Home Bangladesh Industrial sector looms uncertainty
Bangladesh - March 6, 2023

Industrial sector looms uncertainty

Gas -electricity price hiked, dollar shortage

Mahfuja Mukul: The Corona, Russia-Ukraine war and the current crisis in the country have started to have a multifaceted negative impact on the industrial sector. Import costs have increased due to increase in the price of raw materials in the country and in the international market. LCs can’t be opened as the dollar crisis has become dire. This has reduced the import of industrial machinery and raw materials. Due to this, many industries are now on the way to closure. Exports are negatively affected by the global economic downturn as consumer purchasing power declines.
The rate of export earnings has decreased. The cost of the industry has increased due to the gradual increase in the prices of fuel oil, gas and electricity. Meanwhile, the current recession in the country and the increase in product prices have reduced consumer consumption. Due to this, the sale of industrial products has decreased. As a result, there has been a negative impact on the supply of cash in the hands of entrepreneurs. All in all, the industrial sector is facing an uncertain destination. There is no sign that this crisis will be resolved soon.
According to sources, problems existed in various sectors of the economy even before 2020. Three years of global and domestic economic crises have become evident due to the corona infection in March 2020 and the Russia-Ukraine war in 2022. Due to this, the prices of all types of products starting from industrial machinery and raw materials have increased in the international market. This increases import costs. And the price of the dollar increased by about 26 percent. Import costs also increase there.
The dollar crisis has become more pronounced as income falls relative to foreign exchange spending. In the existing situation, the import of industrial machinery and raw materials has reduced drastically. As a result, many industries are now on the verge of closure due to lack of raw materials. There is no sign that the dollar crisis will end any time soon. The Russia-Ukraine war also shows no signs of stopping. As a result, the global crisis is not ending quickly.
Dollar crisis: The industry sector is now beginning to suffer the dire effects of the dollar crisis. The dollar crisis started from August 2021. It became evident in May last year. From July, import restrictions were imposed. Opening of LCs without dollar resources has been stopped since last September. The central bank also stopped the supply of dollars from the reserves to import goods other than emergency goods. In this LC is opened only for export sector and some essential products for remittance money.
Only 20 percent of the total credit of the industrial sector is in the export sector. The remaining 80 percent is in other sectors. 80 percent of those sectors are now suffering from the impact of the dollar crisis. Because, they cannot generate dollars as they do not export. This includes consumer goods, energy and pharmaceuticals. Import LC opening fell by 25 percent during July-January of the current financial year. Imports increased by 3 percent.
Earlier, LC opening increased by an average of 20 percent and imports by 15 to 20 percent. Among them, the LC opening of import of raw materials for export-oriented industries decreased by 35.23 percent, imports decreased by 5.13 percent. Due to this, the export earnings may decrease further in the coming days.
According to data from the central bank report, LCs worth $102 million were opened in January for import of raw materials for export industries. It will decrease further in February and March. $900 million in February and $710 million in March. ‘Back-to-back’ LC debt for import of raw materials for export industries could reach $2.63 billion in January-March period. Of this, 47 percent foreign currency is held in Nostro Accounts, Offshore Banking Units and Foreign Currency Clearing Accounts.
The remaining 53 percent of the money has to be raised by own initiative. As a result, there is a dollar crisis. Earlier, there was some surplus by importing raw materials in exchange for exports.
Now that is no longer the case, on the contrary exporters also have to take loans in foreign currency. As a result, industrial and commercial imports now rely only on remittances. Recession is going on in this sector as well. Remittances fell by 15 percent in the last financial year. The central bank has predicted that only 4 percent may increase on that deficit in the current financial year. At the same time, overall import LC opening may also decrease to an average of $421 million in February-March.
In this context, the Executive President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Mohammad Hatem said, the impact of recession has started to fall to a greater extent now. Export earnings and new orders are trending down. Due to the increase in gas and electricity prices, the cost has increased. Now survival has become difficult.
From the report of Bangladesh Bank, apart from export, there is a shortage of raw materials in other sectors of the industry. Many firms import intermediate raw materials and manufacture finished products. LC of these raw materials decreased by 33.30 percent, import decreased by 18.56 percent. Among them, the import of heavy industry raw materials like rods, steel has decreased by 70 percent, LC opening has decreased by 60 percent. As a result, these industries are now suffering from shortage of raw materials. Import of pharmaceutical raw materials decreased by 12 percent, LC decreased by 22 percent.
