SMEs to conglomerates -- none left unscathed

Businesses of almost all segments of the economy have been passing tough times since last July, when the Russia-Ukraine war started to have an impact in a multitude of ways.

From small and medium enterprises (SMEs) to conglomerates, the conflict took a toll on all businesses this year, even ones which were left unscathed in the 2007-08 world financial crisis.

Sales and profits of manufacturers shrank alongside new investment in industries, hampering the creation of new jobs.

Top officials of several non-listed conglomerates confirmed that their sales and profits were squeezed by around 12 per cent year-on-year in 2022 while over 70 per cent of listed companies showed lower profits during the July-December period.

Furthermore, around 19 per cent of listed companies were downed into losses in the six-month period whereas they had logged profits in the same period of the previous year.

The war disrupted global supply chains when the world economy was already weak for the pandemic, said Abdul Matlub Ahmad, former president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

 "So, the impact of the war seems acute," he added.

Europe was dependent on Russia to meet their demand for fuel, which was seriously impacted for the war. So, energy prices soared and it impacted businesses.

The price of every barrel of Brent crude oil crossed $120 in June 2022.

In August, the Bangladesh government raised the prices of diesel and kerosene by 42.5 per cent.

The price of petrol underwent a 51.16 per cent jump and octane became dearer by 51.68 per cent, driving up transportation costs.

The US economic policy was on recalling its dollars so a crisis of the currency was a reality and it also affected businesses as most manufacturers' raw materials need to be imported, Ahmad said.

The foreign exchange reserve of Bangladesh dropped 28 per cent to $32.6 billion in the last one year, according to Bangladesh Bank data.

The taka lost its value by about 22.3 per cent in the last one year because of the US dollar shortages, making imports expensive, the data shows.

On top of that, the recent earthquake in Turkey deepened the European problem. Already, hunger and poverty are rising worldwide, including Bangladesh, said Ahmed, also chairman of Nitol Niloy Group.

The job creation process has also been impacted seriously with the war as most of the businesses are simply trying to stay afloat.

In this situation, countries whose macroeconomic condition was already vulnerable fell into more problems, he added.

There is no statistics on job creation but industry insiders say most firms in Bangladesh are not recruiting new employees. Moreover, some cut jobs are taking place under austerity measures.

Job recruitment advertisements dropped by around 20 per cent, according to industry insiders of an online job seeking platform.

So, all the countries should work together to end the clash and revive the economy, Ahmad said.

Never did Bangladesh realise it will have to pay the price of a European war but every Bangladeshi is having to do so, said Rizwan Rahman, former president of the Dhaka Chamber of Commerce and Industry (DCCI)

The situation affected forex reserves, hampering import-oriented businesses. Besides, the sudden surge in demand for jet fuel to sponsor a war led to the global energy crisis.

"Finally, the global demand for the dollar led to the devaluation of the taka and the final nail in the coffin was inflation that has affected the entire population," he added.

In August, the Consumer Price Index skyrocketed to a 10-year high of 9.52 per cent, according to the Bangladesh Bureau of Statistics (BBS). It declined to 8.71 per cent in December, which was still higher compared to historical trends.

Therefore, businesses suffered for the rising costs of imports due to the dollar crisis and high utility costs due to energy crises. Demand for goods was also downed due to high inflation. So, this was a three-dimensional attack on the private sector.

On impacts on investment, Rahman said: "A small factory setup that would cost me Tk 8.5 crore last year will now cost me over Tk 11 crore."

"On top of that, inflation has driven up other costs. So, who is going to invest extra 20 per cent in this inflated market?" he added.

Because of businesses being more watchful of the scenario, there is barely any new investment coming in. A recent BBS study showed a hike in unemployment due to a lack of job creation. Rather, people are cutting costs to survive.

"Bangladesh has been impacted to a less extent compared to the previous world economic turmoil as it was a US-led recession," said Rahman.

"But at the time, Bangladesh was a small fish in the ocean. Today, Bangladesh has turned into a shark and our macroeconomic indicators are clear proof of that," he added.

The former DCCI chief went on to say that Bangladesh has grown exponentially and will continue to do so.

"We are a large contributor to global trade today. So, if the world market is down, we will automatically be affected," he said.

Apparel shipments to the European Union (EU) grew 41.76 per cent year-on-year to hit $19.40 billion in the January-October period of 2022.

At present, Bangladesh is the second largest garment supplier to the EU after China, according to data from Eurostat, the statistics department of the EU.

"In order to save ourselves from the next turmoil, we need to diversify our exports and markets as well as our products. In any trade, putting all your eggs in one basket is never safe," Rahman added.

The garment sector accounts for 85 per cent of Bangladesh's total export earnings annually.