The effects of coronavirus have detrimentally affected the overall activities of the Bangladeshi industries. Of these, the import of industrial materials has been most disrupted.
According to Bangladesh Bank’s report, from July to February of the current financial year, the opening rate of ‘letter of credits’ (LCs) for industrial equipment imports has decreased by 24.33%.
Raw material imports of the industries also declined by 2.79% during the same period.
During the same period of the last fiscal year, LC openings declined by 1.24%, and imports increased by 1.60 %.
This fiscal year however, the number of LC openings increased by 5.07% while imports decreased by 36.77%.
During the same period of the last fiscal year, the number of LCs opened for industrial equipment imports decreased by 0.57%, and imports declined by 10.41%. In the entire financial year, imports declined by an average of 8.51% — this fiscal year’s import decline being over 4 times last year’s average.
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After exploring Bangladesh Bank’s data, several elements of the industry have seen a significant decline: imports of equipment used in setting up new industries or modernizing old industries, raw materials used in the manufacture of industrial products, and intermediate raw materials used in the production of finished products from intermediate products.
On one hand, the pace of setting up new industries has slowed down. Current industries are not able to produce products as per their capacity, seen through analyzing multiple reports by Bangladesh Bank.
In the financial year 2018-19, imports of industrial equipment decreased by 9.43%. As such, industrial equipment imports have been declining for more than two and a half years from 2018-19 to February of 2020-21.
This has stunted the process of modernizing existing industries and developing new ones.
Abul Kasem Khan, former president of Dhaka Chamber and chairman of Business Initiative Leading Development (BUILD) said: “The industry has been in recession for several years. As a result, the import of industrial equipment has decreased. As foreign investment is declining, so is domestic investment.”
Foreign investment comes at the hands of domestic investors. However, domestic investors are now sitting idly by. While foreign investment increases, as does domestic investment. Imports of industrial equipment have declined due to fewer investments, he explained.
He states: “This reduces the establishment of new industries. As a result, new employment has decreased.”
In the context of overcoming this situation, he suggested that domestic and foreign investment should be increased — not only by increasing domestic investment but also by increasing foreign investment. The combination of the two would lead to the development of the industrial sector.
But for the whole financial year, the import of the industrial sector decreased by 9.42%.
According to an industry insider, the demand for raw materials within the industry has decreased due to the establishment of new industries and the modernization of existing industries.
Additionally, due to the pandemic reducing people’s purchasing power, product sales are also decreasing. Subsequently, industries are not able to use their full potential.
Similarly, former economics professor Nazrul Islam at the University of Dhaka (DU) said, “Many industries import raw materials and make complete products with them. Industries in many sectors are not able to produce as per their capacity due to declining demand.”
He also said export-oriented industries import raw materials under back-to-back LCs. After making products with the raw materials, they export. The import of raw materials in this sector has been in recession for the last two financial years.
According to the central bank report, the opening of LCs for industrial raw material imports declined by 7.86% during July-January of the current financial year as opposed to back-to-back LCs increasing.
Industrial raw material imports decreased by 12.55%. Last fiscal year, LC openings declined by 7.02%, and imports declined by 11.68%.
First Vice-President of the Bangladesh Knitwear Manufacturers and Exporters Association Mohammad Hatem said: “70-75% of the factory's capacity can still be utilized. Due to low demand, production is not going according to capacity. That is why the import of raw materials under the bank-to-back LC has also declined.”
