Business confidence hits rock bottom: survey
Business confidence in Bangladesh plunged to 41.39 points for the April to June quarter, the lowest level in a year, as an alarming surge in coronavirus infections has deepened uncertainty and threatened the economic recovery, according to a new survey.
A confidence level below 50 reflects a deterioration in the outlook, while a reading above 50 indicates an improvement.
The South Asian Network on Economic Modeling (Sanem) has been publishing the quarterly Business Confidence Index (BCI) since July last year after surveying firms on profitability, investment, employment, wage, business cost, and sales/exports.
The fourth round of the telephone survey was conducted among 503 firms from April 5 to April 18.
It showed that business confidence declined sharply to 41.39 points on a scale of 100 for the April-June quarter, from 57.90 in the last quarter. This was the first time the reading has fallen below 50 since the think-tank began following the business confidence a year ago.
"This round of the survey provides an opportunity for a better understanding of the pulse of the economy and the sustainability of the recovery path as the coronavirus situation has deteriorated," said Selim Raihan, executive director of the Sanem, at a webinar.
According to the survey, 34 per cent of businesses had expected a strong recovery, 52 per cent moderate recovery, and only 14 per cent weak recovery before the current spike in coronavirus caseloads and deaths from the deadly pathogen.
The firms that had thought there might be a strong recovery fell to only 2 per cent after the situation worsened. Thirty-one per cent of the respondents believe that there would be a moderate recovery, and a staggering 67 per cent say the recovery would be weak.
"The deterioration is visible in all of the subcomponents of the BCI. This deterioration poses a threat to the future businesses," said Prof Raihan.
Managers or executives of 253 manufacturing firms and 250 service sector firms were interviewed.
Over the past year, there had been some visible recovery of business activities. The improvement is visible in most of the sub-components of the Present Business Status Index (PBSI). But still, the overall PBSI is low.
The firms, on average, have been able to recover 57 per cent of the damages that occurred from March 2020 to March 2021. The financial industry has been able to recoup 73 per cent of the losses, followed by pharmaceuticals and chemicals (72 per cent), readymade garment (67 per cent), and textiles (66 per cent).
It showed that the firms had not returned to the pre-pandemic level. Although the business cost indicator improved slightly in the fourth round of the survey, the overall score is still less than 50 points.
Sectors that need attention on a priority basis are light engineering, transport, retail, and leather and tannery as their recovery is slow, the survey said.
About 68 per cent of the surveyed firms are yet to receive any stimulus package. Like in the previous three rounds of the survey, the major areas of challenges include a lack of stimulus package, lengthy procedure and difficulty in bank-related services. No major improvements were observed in these indicators.
"Our econometric exercises suggest that stimulus packages are having positive and significant association with firms' recovery," said Raihan.
SMEs in all sectors should be a priority in channelling the loans and stimulus packages. Effective implementation of the stimulus package is critically important, he said.
He called for assessing the stimulus packages that had been implemented so far and that needed to be redesigned and expanded.
According to the survey, remittances, export of goods and services, bank's credit to the private sector, and vaccination programmes were among the major factors that were contributing to the overall economic recovery.
There was a little improvement to the Enabling Business-Environment Index from January to March of 2021. However, corruption, poor trade logistics, unfavourable tax system, access to finance, and management of the crisis remained the major challenges.
Zahid Hussain, a former lead economist of the World Bank's Dhaka office, said the ups and downs in the infection rate would stay for around two more years. So, business confidence could pose as a double-edged sword.
"If you are too much confident that your business would perform better in future, you will expand your business through investing and hiring more. When everyone starts doing it, mobility will increase, and there will be frequent public gatherings. Thus, the prevention of the virus spread will be compromised," he said.
"Overconfidence could be devastating now. Not only businesses, nobody should be overconfident now as experts have unequivocally stated that overconfidence played a major role in the deterioration of the coronavirus situation in India," Hussain said.
Kazi Faisal Bin Seraj, country representative of the Asia Foundation, and Rizwan Rahman, president of the Dhaka Chamber of Commerce & Industry, also spoke.