Home ›› 25 Feb 2023 ›› Editorial
The 8th five-year plan (FYP) has identified seven pivotal themes as the strategies for accelerating pro-poor inclusive growth. These are--promoting labour-intensive, export-oriented manufacturing-led growth, agricultural diversification, dynamism in the cottage, micro, small and medium enterprises (CMSMEs), strengthening the modern services sector, pushing exports of non-factor services, promoting ICT-based entrepreneurship and strengthening overseas employment.
Along with export-oriented textiles and RMG, the 8th FYP has also emphasized non-RMG sectors such as; processed food, leather and footwear, light engineering, and pharmaceuticals. All these sectors have unique characteristics and thus need a special type of policy support to flourish.
Light Engineering (LE) is a burgeoning sector adding to export, creates new employment, contributes 3 per cent to the GDP, and can increase by at least 10 per cent if planned strategies are implemented for diversification, new product development, market development, and market development penetration. LES is one of the SME-driven sectors; about 50,000 micro-enterprises and 10,000 SMEs are involved, creating employment of about a million. There is an investment of about $15 billion; 34 LE clusters in 18 districts are working independently. Almost 90 per cent of raw materials are sourced from the ship-breaking industry, an important linkage sector in the country. Producing about 50 per cent of spare parts for the industrial sector, the rest are imported mainly from China and India.
They supply over 10,000 different types of quality machinery, spares, accessories, and other products.
Nevertheless, against about $7 trillion global market, Bangladesh exports only $795.63 million (FY21-22) while import is about $1.3 billion (FY20-21). Bangladesh enjoys duty-free and quota-free market access to China, India (excluding iron and steel products, copper products), and GSP in Japan, Singapore and USA etc. All of them are import-sourcing countries. It is seen that these five countries imported about USD 2.51 Trillion in the same year. In all these countries, Bangladesh has market access; if we can grab at least 1% of their import, export can be increased to about USD 25 billion. At the moment, we have limited foreign investment and FDI. If we need to exploit these markets, we need to adopt modern technology to improve the quality of products and conform to the standards set in these countries.
Light Engineering Policy 2022 by the Ministry of Industries (MOI) announced 11 strategies with time-bound action plans. There is a Council that will meet every after six months for monitoring the Action Plan (APs). There is a 23-Member Parishad to report to the Council about the implementation status of the APs-a meeting that is supposed to be held on December 29, 2022. In a recent meeting held in MOI while BUILD was presenting an analysis of the policy, industrial entrepreneurs referred that for implementation of each policy, there should be a budget; otherwise, how the activities announced in the policy will see the performance.
There are 9 objectives on which identification of products and services ( 2022-25), Capital Machinery of international standard, Tax and financial incentives, Cluster development, 4IR(2022-23), Branding(2022-25), R&D, Market expansion, uniform platform(2022-27)) are included, time-bound Action Plans needs to be well-aligned with the objectives.
On a specific infrastructure development support strategy, stakeholders requested separate one-stop services (OSS) for LES. BSCIC will provide industrial sheds. However, what will be the price of the land?
If it is more than the market price, small entrepreneurs will not be able to afford it. Separate strategies are mentioned for ensuring ICT facilities and support services for e-commerce through A2i. It is reported that ICT Business Promotion Council (IBPC) has already been working and they are now establishing a digital platform for small and marginal entrepreneurs where light engineering can be included. In that respect full coordination among different ministries in providing support services can play a pivotal role.
Introduction of 4IR for the LE Sector, technology balancing and some other fundamental issues have been included in the policy and emphasis has been given for skill development. Japanese investors are showing interest in Bangladesh, however for them locating skilled manpower is a problem, in that respect human resource development in collaboration with the Japanese government as has already been raised in the 4th Public Private Economic Dialogue (PPED) can get similar emphasis in the upcoming 5th PPED.
