947, colonial rules and regulations continued to dominate industrial development in Pakistan. Moreover, in the 1960s and 1970s the economy of Pakistan was mostly dependent on foreign assistance. In the post-Independence period, Bangladesh was able to close that gap through many improvements in the economy.
The industrial development of Bangladesh can be categorized into phases. In this review an attempt has been made to identify whether CSR issues receive attention in the policy development process.
After Independence in December 1971, Bangladesh started to rebuild its industries, which were almost all ruined during the Liberation War. Governmental intervention was inevitable to establish the necessary infrastructure and policies.
In 1972 the government promulgated the Bangladesh Industrial Enterprises (Nationalisation) Order, 1972. This meant nationalisation of most of the large private enterprises, starting from a socialist mindset. Under the 1972 Order, management of all the major industries, along with foreign trade and financial sectors, were vested in the public sector (Reza & Shelley, 1994). Extant literature suggests that the government classified 352 industrial units under 11 sector corporations and the then Planning Commission assumed that a nationalisation strategy would be the most appropriate mechanism for leading the Bangladesh economy out of crisis (Khan, 1994). Thus 92 per cent of industries in Bangladesh came under the public sector (Kalirajan & Salim, 1997). However, in 1972-73 the government amended the Industrial Investment Policy (also revised in 1974) to allow entrepreneurs to invest in the private sector up to a 'ceiling' (Alam, 1991; Kalirajan & Salim, 1997). But these initiatives could not significantly boost the economy and it experienced a rapid decline. High inflation, severe famine, the weaknesses in the political system, corruption and inefficiency in the nationalised sector may have contributed to a political change of government in 1975 (Haque, 2002). Ahmed (2005: 23-24) further contends that 'the policy of nationalisation of the early 1970s left a very difficult legacy of labour militancy, over-employment, corruption, and management inefficiency, all contributing to heavy financial losses and a severe overhang of debt in the industrial sector' Sobhan (2007a) suggested that one of the inabilities to effect a productive capitalist transformation from 1972 to 1975 arose from the lack of political power in the private sector, which was the worst victim of state power at that time.
After the political changes of 1975, the new military government promulgated the Revised Industrial Policy of 1975 (RIP 1975) (Haque, 2002). It prepared private sector investment policy guidelines with a range of incentives for private entrepreneurs. A number of abandoned and taken-over industrial units were returned to the private sector (Alam, 1994; Reza & Shelley, 1994). Under the RIP 1975 the investment ceiling was increased to US$1.43 million, and in order to attract FDI the government established the country's first Export Processing Zone (EPZ) in the port city of Chittagong to promote export- oriented businesses (Quadir, 2000). In 1975-82,
Phase 2009 onward
In the general election in 2009, the AL returned to power for the second time. It decided to prepare a new industrial policy. Thus the Industrial Policy of 2010 is now in practice (Ministry of Industries, 2010). Similar to the Industrial Policy 2005 this policy also emphasises SME development. One of the important focuses of this policy is that the government categorises economic development strategy into the short, medium and long term to achieve a GDP growth rate of 8 percent by 2013 and 10 percent by 2017, and to sustain this achievement till 2021. Like the IP 1999 and 2005, this policy also identifies a number of potential industries as the 'thrust sector including the pharmaceutical industry.Contd from page 36
the government of Bangladesh took several steps to promote private sector investment. The establishment of the Disinvestment Board and the Investment Corporation of Bangladesh (ICB), and resumption of the activities of the Dhaka Stock Exchange, which had been closed after the Nationalisation Order, are a few such examples (Khan, 1994). To encourage foreign investment the government also announced the Foreign Private Investment (Promotion and Protection) Act 1980, which provided legal protection to all foreign corporations doing business in Bangladesh (Reza & Shelley, 1994). Thus, compared to other emerging economies, Bangladesh responded rather swiftly to market reforms, just five years after its Independence, since it had failed to overcome poverty and achieve rapid economic growth through the state-socialist model introduced immediately after Independence (Quadir, 2000). However, it is argued that international donors and multi-lateral agencies, for example, the World Bank, the IMF, UNDP and USAID, played a significant role in changing industrial policies to support private sector growth and divestment of State-Owned Enterprises (SOEs) as the major element of the market-oriented economic reforms strategy in the post-1975 period (Alam & Rahman, 1993; Nuruzzaman, 2004).
