LOOMING CRISIS | Business Confidence Index of Bangladesh dropping to 41.39%

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As the whole of the world is now acutely aware, an outbreak of COVID-19 was detected in mainland China in December 2019. To prevent the contagion of this deadly virus, as per government instructions, most private companies went into shutdown and many lost their jobs. Since activities of the government, organizations and the economy go hand in hand, the emergence of a global pandemic is going to inevitably impact industries. And more specifically it has affected businesses overall. After the first wave of the deadly virus, business activities seemed to have recovered and the economy was moving toward a slow and steady recovery, hanging in a state of replenishment.

However, the recent breakout of a new variant is running laps across countries and around the world. The new variant or as scientists call it, the “Corona Strain” allegedly is stronger and spreads much faster than its former counterpart. It is mutated and an evolved form of the already destructive COVID-19. News regarding this new variant of the virus has invoked horror into the minds of the populations. India is the most recent victim of this virus, as rates of infected people and deaths in India are skyrocketing daily. As of writing this article, the number of infected people confirmed in the country stands at 25,288,996, while the number of deaths is 278,719. Due to such horrifying circumstances, numerous countries in the Indian subcontinent region have declared lockdown to prevent the virus from spreading. Borders have been equipped with tight safety equipment and protocols to prevent the new variant of the microbe from entering other countries nearby. As a result, businesses in countries of this region are facing imminent threat, as safety protocols and government restrictions on business activities place a great challenge ahead of them. One such country is Bangladesh.

One measure of how much confidence businesses have in themselves is the Business Confidence Index (BCI). This business confidence indicator provides data or information on future developments based on opinion surveys on production developments, orders as well as stocks of finished goods in specific sectors of an industry. The Business Confidence Index is calculated through the analysis of six distinct components, namely profitability, sales/exports, employment, investments, business cost, and wage. As one survey suggests, following the resurgence of COVID-19, industries in Bangladesh are currently concerned about their future as activities have slowed down in the 2nd quarter of the year. The Business Confidence Index of Bangladesh has dropped down to 41.39 points for the respective quarter which previously stood at 57.9 in the last quarter. A confidence level under 50 represents a worsening of the conditions, while a Business Confidence Index over 50 reflects an improving or recovering economy. For Bangladesh in this quarter, such a sharp decline in the Business Confidence Index indicates a strong point of concern for businesses. 41.39 points allegedly is the lowest level of confidence recorded in a year, giving rise to uncertainty.

The survey also unveiled some other notable findings. It demonstrated that sectors such as textiles, pharmaceuticals, food processing, ready-made garments (RMG), and financial institutions have displayed a quicker recovery formerly in the last two quarters in comparison to light engineering, leather, restaurants, real estate sectors, and transportation that have seen a more gradual recovery process. Thus, these slower sectors require increased attention for them to survive, possibly through subsidies as well as other financing and tax incentives. Moreover, the survey revealed that 67 percent of the country’s businesses expect to witness a weak recovery, 31 percent are hoping for a moderate recovery while only 2 percent are confident enough to look forward to a strong recovery. However, prior to this lethal recent reincarnation of the virus responsible for the pandemic, businesses were expecting better recovery as is evident in the fact that only 14 percent of business were afraid that the recovery would be weak, whereas 52 percent predicted a moderate recovery and the remaining 34 percent were confident that a strong recovery will be seen following the quarter.

Furthermore, the survey also unveiled that, on average, firms have been able to recover fifty-seven percent of the losses that took place from March 2020 to March 2021. Leading this race is the financial industry with a commendable 73 percent rate of recovery closely followed by the pharmaceuticals and chemicals industry with an impressive 72 percent of damages recovered. Shortly after arrives the readymade garments sector with a 67 percent recovery rate preceding the textile industry at 66 percent recovery. Although this shows that the firms have not yet been able to return to the level before the pandemic, there has been a slight improvement in conditions around the fourth quarter. However, the overall score remains under 50 and substantial improvements are still of the essence for the economy to keep moving forward, neutralizing the effects of a global pandemic ranging more than a year.

