A mix of unease and hope as Bangladesh dives into 2024
2024 could be a year of growth
Like the outgoing year, 2024 could be a challenging year but it will also offer immense opportunities to Bangladesh's corporate sector to post growth, said eminent industrialist M Anis Ud Dowla.
In an interview with The Daily Star, the chairman of ACI Group said, "The country's development has been remarkable amid difficulties."
For all latest news, follow The Daily Star's Google News channel. "Infrastructural development has been quite remarkable. Overall, if we look at the GDP growth and per capita income growth, all these have been very positive."
The former president of the Metropolitan Chamber of Commerce & Industry said the country had experienced shock from the foreign exchange shortage.
"I think the issue of foreign exchanges has been managed and other financial issues are addressed. Overall, we are very upbeat about 2024."
"Hopefully, the next elections will be peaceful and participatory. And after the election, stability will be attained. So, I am quite hopeful for the future. Bangladeshis are smart people."
Talking about the economy, he said 2023 had been difficult.
"We had a stressful time. But we have to think positively and overcome the difficulty. We can't give up and be frustrated."
Anis Ud Dowla said 2024 will also be a challenging year.
"To this end, a discipline must return to the financial sector and it should be reformed. The export capacity should be strengthened."
He said the country is witnessing challenges because of misgovernance in the financial sector.
Reforms must speed up after election
Bangladesh's economy might see a boom in the coming years if mega projects such as the Bay Terminal of Chattogram Port, the Matarbari Deep Sea Port and the Dhaka-Chattogram Elevated Expressway are completed on time, said BSRM Chairman Alihussain Akberali.
He underscored the need for taking proper economic reforms and prioritising projects by properly calculating the payback periods to avert debt traps.
He emphasised taking on some measures, including freeing the interest rate and making the currency rate flexible and the banking system strong to navigate 2024.
"Make laws so strict that none can take away any money from banks illegally under no circumstances," Akberali said.
The industrialist lauded the government for taking various mega projects, calling it brave.
"But from now onward, it needs to consider the payback period before initiating any mega project as well as during their implementation. Otherwise, we may fall into the debt trap."
Akberali says Bangladesh would have done better if it could take some steps long ago by gradually freeing up the interest rate as well as making the exchange rate flexible.
Regarding the slowdown faced by the economy in 2023, he said, "I think we were overconfident that our exporters would save us. Now, we are facing too much shortage of foreign exchanges."
"If reforms were put in place three to four years ago by slowly devaluating the currency and increasing the interest rate in phases, we might not face the current situation all of a sudden."
According to the BSRM chief, Bangladesh has huge potential and there is no reason for the country to look back.
"The only thing is that there has been no serious reform in the banking sector in the last three or four years against willful defaulters. The lack of strong steps to rein in willful defaulters led to the serious liquidity crisis."
Akberali thinks the new government can't slow down reforms, infrastructure development and digitalisation.
"Digitalisation in many spheres is urgent. Government organisations are aware of digitalising things and they are trying but the implementation is very slow."
He said the Awami League has been in power for 15 years but the land ownership document is yet to be digitalised.
Businesses display resilience
Businesses in Bangladesh managed to demonstrate resilience in 2023 despite lingering challenges stemming from the war between Russia and Ukraine and the fuel price volatility in the international market, said Rupali Chowdhury, president of the Bangladesh Association of Publicly Listed Companies (BAPLC).
"The burgeoning middle-class showed resilience, so businesses survived."
She said though the war was a global phenomenon, Bangladesh was also impacted by its high dependency on fuel imports to run electricity plants.
Chowdhury, a former president of the Foreign Investors' Chamber of Commerce & Industries, says 2023 was a challenging year for businesses except for those in one or two sectors and it started in 2022.
Inflation was high in 2023 due to the exchange rate fluctuation, which ultimately weakened the value of the local currency significantly against the US dollar.
"So, the consumption for products declined. Even, the demand for fast-moving consumer goods dropped. As a whole, consumption has reduced," she said.
Moreover, she said, businesses could not pass the full burden of the currency depreciation to customers since it could bring down the demand further. Large firms were able to continue their operations while it was very challenging for small and medium enterprises.
Currently the managing director of Berger Paints Bangladesh, Chowdhury says the companies that were in expansionary mood could not open letters of credit (LCs) to import capital machinery.
The LC opening situation was tough initially before seeing some improvement. But it has come under stress recently, maybe for the uncertainty surrounding the national election.
She said some companies are supplying products to government projects, but the supply shrank as the projects are moving at a slower pace.
Fortunately, the electricity situation did not worsen as businesses had feared at the start of the year although the price rose significantly. The supply of gas was, however, in bad shape, inflicting damages on industries.
"The high price of fuels ultimately raised the costs of production. Therefore, it was difficult to maintain profitability for the companies that did not cut jobs or salaries."
According to the CEO, multiple exchange rates and the volatility in dollar prices also hit businesses in the just-concluded calendar year.
"2023 was the most difficult year for all."
Still, Chowdhury sounds optimistic about 2024.
If Bangladesh can borrow $8 billion to $10 billion from the World Bank and other multinational development partners, the situation will improve, she said.
Opportunities not limited to a year
The opportunities for Bangladesh are not limited to a year, rather are continued and for the long-term, said Yasir Azman, chief executive officer at Grameenphone, the largest mobile phone operator.
"The next couple of years are very crucial for us. We should not miss the train when there are possibilities to have a shift in our export-oriented industries, especially in manufacturing and building more vibrant economic zones in the country," he said in an email interview with The Daily Star.
He said that, despite the challenging macro-economic situation, currency devaluation, and price hike, the country has huge potential.