In 1982, an elected government was overthrown by a military coup. The military government ruled the country until 1990. A New Industrial Policy (NIP 1982) was announced in 1982 with greater flexibility to encourage private sector activities and to privatize many more SOEs (Haque, 2002). One of the major features of the 1982 policy was that the government prepared an industrial investment schedule for private sector investment (Reza & Shelley, 1994). A series of economic reform packages were offered under this policy, which included 'fiscal reform, financial liberalisation, and the maintenance of a realistic and flexible exchange rate, together with trade liberalisation, and reduction of government intervention' (Kalirajan & Salim, 1997: 391). In 1986 the same government offered The Revised Industrial Policy of 1986 (RIP 1986) which cancelled the ceiling on private sector investment (Haque, 2002). This policy further liberalised investment procedures and provided increased incentives for local and foreign investment (Reza & Shelley, 1994). In 1989 the government established a Board of Investment in order to coordinate all private sector investment activities. Between 1976 and 1989 a total of 217 SOEs were privatised (Haque, 2002). However, many of these reforms were unable to yield benefits for the Bangladesh economy. This is reflected in the fact that that during the 1982-1990 period, foreign aid dependency reached the highest peak: 60 percent of the country's investment, 85 percent of the development budget, and 68 percent of the commodity imports were dependent on foreign aid (Nuruzzaman, 2004).
The Bangladesh Nationalist Party (BNP) formed government after an election administered by a caretaker government in 1991. The newly elected government announced an industrial policy, the Industrial Policy (IP) 1991. In this policy the government stressed further privatisation and simplified investment procedures in order to promote rather than regulate the private sector (Quadir, 2000). Under this policy the government produced a list of regulated industries, particularly in the areas of the environment and public health, in order to prevent degradation of the natural environment (Reza & Shelley, 1994). These CSR issues public, health concerns and protection of the natural environment, appeared first in the national policy document. Foreign investors were offered incentives, such as tax exemptions on the interest on foreign loans, royalties and technical assistance fees and tax-free import of machinery Additionally, local entrepreneurs were also brought under specific incentive packages (Quadir, 2000). The IP of 1991 significantly rationalised the country's tariff structure and introduced Value-Added Tax (VAT) under a financial sector reform programme to ease regulatory barriers to private sector growth (Quadir, 2000). However, the government's privatisation drive created considerable grievance among SOE employees who feared losing their jobs (Quadir, 2000).
In 1996 the Awami League (AL), the main opposition party, won the election and formed government. This new government legislated the Bangladesh Private Export Processing Zones Act of 1996 in order to attract FDI and encourage the setting up of private sector EPZ, particularly for foreign investors. Later the same government announced the Industrial Policy of 1999. This policy identified the private sector as the predominant factor for Bangladesh's industrial growth and provided incentives for export oriented and export-linkage industries (MOI, 1999). As with the IP 1991, this policy also encouraged private sector investment. In addition, under this policy the government listed a range of industries, such as agro-based industries, computer software and information technology and oil and gas as 'thrust sectors and offered special facilities like tax holidays and venture capital support (MOI 1999). Under this policy, too, the government prepared an indicative list of private sector investment opportunities where the pharmaceutical industry was included (MOI, 1999). The 'thrust sector' strategy, which was to facilitate prospective industries, particularly the pharmaceutical sector, was the distinguishing point of this policy.
