Can Bangladesh industries weather this storm?
Bangladeshi industries have already been facing various challenges, including gas and power crises, as well as additional regulations imposed by the National Board of Revenue (NBR). Now, on the onset of the Quota Reform Movement, which began in July, a set of new challenges have emerged. The Business Standard spoke to industry experts to know their views.
'There's a real risk of losing orders to competitors'
Mohammed Hatem
Executive President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA)
A wrong message was sent to our buyers. So they are unwilling to confirm the order sheet. They are taking a 'wait and see' approach due to concerns about potential business disruptions from delayed shipments.
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This situation has created a real risk of losing orders to competitors in other countries.
The peak season for securing next season's orders and issuing purchase orders typically falls in June and July. However, recent internet outages have intensified our buyers' concerns.
We currently face a backlog of eight containers at the port, resulting in exorbitant port demurrage charges. Despite our efforts, obtaining a waiver has been time-consuming and costly, further disrupting our production and shipping schedules.
In a desperate attempt to avoid even greater losses, we had to pay the demurrage charges.
The ongoing gas crisis continues to pose a severe threat to our industry. If this issue is not resolved promptly, we anticipate a significant number of small and medium-sized enterprises shutting down within the next year.
New investments are becoming scarce, and many existing industries are on the brink of collapse. Our industry urgently needs targeted financial support, such as low-interest loans to cover labour costs and utility bills.
Unfortunately, the NBR has imposed additional barriers, making it difficult for businesses to access the funds they need.
To keep our industries afloat, we propose deferring loan repayments for the next six months. Additionally, short-term loans at low interest rates should be provided to cover July's wages and utility bills.
Our industry association has already sent a letter to the Finance Minister and other relevant authorities on 28 July, requesting a one-year loan at 2% interest to address these immediate needs. We believe that these measures are essential to overcoming the current crisis.
TBS' Reyad Hossain spoke to Mohammed Hatem over the phone.
'Our credibility as investment destination is in question'
Mohammad Zaved Akhtar
CEO and managing director of Unilever Bangladesh Limited, President of FICCI
While the country is slowly recovering with limited online and physical connectivity, full operations are yet to come back, and we are at best 50% of the economic potential. The industry needs full broadband connectivity and mobility connections to operate to its full potential.
The recent shutdown has had a significant economic impact on Bangladesh, with estimates of over $10 billion hit and counting. Pure play fast-moving consumer goods (FMCG) Industry would have a setback of $100 million and above, as supply lines and operations have been significantly impacted.
The impact on Unilever's business in the last few days alone has been at least $12 million. Most of the profit we make in a year will be lost because of this. Despite the business operations, we can use half of our capacity.
If we fail to prioritise the ease of doing business for our current investors, we will discourage potential investors from considering Bangladesh, especially when the current investors are facing existential crises. Our current investors are our most powerful advocates for attracting foreign direct investment. There has never been a more important moment than now to protect the needs of them.
We were informed that port demurrage wouldn't be applicable for the time of shutdown for the consignment, but businesses are facing challenges related to the release of goods from ports and accumulating demurrage charges.
Numerous existing investors are currently feeling uncertainty as the team aims to resume regular operations, but challenges and inefficiencies of goods release, running operations and physical reach are driving up the cost of business.
The shutdown has affected export-oriented industries, e-commerce, freelancing, ride-hailing, software development and so many MSMEs that rely on social commerce and so many others. Moreover, telecom, international courier, tobacco and other businesses have also been affected too much.
Beyond the financial losses, we are afraid of the possible image loss in the international area of investment in Bangladesh. Our credibility as a reliable investment destination is in question.
It is not just important but crucial that we work on rebuilding Bangladesh's reputation as a stable nation and a resilient economy, capable of delivering results regardless of the circumstances and rebuilding the confidence of existing investors by smoothing operations and improving the ease of doing business.
In that case, when the question of tax and value-added tax (VAT), the officials are sometimes reluctant to consider the business losses and to fulfil their target, they put pressure on the business to pay more tax than the previous year.
We need support from NBR and especially VAT, tax customs department, port authority and other related government agencies to make it easier to do business.