"We as a nation are very strategically positioned, having an amazing demographic dividend and being resilient in nature. The country has seen robust infrastructural development in the recent past, connecting the unconnected through massive development projects like Padma Bridge and Karnaphuli Tunnel," Azman said.
"On the other hand, we have developed a very strong mobile broadband network across the country. High speed internet infrastructure is there as a result of the initiatives by both government and mobile operators," he added.
He said the nation has significant opportunities in the IT sector in general and through freelancers on a broader scale.
"What we need is stability and good governance to unleash such potential to become an economic power in the foreseeable future," said Azman, who took charge as the first Bangladeshi CEO of Grameenphone in February 2020.
He said 2023 was pivotal for Grameenphone, marked by significant transformational initiatives.
The mobile phone operator, majority owned by Telenor, navigated through supply chain disruptions and equipment import challenges despite less favorable macroeconomic conditions and global conflicts.
Work to ensure energy efficiency
Bangladesh is more dependent on imported fuel because of its limited primary energy. Hence, policymakers need to work towards ensuring energy efficiency, said the chief of Bangladesh Independent Power Producers' Association (BIPPA).
"Given the limited quantity of primary energy, only the most efficient utilisation must be ensured. We are more dependent on imported energy rather than using our low-cost indigenous gas," said BIPPA President Faisal Khan as he shared his views regarding opportunities for the year 2024.
Transmission and distribution also require more investment to ensure quality electricity to industries, he said, adding that private sector investment in transmission and distribution would expedite development in the power generation sector.
Khan, also director of Summit Power International, one of the leading private power generators, said 2024 would be about survival of the Independent Power Producers (IPPs) as they are struggling to import fuel amid the dollar shortage and slow payment of overdue bills by the government.
"Local banks are struggling to source US dollars to settle the limited fuel import letters of credit, foreign loan repayments, and spare parts procurement. The power sector requires support from the Bangladesh Bank to ensure uninterrupted power generation," he said.
Apart from this, the government owes over Tk 25,000 crores to IPPs in monthly bills. Some plants have more than nine months of payment overdue, he said.
The BIPPA chief said the Bangladesh Power Development Board (PDB) makes partial payments each month from their revenue collection and support from the finance ministry.
The dues are building up because of non-release of funds allocated to the power sector during the national budget for the current fiscal year, according to Khan.
Consequently, he said, IPPs are suffering massively from forced loans and defaults on loans and other payments.
"IPPs are collapsing due to the huge receivables," he said.
He said IPPs are prepared to support the nation to meet its electricity needs but they alone do not have the capacity to ensure uninterrupted electricity without the US dollar support from the Bangladesh Bank and resolution to the cashflow crisis due to extremely delayed bill payments.
Khan said high interest rate on loans, inflation and disparity in the foreign exchange rate are the key challenges for businesses and the economy.
"We need to overcome these challenges to attract more foreign direct investments and ensure survival of local industries."
Opportunities there, so are challenges
The global economy seems to remain fragile in 2024 though inflationary pressure might come down despite the continuation of the wars in Europe and the Middle East, said Kanti Kumar Saha, chief executive officer of Alliance Finance PLC.
Major central banks may not raise interest rates further, as predicted by most of the global think-tanks.
Bangladesh will not be an exception, he said.
"Major challenges will be how quickly businesses come out of the import restrictions, the higher rate of inflation, the rate of interest, and higher non-performing loans."
He said despite all these challenges, there will be more opportunities in the new year.
"But much will depend on the political stability and quick economic reforms, including faster decisions of money loan courts as well as concluding on the fate of weaker institutions."
According to Saha, the financial sector and the capital market should come out from the restrictive measures to a market-driven exchange rate and interest regime. There should not be any floor price in the stock market and stern action against manipulators should be ensured.
"Listing of good companies is a must."
Both state and private businesses should come to the capital market to raise funds, instead of continuing their reliance on banks for project financing.
Saha said the National Board of Revenue can think of a few incentive structures to attract large and multinational companies. Biggies will not come for listing without attractive tax incentives.
Recovery likely after March
Businesses in Bangladesh will likely start recovering from the ongoing economic downturn after March 2024 if the inflationary pressure and US dollar crisis in the country are resolved.
But the situation will worsen if taka, the local currency, faces further devaluation against the greenback, according to Malik Mohammed Sayeed, chief operating officer of Square Toiletries.
"Production costs rose substantially in 2023 due to the higher import cost of raw materials," Sayeed said in an interview with The Daily Star yesterday.
He informed that the import costs did not rise due to higher prices in the global market, but rather due to the currency devaluation and subsequent increase in duty payments.
For example, the customs authority imposes a duty on referral prices, meaning that products such as noodles imported at $800 per tonne will face duty based on its referral price of $1050 per tonne.
As such, importers unnecessarily pay an additional 25 percent import duty.
Sayeed also said sales of fast-moving consumer goods (FMCG), particularly cosmetics and toiletries, have decreased by at least one-fourth of previous levels due to a hike in product prices amid inflationary pressure.
The annual turnover of the FMCG market came down to around Tk 15,000 crore in 2023 from Tk 20,000 crore in 2022, he added.
Multinational companies control about 67 percent of the overall market while the remaining 33 percent is shared by local manufacturers such as Square, Kohinoor and ACI.
With this backdrop, Sayeed stressed the need to control inflation while also increasing the country's foreign exchange reserve in order to stabilise the market.
He also said product prices will not come down overnight, but the market situation will improve gradually in 2024 if inflation is controlled.
Consumers were forced to reduce their purchases of FMCG in the outgoing year in order to survive the inflationary pressure, which is very natural, he added.
According to Sayeed, almost all sectors suffered the same fate as FMCG throughout 2023.
"But we are optimistic about improving slightly in 2024 as there is the possibility to stabilise the political situation," he said.
"Besides, the government will try to take measures to revive the economy," he added.
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