In 2001 a political change took place and the BNP returned to power. In 2005, the government announced a new industrial policy, the Industrial Policy 2005, which is still in operation. In this policy the SME sector was given the top priority to strengthen industrialisation. Two of the major objectives of the policy are (i) to acknowledge consumers as stakeholders and their satisfaction as a top priority, and (ii) to extend government assistance to industries producing environmental-friendly goods in order to prevent environmental pollution by the industrial sector (MOI, 2005). As with the contribution of the IP 1999, the government also supported the 'thrust sector' strategy and extended the list to 33 different industries, including the pharmaceutical industry. CSR stakeholders and issues such as consumers and women were recognised in this policy and it further extended government support to environment-friendly industries. However, Asaf (2008) has identified that the present policy is mainly manufacturing-oriented, and that it does not address the needs of the service sector and industrial cluster development adequately; it also lacks a competition policy and overlooks promising emerging sectors, such as shipbuilding, call-centres and electronics.
The caretaker government ran the country for two years (in 2007 and 2008). The country was under emergency rule, all political activities were suspended, and the majorities of political and business leaders were either taken into custody or were in hiding to avoid arrest by the military forces in the name of their anti-corruption drive (Hagerty 2008). During these two years, the country experienced a severe food shortage and price hikes in all essential commodities. This slowed domestic investment, FDI decreased by 4 percent, the trade deficit rose over 150 percent, and a negative growth rate, projected to below 6 percent, reached almost 6.6 percent in 2006 (Momen, 2009; Hagerty; 2008). Moreover, the 'Index of Economic Freedom' of the Heritage Foundation and the Wall Street Journal ranked Bangladesh at 143rd out of 157 countries, which denotes the country's weak position as in a 'repressed category' in terms of investor confidence (Hagerty, 2008). The interim government also prepared a draft Industrial Policy in 2008 with a greater focus on privatisation of SOEs; however, at the end of the day they were unable to make it public (Ahmad, 2009). Contd from page 38
Features of privatization initiatives
In order to carry out privatisation of SOEs, a Privatisation Board was set up in 1993, later renamed the Privatisation Commission in 2000. Up until 2007, 74 SOEs had been privatised by the Commission (Figure 3.2), of which 54 were privatised through outright sale and 20 through offloading of shares (Privatisation Commission, 2008).
To date the government controls and operates 44 SOEs and 200 subsidiary enterprises under 19 Ministries at a huge loss, estimated at more than 2 percent of GDP (Bdnews24.com, 2008). However, following the proposed (now in practice) Industrial Policy 2010, the Privatisation Commission is facing problems in divesting itself of 30 SOEs, which have already incurred losses of around US$100 million (Jamaluddin, 2009). The reason is a significant change has been incorporated in the Industrial Policy 2010. The IP indicates the government will not encourage further privatisation of SOEs but rather will invest more in these to revive them, and even reopen those that have been closed, if necessary (Ahmed, 2009). This seems to be a policy shift compared to earlier industrial policies (Industrial Policy 1982, 1991, 1999 & 2005). It is feared that if this policy comes into force, a clear conflict will arise between the Industrial Policy and the present investment regulations, since these two are not compatible (Ahmed, 2009).
The privatisation initiatives are not free from criticism. Momen (2007) argues that the majority of the SOEs were deliberately privatised to promote vested interests, chiefly those of politicians
Table 3.1: A summary of major industrial policy reforms of Bangladesh, together with major features
and businesspersons, for their own partisan advantage, irrespective of the regime in Bangladesh.
Based on the earlier discussion, a summary of the major industrial policy reforms and their important features are presented in Table 3.1.
Impact of industrial reforms on the national economy
The above reviews emphasise the continuation of policy directions through the last four industry policies (1982, 1991, 1999 and 2005). According to Quadir (2000: 198), in the 1980s and 1990s 'successive regimes have undertaken wide-ranging reforms to create market-friendly governance structures in Bangladesh. Their policies have focused primarily on restructuring the public sector, constructing a strong private sector, liberalising trade and exchange rate regimes, and establishing an enabling environment for private enterprise As a result, the economy has significantly overcome aid dependency (Sobhan, 2007a).
