Omicron may hit business confidence and economic recovery : Survey

Staff Correspondent:The new wave of Covid-19 pandemic is likely to shake the confidence of the country’s business sector as it started recovering from the earlier shocks, according to survey by South Asian Network on Economic Modeling (SANEM).
The overall business confidence in January-March 2022 faces decline in comparison to the October-December 2021 quarter, said the findings of the survey released at a webinar in Dhaka yesterday.
It said most of the sectors have expressed lesser confidence for the upcoming quarter, reflecting their growing concern about the advent of Omicron.
SANEM Executive Director and Dhaka University Economics Department Professor Dr Selim Raihan on Monday presented the findings from the think tank’s seventh round of the “Business Confidence Index” survey at a webinar here.
The webinar focused on the new wave of Covid-19 pandemic and the state of business confidence in Bangladesh.
The survey results showed that Present Business Status Index (PBSI) (year) is approaching the mark of 60 in the October-December 2021 quarter from 56.79 in the earlier quarter, indicating a continuation of improvement.
Considerable improvement has been observed in the profitability and sales or export order sub-indicators.
Similar to PBSI (year), the PBSI (quarter) points to an improvement in business activities in October-December 2021 quarter in comparison to July-September 2021 quarter.
Compared year-on-year, RMG, Textile, Restaurant, Food Processing, and Pharmaceuticals sectors have registered a comparatively faster recovery.
Progress in PBSI became slower during the period of Jul-Sep 2021 to Oct-Dec 2021 compared to the previous period of Apr-Jun 2021 to Jul-Sep 2021 quarters.
There was a significant gap between Business Status and confidence during the period of Jul-Sep 2020 to Jan-Mar 2021.
However, the gap almost fully mitigated during Apr-Jun 2021 and Jul-Sep 2021 when the status and confidence overlapped. But the gap started to rise again from this quarter (Oct-Dec 2021).
Large firms (57 per cent) and exporter firms (56 per cent) have higher business confidence (Business Confidence Index- BCI) compared to the micro/ small/ medium firms (54-55 per cent) and non-exporter firms (54 per cent) respectively.
Large firms (63 per cent) and exporter firms (55 per cent) have higher business status (PBSI: quarter) compared to the micro/ small/ medium firms (60-61 per cent) and non-exporter firms (54 per cent) respectively.
Firms inside Dhaka (55 per cent) have higher PBSI (quarter) compared to firms outside Dhaka (54 per cent) while no significant difference has been found between them in case of BCI.
Up to 17 per cent of respondents in the seventh round of the survey (January 2022) observed that Bangladesh is on a path of strong recovery, while it was 21 per cent in the earlier round. Similarly, their views on moderate recovery have fallen to 44 per cent in this round from 52 per cent in the previous round.
Despite fuel price hike and threat of new wave of COVID-19, business recovery rate increased to 60.6 per cent in December 2021 which is higher than that of September 2021 (56.8 per cent) and even higher than the earlier record of 57.4 per cent registered in March 2021.
While 74 per cent of the firms did not receive any stimulus package, only 23 per cent received any stimulus package. Around 40 per cent of the firms availing the stimulus package found it to be insufficient.
Up to 65 per cent of the surveyed firms said that further government supports are required. The required support includes: providing low-interest working capital loans, introducing pre-shipment refinance facilities for exporters and social safety net programs for hapless workers.
After a dip in the last quarter (July-September 2021), the overall Enabling Business-Environment Index (EBI) has improved and is now the highest recorded so far in the seven rounds of survey.
Despite overall improvement in EBI, there has been some decline in tax system, corruption, skilled workforce, transport quality, trade logistics and COVID management sub-indicators. EBI has fallen across leather, wholesale and real estate sectors.
In relation to impact of Omicron, 71 per cent firms have reported a decrease in export order/sales followed by 79 per cent firms reporting additional health measures and increased associated costs and 82 per cent firms reporting increase in input costs.
Omicron has also increased the risk of decrease in export as reported by 89 per cent firms, the risk of additional health measures and increase in associated cost as reported by 90 per cent firms and the risk of increase in input cost, as reported by 91 per cent firms.
The impact of fuel price hike has also been significant. 97 per cent firms reported an increase in transportation cost and 79 per cent firms reported an increase in energy cost. It has also increased the risk of increase in transportation cost as reported by 94 per cent firms and the risk of increase in energy cost, as reported by 81 per cent firms.
Similar to the findings from the last quarter, completed paperwork, collateral problem, lengthy procedure, bank-client relationship etc. remain major problems for the firms to avail any loan from the banks.
Addressing the challenges associated with COVID-19, the study recommended developing sector-specific protocol for managing the COVID situation, accelerating the vaccination programme and considering pragmatic stringent policies.
Professor Raihan emphasized on faster disbursement of stimulus package, easing access to stimulus packages and government support focusing on specific requirements of firms.
He said corruption remains a concern for business environment and performance in Bangladesh.
Focusing on SMEs, the study proposed proper assessment of the impact of the stimulus packages, facilitation of further credit and easy access to finance, supply-side support to reduce institutional deficiency and promoting and extensive implementation of the Credit Guarantee Schemes by Bangladesh Bank.
Identifying fuel price hike as a major concern for economic recovery, Prof Raihan suggested relaxed taxation on import of oil and strategic, dynamic and forward looking fuel price policy.
As remittance flow has been falling, the study advised assessment of remittance flow and increasing cash incentives from 2.5 per cent to 3 per cent. Balanced coordination between fiscal and monetary policy and ensuring a stable inflation rate in the mid-term were also proposed in the webinar.
For mid to long term robust recovery, the study recommended following a Special Economic Zones based approach for further acceleration of Foreign Direct Investment (FDI).