• Tuesday, September 23, 2014

Economy shows signs of recovery

Business activities pick up, but fresh investments are not coming to manufacturing sector due to uncertainty

Sajjadur Rahman

Manufacturing and productive activities are yet to pick up to the level of 2011-12, but trade and commerce and services sectors have kept the economy going.

Analysts said the buying and spending spree ahead of the Eid festival has made the economy vibrant. Yet, there are questions whether this is a sign that the economy is overcoming the crisis it has been going through for the past few years, or whether the recovery is short-lived.

“Year-on-year export growth was better than expectations. Exports of non-readymade garment items also increased,” said Khondaker Golam Moazzem, additional research director at Centre for Policy Dialogue, indicating that the economy is showing some signs of recovery.

Export Promotion Bureau data shows exports grew by 11.56 percent in fiscal 2013-14 than the previous year.

For investment purposes, many enterprises borrowed low-cost funds from foreign sources in the last couple of years. Bangladesh approved foreign loans worth $1.8 billion in fiscal 2012-2013, which was 43 percent higher than $1.04 billion a year ago. The trend continued in the immediate past fiscal year, when more than $1.5 billion was approved.

“Investments are being made in small industries and trade financing,” Moazzem said.

The economy has been facing hurdles for the last few years, due to domestic political unrest and global financial meltdown. But the decline in business confidence started back in 2010 with the stockmarket debacle. Then came the multi-level marketing frauds involving hundreds of crores of taka and banking scams that involved Hall-Mark, Bismillah Towels and BASIC Bank.

 

Political violence throughout 2013 added further woes to the economy. The crisis in business eases to some extent with the growing political stability in the country. Companies' rising profits also reflect the trend.

Most of the companies -- from banks to insurance, cement, pharmaceuticals and textile companies listed on the stockmarket -- have reported that their quarterly and half yearly earnings have improved significantly this year compared to the same period a year ago.

MJL Bangladesh Ltd, which is a joint venture between state-owned Jamuna Oil Company and East Coast Group, has reported almost double profit during the first half of 2014 compared to the same period a year ago.

Jamuna Bank's profit soared 200 percent in the first half of this year than the same period a year ago, while Bank Asia's profit rose by nearly 35 percent. All other private and foreign banks posted positive growth during January-June indicating that the economy is bouncing back.

Beximco Pharmaceuticals registered 10 percent higher growth in its profit in the first half of 2014 than the same period in the previous year. Reckitt Benckiser Bangladesh, a global leader in household cleaning and healthcare, posted more than 36 percent profit in the first half of 2014 than the same period in the previous year.

Analysts and businesses said the economy is rebounding and now facing less hurdles than before.

“The demand for products has been rising for the last few months,” said Azam J Chowdhury, chairman of East Coast Group.

Bankers also believe business activities are showing improvement in confidence.

“We see some positive signs in private sector credit growth,” said Helal Ahmed Chowdhury, managing director of Pubali Bank.

Bangladesh Bank data shows, private sector credit growth is picking up gradually, from 10.46 percent in March to 11.86 percent in April and around 12.5 percent in May this year. As of May, the growth in private sector credit was 15.7 percent including foreign borrowing. Of the 16.5 percent ceiling for private sector credit growth, 14 percent will come from local sources by December 2014, BB estimate shows.

However, there is uncertainty in the economy as expected investments are not coming to the productive sectors.

“Entrepreneurs are not investing in manufacturing and other productive areas that generate much-needed employment,” said Chowdhury of East Coast Group.

His assumptions proved right when manufacturing companies like BSRM, Heidelberg, S Alam Steel, Linde BD and Envoy Textile showed negative growth in their half-yearly or quarterly earnings.

“Though there is no political unrest, uncertainty is there. Maybe, this uncertainty is keeping entrepreneurs away from making fresh investments in the manufacturing sector,” said Moazzem of CPD.

Addressing infrastructure deficiencies can attract big investments in manufacturing and other productive sectors, he said.

Published: 12:00 am Monday, July 28, 2014

Last modified: 1:43 am Monday, July 28, 2014

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