The developments of industrial policies positively contributed to the increase of FDI in Bangladesh. According to the World Investment Report 2009, Bangladesh scored third position among South Asian countries, after India and Pakistan, with regard to FDI inflow (WIR, 2009). The flow of FDI from fiscal year 1996-1997 to 2008-2009 indicates a trend of considerable increase (Figure 3.3). Moreover, in 2009, as recognition of good business practices, three Bangladeshi corporations from South Asia were qualified to be enlisted in the Dow Jones Index (Zaman, 2009).
In a report, the World Bank (2009) stated that in Bangladesh it takes 29 days to start up a new business, which denotes a simplified business environment. The report also indicated that Bangladesh has a better score in the World Bank's 'protection of investors' index at 6.7 in a 0-to-lO scale, suggesting a better position compared to neighbouring India (Figure 3.4). The index considers the transparency of transactions (Extent of Disclosure Index), liability for self-dealing (Extent of
Director Liability Index) and shareholders' ability to sue employees and directors for misconduct (Ease of Shareholder Suits Index).
In 2009, the UNDP report on the global human development index suggested that Bangladesh can be transformed into a medium- developed nation with regard to human development issues, such as higher life expectancy, education, and living standards, and it ranks 146th among 182 countries (UNDP, 2009).
The 2010 Logistic Performance Indicator (LPI) survey of the World Bank identified that Bangladesh is one of the top ten logistic performers in respect of efficiency of port management and is also placed second among South Asian countries after India (World Bank, 2010). Table 3.2 presents Bangladesh's rank and position of LPI as a low-income country.
Table 3.2: Top ten logistic performers in 2010, low-income countries
According to a survey by oDesk Corp, a US-based leading marketplace for corporations and online workers, the Bangladesh capital, Dhaka, ranked third among global cities where online jobs can be outsourced from the West, due to a combination of cheap labour and good English skills (Rahman, 2010a). It may be noted that the labour rate in Bangladesh is the cheapest in the world at approximately US$844 per year or US$2.37 per day (Sarker, 2010).
In 2010, two reputable global sovereign rating agencies, Standard and Poor's (S&P) and Moody's, ranked Bangladesh BB- and Ba3 respectively for the long term, which signifies a stable economy (Rashid, 2010a; Star Business Report, 2010a). These ratings provided global standing for Bangladesh. According to the 2010 S&P rating, Bangladesh is below India but well above Pakistan and Sri Lanka; the BB-ranking is more or less the same as in emerging economies like the Philippines and Vietnam (The Daily Star, 2010a).
In summary, the changing patterns and focuses of the industrial policies emphasise promotion of private sector investment by offering incentives, financial restructuring and denationalisation of SOEs. Bangladesh has significantly grown as an exporter; as exports to EU countries increased by 166 percent from the years 1999-2003. In the same period export of China grew by only 85 percent over the same period (Palit, 2006). However, many of the above policies have 'attempted, without success, to revamp the industrial sector with a view to create a strong manufacturing base in the economy' (NORAD, 2002: 11). These pro-market reforms, carried out either by the civil or military governments, were not for economic growth, but were rather to extend political coalitions with both external and internal key actors (Quadir, 2000). It has been argued that they were carried out because of strong pressure from the IMF and the World Bank, under their structural adjustment programs, particularly those directed towards privatising SOEs in Bangladesh (Chowdhury, 2002). Bangladesh's experience suggests that during these reforms two wealthy groups have emerged, the indenters (merchant agents) and the private importers of foreign goods, which indicates that economic reforms were primarily focused on protecting and encouraging rent-seeking big businesses (Nuruzzaman, 2004; Quadir, 2000). Most notably, while the reform initiatives created competition among businesspersons to establish private sector enterprises, most enterprises concentrated on profit-making by exploiting and manipulating workers and public sector authorities where CSR issues were rarely considered (Hossain, 2004).