The light engineering sector contributes 2.2 percent to Bangladesh’s GDP – more than foreign aid contributes to GDP, yearly
Prime Minister Sheikh Hasina declared light engineering (LE) products (P) the product of the year at the inauguration of the 2020 Dhaka International Trade Fair. Sheikh Hasina added that special attention should paid to this sector (S) so that more foreign currency may be earned from the export of LES products. The LES may be called the mother of all industries because it supplies other industries with spare parts and full-scale small machines. LE Enterprises (E) are handy as they can imitate almost any product through reverse engineering.
An LE workshop in Bhaluka used to make crankshafts for buses and trucks. When an expert team visited the shop, they found that the enterprise machined ship shafts to make the crankshafts. Sales were strong as the products were sold at a much lower price than that of imported ones. However, the crankshafts were not durable and broke within six months. The experts discovered that the materials used to produce them were less durable than the materials required for a crankshaft. If there had been a heat treatment facility, the hardness of the raw materials could have been improved and the product's durability could have increased significantly.
A large-scale industry frequently benefits only a small number of people, and hardly follows trickle-down theory to result in greater prosperity for society as a whole. Small enterprises like the LE Industry (I) can play a significant role in developing entrepreneurial skills and generating employment in a developing economy like Bangladesh – because its economy is characterised by a high level of unemployment, mass poverty and low per capita income. At present, all developing countries, as a part of their development strategy – to grow a country's industrial base and bring about economic liberation – have been intensifying their efforts to develop LES. India and Pakistan have set up numerous industrial parks for LEEs. India has 1,400 LE industrial parks and the country now earns handsomely from LEP exports.
The LES began in the early 1980s as there was great demand for LEPs with the post liberation industrialization process. Dholaikhal and Jinjira became iconic sites of LES and Jinjira's products grew popular, feeding the hopes of industrial revolution in the country; this subsequently caught the government's attention. Though LE workshops had praiseworthy skills they were unable to produce quality parts due to a lack of modern machinery, continuity of demand, and staff with formal technical qualifications. The Bangladesh Small and Cottage Industries Corporation (BSCIC) started to provide low-interest loans to LEEs – for working capital plus to purchase machinery – and the sector received a huge boost. The enterprises spread across the country and clustered in: Dhaka, Chattogram, Bogra, Jessore, and Khulna. The sector flourished from almost nothing to a multi-crore-taka business. However, the 1988 and 1998 floods devastated many enterprises and put machines out of working order; eventually, LEIs began losing their business to an influx of inexpensive Chinese products after 2000.
Statistics show that 40,000 LEEs are operating in Bangladesh and about one million people are employed in the sector. Annual turnover is $1.6 billion – of which import substitute products are worth around $200 million. Another publication suggests that investment in Bangladesh's LES is about $14.8 billion and export growth is approximately 30 percent. The government is providing a 10 percent cash incentive on the export of LEPs. According to a talk held at the Dhaka Chamber of Commerce and Industry (DCCI), the export income from the sector was $510 million between 2011-16 and is expected to reach $9 billion by 2021. It is predicted to attain $15 billion by 2041.
The world market is about $7 trillion. This indicates that there is a good opportunity to export LEPs. There are no restrictions on duty and duty-free access to Bangladeshi LEPs on European and American markets. Experts opine that the sector has the potential to be a foreign exchange earner alongside Bangladesh's ready-made garment (RMG) sector. Currently, the LES contributes 2.2 percent to GDP – more than foreign aid contributes to GDP, yearly.
The country aims to export LE products and needs the following to do so: state-of-the-art technology, world-class knowledge capital, quality & durable materials, an eco-friendly manufacturing process, social compliance practices, continuous innovation, and global recognition. LES' potential is still unknown to the general public and the country has not tapped into the sector's potential as the LES faces multidimensional problems. Due to the discharge of solid waste, LEIs belong to the green category industry – as per the country's environmental regulations.