Production decreased: From the report of Bangladesh Bureau of Statistics (BBS), it can be seen that the index of industrial production increased by 506 points in September of the last financial year. It increased by 496 points in September of the current financial year. Production fell in six of the 11 major industrial sectors during that period. Production increased in 5 less important sectors. Out of this, clothing sector has decreased by 2.21, textile sector by 3.60 percent, food by 8.25 percent, non-metallic mineral products by 2.08 percent, chemical products by 50 percent and metal products by 16 percent.
Apart from this, there has been an increase of 1.37 percent in medicine, 26 percent in leather, 20.5 percent in basic metal, 0.69 percent in tobacco and 5.29 percent in other industries. In small scale industries, production decreased by 10.32 percent in July-September of the current fiscal compared to April-June of the previous fiscal. However, production has increased by 7.42 percent as an average of seven months of the current financial year.
Industrial costs rise, consumer incomes fall: Rising dollar, raw material and gas-electricity prices have increased production costs. Due to this, the price of the product has increased. From June of last year to last February, the price of gas was increased by 100 to 300 percent in two rounds, the price of electricity was increased by 15 percent in three rounds, and the price of fuel oil was increased by 42 to 52 percent in one round. With this, the price of everything has increased. As a result, the production cost of the industry increased and the price of the product increased by 15 to 50 percent.
Meanwhile, in the economic recession, the income of the consumer has decreased, and the expenditure has increased. According to BBS, the expenditure increased by 8.5 percent. Revenue increased by 7 percent. Income is less than expenditure by one and a half percent. As a result, consumers are forced to cut back on demand. This has affected the buying and selling of food, industrial and luxury goods. Entrepreneurs are not able to sell their products.
In this context, the sources of the National Small and Cottage Industries Association said that the small industries are now flourishing. Sales of products have decreased. As a result, they have also reduced production. There has also been a lot of layoffs in this sector. An initiative has been taken to conduct a survey on the impact of recession. This will reveal the real situation.
Loan Disbursements Decreased: Term and current capital loan disbursements to the industrial sector increased in terms of rupees. But in dollar terms it has decreased. A large part of the credit to the industrial sector is spent on importing machinery and raw materials. These require dollars. As a result, lending in dollar terms has actually reduced lending to the sector. Disbursement of loans to special import and export sectors increased by 19 percent in rupee terms but decreased by 6.5 percent in dollar terms. Because, the rupee has depreciated by about 26 percent against the dollar in the last one year. As a result, the price of the dollar has increased, the value of the rupee has decreased.
Term loans in the industrial sector were disbursed in July-September of the last financial year to the tune of Tk 42,000 crore, compared to Tk 52,000 crore in the same period of the current financial year. Loans increased by 23 percent during the period under discussion. A large part of this is the increase in overall debt with interest due to non-payment of previous loans. Due to corona and global recession, big concessions were given in repayment of loans in this sector in the last three years. As a result, new loans disbursed are very low.
Meanwhile, current capital debt has decreased by about 20 thousand crores. Meanwhile, the level of outstanding loans in the industrial sector continues to rise. In September 2021, the arrears were Tk 47 thousand crore, last September it increased to Tk 54 thousand crore. Due to non-payment of loans, the default status in this sector is increasing, which is increasing the non-performing loans in the industrial sector.
In July-December of the last financial year, the credit flow to the non-formal small-scale industries in villages increased by 45 percent. It has decreased by 6.61 percent during the same period of the current financial year. Till December of the last financial year, the outstanding debt in this sector was 6 thousand 932 crores. Now it has increased to 7 thousand 212 crores.
Inflow of money and increase in dollar price, industrial machinery LC decreased by 66.83 percent, imports decreased by 7.5 percent. Miscellaneous industrial machinery LC decreased by 44.45 percent, imports decreased by 23 percent. As a result, the pace of setting up of new industries also slowed down.
Foreign direct investment (FDI) came in at $112 billion in July-December of the last financial year. $115 million have come in the same period of the current financial year. Although investment increased slightly, most of it was made from the profits of companies acquired in the country. As a result, new investment has come very little.
After Corona, the government launched the start-up fund to give loans to small entrepreneurs to start new businesses in a grand manner. Investment in this sector has decreased by 74 percent in the last one year. In 2021, the investment in this sector was $41.5 million. Last year it decreased to $100.9 million.

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