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Corporate - December 12, 2023

Industry sector collapsing for high production costs

Zarif Mahmud: One of the driving forces of public life is the skyrocketing price of electricity and gas. A large part of the country’s economy is controlled by these two affiliates. With this, the import of capital equipment is almost at a standstill due to the dollar crisis for a long time. Due to these reasons, the cost of the industry is increasing. Production is decreasing.
On the other hand, the garment sector, the main source of export income of the country, is facing the threat of sanctions from the United Nations, the United States, the EU, and the United Kingdom. Industrialists are also apprehensive about getting new export orders. All in all, there are clouds in the sky of the industry now. The more this cloud grows, the more danger will be happened. It will affect the overall economy.
According to sources, there is no import of capital equipment due to the dollar crisis. Although some are imported, that too for government needs or certain groups. The situation is also indicated in the ports. The jetties of Chittagong, the main seaport of the country, are often empty. There is no cargo congestion at the port. There is no shipping. But earlier there were at least half a hundred ships in the outer anchorage of the port. The ship had to wait two to five days for the goods to be cleared. Now that image does not exist.
Bangladesh Bank has brought the import activities under control for a long time due to the dollar crisis. There are restrictions on the import of luxury goods. Import of industrial products is also on the way to stop due to dollar crisis. Businessmen say that the bank is not able to supply one-third of the required dollars. Due to this, the import of raw materials has decreased. Reduced capital equipment. The number of cargo ships has also decreased.
Humayun Rashid, Chief Executive Officer (CEO) and Managing Director of Energypack said, due to the dollar crisis, dollars are not available anywhere at the officially fixed price. Banks are demanding up to 130 percent cash margin for opening multimillion dollar LCs. He said, when an industry is consistently making losses, it is no longer affordable to provide LC margins at such unprecedented rates.
Research director of private research institute CPD Khandaker Gholam Moazzem said that there is no growth in exports due to the stop of import of capital equipment. Business expansion is decreasing due to electricity, gas price increase and dollar crisis. Many industries are on the verge of closure. Industrialists are facing various threats. In the future, the growth of industrial production, exports and employment may be stagnated.
FBCCI President Mahbubul Alam said that the industry of the country is going through a transitional period. Businessmen have to deal with global recession on one side, political crisis and dollar crisis on the other side. Along with this, there is an additional cost of gas and electricity. Many factories have already closed down. If this situation continues, many factories will be closed. Thousands of workers will be unemployed.
Export orders fall
The country’s garment industry is going through unrest due to various reasons including labor movement, protests, vandalism, arson, workers killed for the demand of minimum wages. Meanwhile, in November came news of the cancellation of an order to export clothing to Canada. Which has an impact on garment exports in the recently concluded November month. Apparel exports fell by 7.45 percent in November compared to the same period last year. 82 percent of Bangladesh’s export earnings come from garment exports. According to the Export Promotion Bureau (EPB) data, the export of ready-made garments in the outgoing financial year earned $42.61 billion. It is about 82 percent of the total export earnings. On the other hand, 62.88 percent of the export market is concentrated between the European Union (45.42 percent) and the United States (17.46 percent). Garments are also exported to Australia, Canada, UK. But after the implementation of the new labor policy in the United States, there is a fear of trade restrictions in Bangladesh.
Not only that; Cariban, the French buyer of ready-made clothes, has given a condition not to take the ordered products or not to pay the money if it is faced with the US sanctions. Last week, new conditions were given in the case of LC of Net Concern factory in Narayanganj from a French buyer organization called ‘Kariban’. In the LC, it is stated on behalf of the buyer, ‘We will not do business with any country, region or group under the sanctions of the United Nations, the United States, the EU and the United Kingdom. I will not take responsibility for any kind of delay, incapacity or disclosure of information.’ Although it has been said by BGMEA, the buyer company has withdrawn the restriction-related conditions included in the clause of the loan.
Industry owners are worried
Entrepreneurs are extremely worried about rising cost of production in industries. BGMEA President Farooq Hasan said, abnormal increase in gas and electricity prices, dollar crisis is on the way to stop the import of raw materials. The prices of yarn and cotton have increased at an unusual rate in the international market. Due to which the cost of production is also increasing. However, the factory owners are in trouble as the buyers do not increase the prices accordingly. Many have already closed factories. Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Executive President Mohammad Hatem said that due to multi-faceted crisis including increase in production cost, the industries will have a difficult time in the next few months.
Imports of capital machinery down
Entrepreneurs set up new factories or expand factories, usually by importing capital equipment. As a result, if the import of this product increases, there is a possibility of increasing investment in the country. And if investment increases, new jobs are created. As a result, the overall economy becomes dynamic, which has a positive impact on economic growth. 10 new textile mills were supposed to start production this year. Entrepreneurs have invested about four thousand crore rupees in this. Hundreds of thousands of people are expected to get new employment. Accordingly, the import of capital equipment is expected to increase in the country. But the opposite appears to be the case.
Bangladesh Bank has brought control in import activities to prevent dollar crisis. Commercial banks are strict in opening loans. Fears of a global recession are also intensifying due to the Russia-Ukraine war. Therefore, many of the businessmen are not taking any new initiatives including new projects of industrial establishment, business expansion, renovation. Due to this, the rate of import of capital equipment is gradually decreasing.
Looking at the figure of import of industrial capital equipment gives an idea of the situation of new employment and business expansion. Imports of capital equipment have been falling for months amid the dollar crisis. Its LC settlement fell 41 percent to $830 million in the first four months of the current fiscal. In the first three months there was a decrease of 39.72 percent.
According to the data of Bangladesh Bank, during the period from July to October, a total of $2,182 million of import LCs were opened. And $2,197 million have been settled. LC openings have decreased by 11.52 percent compared to the same period last year. The settlement has decreased by 24.07 percent. In FY 2022-23, imports fell by nearly 16 percent to $7,506 million.
Imports of capital equipment fell the most. The second highest decline was industrial raw materials. Its LC settlement fell 36 percent to $6.91 billion in the first four months. Consumer goods LC settlement fell by over 24 percent to $217 million. Petroleum’s LC settlement fell by nearly 15 percent to $3.31 billion. Intermediate goods fell by around 12 percent. LC settlement of other products fell by over 13 percent. Those concerned said that despite various initiatives to overcome the dollar crisis, not much work is being done. Foreign exchange reserves fell to $16 billion in the IMF’s accounting system. Imports are declining overall. There are various regulatory measures on imports to prevent a fall in reserves. Besides, due to the overall situation, new investment is not happening. As a result, it has an impact on industrial and investment related imports.
Production decreasing, factories closing
Unable to keep up with the times, factories are being closed one after another in Narayanganj, Gazipur, Savar and Chittagong. It is being informed that it is not possible for the authorities to run the factory due to the inability of the workers to provide work as they are unable to collect work orders despite their best efforts.

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