War hit private sector harder than pandemic

The business sector in Bangladesh has been going through severe challenges for the past four years, which, for many, have been the toughest period in decades, with the coronavirus pandemic being the dominant factor in the early part before the Russia-Ukraine war broke out. Today, we are running the first report of a series to present how various sectors fared in the face of the two unprecedented shocks.

Companies in Bangladesh have been hit harder by the global turmoil induced by the Russian-Ukraine war than the crisis inflicted by the coronavirus pandemic. The balance sheets of the firms listed on the stock exchanges gave some idea about the fallout of the shocks from the twin crises.

Earnings data published on the Dhaka Stock Exchange showed that among 260 listed companies, 184 companies suffered a fall in income in the fiscal year of 2019-20 compared to the previous year when the pandemic hit Bangladesh.

On the other hand, the number of companies whose earnings declined in the first half of 2022-23 rose to 191. The impacts of the war were severe in the half.

In 2020-21, when the pandemic was still raging at home and abroad, the number of companies that made lower profits stood at 83. The number rose further to 133 in 2021-22, whose last quarter already saw some impacts of the war.

Combined profits of the listed companies dropped 41 per cent year-on-year to Tk 7,488 crore in the first half of FY23, way higher than 13 per cent decline seen in 2019-20.

"The businesses are witnessing more impacts now owing to the war," said M Anis Ud Dowla, president of the Bangladesh Association of Publicly Listed Companies.

The noted entrepreneur said as businesses were in the recovery stage from the pandemic before the war, the impact from the conflict was much deeper than the health-related crisis. In fact, the war dimmed the prospects of the recovery.

Bank, non-bank financial institutions and mutual funds were not included in this analysis as they were more impacted by other issues than the war or the pandemic. For example, banks and NBFIs were impacted by the single-digit interest rate regime while mutual funds were affected by the ups and downs of the stock market.

In 2021-22, the profits of the listed companies bounced 44 per cent to Tk 19,323 crore.

Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue, said at the height of the pandemic, domestic activities were shut though export-based factories were open while SMEs and informal economies were impacted badly.

SWIFT RESPONSES FROM GOVT, BB AFTER PANDEMIC HIT

In Bangladesh, the first Covid-19 case was detected on March 8, 2020, before spreading across the country in the subsequent months, forcing the government to implement lockdowns between March 26 and May 30 to tame the virus. Economic activities came to a screeching halt during the two-month period.

Still, large companies and listed firms did comparatively better as they received subsidies and benefits in various forms and had access to low-cost loans, aided by the central bank's 10 major stimulus packages involving Tk 189,000 crore and another $3.5 billion extended under the Export Development Fund.

The funds were part of the Tk 191,919 crore stimulus packages that the government has unveiled so far.

Banks have been offering loans at a single-digit interest rate since April 2020 in line with a central bank instruction, pushing down the costs of businesses.

Besides, borrowers were able to avoid slipping into the default zone by paying no instalments on their loans in 2020. They had to pay 25 per cent of the unpaid instalments in the following year.

The war impacted the formal economy and large companies in the forms of a hike in fuel and energy prices, raw materials, the US dollar, and higher inflationary pressure.

"But the government did not unveil supportive measures seen throughout the pandemic. Rather, it was focused on austerity measures. So, large companies were impacted this time," Moazzem said.

The central bank has continued re-financing support for the agriculture, cottage, micro, small and medium enterprises as well as import-substituting industries to the tune of at least Tk 50,000 crore.

The conflict brought to light some issues that were about to surface anytime in the absence of internal reforms, Moazzem said.

The taka depreciated by 23 per cent to Tk 105 in December compared to a year ago, Bangladesh Bank data showed. Likewise, the government hiked fuel prices by up to 50 per cent, the highest in the country's history, in August.

As a result, conglomerates from Walton to Grameenphone saw lower profits during the war-induced period.

In 2019-20, thirty companies slipped into losses as sales plunged amid the country-wide lockdown. The number stood at 32 in the first half of FY23.

The number of loss-making companies was 62 in the first half of FY23, the highest at least in the last five years, financial statements showed.

"As the price level rose in recent times, people are buying consumer and luxury items cautiously, so the businesses in those segments have been hit hard," said Sameer Sattar, president of the Dhaka Chamber of Commerce and Industry.

Inflation in Bangladesh has been at an elevated level since the middle of 2022. The Consumer Price Index jumped to a seven-month high of 9.33 per cent in March as food prices rose and the adjustment of oil, gas, and electricity prices took hold.

Profits fell drastically for the listed companies owing to escalated raw material prices.

For instance, Singer Bangladesh and Runner Automobiles fell into losses in the first half of FY23. BSRM, Walton Hi-tech Industries, United Power Generation, Grameenphone and many other large companies witnessed lower profits as well.

Companies that sell construction materials and home appliances, textile and readymade garment factories and most of the insurance companies suffered.

On the other hand, companies that sell necessary items such as pharmaceuticals and firms belonging to the food and allied sectors were in good shape.

"This is good that people are spending money prudently," Sattar said.

He says as there is a dollar shortage in the banking sector, all banks can't open LCs. "As a result, the firms that rely on the imported materials were severely impacted."

"Though the Bangladesh Bank has imposed no restrictions on the imports of raw materials, not all banks have enough foreign currencies to deal with LCs. They open LCs based on their relationships with clients."

Ershad Hossain, managing director of City Bank Capital, said the business performance of the companies in the last six months is already showing that the impacts of the war are deeper than those seen during the pandemic.

"The situation may deepen if the war continues."

He said businesses suffered as the cost of businesses surged owing to higher utility prices, and manufacturers were facing problems importing raw materials.

Though data is not available, non-listed companies are also facing a similar challenge, he added.

Dowla, also the chairman of ACI Ltd, urged entrepreneurs to step up efforts to speed up the economic recovery.

"The war is more complex. Nobody exactly knows when it will end. But I am hopeful that entrepreneurs will make a turnaround since they had faced many adverse situations in the past and always come back strongly."