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Capital machinery, goods imports drop in FY23

Arifur Rahaman Tuhin
21 Aug 2023 23:59:39 | Update: 22 Aug 2023 00:07:15
Capital machinery, goods imports drop in FY23

Md Khosru Chowdhury, an entrepreneur, planned to invest Tk 1,000 crore to set up a fibre factory--Hasin Eco Textile--at Kawraid area in Sreepur upazila of Gazipur district last year. Though he has already invested Tk 30 crore to build infrastructure, he is yet to open letters of credit (LCs) to import machinery. He had plans to open LCs in last December.

“The ongoing global economic headwind has severely hit my business, creating fear to open LCs. As a result, the construction work of the factory is going on at a snail’s pace. But I have to pay back the loan with interest by installments as I took out the loan to set up infrastructure,” Khosru Chowdhury, also Managing Director of Nipa Group, told The Business Post.

“LC worth nearly $40 million is likely to be opened this September. Besides, I have to import huge capital goods, and the LCs will be opened this year,” he added.

MB Knit Fashion also planned to expand their factory and set up a dyeing unit last year. But the plan is yet to be executed due to the ongoing global economic crisis and political instability.

Company’s Managing Director Mohammad Hatem said, “I made the plan two years back. Because of the ongoing economic and political crises, I could not take the risk.”

For the global financial crisis and political instability in Bangladesh, entrepreneurs, like Khosru and Hatem, fear expanding their business or setting up new venture. The downward trend in investment was visible in LCs opening for capital machinery and goods import and private credit growth rate indicators in the last fiscal year.

The country faced such a situation at a time when exporters earned $55.55 billion in the last FY with a 6.67 per cent year-on-year growth. The country earned $46.99 billion from RMG exports as the value addition of the readymade garment sector was 65.97 per cent.

Industry insiders said that a good number of machinery was imported in the last fiscal year and most of the LCs were opened in FY22. Even the LCs opened in the last FY, the majority of them were opened in the first half of fiscal year 2022-23. They see no possibility of big improvement in the situation this fiscal year too.

Commenting on the issue, Bangladesh Textile Mills Association (BTMA) President Mohammad Ali Khokon told The Business Post, “RMG and textile industry are major private investment sectors in Bangladesh and these are also largest capital machinery importers. Due to the ongoing economic crisis, a few entrepreneurs invested last fiscal year.”

“This happens because the country is facing forex reserves crisis, which creates tougher situation to open LCs. Besides, due to devaluation of taka against USD, LC price was also raised.”

The BTMA president said, “While the government should encourage investment, a lot of barriers are created there, which discourages investors. Fuel and gas price went up significantly, and the interest rate also increased.

“All are barriers to ease of doing business. That is why capital machinery and goods import has declined as investors are investing less,” he added.

LCs opening scenario

According to the Industrial Police, the country has more or less 9,000 small, medium and heavy manufacturing factories in operation. The factories in Dhaka metropolitan are not included in the list. Besides, hundreds of cottage and micro category factories are in operation in the country, though their investment is also limited.

In fact, most of capital machinery and goods are imported for small, medium and heavy industries. Private credits are also distributed among entrepreneurs. Among these, apparel and textile sectors and other backward linkage industries hold a major share.

The central bank data showed that LCs worth $4.85 billion were opened for capital machinery import in the last FY. It was $5.46 billion in FY22 and $3.03 billion in FY21. In the previous fiscal year, entrepreneurs opened LCs worth $8.73 billion to import capital goods, and the figure was $10.97 billion and $9.19 billion in FY22 and FY21 respectively.

The data also showed that in the last fiscal year, private credit growth was 10.57 per cent year-on-year, which was 13.66 per cent in FY22. The growth rate was 8.35 per cent in FY 21.

Industry insiders said that considering the ongoing global and domestic high inflation and depreciation of taka against USD, LCs amount and private credit growth should be increased in the last fiscal year. But the central bank data showed that the country’s businesses were not in good position.

Despite the negative scenario of the private sector investment, some companies, including DBL Group and Indet Group, are continuing expanding their business as they are expecting a bright future in the upcoming days.

Both groups continue their business expansion and expecting that business is likely to turn around next year and they want to cash in on the opportunity.

“We are investing in several sectors in the country’s private sector such as textile, ceramics, and pharmaceutical apart from nearly $650 million in Sreehatta Economic Zone. The work of the project involving nearly $800 million is going on despite the economic crisis,” DBL Vice Chairman MA Rahim said.

 “This is a very big challenge to continue making investment at this crucial moment, but we are looking for the upcoming days. Our forecast and buyers said that business will turn around in 2024, and we are getting ready for the time.”

Indet Group Managing Director AL Shahriar Ahmed said, “I am setting up an industrial park with green concept, and all construction works are continuing despite the ongoing economic headwinds. I have already opened many LCs, and some will be opened this year.”

“I believe that the tough situation is a regular issue in business. But to retain buyers’ faith and make competition to the competitor, I always have to adopt latest technology and develop my business. I am just doing for this.”