Thursday, 28 October, 2021
E-paper

Business in Bangladesh regaining confidence, says SANEM survey

The business confidence in Bangladesh in April-June 2021 quarter showed improvement compared to the April-June 2020 quarter, but revealed that the business cost has risen, according to a recent survey.

South Asian Network of Economic Modelling (SANEM) in collaboration with The Asia Foundation presented the results from the fifth round of a nationwide firm-level survey.

The survey results, conducted from July 2-17, were disclosed through a webinar which was moderated by Dr Selim Raihan, Professor of Economics, University of Dhaka, and Executive Director of SANEM. Kazi Faisal Bin Seraj, the Country Representative of Bangladesh of The Asia Foundation was present during the event.

The yearly Present Business Status Index (PBSI) score of the fifth round is 46.37 whereas it was 40.55 in the fourth round – which shows a gradual progress.

But, a sectoral difference has been observed in the survey as the yearly PBSI score has differed in various sectors.

For example, sectors such as light engineering (40.34), wholesale (39.98), retail (42.34), transport (41.99) and other service sectors (37.27) did not improve as much as the pharmaceuticals (52.40), financial (56.50) or RMG sector (49.56) as we see if we look at the individual scores.

Compared to the January-March 2021 quarter, the quarterly PBSI score has fallen during April-June 2021 due to various forms of lockdown from April to June.

A score of 42.57 was seen for this quarter, which was 51.38 in the fourth round, 48.83 in the third round, 47.96 in the second and 29.48 in the first round.

The quarterly PBSI score, which was rising consistently over the last rounds has seen a setback being the second lowest score of the five rounds - which is concerning for the country’s economy and the business firms.

In terms of sectoral improvement, it was mentioned that the quarterly PBSI score of the light engineering, wholesale, retail, transport and other service sectors are lower compared to the other sectors.

This indicates that the mentioned sectors are facing more difficulties than the other business sectors.

The Business Confidence Index (BCI) has been used in the study to forecast the expectation of the firms regarding the next quarter.

During the 4th round of the survey, it was forecast that the BCI will fall in the April-June 2021 with a score of 41.39 and has turned out to be correct.

But the study also shows that the firms are hoping for an improvement in the next quarter (July-September 2021) and so the survey has given a BCI score of 49.74. But, again, the light engineering, wholesale, retail, transport sectors are falling behind in this matter as well with a score of 45.08, 46.51, 47.87, and 44.34 respectively.

Interestingly, it was observed that firm size matters when it comes to quarterly Present Business Status Index.

The survey showed that while the overall quarterly PBSI score stands at 42.57, for large firms, it is 48.42, the score is lowest for the micro and small enterprises (39.70) and the medium sized firms are in between them with a score of 43.75.

So, the large firms are comparatively faring better than the other two and the micro and small firms are suffering the most.

Besides, the export oriented firms are performing better with a score of 46.34 compared to non-exporting firms whose score stands at 40.26.

Moreover, the findings show that manufacturing firms are doing better than the service oriented firms, and firms based in Dhaka are at a better place than the firms located outside Dhaka.

Therefore, location, export status, firm type and firm size have been affecting the quarterly PBSI as per the study’s results.

While the survey of the last quarter showed a weak recovery of 67% of the firms, this percentage has come down to 64%, which is a very marginal improvement. Also, 31% of the firms were seeing a moderate recovery during the last round but the number has come down to 27% during this round.

A positive finding is that number percentage of strong recovery has gone up from 2% to 9%. While these percentages are only marginal, a gradual improvement is seen nonetheless as some firms have found ways to cope with the pandemic.

The firm size also plays a role in determining the strength of recovery as the findings have shown that while 73% of the small and micro firms have been observing weak recovery, for large firms, this number stands at 45%.

In addition, some factors which contribute to the overall economic recovery such as foreign remittance, export status, vaccination programme, banks’ credit to the private sectors, stimulus package and its disbursement, etc.

The survey demonstrated that contribution of these factors have increased compared to the previous round and the mentioned factors have been contributing strongly and consistently.

Another important finding has come up during the survey when the firms have been asked about the extent of recovery of their business since March 2020.

On average, 57% of their business has been recovered in March 2021 compared to March 2020 which has unfortunately reduced to 35% during June 2021.

Thus, recovery has deteriorated on average and a significant variation is seen regarding this when we look at the firm sizes: micro and small enterprises have suffered the most with a drastic reduction from the previous 46.9% to 28.3%.

It was found that 21% of the firms received stimulus packages during April-June 2021, which is very close to that of the previous round’s 22% and 65% did not receive it during this quarter as opposed to last round’s 69%. Therefore, no significant variation is seen here.

