Executives’ takeaway from 2022
Naser Ezaz Bijoy
President, FICCI
Near term challenges don't define long term potential
The year 2022 has been yet another challenging year. After a vibrant first quarter of economic activities, on the path of strong recovery from global onslaught of pandemic, the world was faced with another strong headwind from the geopolitical fallouts of the Russia-Ukraine war.
This time, the world saw elevated levels of inflation, followed by an unprecedented synchronised global monetary policy tightening. These created an adverse impact on volatility of interest rate, foreign exchange market and commodity prices in global as well as in local markets. Foreign currency liquidity tightness has been on the top of everyone's mind during most part of year.
The good news is that global prices of major commodities have come down by 30 per cent to 40 per cent from the peak, with the combined efforts of central bank and commercial banks, LC issuance and settlements have come down significantly, and there are expected inflows of loans from multilaterals. All of these should start contributing to improvement of foreign currency liquidity situation in the first quarter of 2023. Over 1 million compatriots left Bangladesh in 2022 who are expected to contribute to increase home remittances to Bangladesh if law enforcers take decisive action against illicit foreign currency outflows and the foreign currency market moves to market based rates.
Having said that we need to be mindful that the depressed import for a longer period will have adverse impact on production. The impact of China's return to normalcy on commodity, demand at export destinations of our products especially apparels, Bangladesh's ability to diversify products and markets for export to get the international buyers, sourcing diversification strategy etc are going to play a significant role on the economic outlook of Bangladesh for 2023.
Organisations with nimble cost structure and having the ability to respond promptly to market changes are likely to fare better than the others. The government's acceleration in digitisation of process will help reduction of system losses.
However, we believe that the long-term potential of Bangladesh should not be defined by the near-term challenges.
Zaved Akhtar
CEO, Unilever Bangladesh
Economic resilience commendable
As the world was coming out from the COVID-19 induced economic headwinds, 2022 became another unprecedented year for the globe and Bangladesh. We experienced supply line gridlocks, first due to unprecedented global consumer demand resurgence as COVID eased and later due to the Russia-Ukraine war leading to exceptional commodity cost inflation. Bangladesh had additional challenges of heavy flash floods in the north and sharp currency devaluation during the second half of the year. But despite the headwinds, the country's economic resilience has been commendable, and we have been able to manoeuvre the country reasonably well.
This year for FMCG industry has also been equally challenging as we have experienced unparalleled global commodity cost escalation, and despite significant price increases, not all could be passed on to consumers, as every price increase led to a lower consumption and hence volume decline for the business. Any decline in volume leads to a higher cost of production, as volume needs to be apportioned over the existing fixed cost, additionally, we also incur a higher cost of customer re-acquisition. Throughout the year, given the volatility, the FMCG sector has seen significant erosion of consumption, leading to volume decline and drop in profitability for the industry.
Despite the challenging year, it does not define the full potential of Bangladesh. Bangladesh provides immense headroom for growth, given that the per capita consumption is half of India and one quarter of the Philippines. 2022 has been a year that has helped us to build muscles to anticipate change and build the capability to be a future fit in FMCG industry. We believe we are better equipped to grow with a growing Bangladesh.
Sazzadul Hassan
Chairman, BASF Bangladesh
Farm output near expectations
2022 is one of the rare years when businesses and the overall economy experienced a mixed environment. Since the beginning of the year, as the pandemic situation was slowly getting better throughout the world, restrictions in goods and people movement were also being lifted deliberately. As a result, the business environment was gradually getting back to normalcy. Overall sentiment in the market turned to a positive mood. Consumer demand tended to rise. Therefore, during the first two quarters of 2022 most industries in Bangladesh experienced significant growth.
Production of our key food items like rice, vegetables etc was close to expectations, courtesy of favourable weather supported by attractive price. The RMG sector experienced good growth during the first half of the year owing to strong demand in the US and European Union.
The impact of the Russia-Ukraine war started to bite us gravely from Q3. Business environment took a U-turn. Higher costs of energy coupled with shortages of gas and electricity supply put the manufacturing sector in difficulties. In some cases, banks have refused to open the letter of credits, consequently, import of capital machinery, raw materials etc got enormously impacted. Higher inflation has affected consumer spendings. Eventually, most businesses suffered awfully during the second half.
The inauguration of the country's largest infrastructure project "The Padma Bridge" created huge enthusiasm. This bridge will play an important role in the country's economic growth. Inauguration of "Metro Rail" has added another feather to Bangladesh's success cap.
As Bangladesh is known for resilience, the ongoing crisis can surely be overcome if all the key stakeholders join hands together.
Subir Kumar Ghose
CEO, Partex Petro
Energy importers suffered a lot
Private energy importers suffered a lot in 2022 alongside government organisations.
The sector suffered a lot for not being able to open a sufficient number of letters of credit (LC) for the US dollar crisis.
Energy is not a luxury product and so Bangladesh Bank should allow opening LCs as Partex Petro needs a huge number of LCs.
Partex Petro had to import crude oil at $107 per barrel in July but sell it at $83 per barrel to the government in October.
This was not only for the fact that the price internationally had declined when the sale was made but also for the government adjusting the payment to $1 less than the international market rate.
Another point to note is that energy importers do not have permission to sell directly to retailers, rather they have to provide supplies to the government.
