Business confidence takes a hit from Omicron

Firms in Bangladesh feel that the economic recovery will be weaker than they had perceived earlier due to the adverse impacts of Omicron and the fuel price hike that raised the cost of doing business, according to a survey.

The survey, carried out by the South Asian Network for Economic Model (Sanem), found that about 17 per cent firms believe there will be a stronger recovery and 44 per cent expect a moderate turnaround, down from 21 per cent and 52 per cent in October last year, respectively.

The survey also found that overall business confidence for January-March 2022 dropped in comparison to the level of the October-December quarter of 2021.

Measured on a scale of 0 to 100, the Business Confidence Index (BCI) declined to 54.99 in January-March this year from 60.67 in October-December last year.

"Most of the sectors have expressed lesser confidence for the upcoming quarter, reflecting their growing concern about the advent of Omicron," said Sanem Executive Director Selim Raihan, while sharing the findings of the survey during a webinar yesterday.

This was the seventh round of the survey that the Sanem carried out on 502 firms nationwide from January 3 to 24. The research organisation has been conducting the survey since July 2020 to track the situation of the economy and the sentiment of businesses during the pandemic.

In relation to the impact of Omicron, the dominant coronavirus-19 variant at the moment, 71 per cent of firms reported a decrease in export order/sales, followed by 79 per cent of firms reporting additional health measures and associated cost increase and 82 per firms reporting a rise in input costs.

Omicron has also raised the risk of a decrease in exports as reported by 89 per cent of firms. The risk of additional health measures and associated cost increase was reported by 90 per cent of firms and the risk of increase in input cost was reported by 91 per cent of firms.

Apart from Omicron, the fuel price hike in November was the major reason behind the weaker recovery perception and the drop in business confidence.

The survey found that 97 per cent of firms reported a rise in transportation cost and 79 per cent of firms highlighted a jump in energy cost. Besides, 94 per cent of firms reported the risk of an increase in transportation cost and 81 per cent of firms reported the risk of an increase in energy cost.

However, firms recovered 60.6 per cent of their business during October-December last year, up from 56.8 per cent in the previous quarter.

The Present Business Status Index (PBSI) was 59.20 per cent in October to December from 56.79 per cent in the preceding quarter.

"It indicates a continuation of improvement. Over the quarters, there has been a gradual recovery in business activities," said Raihan, a professor of the economics department at the University of Dhaka.

The improvement is visible in all sub-indicators. Faster recovery has been observed in the garment, textile, restaurant, food processing, and pharmaceuticals sectors.

Large firms (57 per cent) and exporter firms (56 per cent) have higher business confidence compared to the small, micro and medium firms (54-55 per cent) and non-exporter firms (54 per cent).

Firms in Dhaka have higher PBSI compared to those located outside of the capital while no significant difference was found between them in the case of the BCI.

According to the survey, 74 per cent of the firms did not receive any stimulus package during the quarter. Only 23 per cent secured assistance.

Around 40 per cent of the firms that availed the stimulus support found it to be insufficient, leading 65 per cent of the surveyed businesses to seek further government aid.

Prof Raihan emphasised faster disbursement of the stimulus package, easy access to stimulus packages and government support focusing on the specific requirements of businesses.

He suggested relaxed taxation on the import of oil and a strategic, dynamic and forward-looking fuel price policy.

As remittance flow is falling, the study called for an assessment of remittance flow and increasing cash incentive from 2.5 per cent to 3 per cent.

Corruption has remained a concern for business environment and business performance, said the Sanem.