Bangladesh counts cost of rejecting billion-dollar investments

Bangladesh has cancelled four billion dollars worth of foreign projects in moves analysts warned Sunday could deter overseas companies from investing in the impoverished country in the future.

Analysts said political jitters ahead of national polls in January were partly behind the government's shelving on Wednesday of a 1.4-billion-dollar plan for an open-pit mine by London-based Asia Energy.

The announcement came less than two months after India's Tata Group was forced to suspend a three-billion-dollar plan to invest in steel, power, coal and fertiliser operations.

Ministers told Tata executives that political sensitivities in the run-up to the elections would make it tough for Prime Minister Khaleda Zia to approve the plan. Anti-Indian sentiment is strong in Bangladesh and political parties fear being seen courting the country's powerful neighbour.

"These two decisions say to investors that Bangladesh is a country where investment can be subject to irregularities. It says there is a chance a government may not have the political capital to conclude a deal," said Zafar Sobhan, a columnist with the English-language Daily Star.

After five days of violent street protests, the government bowed Wednesday to demands to scrap the mine in northern Phulbari which demonstrators claimed would damage the environment and displace 100,000 people.

A government spokesman vowed it would "never honour" its contract with Asia Energy despite a minister declaring days earlier there was "no way we will cancel the agreement".

Asia Energy, which has already invested 24 million dollars, had offered to compensate those affected by the project, and stressed its impact was much less than protesters claimed. It said it is still waiting for clarification from the government on the decision.

As a result, companies would think twice about investing in Bangladesh, said Debapriya Bhattacharya, executive director of the independent Centre for Policy Dialogue think-tank.

"If we cannot utilise the investment and if it leaves the country, in the medium term it may give negative publicity to the climate of foreign investment," he said.

Both abandoned projects would have produced fuel to generate much needed power in the country, a World Bank official said.

The World Bank estimates Bangladesh needs 10 billion dollars in investment within 10 years to reduce massive power shortages holding back economic growth.

The official, speaking on condition of anonymity, said the government's handling of the Asia Energy affair would cause investor concern.

"Without a doubt what happened with Asia Energy will have an impact on companies thinking of investing (here). The government could have handled this more properly," he said.

Other analysts speaking on condition of anonymity said it was not clear if corruption played any role in the unravelling of the two deals.

The Daily Star's Sobhan said governments and voters in future needed to compromise in attempts to boost economic growth that could lift millions out of poverty. Despite annual growth of more than five percent since the early 1990s, nearly half the 144 million population lives on less than a dollar a day.

"Industrialisation does not come without its costs. It can mean pollution. It can mean relocation of communities," he said.

"It also means getting gas and coal out from under the ground and using them, even selling them, instead of just sitting on them."

--AFP