The bicycle manufacturing sector is emerging in the country. Japanese investors have found LES as one of the potentially labour-intensive sectors, support can be sought to explore potentials in this sector to establish some Vendor Industries to produce important spare parts of bicycles such as; break sets, derailleurs, chain sets, freewheel/ hubs and some other high-value parts in the bicycle industry. These will add value to the sector and reduce import dependencies. Welding is an important segment for the frame assembly stages of the production of bicycles as well as other industries in the LES. Training & skill development programs for welders in different areas can be helpful. Technology for MOULD making is another important area that can get support.
There is a specific strategy for entering national and international markets through intermediate goods – these goods need to be identified. For establishing metal research labs in various technological institutes, Bangladesh Small and Cottage Industries Corporation (BSCIC), Bangladesh Industrial Technical Assistance Centre (BITAC) & Bangladesh Standard and Testing Institute (BSTI) are the lead agencies. In this case, the Bangladesh University of Engineering and Technology (BUET) can also be included. On the other hand, MOI and the Ministry of Finance (MOF) can also work together to form a Research and Development fund.
There is a need for an industrial cluster development policy by SME Foundation. We learned that they are preparing a cluster development guideline to help further cluster development. For establishing a common facility centre, the Ministry of Commerce (MOC) and Export Promotion Bureau (EPB) can be added to the action plan to work with BSCIC and BITAC.
To get funding from Green Transformation Fund (GTF) and the refinancing scheme, LE entrepreneurs need to prepare to meet the conditionalities of Bangladesh Bank. Most of the industries in the LES are small-scale in nature. For them, the idea of Green Factories is limited and continuous support and technical assistance is required in that respect.
Some LEI are enjoying conditional tax holidays for 10 years, such as: agricultural machinery manufacturers, manufacturers of basic components of electronics, bicycles including parts thereof, boilers including parts and equipment thereof, electrical transformer and automobile parts and components thereof for commercial production in some specific areas (Reference: Income Tax Ordinance 1984, section 46 BB). Export subsidies at different rates, such as; a 15 per cent export subsidy for export, 4 per cent export subsidy on locally produced bicycles and parts, 10 per cent on locally produced motorcycles, 15 per cent on accumulator batteries, 10 per cent on motorcycles, and 4 per cent on locally produced MS steel products (Reference: FE Circular 26; September 19, 2022) are allowed.
These subsidies cannot be extended after graduation, so we need to start thinking of alternative non-actionable subsidies such as; such as; utility bills, bank interest rates, logistics support etc. Better R&D support for firms and higher education for research (75% of the costs of individual research, 50% of the costs of pre-competitive development activities), instruments and equipment, cost of consultancies, assistance to disadvantaged territory etc, are some allowable subsidies that can be extended.
There is a mention of the definition of the LES, which needs to be much clear, covering Original Equipment Manufacturer (OEM), Original Design Manufacturer (ODM), and Intermediate Component Manufacturing (ICM) for Branding. Bangladesh would need to develop a design to manufacture and sell its products. We need to transform the LES sector to the next height so that more value-added products and precision products can be produced in the country.
That compliance and standard will be ensured has been mentioned as one of the strategies. Who will be in charge and who will provide them incentives, what type of incentives will be given needs to be cleared. The light engineering policy is aligned with other policies; however, for attracting FDI, no special provision has been mentioned, and technology transfer has been identified as one of the constraints.
Duty on imported raw materials and finished products needs to be rationalized. As per import policy 2021-24 telegraphic transfer (TT) export of up to five lakhs USD is allowed, the sector can avail these benefits as like as RMG. Re-skilling and up-skilling programs can be undertaken based on local needs. Reducing costs and lead time and improving port facility - rationalization of tax structure; Bonded ware House facilities are some other policy support.
Specific GDP targets for the sector, year-wise export targets, and employment targets can be set to achieve the mission and vision of the policy. Studies on market size, infrastructure quality, political/economic stability, tax policies, patent registration, judicial systems, etc. are important for attracting FDI. To ensure large-scale investment in the LES, we need to sign bilateral trade agreements, regional agreements, and free trade agreements with potential countries. While analyzing the policy, a thorough revamping is needed to see a breakthrough in the sector.
The writer is CEO of BUILD a Public Private Dialogue Platform. She can be contacted at [email protected]