Though the LEI enjoys a certain number of advantages, different studies have identified challenges to it, such as: a lack of modern machinery, skills, infrastructure, marketing, policy support, capital, finance, power supply, research initiatives plus cooperation with technical universities and institutions; small-scale operations; the high price of raw materials; poor quality; uncertainty of demand; strong competition with foreign products; and workplace hazards. Meanwhile, the opportunities include: export potential, growth of the local industry, a vibrant banking system, technical institutes, sub-contracting supply, and the cluster development of Bangladesh's LES.
LE Products can meet Bangladesh's domestic demand and become a product in the country's export basket as well. A country's well-equipped LEI has the power to feed the local need for imported spare parts – and export the parts – by partnering with international auto and other equipment manufacturers as well. Enterprises like Toyota and Honda are outsourcing their parts or sub-assemblies. No Toyota vehicle is completely manufactured in Japan. Phrases like "Made in Japan" and "Made in Germany" are now outdated. The world-famous manufacturers of automobiles, aircraft, electronics, etc. now heavily source components from developing countries like: China, India, Malaysia, Singapore, and Thailand. Bangladesh – despite having a large LES – has not yet been able to position itself as an outsourcing destination. It could boost the sector and become an outsourcing destination by solving quality, testing and compliance issues.
In the established industrial base of Organization for Economic Co-operation and Development countries, Bangladesh needs to explore opportunities to involve itself in the low end of the LEP market. Even many solvent LEIs are reluctant to buy and use modern technology and sophisticated machinery as they have never used it before and need a high level of skill to operate it. Modern technology may be a game for the rich and a dream for the poor. However, it is the master key to achieving one's competitiveness. The LEI needs upgrades and modernisation to attain quality products and broad acceptance of them. This way, Bangladesh can build a vibrant LES that will pave the way toward developing heavy industry – like auto-manufacturing and assembly as well as manufacturing spare parts.
James F. Moore, the pioneer of the business ecosystem concept, suggests that a company be viewed not as a member of a single industry but as a part of a business ecosystem that crosses a variety of industries. Like a biological ecosystem, businesses live and grow within a business ecosystem. Businesses cannot evolve within a vacuum. They must attract resources of all sorts and draw in capital, partners, suppliers, and customers. They should work cooperatively and competitively to support new products, satisfy customer needs, and co-evolve the research and development (R&D) capabilities around new innovation.
The same is true for all industrial sectors including LES. Various institutions – such as the BSCIC, Bangladesh Industrial Technical Assistance Centre (BITAC), Institute of Appropriate Technology - Bangladesh University of Engineering and Technology, Bangladesh Engineering Industry Owners Association (BEIOA), the SME Foundation, and Export Promotion Bureau (EPB) – through their concerted efforts, can directly influence its performance and contribute to the LES business ecosystem. There is no branding of products or enterprises in the sector so the EPB needs to take effective initiatives to do so to boost exports.
The LES should develop a market intermediary – like buying agents in the RMG sector. The government needs to offer protection against imported goods through tariff and non-tariff mechanisms to LES firms on the domestic market. There is an urgent need to establish a separate institution – like an LE Development Foundation and Common Facility Center (CFC) in all major clusters and regions under private-public patronisation – to support the LES. India and Pakistan have established CFCs under their governments. As the workers are unskilled or semi-skilled, sufficient training facilities can make them competent. LEIs need to have easy access to loans from financial institutions – without collateral. In India the banks charge very small interest rates for LEEs, and Bangladesh must take such an initiative.
The government has already signed a memorandum of understanding with BEIOA, through BITAC, to help the light engineering sector. BITAC is going to establish a CFC for LEIs to extend necessary services – for product development, modern die-making, training on the operation plus repair of modern and sophisticated machinery – as well as provide a wide range of testing services to maintain the international quality standard of LEPs. The government is also developing policy support for the LES and establishing a park for it. To further promote the sector, keep its products in export baskets and increase its contribution to the national economy, the sector must focus on R&D and integrating modern technology into its production chain.
Hopefully, this will be materialise if all three components of the triple helix model – university, industry and government – work together. The government should help light engineering industries become capable of exporting targeted spare parts and other engineering products.
The author is Assistant Professor, Institute of Appropriate Technology, BUET and Reviewer, Advances in Economics and Business, HRPUB, USA.