Light engineering eyes bigger slice of global pie, seeks policy support

The light engineering industry, if given comprehensive policy support, could become the largest export-earning sector for Bangladesh by grabbing a sizable share of the $7 trillion global market, said entrepreneurs and traders at a webinar organised by The Business Standard yesterday.

Bangladesh currently holds a less than 1% share of the international light engineering market while a major portion of the domestic demand is also met through imports, they mentioned.  They added that the sector is failing in giving expression to its full potential because of various problems, such as high import duties and VAT on raw material sourcing.

At the online seminar, themed "Proposed Budget: What are the incentives", industry people also emphasised the need for a dedicated industrial park and expansion of technical education to help the sector attain the expected growth.

Shams Mahmud, former president of the Dhaka Chamber of Commerce and Industry, Md Abdur Razzaque, president of the Bangladesh Engineering Industry Owners Association, and Yu Lianghui, managing director of Jia Mei Industries (BD) Ltd participated in the discussion on behalf of the industry.

In his introductory remarks, TBS Executive Editor Sharier Khan said, "We consider the light engineering industry to be a small industry. In fact, it is much larger."

The light engineering industry produces the machinery and equipment which are the driving force behind industrial production, he pointed out, adding that the sector currently produces most of the machinery for the agricultural sector, marine, mold and dye, textile, jute mills, tea garden and mills, construction industry, bakery industry, metal furniture, paper mills, animal husbandry industry, automobile industry, and also for people's everyday life.

Around 8-10 lakh people have been employed in more than 50,000 such factories, he continued.

Sharier Khan went on to say that the industry can grow several times bigger with rising domestic demand. The government also comprehends the nature of the issue. There were some announcements for the industry in last year's budget, which included a 10-year tax holiday.

But he noted that more incentives are needed for the development of the sector.

Former DCCI president Shams Mahmud told the webinar that no one in the industry got the government's tax holiday benefit announced last year because of various conditions set by the authorities.

"We have not seen much policy change vis-a-vis the light engineering sector even in this year's budget proposed by the finance minister," he said.

Stressing the need for skilled manpower, he said, "Light engineering has transformed from simple welding to the concept of an industry. Now CEC programming and automobile works also are included in this industry. As such, there will be no expansion of this sector without an expansion of technical education."

The proposed budget for FY23, however, does not incorporate any initiative to address these issues, he observed.

"Once we move out of least developed country status, we will have problems with exports and imports of raw materials. The country's light engineering industry will also be threatened. At that time, technical and technological development will be necessary to survive in the competition. For all these reasons, we think that a comprehensive policy is needed," said Shams Mahmud.

If this policy comes about, the country's light engineering industry will reach a better position in the next five years, he added.

Md Abdur Razzaque, president, Bangladesh Engineering Industry Owners Association, highlighted the current status and potential of the light engineering industry in the country.

"We have an investment of about $15 billion in the light engineering industry. There was a time when our annual growth rate was more than 10%, but it has come down now. Its contribution to GDP has also come down from 3% to 2.5%."

But the sector has the potential to grow three to four times beyond its current status, he said, adding it also has the possibility to be the largest export sector of the country with employment opportunities for 50 lakh people.

"We import molds worth around Tk1,200 crore every year for various industries. But they can be produced locally. Although we are catering to a part of the market demand, it has yet not been possible for us to meet full demand.

"We have been demanding a dedicated industrial park for light engineering for a long time. Construction work on an industrial park has been going on for almost a decade now. But the progress is not satisfactory," he added.

Obstacles

Yu Lianghui, managing director of Jia Mei Industries (BD) Ltd, said he invested in the light engineering industry after seeing the potential of the sector, but he is now in trouble.

"I have a factory that produces electric motors. I need to import 20-30 types of raw materials with a maximum of 26% customs duty. But different industries in the country are importing the same motor as a finished product through paying duty of 1%. As a result, I cannot compete in the market."

He noted that other countries, including China and Vietnam, do not have this problem.

Shams Mahmood said that one of the major obstacles in the light engineering sector is that policymakers consider it a small sector.

Besides, there is a problem concerning VAT, he said. "Entrepreneurs have to pay 15% VAT on whatever materials they procure. Sometimes, they also have to pay high tariffs for many raw materials due to the complexity of the H-code," he explained.

Echoing Yu Lianghui and Shams Mahmood, Abdur Razzaque said it is difficult to move forward in this sector due to such tariff inequality.

Shams Mahmood also identified policy continuation as a big problem. "The government changes policies abruptly, which interrupts the development of the sector. For example, it banned three-wheelers in a sudden decision, rendering two-three lakh machines useless. Again, the decision can be reversed at any moment."

He said, "Another big problem is a lack of skilled manpower. Meritorious students from engineering universities go abroad with high salaries. It must be prevented."

"A lack of capital, technology, training, planned industrial parks, and policy support are the obstacles for us," he said.

Nonetheless, the government has accorded the highest priority to this sector in its export policy. This sector has also been given priority in industrial policy, said Abdur Razzaque.

"In 2020, light engineering was declared Product of the Year. The SME policy also highlighted us. The government is also formulating a law that promises to be helpful for us, one which is due to be raised in the cabinet today (Tuesday). However, our hope is being diminished because of the unrealistic tariff structure."