Tax structure and complexities regarding raw material imports are hindering progress
- Annual turnover Tk7,000 crore in domestic market
- 200% growth in 5 years
- More than 20 percent growth per year
- 66 companies currently in operation
- Local brands hold 90% market share
- Total export Tk585 crore in FY2018-19
- Total investment around Tk10,000 crore
- Around 55,000 people directly employed
The country's ceramic sector grew by 200 percent in the last five years. In addition to the annual turnover of around Tk7,000 crore in the domestic market, products worth around Tk600 crore are exported.
Entrepreneurs are making new investments as they have the opportunity to produce better quality ceramic tiles and tableware at a lower cost using less skilled manpower compared to competitors. This has led to infinite potential in the export sector.
Ceramic entrepreneurs believe this sector could soon be established as the second largest export sector after readymade garments.
However, they said the government's tax structure and complexities regarding raw material imports are hindering progress.
They were addressing a webinar titled "Ceramic sector of Bangladesh: Prospects and challenges" on Saturday (August 29). It was arranged by The Business Standard and City Bank.
Bangladesh Ceramic Manufacturers and Exporters Association (BCMEA) Vice-President Md Mamunur Rashid, another BCMEA Vice-President and Managing Director of Great Wall Ceramic Industries Limited Mohammed Shamsul Huda, Managing Director of Sheltech Group Tanvir Ahmed, and Principal of Bangladesh Institute of Glass and Ceramics Md Ayub Ali participated in the webinar.
Mamunur said, "Currently, 66 brands are producing ceramic in the country. Of these, 28 companies are producing tiles, 20 are producing tableware, and 18 are producing sanitaryware. In the last five years, we have achieved more than 200 percent growth. Although we depend 100 percent on import of raw materials, we are adding value up to 65 percent."
"This amazing growth and the benefits of our landscape mean there is enormous potential in this sector. If patronised with incentives, it could be a billion-dollar industry. This sector could be the next RMG if we can move forward by solving some problems, including customs duty."
Shamsul said competition in the domestic market is increasing with demand.
"As there are many companies in the country, we are already in a lot of competition. As a result, we need to expand the market abroad. In this case, we have to be given some special benefits on raw material export."
Immense opportunities in export
Even a decade ago, ceramic export was negligible. Exports increased by almost 200 percent in three years since 2016. Ceramic products are currently branding Bangladesh in more than 50 countries.
According to the Export Promotion Bureau, Bangladeshi companies exported ceramic products worth Tk585 crore in the 2018-19 fiscal year. Ceramic alone now ranks seventh among export items. In the last three years, export growth in this sector was about 26 percent although tableware is still the main export.
Tanvir said, "It is a $140 billion market globally and we are holding only 0.14 percent of that. We are now exporting ceramic to Italy, the UK, Malaysia, and countries in the Middle East, but all those products are tableware. There is a huge opportunity to capture the global market if we can give incentives to producers."
Shamsul said, "Ceramic market is exclusively dominated by China. Italy and Spain have some market shares. China can offer tiles at the lowest price in the world. However, the recent crisis caused by the novel coronavirus has created new possibilities for us."
Raw materials, extra tax key challenges
Although there is a huge potential in the ceramic sector, the biggest problem is raw materials. All materials except red soil have to be imported. Entrepreneurs think it is not possible to compete in the international market by paying about 50 percent tax on raw material imports.
Tanvir said, "We do not have any raw material. We are totally dependent on imports. Taxation on our imports is 5-25 percent. In the case of importing ink, after 25 percent customs duty, about 50 percent tax has to be paid in regulatory duty, advance income tax, VAT etc. But those who have their own raw materials do not have to pay these taxes. We will not be able to compete in the export market after such big expenses."
Shamsul said, "We are facing some adverse behaviours. If we import busbar as raw materials, 10 percent duty is to be paid. Garment factory owners, on the other hand, pay 1 percent duty on the same busbar. As a result, we are facing discrimination and losing our export capacity."
