Business confidence ticking up: Sanem

Business confidence in Bangladesh improved in the last quarter of 2020 as the economy strived to recover from the devastating impact of the coronavirus pandemic, according to a study.

The Business Confidence Index (BCI) of the South Asian Network on Economic Modeling (Sanem) went up to 55.24 per cent in the October-December. It was 51.06 per cent in the previous quarter.

"The BCI, however, did not improve a lot because of the second wave of Covid-19 as the shipment of goods in major export destinations was severely affected," said Selim Raihan, executive director of the think-tank, while presenting the findings of the study at a virtual discussion yesterday.

He blamed the weak demand for goods in the domestic markets as income collapsed due to the fallouts of Covid-19 for the slow recovery of the business confidence.

Firms are hopeful about the first quarter of 2021 as the BCI is expected to rise to 57.90 per cent.

"Most of the firms said that they were very much hopeful that the economy and their business would recover soon," Prof Raihan said.

As much as 71 per cent out of 502 firms surveyed said the economy was on its way to recovery, unchanged from the second round of the survey, which covered the third quarter of last year. 

The Sanem, in collaboration with the Asia Foundation, initiated the quarterly survey in July among the firms in the manufacturing and services sector. The third round was conducted in January.

Forty per cent of the respondents were expecting a moderate recovery of the economy, 16 per cent a strong recovery, and 15 per cent a weak recovery.

Firms were affected severely when the rogue virus hit the country in March last year. Still, they are struggling to recover from the shock of the income and sales losses.

Raihan, a professor of economics at the University of Dhaka, said the business firms that availed loans from the government-sponsored stimulus fund had been recovering faster than the companies that could not. He suggested quick disbursement of the fund to eligible firms so that they could utilise the money when needed.

Of the firms, 22 per cent received assistance from the stimulus packages, according to the survey.

The services sector has been performing better than the manufacturing sector, Prof Raihan said.

The improvement in business status in October-December compared to July-September was minimal. Compared to the status in the same quarter in 2019, the situation is still worse, the Sanem said.

"It shows the firms have not got back to the pre-pandemic situation, and it might take a while."

Sectors are recovering at varying paces, and faster recovery is taking place in the pharmaceuticals, textile, and financial sectors. Some of the indicators, such as profitability, employment and wage indicators have improved slightly compared to the past quarter.

The business cost indicator worsened in the last quarter, highlighting the serious threat to the viability of the firms in the long run.

The sectors that need priority attention are leather and tannery, light engineering, wholesale, transport, garment, food processing, and real estate, said the Sanem.

All these sectors should be given additional incentives, such as lower interest rate for a longer period, increased and eased up duty drawback facility, and increased export cashback facility.

"Benefits such as expanding the reach of the Export Development Fund should be explored. SMEs should be a priority in channelling the loans and stimulus packages."

Md Saiful Islam, president of the Leathergoods and Footwear Manufacturers & Exporters Association of Bangladesh, said profitability had drastically fallen as the sustainability of businesses declined.

Although the cost of doing business has been increasing every quarter, the prices of export-oriented goods did not increase, he said.

The entrepreneur said the employment of the workers in the leather and leather goods sector had not been affected because of the stimulus package.

Islam urged the government for extending the repayment period for bank loans as local manufacturers could not bag higher sales during Christmas and other mega sales seasons in the western world.

The rates of logistic services have increased a lot, affecting the profitability of exporters, he added. "We will have to create an enabling business environment for our business sustainability."

Arshad Jamal Dipu, vice-president of the Bangladesh Garment Manufacturers and Exporters Association, said productivity improvement and innovation were significant to survive businesses.

Buyers are not paying fair prices for the exported garment items. The unsold stock of garment items is another problem for the exporters, he said.

Abul Kasem Khan, chairperson of the Business Initiative Leading Development, suggested the government reform the taxation system to reduce the cost of doing business.

Asif Ibrahim, chairman of the Chattogram Stock Exchange, and Farzana Khan, general manager of the SME Foundation, also spoke.