In quest of capital

Abu Ahmed

Photo: Wahid Adnan/Driknews

Not long ago Bangladesh capital market was seen by policymakers as being non-existent, controlled by the unscrupulous brokers. But a sudden change came about in the last few years, with reform programmes put in place mostly on the insistence of the donor agencies like ADB. The policy makers, both in the finance ministry and elsewhere take this market seriously and offered many fiscal concessions.

Income from capital gains out of stock investment was declared totally tax-free. A 10%, corporate income tax commission was given to the listed companies. At times, the so-called black money was allowed to be invested in the capital market without any question. As the time passed, lacs of middle class urban investors poured into capital market as investors. They number now at 32 lacs and the number is growing everyday. Brokers, who facilitate the buying and selling of stocks, took their businesses to the doorsteps of the potential investors. A surge took place in the recent months in the place of stocks. But the regulator, the Security and Exchange Commission, did not like the recent un-explained surge in the stock prices. It put so many barriers in the way of price surge, but could not attain much. The simple reason was that demand for stock, some from the newly-entered investors simply overtakes the limited supply of stocks.

In this case, government could have filled in the gap, but unfortunately it failed to keep up with stock sale from its SOEs. Many a times, government promised to sell stocks from the SOEs, but every time it failed to materialise the promise.

How much, the Bangladesh capital market can supply capital to finance a project?

Photo: Wahid Adnan/Driknews

The answer is one thousand crores of taka. Any medium size power project can easily be financed through Bangladesh capital market. The stocks of power project, which are already listed are being sold at a huge premium, Grameen Phone, the largest company in the Bangladesh economy, easily got all the money from the market through IPO floatation. We believe the other Cellular Telephone Companies will come to market simply to take advantage of tax commission. The other infrastructure related projects like ports and bridges are still in the government hands. But the government seems to do not get a way out to raise the capital for the projects. The reasons are either ignorance or it does not serve somebody's personal interest. All the ports and big bridges can be invested in the Public Limited Companies (places) and can be sold through stock exchange to the people.

If government changes its course, we believe this economy will grow beyond 7% per annum. Regulatory frameworks are still weak. The Securities & Exchanges Commission was not properly staffed and equipped. Many aberrations are taking place everyday which are knocking the ordinary investors down. Some entrepreneurs play foul game while trying to sell shares of their companies. Stocks are routinely coming to the market at an overvalued rate. How long this can go? Where supply will match the demand, things will much improve. We urge all regulators to keep eye and ear open while they oversee the market as well as permit fresh capital issue. If we on our own drive the investors out of market, it will take a long time to bring them back. And the economy will lose and the opportunity to transform into a higher economy growth path.

The writer is a Professor of Economics of Dhaka University.