"Our raw materials imported from Malaysia contain up to 33 percent moisture. As a result, when we import 100 tonnes of raw materials, 33 percent of that is gone but we still have to pay duties on that. It causes us to lag far behind," he said.
Mamunur said, "Due to import of raw materials and illegal entry of foreign products into Bangladesh, local entrepreneurs are facing an unequal competition in the domestic market."
"The current 10 percent import in our country is done via underinvoicing so that tax can be evaded. This is creating an extra competition for us. This has to be stopped first."
Speaking about gas problems, he said, "We do not get proper gas pressure but at the end of the month, we have to pay the full bill. On the other hand, due to gas pressure, product quality decreases. Then, it has to be sold as a B grade and C grade product instead of an A grade one. This creates a huge difference."
"We have to pay 25 percent customs duty on 33 percent moisture at the time of import. 15 percent VAT at the time of sale is added to this. Again, there is the 15 percent supplementary duty. Even though tiles are not a luxury item, we have to pay supplementary duty. In total, we are paying about 50 percent duty. If we want to start a new business, we need to go to different places to get the papers ready. We have to face harassment when we want to get a Bangladesh Standards and Testing Institution (BSTI) licence."
Mamunur continued, "There is an interest rate for everything at the subsidiary rate, except for ceramic. On the other hand, the government recently announced a special stimulus package for RMG, but we did not get it. We were included in the capital assistance package but still we did not properly get the loan."
Negligible stimulus support
Although the government announced stimulus packages for all industries to keep factories that were closed during the coronavirus pandemic operational, the ceramic industry did not benefit much from it.
Mamunur said, "Apart from RMG, no other industry was able to benefit much from the government's bailout packages. We did not receive any special benefits. When we went to banks, they talked about various policies."
Sharing his experience, Shamsul said, "I have to pay several crores of taka in workers' salaries every month. In the last four months, I received only Tk3 crore."
Ceramic industry recovering from pandemic blow
Mamunur said, "During April, May and June, the ceramic industry suffered a lot. Recovery began slowly in July. However, compared to the July-August period last year, we are still lagging behind by 20 percent."
Tanvir said, "Our raw materials come from China, Thailand, and Italy. We have to bring raw materials in bulk by waterway. We cannot import those by air. Factories in those countries were closed for three to four months during the pandemic. As a result, the entire supply chain was shut down."
"On the other hand, the supply chain was also closed in our country. As a result, even though we produced products, those could not be delivered to dealers. However, the impact was not so bad on me because we have three to four months of stock."
New investments and possibilities
With the expansion of the housing sector and the increase in demand for luxury apartments, a huge potential has been created in the ceramic sector. Local entrepreneurs invested Tk8,500 crore in this sector in the last ten years due to growing demand. They built about 40 factories.
Prominent brands like Cotto, Grohe and CBC Tiles have set up factories in Bangladesh. RAK Ceramics has expanded its business, but the highest investment came from Sheltech Group, a local company.
Tanvir said, "Bangladesh's economy is growing. Construction industry is witnessing huge development in addition to infrastructure. Excluding the pandemic situation, a lot of buildings are being constructed."
"Nowadays, tiles are used in mosques, madrasahs and even bathrooms in village homes. As a result, there is a great demand for ceramic. There are also various government projects. Tiles are being used everywhere. Thus, a big demand has been created here."
Mamunur said, "In addition to investment, there are also enough experts in the country."
Ayub said, "So far, we have only one institute in our country for producing experts in the ceramic sector. Ceramic has been introduced as a subject in two more polytechnic institutes. If it is launched in the next two years, skilled manpower will be available."
"But there is a crisis. We are creating mid-level technicians. Industries need some lower-level technicians, and it is becoming difficult to meet this demand. There have now been initiatives to teach this at undergraduate level in university. As a result, there will not be problems to find technicians with the increase in investment."