Businesses worried over ‘uncertainty’ in Bangladesh’s economic environment

Some 88 per cent businesses from the manufacturing sector and 43 per cent from the service sector have voiced concern over ‘uncertainty’ in Bangladesh’s economic environment due to policy inconsistencies, according to the Business Confidence Survey (BCS) 2022-23.

The survey also showed that high energy and raw materials’ prices, increased transport and shipping charges and unstable banking operations have emerged as concerns for the business entities in Bangladesh.

The findings of the survey were revealed at a city hotel on Sunday. Business Initiative Leading Development (BUILD) conducted the survey in collaboration with USAID’s Feed the Future Trade Activity during the period between September and November last year.

Out of the 567 micro, small, medium and large-sized surveyed entities, 284 firms were from the manufacturing sector and 283 from the service sector while 48 per cent of firms are in Dhaka and 52 per cent are outside Dhaka.

According to the survey, the overall Business Confidence Index (BCI) for 2022 stands at 74.4 per cent, indicating a positive outlook for business conditions over the next six months.

The business entities are confident that the volume of orders for the manufacturing sector, demand for services in the service sector, selling prices, and business activity will increase in the next six months. As a result, businesses are willing to expand employment and boost investment over the same period.

“Insufficient demand and supply, shortage of labour especially skilled labour, lack of appropriate equipment, shortage of materials, space and energy (fuel and electricity), and uncertainty in the economic environment are the main factors for limiting business activity for more than 80 per cent of the respondents from the manufacturing sector.”

The entities have expressed concern over rising cost of business which may hinder the growth of businesses, the report said, adding that business activity, selling price and investment indices are expected to increase over the next six months, but overall confidence on business cost index is expected to have a sharp fall.

The cost pressures in terms of rising global inflation, rising energy, gas and raw materials’ prices, Russia-Ukraine war in this sector are worrying businesses, it said.

The manufacturing sector also achieved a positive score of 78.7 providing an optimistic outlook towards future. AIT and customs duty on import of raw materials are very high.

Expert observations

Unveiling the survey, industries minister Nurul Majid Mahmud Humayun said the survey was recommended by the Organisation for Economic Co-operation and Development (OECD) Statistics Directorate. So, it is an internationally recognised survey.

“However, the cost confidence plummeted to as low as 22.4 over the next 6 months and the government must take this into serious consideration in fiscal and monetary measures,” he added.

The minister said that economic and business experts, academics, think tanks, international organisations, private investors, traders, consumers and the government must work together to address these crises and come up with prudent policies and economic measures so that the country can get prepared to handle and overcome any future economic shocks.

BUILD Chairperson Nihad Kabir emphasised that Bangladesh has experienced a structural transformation from an agrarian economy to the growing dominance of industrial and service sectors.

“With an average GDP growth of over 7 per cent for more than a decade, the country has experienced the Fourth Industrial Revolution (4IR), accompanied by a rapid increase in digitalisation, technological upgrading, a flourishing IT sector, a wider range of products, domestic consumption expenditure, government spending, remittances, and exports revenue,” she added.

She also expressed BUILD’s commitment to continuing to convene, align and advance the interests of the private sector through principled policy work, value-added business services, and broad engagement to drive competitiveness and economic growth in Bangladesh.

“When the world is at the doorstep of another financial crisis, witnessing rising inflation and Russia-Ukraine war, Bangladesh is struggling with shrinking foreign exchange reserves, a growing trade deficit, record inflation and intense energy crisis.”

She said necessary steps need to be taken to look into the reasons for undermining development of the economic zones.

Co-Chair of LIDWC Abul Kasem Khan said policymakers should focus on smart policy initiative to make Smart Bangladesh, replicating RMG success stories for potential export basket, successful utilisation of SEZs and development of logistics infrastructure, skill development, investment incentives, and customs automation for better confidence in business environment.

DCCI president Sameer Sattar said the government should minimise the cost of doing business here. “CMSMEs are suffering from multiple problems. Getting finance is one of challenges,” he added.

Marc Shiman, COP, USAID FtFBTA, expected that the survey would help the government take decision to ensure positive confidence of the entrepreneurs to the domestic business environment.

He thanked BUILD as the integral part of the project that has conducted able advocacy to make the business eco-system more simplified like improvement of the capacity of RJSC&F, logistics and customs process simplification etc.

Martin Holtmann, Country Manager, Bangladesh, Bhutan, and Nepal, IFC said, “We hope that these signs will help the businesses take decisions. We need to be careful about the status quo bias. We need to look at the trends. We need to give voice to voiceless. In this case, they are CMSMEs, especially women entrepreneurs.”

EPB Vice Chairman A.H.M Ahsan said to ensure export diversification as well as to mitigate over-dependency on the RMG sector, several policy initiatives have been taken but we have to go miles to ensure comprehensive export basket diversification.

Survey recommendations

As the cost burden on businesses of the country was most concerning issue, the survey suggested that the government take immediate actions to tackle the cost burden of businesses, particularly in the cost of electricity, water, gas, cost of rent, and cost of materials.

A consumer confidence survey can be conducted to understand the mechanisms of the service sector.

Business entities in the service sector, especially MSMEs, need to adopt modern and cutting edge technology to provide competitive services.

Emerging entities should be encouraged to be more involved with different business associations. Along with modernisation of the business environment, focus should also be given on transformation towards a skilled and modern nation building.

Availing trade licence, certifications are still troublesome for business entities. Necessary steps should be taken to make the process easy and less time-consuming.