Besides, energy importers faced losses due to the price increase of the US dollar as they had to settle LCs at Tk 108 per dollar in spite of opening those at Tk 94 per dollar.
Taslim Shahriar
Senior AGM, Meghna Group of Industries
Import dearth may cause food crisis
The outgoing year has been an exceptional one for global commodity markets due to the surge in prices triggered by the Russia-Ukraine war and spike in demand following the recovery of economies from the Covid-19 pandemic.
The war has affected the commodity market severely. Commodity prices were high in the international market. Locally, imports became expensive because of the depreciation of taka against the US dollar. Taka lost around 23 per cent in value against the greenback.
As Bangladesh imports a number of key commodities -- wheat, edible oil, and sugar -- the country was also affected.
Wheat prices shot up to a record high after India banned exports of the grain, leading to a wheat flour crisis for us.
Looking forward, wheat prices are unlikely to cool off unless the Russia-Ukraine war and production in India improves. Meanwhile, geopolitical tension remains a risk for wheat prices.
However, the soybean production forecast is good even though drought has affected the crop in Argentina, another growing country.
Edible oil, another major imported essential, saw a price spiral for multiple factors, including the ban on palm oil exports by Indonesia. Indonesia is now making bio-diesel using palm oil as petroleum prices remain high.
The global prices of sugar remain high too as countries such as India are producing ethanol by transferring a portion of sugarcane. The good thing is though that production in Brazil is good even though we have not seen reflections of this in the market.
Raw sugar prices rose to near a six-year high due to delays in sugarcane harvests in Thailand, Australia and Central America that tightened supply. Also, rain in Brazil means that some of the country's sugarcane will not be cut until next season.
But what is essential is fast tracking the opening of letters of credit (LC) by our banks. Their reluctance in opening LCs is now the biggest problem. Ships are not sailing off toward our ports as we cannot issue LCs for importing commodities. This is hurting Bangladesh's image internationally. Unless we can import, there is a risk of a food crisis in the country.
Md Shahidullah Chowdhury
Executive Director, Noman Group
First half was promising for apparel
The first and second quarters of the outgoing year were fine for the garment exporters as the international retailers and brands were coming up with quite a lot of work orders with the recovery of the global supply chain from the severe fallouts of the Covid-19.
However, the inflow of work orders from the international retailers and brands started declining since October in the outgoing year.
The placement of work orders between October and December till date this year has declined by more than 20 per cent compared with the corresponding period of last year because of the Russia-Ukraine war.
In 2022, one of the most spectacular achievements of Noman Group and the garment sector was an outstanding rise in the inflow of the work orders from the international retailers and brands for which the country also witnessed an amazing growth in export earning of foreign currency from apparel shipment.
However, the Russia-Ukraine war put a damper on the earnings a bit as the inflow of work orders declined a bit. Currently Noman Group, which has exported garment items worth $1.3 billion in the outgoing year, has been running at 90 per cent capacity as there is a little bit of a gas crisis.
Noman Group employs 80,000 workers in its 28 industrial units and expects to recruit more workers if the economic situation improves further in the upcoming years.
The coming year may witness some crisis because of gloomy global economic outlooks and inflation. Nevertheless, we expect 2023 to be a year of opportunity as the international retailers and brands are coming up with more work orders in the new normalcy of war.
Moreover, a business house sees a risk as an opportunity.
Kanti Kumar Saha
CEO, Lankan Alliance
Finance
Financial sector most talked about issue
The most talked-about sector of the economy in 2022 was the financial sector which is already burdened with an increasing amount of non-performing loans.
The performance of the financial sector could have been better if a market based foreign exchange rate and interest rate were adopted.
Reduction of import through some restrictions has yielded good results temporarily but will have an effect in the coming months on the GDP growth.
The interest rate cap on deposits for the non-bank financial institution sector was imposed at a time when inflation and non-performing loans in the entire financial sector were rising.
No country in this region intervened in setting the rate of interest and exchange rate regime in spite of facing similar challenges and Sri Lanka is the best example.
Policies supporting the businesses during the pandemic was appreciated by all but similar support after the recovery could have been revisited based on the ground reality.
Furthermore, the liquidity situation may be tightened further for the government plan to borrow from the financial system for its deficit financing in the current fiscal year.
Similarly, frequent interventions and the low rate of interest have resulted in a substandard performance of the capital market.
Though the situation is similar in other peer countries, imposition of the floor cap did not yield the expected result.
Restructuring of some of the problem banks or non-bank financial institutions were expected but no initiative has been visible as of yet.
There is no doubt that the 2022 was a very challenging year both in the domestic and international front for many reasons including slow post-Covid recovery, Russia-Ukraine war and resultant supply chain disruptions.
Import-led inflation and massive devaluation of the local currency put the economy in a difficult situation.
Till date the government has somehow managed to deal with the macroeconomic challenges in a better way compared to its South Asia peers though foreign currency earnings and deficit financing remain the key challenges against the backdrop of a deceleration in revenue growth.
Sovereign rating of the country was stable in 2022 and that was a big comfort for the county.
Broadly it can be said the year 2022 has passed without much of a hiccup and we wish a better year ahead with good reforms and pragmatic policy formulations, especially for the financial sector.
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