TBS' Reyad Hossain spoke to Mohammad Zaved Akhtar over the phone.
'We have been suffering for the last four months'
Abdullah Hil Rakib
Vice-President, Bangladesh Garments Manufacturers and Exporters Association (BGMEA)
We are not yet experiencing the adverse effects of the quota reformation movement and subsequent series of events.
Some buyers are indeed concerned due to the type of news being reported in international media. In particular, those in the fast fashion industry prefer to purchase from suppliers with adequate materials, even if it means paying a higher price.
It is difficult to determine at this moment how many buyers might withdraw. A clearer picture will likely emerge in three months when comprehensive export figures are available.
Fortunately, though, we still have some very passionate buyers who believe that the issues in Bangladesh will soon be resolved. It's due to their faith in our infrastructure or manufacturing capabilities.
The internet blackout has caused congestion at the ports. Work is being done in three shifts, and if planned properly on an emergency basis, this could be resolved within the next week.
That said, it would have been great if the government had provided us with basic and regular service support. Currently, we are facing a gas crisis. Fabric production has stopped in our factories, and washing plants are not operating.
When the government raised electricity prices, they promised uninterrupted power supply. However, if you visit our factories today, you will see how much we are suffering. So, there have been issues not for four days but over the last three to four months, causing us to lose both productive hours and production.
But overall, I don't think there's a direct correlation between the current situation in the country and the manufacturing sector.
For instance, when the factories reopened on 24 July, there was full attendance from workers and management. They remained resilient during these challenging times.
However, if the government's service and support initiatives do not remain secure, the hardships we have been enduring for months will continue.
Also, there is no end to the harassment we face from different sectors, including the silly impositions from NBR, which discourage businesses. It's as if we have to keep getting into trouble to be willing to do industry.
We need to shift this culture and change the mindset. Otherwise, the growth of the industry will be stopped, which will be nothing short of suicidal.
TBS' Jannatul Naym Pieal spoke to Abdullah Hil Rakib over the phone.
'Long-term repercussions if situation continues'
Shams Mahmud, Managing Director, Shasha Denims Ltd & former president of DCCI
Firstly, the supply chain has been disrupted. Secondly, due to the internet outage, we had no way to inform the buyers about our situation. After the internet was restored, we communicated with them, explained the situation, and somewhat managed the situation.
However, we have only managed the situation for now, in the short term, but we fear there will be long-term repercussions if the situation goes on like this.
Number one, already, our cost of doing business has increased. Number two, the bank borrowing rate has increased a lot. Energy costs, as well as wages, have gone up. On the other hand, remittance inflow has decreased, which is a major worry for us.
I think in the future, we will face macroeconomic stress. The present strategies of Bangladesh Bank will not be able to effectively deal with it. Even in the current situation, they have reacted slowly.
They want high growth, but at the same time, they have set a high interest rate to curb inflation, which is contradictory. There has been a lot of damage done already, but we are not seeing any measures from Bangladesh Bank.
A single-day delay equates to one dollar per unit for the buyer in terms of recuperating their costs. So if there is a three-day delay in delivery, it is a three-dollar loss for the buyer. If they are incurring a three-dollar loss here, they can spend one dollar more and easily place the order in Vietnam instead.
After doing a risk analysis, if they think a situation like this will continue or the situation might get volatile at any moment due to which shipments will be delayed, they will order from Turkey, India, Vietnam, China or Pakistan to ensure their racks are not empty.
We are keeping the factories open on our own responsibility. As an entrepreneur, I have to look after the safety of my people. I do not want any of my employees to get hurt. Their families are also worrying about them. We are going through a very tense time. We are not able to guarantee the safety of our workers, and this is a big headache for us at the moment.
If the Bangladesh Bank does not take immediate corrective measures, we do not think the macroeconomic stability we need for LDC graduation will be in place in time.
We should sit and rethink our strategies because the question of getting GSP+ facilities is also there. This and ensuring macroeconomic stability is essential for our LDC graduation, which is just two years away.
TBS' Nasif Tanjim spoke to Shams Mahmud over the phone.
