Bangladesh’s tyre manufacturing industry is likely to see a boom in production soon as the proposed budgetary measures for upcoming fiscal will encourage investors to set up more production plants.
The plants will help decline dependency on import, reduce cost of products, create employments and help the country save foreign exchanges, according to market insiders.
Finance Minister AMA Muhith, with his budget speech on June 4, proposed tax holiday for tyre manufacturing industry as the country has to spend a huge volume of foreign exchanges every year to import tyre.
“Considering increasing demand, industrialisation and import expenditure along with creating employment opportunities for our skilled work force, I propose tax holiday for tyre manufacturing industry,” the minister said.
Tax holiday refers to a government incentive programme that offers a tax reduction or elimination to businesses to help stimulate foreign investments.
Despite growing demand and huge potentiality, the sector is still highly dependent on import.
The local large companies were yet to make heavy investments in tyre manufacturing due to lack of large capital investment and consistent power supply, said the insiders.
They added that some companies can now come up to make tyres using the tax benefits.
The country now has to spend Tk1,000 crore annually to import around 15 lakh pieces of tyres, mainly from China, India, Indonesia, Thailand and Japan to meet local demand, the market sources said.
Currently, Apex Husain, Gazi Group, Meghna Group of Industries and Rupsha Tyre are manufacturing different types of tyre for light truck, minibus, microbus, motorcycle etc.
Global tyre giant CEAT Limited has already formed a joint venture with Bangladeshi AK Khan and Company with a ratio of 70:30.
Welcoming the government move, Apex Husain Group general manager (commercial) Mamunur Rahman told Dhaka Tribune that the new entrepreneurs will invest more in the sector that will ultimately boost the production.
“The decision will encourage investors so new factories will be established and more employments will be generated,” he said.
He said earlier Bangladesh was completely dependent on the imported tyres and 30% of the demand is now met locally.
Mamunur Rahman said local production would increase further if the government continues giving support to the sector.
According to a recent report, the tyre sales in Bangladesh will see a sharp rise in next five years due to the increase of automobile sales, improvement in public infrastructure, and growth in purchasing power.
The report titled “Bangladesh Tyre Market Forecast and Opportunities 2020” said the tyre market will grow by over 9% CAGR (Compound Annual Growth Rate) until 2020 due to growth in automobile sales, ongoing improvements in public infrastructure, and growth-oriented government policies.
It said automobile and tyre sales in Bangladesh are expected to grow with the rise of purchasing power of people as well as growing investments and joint ventures of foreign market players.
The trend is likely to make the market as an exporting destination for global tyre manufacturers.
The country can save huge amount of foreign exchange led by the support to import substitute industry due to the tax holiday, according to a top official from CEAT AK Khan Limited.
“If the tax holiday is provided, more companies will feel encouraged to invest in Bangladeshi sector that will create employments, support backward linkage natural rubber industry, reduce poverty and reduce cost of the products,” the official said preferring not to be named.
The CEAT AK Khan Limited is working on the manufacturing plant in Bhalluka, Mymensingh which will produce around 65 tonnes of tyres for all types of vehicles,.
It will alone meet about 40% demand of tyres in Bangladesh. In addition, the company will also export 30% of its products to its mother organisation in India.
“With this measures, the country can earn huge foreign currencies, and it will also work for improving trade deficit with India and other countries,” ,” the official said.