The findings that this survey conducted in April 2021 yielded were published at a webinar which was titled, “COVID-19 and Business Confidence in Bangladesh: Findings from the 4th round of a Nationwide Firm-Level Survey.” The Webinar was organized and conducted by the South Asian Network on Economic Modeling in alliance with the Asia Foundation. The survey had been conducted on employees or supervisors of 500 business entities: 250 service sector organizations and 253 manufacturing sector organizations. These candidates were interviewed from April 6 to April 18. The former Lead Economist at the World Bank (WB), Dr. Zahid Hussain, Asia Foundation Country Representative in Bangladesh, Kazi Faisal Bin Seraj, SANEM Executive Director Dr. Selim Raihan, and Dhaka Chamber of Commerce and Industry (DCCI) President Rizwan Rahman spoke at the program. Dr. Raihan claimed that the confidence level was in variance among three groups: large businesses, medium businesses, and small or micro-businesses. Erosion of confidence was more prevalent among small and micro enterprises in comparison to their medium and large-sized counterparts.

He stated that currently about 39.02 percent of micro or small enterprises were confident about their business in the upcoming months whereas this figure stood much higher in the previous quarter with 57 percent of these enterprises were found to be confident about their future. In the case of medium business, the confidence level was formerly 56.79 percent in the last quarter which has now shrunk down to a mere 40.83 percent for the April to June quarter. And finally, 46.1 percent of the large corporations are still quite confident about their businesses, which in the immediate past quarter was 60.88 percent. Dr. Zahid Hussein agreed it is obvious that the large enterprises have an advantageous situation relative to the micro and small businesses as the size of the company as well as its performance history, location, and export status, etc. are the causes behind their performance amidst this corona situation.

Large firms have more influence and power which allows them to have higher bargaining power and thus, grants them better access to stimulus packages. He added that Bangladesh’s economy has been in a recovery phase since the middle of the former year but also believes that the trend has not been the same across all sectors. This survey has also brought to the forefront that businesses are recovering from the damages caused by the five components of sales/exports, profitability, investment, wage, and employment, the only exception being business cost. Dr. Raihan revealed that to understand business entities’ dissatisfaction about the cost of business, SANEM has formulated the “Enabling Business Environment Index (EBI)” which demonstrates that the previous level of business management cost hasn’t yet been reached by the pandemic-time cost. He further added that most businesses hold higher property registration fees, complex taxation, poor trade logistics, lack of skilled workers, corruption, and no access to finance accountable for increased business costs. Dr. Zahid Hussein pointed out that the upcoming budget will play a crucial role in reestablishing the Business Confidence Index.

However, all is not lost yet as Mr. Rizwan uttered words of hope. He suggested that to opt for a better future and a healthier economy, corruption must be put under control and the tax system should be fully automated to speed up the collection of revenues. Moreover, the Central Bank (Bangladesh Bank) in collaboration with monetary institutions needs to construct guidelines aimed at the banking sector that ensure the disbursement of funds and loans to small and micro-businesses. Furthermore, the Dhaka Chamber of Commerce and Industry President added that Digital Technologies in SMEs must be integrated for the economy to rehabilitate and recover from this deadly pandemic. Zahid Hussein on the other hand hinted that the Confidence Index could act as a double-edged sword since infection rates are allegedly predicted to stay for two years more. He was quoted saying to the Daily Star, “If you are too confident that your business would perform better in future, you will expand your business through investing and hiring more. When everyone starts doing it, mobility will increase, and there will be frequent public gatherings. Thus, the prevention of the spread of the virus will be compromised.” Thus, it is safe to say that there is still a scope for recovery and a low Business Confidence Index is not necessarily a bad thing at the moment. Every situation has its silver linings and crisis presents the opportunity for invention. If today is the sunset of bad times, there will be a sunset of good times.

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