Biz leaders want crisis management, energy security for survival

Bangladesh is still doing better compared to many other economies but the next few months will be very crucial as deepening energy insecurity and growing instability in the financial sector amid the ongoing liquidity crunch may erode the success businesses achieved over the years, prominent entrepreneurs have said.

At a discussion organised by The Business Standard marking its third anniversary at its office on Saturday, the business luminaries urged the government to formulate a long-term crisis management framework for energy security and leave the exchange rates and interest rates to the markets, and engage private sector stakeholders in policy-making to avert shocks of a looming global recession and sustain economic growth.

They also asked the authorities concerned to ensure exemplary punishment for the habitual loan defaulters to establish discipline in the banking sector.

TBS Editor Inam Ahmed moderated the discussion.

The TBS roundtable discussion, TBS Talks, was attended by business people representing sectors like apparel, steel, cement, ceramics, energy, automobiles, electronics and healthcare who discussed at length how the shortages of dollars and energy have cut their outputs and how businesses were struggling to stay afloat.

Azam J Chowdhury, managing director of MJL Bangladesh, told the event that the energy problem is not unique in Bangladesh and that countries across the world are suffering from the crisis.

"But we were not in the right direction about the policy. The problem is prices only rise here, they never fall," said Azam, also the Chairperson of East Coast Group which has exposure in the power, petroleum products, shipping, LPG, bank, and insurance sectors.

The government should have an automatic pricing formula for energy in line with the global markets so that entrepreneurs know what will happen in the future, he observed.

"Also, we need to formulate a long-term plan to ensure energy security," he said, adding that the private sector should be engaged in framing this plan.

Speaking on the money market, Azam said interest rates cannot be controlled and they should be left to the market.

"We are getting bad news from different banks about misappropriation of money and a lack of good governance. We need a strong recovery system and stringent actions against swindlers," he said.

Kutubuddin Ahmed, chairman, and founder of Envoy Group, said in his 39 years of business experience, he had never defaulted on or delayed in paying bank loans, but he is paying a price for defaulters.

He also batted for a floating exchange rate as people will learn to foresee and accordingly, they can plan their crisis management strategy. Citing India's case, he said the country had also faced such turbulence in the 1990s when they went for a float exchange rate.

Previously, the exchange rate of the US dollar was stable at Tk85-86, which was very comfortable for real estate businesses in fixing the price. But the high devaluation of the taka against the dollar in a short time caused huge losses for the sector as raw materials costs surged unusually high.

Ahmed also shed light on the deteriorating banking sector and said nothing will improve unless discipline was brought to the sector.

SK Bashir Uddin, managing director of Akij Group, expressed frustration over the unavailability of credible data.

He said businesses take risks on assumptions based on regulators' data but such a massive change in the exchange rate and energy price in a short time cannot be accepted.

"It is critically important [for businesses] to have informed and credible data," he added.

If the Bangladesh Bureau of Statistics' calculation of per capita income is true, then there is a pretty bright future ahead of the Bangladesh economy but it is not reflected in reality.

He also expressed frustration over the "illogical" imposition of taxes and said the regulator should ensure a level playing field for all in VAT compliance.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said monthly imports went up to $9.8 billion after the pandemic due to soaring demand, putting pressure on the exchange rate and the current account balance.

"Our economy is growing and we have to assess how sustainable the import restrictions will be. Dollar price gained around 20%, further fuelling inflation," he said.

Many customers could not open LCs and importers are desperate to get foreign currency no matter what the cost is, he said.

The banker said dollar prices shot up massively because Bangladesh never followed a real market rate. "Now it is high time we made the exchange rate market-based," he added.

Mahbubur Rahman also pointed out the mismatch between deposit and loan growth.

He said deposits grew by 5% last year and loans by nearly 14%, which led to a liquidity crisis in the banking system.

Lending is now loss-making for banks because the spread between the lending rate and deposit rate came down to 2.6% from 4% previously. So, the 9% lending rate cap should be lifted, he noted.

Echoing other speakers, he said default loans kept rising as willful defaulters remained unpunished.

Imran Karim, vice chairman of Confidence Group, said there is a lack of confidence in the economy.

On the exchange rate, he said nobody knows what the dollar price will be in the days to come. "Had the devaluation started in the year 2021, the shock would not have been so harsh for businesses," he observed.

He also called for reforms in the financial sector and punishment of willful defaulters.

Md Shahidullah, managing director of Metrocem Group, said the cement and steel industry grew rapidly, riding on massive economic activities including mega projects.

The cement and steel sectors expanded more than the demand after the reassurance that the country had the capacity to supply them with adequate gas, he noted, adding, "But the current situation is just the opposite and many mills could be sick as they are facing a shortage of working capital."

Shahidullah asked for policy consistency, such as with the exchange rate, so that they can decide whether or not they should open LCs at the moment.

Usually, an LC for the steel industry values above $1 million but banks could not open LC due to import restrictions, he added. 

Mohammed Humayun Kabir, chief executive officer of Shinepukur Ceramics, said forex reserves would not be under pressure if there was a long-term plan for energy supply. Now, businesses are in an unsustainable situation because of unusual hikes in the prices of gas and electricity.

The Bangladesh Energy Regulatory Commission is there to adjust energy prices but this time that framework was ignored, which reflects a lack of governance, he said.

The private sector is paying for energy but is not getting supply accordingly. He questioned whether the supply will be uninterrupted even after the hike in price.

It is critically important (for businesses) to have informed and credible data ---- SK Bashir Uddin, Managing director of Akij Group

If industries do not get adequate supply even after paying higher prices, they will face a disaster, Humayun observed.

There is no policy consistency and long-term vision for energy security, he noted, adding that the economy will not sustain without a long-term policy framework.

Golam Murshed, CEO of Walton Hi-Tech Industries, said high finance costs caused by the devaluation of the taka and high inflation ate into their profits.

Walton earned over Tk37 crore in profit in the first six months of the current fiscal year compared to the previous year but profit stood at Tk14 crore after financial adjustment. As a result, the overall profit of the company declined.

He said policymakers are not thinking of the local industry.

"Fruits and biscuits are being imported, but these products can be produced locally. So, who will take care of this?"

Sharif Zahir, managing director of Ananta Group, said garment exporters are facing order shortages and this trend will continue in the coming days as large buyers such as Walmart could not clear their stock yet amid the global recession.

However, there are opportunities in the long run because orders are shifting from China to Bangladesh due to political issues. He emphasised enhancing the capacity to grab those orders.

AM Shamim, founder and managing director of Labaid Group, said banks have to reduce their profit margin and swindlers have to be punished, and the health sector should be given priority.

He said that when banks are unwilling to open LCs for pharmaceutical products because of the dollar crisis, import LCs for SUVs could be opened rather easily. But that should not be the case, he said, stressing prioritising medical equipment and raw materials imports over imports of luxurious products including SUVs.

Shams Mahmud, former president of the Dhaka Chambers of Commerce and Industries, said the outlook for the economy looks much less rosy for this year because export orders will decline as America and Europe are headed for an economic recession.

He urged the government to make a long-term plan to deal with the upcoming economic challenges effectively.

MA Jabbar, managing director of DBL Group, said the government should prepare itself instead of waiting for what comes from the global crisis.

The world has changed in the post-pandemic era, so the government should reform and reshape business policies, he said, adding that confidence should be restored in the banking sector to attract foreign investors.