Home ›› 18 Mar 2023 ›› Front
A number of trading companies are looking to import daily necessities through letters of credit (LCs) opened in third countries by intermediaries to meet the increased demand during Ramadan.
Several companies have recently applied to the commerce ministry seeking approval to import wheat, pulses, sugar and other food items worth millions of USD without having to open LCs in the country, according to officials.
Two of the companies – RH Trading and MR Trading – have applied for imports worth $24 million. The move comes as a prolonged dollar crisis is making it difficult for many importers to open LCs in the country.
Tapan Kanti Ghosh, senior secretary of commerce ministry, told The Business Post recently, “As per the import policy, industrial entrepreneurs producing processed products including edible oil have the opportunity to import raw materials without LCs.
“Various business organisations are now applying for imports through LCs opened in third countries. The applications from traders are being reviewed,”
“Those submitting applications along with proof of sale and purchase agreement will be considered. The ministry has cautioned against applications without due process and credentials,” he added.
Tapan also said the ministry has informed the Bangladesh Bank to take action on these issues.
LC-opening crisis
In the last three months of last year, the USD-crisis led to a decrease in the opening of letters of credit (LC) for imports of daily commodities.
According to Bangladesh Bank (BB) data, LC opening declined by 22.5% during July-December of 2022 compared to the same period a year ago.
Last January, in such a context, so that there is no shortage of daily commodities in the market during the coming Ramadan, the Ministry of Commerce wrote to the governor and requested to reserve the dollar quota for opening the credit for the import of daily commodities.
In view of that request, Bangladesh Bank has given instructions to four state-owned banks to help traders to open letters of credit for the import of daily commodities during Ramadan.
Due to the dollar crisis, traders are not being able to open letters of credit for the import of goods. Many are also complaining that they are failing to unload goods from the ships as LCs are not being settled.
According to Bangladesh Bank data, in the last quarter of 2022, the opening of LCs for importing raw sugar during October-December has decreased by 28 per cent compared to the previous year.
Also, during the period, LC opening for the import of crude soybean oil has decreased by 47 per cent, soybean seed by 83 per cent, crude palm oil by 99 per cent, chickpea by 47 per cent and dates by 30 per cent during the period.
A decrease in the opening of import credit means that the import of goods in the country will decrease, which will ultimately lead to shortage of products in the market. Some products in the market are already showing that effect.
There has been a shortage of sugar in the market for several months.
To tackle the situation, in last month’s task force committee meeting on commodity prices, Senior Commerce Secretary Tapan Kanti Ghosh announced that facilities will be provided to traders for the import of goods without LCs to keep the prices of daily commodities bearable during Ramadan.
Following his announcement, several companies have applied to the ministry seeking the opportunity to import products without LC.
“The Import Policy Order allows traders to import a limited amount of daily necessities without having to open an LC in the country. Any import above that limit would require an approval of the commerce ministry. This is generally common practice,” a senior Bangladesh Bank official said in condition of anonymity.
However, the official added that there is no alternative to open LCs in case of large scale import of goods. Importing goods worth millions of USD without LCs not only increases commercial risks but also increases the risk for USD laundering.
Importing through third country LCs
As per the Import Policy Order, industrial sector importers can import raw materials, capital machinery and fire doors for their own factories and commercial importers can import any product worth $0.5 million per annum from Bangladesh without an LC.
Besides, the current import policy allows import of food items worth up to $50,000 per shipment through Teknaf Customs Station without needing an LC. Other land routes can import $10,000 worth of food items.
Also, essential food items can be imported through purchase or sale agreement without letter of credit irrespective of the price limit for import.
On February 28, RH Trading, a subsidiary of BD Thai Food & Beverage Limited, applied to the commerce ministry seeking permission to import lentils and chickpeas, double dal, sugar and other food items worth $7 million without having to open an LC in the country.
The company wants to make the import through an LC opened in a third country.
In its application, RH Trading said there is an acute shortage of essential food items and US dollars across the globe owing to the impacts of the Covid-19 pandemic and the Russia-Ukraine war. This has also impacted Bangladesh.
“RH Trading is keen to import products through third country LCs to meet the increased demand of the upcoming Ramadan,” it added. The trading company had previously applied to the ministry seeking permission to import 12,500 tonnes of sugar at a cost of $5 million.
In that application, RH Trading said it sought the opportunity to import products without LC on the condition that it will supply sugar to the market after meeting its own needs.
The company said instead of opening an LC in Bangladesh, they will import goods through an LC opened with a bank in Hong Kong by a third party intermediary. The third party company that will open the LC is based in Dubai. The importer will sell the sugar in the domestic market and the proceeds from the sale will be credited to the Dubai based company’s account.
Meanwhile, MR Trading, a subsidiary of Deshbandhu Group, has applied to the commerce ministry seeking approval to import 30,000 tonnes of wheat at a cost of $12.6 million without opening an LC locally.
In its application, MR Trading said they will import wheat through a Dubai-based company called Al Kairouan Jesarel Trading. They want to purchase the wheat both through a letter of credit and without a letter of credit under a deferred payment facility of 90 days.
According to ministry sources, another company named Rose Valley wants to supply 50,000 tonnes of sugar to the Trading Corporation of Bangladesh (TCB) under the deferred payment process, though the company will import the product from Brazil through LC.
In its application to the commerce ministry, the trading company said it will be able to supply per tonne sugar at the rate of Tk 92,000 after paying all types of VAT and taxes.
According to the Bangladesh Trade and Tariff Commission (BTTC), the country has an annual demand of more than two million tonnes of edible oil, including soybean and palm oil. The demand for edible oil in Ramadan is about 3.5 lakh tonnes.
The annual demand of sugar in the country is about 2.4 million tonnes, while 3 lakh tonnes of sugar is required for Ramadan. The demand for dates in the country is 1 lakh tonnes throughout the year, and 50 thousand tonnes in Ramadan.
The annual demand of lentils is 5 lakh tonnes, and the demand during Ramadan is 80,000 tonnes. The annual demand of chickpeas is about one and a half lakh tonnes, and the demand during the month of fasting is 80,000 to 90,000 tonnes.