It was also seen that only 6% of the firms who did not get the package in the last quarter availed it in this quarter and among them, 4% were SME and 17% were large firms.

Of the 21% of the firms who did receive it during April-June 2021, RMG sector (52%) takes up the 1st place, followed by Textiles (36%) and Leather (30%) sectors.

Then, it was shown that only 9% of the micro and small firms have received the stimulus package during this quarter which is the same as the last quarter, whereas 45% of the large firms were able to avail the package during April-June 2021.

The survey found that lengthy procedure, difficulty in availing services from the banks, complicated application process, bribe, etc. were some of the problems the firms who availed the package had to face in order to receive it during the January-March 2021 quarter and the problems have existed during this quarter as well.

It was also presented that, on average, the quarterly PBSI of the firms who have received the package is better with a score of 47.70 than firms who did not as their score is 41.21.

It means that stimulus package has played a role in improving the quarterly PBSI of the firms.

It was observed during the survey that 65.7% such firms are using their own savings, 28.1% firms are borrowing or taking loans, 19% are laying off workers in order to cope.

The percentage of worker lay-off may be underestimated. It is matter of great concern that many firms might have to exit the market permanently if they do not get any external help or package.

The study has found that 60% of the executives of the firms have taken at least one dose of vaccine and the tendency to take the vaccine was more in the pharmaceuticals and financial sectors.

Furthermore, executives of Dhaka-based firms have taken the vaccine more compared to the other firms and representatives of large firms took the vaccine more compared to that of the small and medium firms.

When asked about the percentage of the workers who have taken at least one dose of the vaccine during the survey, it was found that about 25% of employees took at least one dose; workers of firms located in Dhaka or working in the manufacturing sector have the tendency to take the vaccine more compared to other sectors or locations.

The business firms are hoping to see an improvement in the upcoming quarter. He mentioned how businesses were affected heavily due to the pandemic and various forms of lockdown which has created uncertainty and deteriorated the country’s economy.

Keeping the patterns, there is a need to develop area and sector specific protocols by involving the stakeholders.

The hygiene experts, stakeholders from all sectors, workers and citizens need to work together in order to find a way to keep the economy of the country running amidst the pandemic.

Moreover, it is important to find the solutions in the context of our country’s challenges without trying to draw comparisons with other countries as each country operates differently and are facing different problems.

Dr Raihan suggested that strong vaccination programme, better distribution of the stimulus package and thorough COVID management at various level is essential for the recovery of the country’s economy.

The workers from must be vaccinated as soon as possible for all sorts of firms to run smoothly in the upcoming days.

While the programme of distributing stimulus package is very commendable and Bangladesh was one of the first South Asian countries to start this programme, Dr Selim Raihan hopes that the government will also assess the distribution system of the current stimulus package and ensure that the intended firms are receiving the packages.

He suggested that short but effective lockdowns must be implemented if need be so that the business firms do not suffer tremendously and the healthcare system and other related sectors should also be improved in order to improve the overall economy of Bangladesh.

The first round of the survey (held in July '20 with 300 firms) revealed the urgent state of business in the country. The second round (conducted in October '20) and the third round (conducted in January '21) showed signs of economic recovery. Held in April ’21, the fourth round exposed a deterioration of business confidence followed by the second wave of COVID-19.

The fifth round of the survey was conducted nationwide in July 2021 on 501 firms.

This round has provided insights on the pulse of the economy as the economy transits through the second wave of the pandemic.

500 firms have been surveyed in every round since the 2nd round of this survey.

The main objective of this ongoing project is to assess the impact of the COVID-19 crisis on business confidence and outlook in Bangladesh.

During the fifth round, 501 firms were surveyed among which 255 were manufacturing firms and 246 were service-oriented firms.

The survey was conducted in 37 districts of the 8 divisions of Bangladesh.

The survey was conducted by interviewing the business representatives of the selected firms over phone calls.

Firms were asked to express their opinion on six key issues: profitability, investment, employment, wage, business cost, and sales/exports.

Based on the responses, three indices were calculated: Yearly Present Business Status Index (PBSI), which was used to compare the performance over April-June 2021 with that over the same quarter last year, Quarterly Present Business Status Index, which compared performance over April-June 2021 with that over January-March 2021, and Business Confidence Index (Next Quarter) which compares the expectations regarding the performance in July-September 2021 with that over the present quarter (April-June 2021).

Across the three indices, a score of 50 indicates no change in the status, a score of less than 50 indicates deterioration while that above 50 indicates an improvement in business status/confidence.