Light engineering keeps growing, yet below potential

The light engineering industry, considered to have a major export potential, continued to grow in the 2021-2022 fiscal year but still a long way from grabbing a sizable chunk of the massive $7 trillion global market.         

In the 2021-22 fiscal year, the sector saw a significant year-on-year growth of 50.4% to $795.63, from $529 million in the 2019-2020 fiscal, which was also when the government declared light engineering goods as "Product of the Year".

Industry insiders say the sector has the potential to grow much more than it is doing now.

"We are nowhere close to where we can be," said Golam Azam Tikul, president of Bogura Forum for Agro-machinery Manufacturing.

Lack of policy support from the government, shortage of modern machines and absence of interest-free easy loans are major hindrances for the sector's growth, according to Tikul. 

Stakeholders say unhealthy working environments for workers, high prices of raw materials, lack of laboratories and certification systems are further hindering the industry's development.

The market is also taking a blow due to production of counterfeit products in unauthorised factories and import of substandard products from India and China, they added.

After the light engineering products were declared as the Product of the Year for 2020, the government decided to set up industrial parks for the sector in five districts – Dhaka, Narayanganj, Jessore, Bogra, Gazipur and Narsingdi.

Besides, an industrial city project through the Bscic on a 50-acre land in Munshiganj is in progress at a cost of Tk316 crore and scheduled to be completed by 2022.

Muminur Rahman Mithu, an entrepreneur from Old Dhaka, said the price of plots in government-allocated industrial parks, including Munshiganj, is much higher than lands located elsewhere.

"Also, the area of land in these parks across the country is insufficient as compared to light engineering factories across the country. As a result, 80% of entrepreneurs will not really benefit from it," he added.

Despite these obstacles, the sector's export reached $529 million in FY21 from $292.92 million in the pandemic-hit 2019-20 fiscal.

Abdur Razzak, president of the Bangladesh Engineering Industry Owners Association (BEIOA), said, "Overall investment in the light engineering industry is about $15 billion and we are still below 1% of the $7 trillion global market."

He also pointed out the industry meets about 20% demand of the local market while some 60% products are imported.

"If we get enough government land, state-of-the-art technology, pragmatic policies and low cost government land for setting up factories, this sector will not have to look back," said Razzak.

He further said import tax for the sector's raw materials ranges from 30-40% while the tax on importing finished products is only 1%.

"If this disparity is eliminated with industry-friendly policy support, it is possible to meet total local demand and also increase exports," he added.

Before the budget of FY 2022-23, SME Foundation submitted 50 proposals to the National Board of Revenue for small and medium enterprises including light engineering, out of which 14 proposals were accepted in this budget. This includes providing income tax exemption for a period of 10 years to entrepreneurs engaged in agro-processing and agricultural machinery and all types of light engineering industries related to light engineering which will be used only in industries.

In the budget for the 2022-23 fiscal year, the government provided a 10-year tax-holiday for entrepreneurs who produce small parts and products for use in factories. 

Besides, there is a VAT exemption for the production and commercial distribution of Power Tiller and for the supply of locally collected scrap in the foundry industry.

Md Mofizur Rahman, managing director of SME Foundation said, "It is important to reduce the tax rate in the entire SME sector, including the light engineering sector."

Citing the example of Japan, he said, "Their economy is 90% dependent on the SME while our SME sector accounts for some 20-25% although more that 75% employment is in this sector." 

According to him, if people in the industry do not get help, it will be difficult to achieve the government's target of 2041.

"Why should we need to spend time on updating the trade licence each year. The government can rather increase the fee and also the validity period," he suggested.

The main markets for the light engineering products are Thailand, Japan, the Netherlands, India, South Korea, the United Kingdom, Taiwan and Pakistan.