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Uncertainty is silencing the investment frontier

Investment in Bangladesh has not increased even after the economy reopened five months ago due to the deep uncertainty. Even Foreign Direct Investment (FDI) in Bangladesh falls by 32% in H1 of 2020. From the perspective of several entrepreneurs and economists, this uncertainty is for the unpredictable second wave of coronavirus. This uncertainty will continue and investment will not return to pre-epidemic levels until the crisis is brought under control.

Banks are also concerned about the threat of coronavirus second wave. Thus, many banks have adopted the waiting procedure. In addition to the investment, disturbance of industrial term loans, the other index stood at Tk 28,063 crore in the April to June quarter, down 34.99 percent from Tk 43,154 crore year-on-year.

Bangladesh-apparel-export-scenario
Figure 1: Investment in Bangladesh has not increased even after the economy reopened five months ago due to the deep uncertainty.

Humayun Rashid, Managing Director of Energypac Power Generation, said there had been a liquidity crisis in the banking sector since January. Besides, the interest rate of the bank was higher. So, investors did not go for a bigger expansion.

Zaid Bakht, Chairman of the state-owned Agrani Bank, blamed the 9 percent payment ceiling, which came into effect from April this year, for the reduction in industrial term loans. Private commercial banks are very conservative in lending at 9 percent. They are lending on a priority basis.

They do not want to take any risk. Banks are careful to give loan so that no one could collect money through fraud. Banks with excess liquidity are investing in treasury bills, said former research director of the Bangladesh Development Research Study.

As a result, many private individuals who normally banking in private banks are turning to state-owned banks for new loans. Even during the epidemic, the credit growth of Agrani Bank increased by 17 percent. Investment recovery stalled, prolonging uncertainty for the domestic and international economy. These uncertainties are the root cause of the unavailability of the epidemic trajectory and how long it can take at once and for all.

According to Zahid Hussain, a former top economist at the World Bank’s Dhaka office, investing is the confidence that has been fragile in Bangladesh for some time now. Income taxation is difficult for investors to invest in an environment where both sales and spending are effective as global economies crawl back from an epidemic-induced recession.

Bangladesh-Custom-based-import-LC-settlement-LC-opening
Figure 2: Custom based import, import LCs settlement and LCs opening.

Reducing the cost of financing recently due to the abundance of liquidity in the banking system cannot do much to strengthen the spirit in such an environment. Excess liquidity itself is part of the lack of investment demand. There are structural barriers to investment that hinder initiatives to start and expand manufacturing activities in sectors where new opportunities are opening up.

Reforms have stumbled to ease obstacles such as setting up one-stop shops, establishing economic zones and increasing transparency and forecasting of business regulations.

“Policymakers can make a difference if they can tear up the bureaucratic red tape and speed up decision-making.,” Hussain said.

The significant decline in LC settlements for the import of capital goods, the disbursement of long-term loans, and the continued opening of LCs for the import of capital goods indicate continued weakness.

The custom-based import during July-August, FY21 declined by 13.80 percent and stood at USD 8034.00 million against USD 9319.80 million during July-August, FY20.

The import LC (revised) settlement decreased by 10.88 percent during FY-20 FY and stood at $51091.47 million as against $57328.19 million in FY 19.

Bangladesh-LC-opening
Figure 3: The new opening of the import LC (revised) for the FY20 has declined by 9.51 percent. Source: Bangladesh Bank, in million $

The new opening of the import LC (revised) for the FY20 has declined by 9.51 percent and stood at USD 53119.86 million as against USD 58703.38 million in the previous fiscal year.

The opening and settlements of LCs for importing capital machinery, intermediate goods, and raw material decreased which was supposed to show an incredible increase to fill up the 2021 goals.

Bangladesh-LC-Settlement
Figure 4: The significant decline in LC settlements. Source: Bangladesh Bank, in million $

Asif Ibrahim, the Vice-Chairman of the Newage Group of Industries said, “The decline in capital machinery imports and the disbursement of term loans was mainly due to the lack of investor confidence due to the global pandemic.”

Abdul Halim Chowdhury, Managing Director, Pubali Bank, a private commercial bank, said, “Machinery imports have increased in recent months, which will be reflected in the December quarterly report.”

Ahsan H Mansur, Executive Director of the Policy Research Institute of Bangladesh, suggested that existing capacities should be used first, and then new investments should be made.

Bangladesh-apparel-export-scenario
Figure 5: Yarn, jute textile, knitwear, and garment production in June to May.

In India, capacity utilization in the economy was somewhere at 69 percent, and expecting new investment demand from private corporations seemed unlikely for some time, said State Bank of India Chairman Dinesh Kumar Kharahe.

Bangladesh is not far behind in using its capabilities. A recent report showed significant growth in Bangladesh’s textile, jute, and RMG production.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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