Bangladesh business blues: Investors grow wary

The economic indicators in Bangladesh are showing signs of deterioration, causing growing concern among businessmen about the country's business and investment climate. A negative trend is evident in both domestic and foreign investments, posing a significant challenge to the national economy. 

A BBC Bangla report highlights that since the fall of the Awami League government on August 5, several industries have closed down while many promising ones struggle to recover financially. Businessmen are expressing regular concerns due to financing crises, loan assistance issues, and increasing interest rates.

Case study: A jute factory and a leather factory 

Md Firoz Ahmed, an entrepreneur in the leather and jute industry from southern Bangladesh, exemplifies these challenges. He established the country's largest leather processing factory in Phultala, Khulna, using profits from jute mills and bank loans. His two companies, Super Jute Mills and Superex Leather, are now facing severe financial difficulties.

"Both export-oriented factories are now struggling due to past and current crises," Firoz Ahmed said. "The jute mill operates at only 25 per cent capacity, and the leather factory runs below 10 per cent." The combined debt of his factories exceeds Tk 800 crore, with daily interest payments amounting to Tk 30 lakh. Over 2,500 workers are unemployed as a result.

Firoz Ahmed emphasised that raw materials for jute and leather are available, and there are foreign buyers and export opportunities. However, he needs a minimum loan of Tk 200 crore to run the factories at full capacity. The recent increase in interest rates has exacerbated his financial burden.

"Our factories earn only Tk 5-7 lakh daily. How can we manage such massive interest payments? This government should address these issues. I built Asia's largest factory; if banks don't support us, no one in Bangladesh will take such risks again."

Superex Leather Factory, established in 2017, has the capacity to process 100,000 square feet of leather daily and is one of three environmentally friendly (ELDCL) certified leather factories in the country. Despite investing capital from the jute mill into the leather factory, a promised loan from a private bank did not materialise, leading to a deeper crisis.

Broader economic concerns

Ahsan Khan Chowdhury, Chairman and CEO of Pran RFL Group, told BBC Bangla about the broader struggles faced by businessmen. "The situation is dire. They are struggling to repay loans and meet expenses. Foreign buyers demand lower prices, and Indian competition is affecting the garment sector. Overall, businessmen face pressure from multiple fronts."

Despite Pran RFL Group's continued commitment to investing in Bangladesh, the stagnation in domestic and foreign investment persists. According to Bangladesh Bank, foreign investment in the first quarter of the fiscal year was 71 per cent lower than the previous year.

Fahmida Khatun, Executive Director of the Center for Policy Dialogue (CPD), highlighted ongoing issues of bribery and corruption. "Private sector investment was 23.5 per cent of GDP, and foreign investment was below one percent, which is now close to 0.3 per cent. Political uncertainty deters investors, both domestic and foreign, from making new investments before elections."

Fahmida added, "Corruption remains the top problem. Businessmen are hesitant to speak out due to fear of backlash or damage to their businesses. We need a stable, corruption-free environment to attract investments."

Industry perspectives

Abdul Awal Mintoo, Chairman of National Bank and former president of FBCCI, stressed the importance of creating an environment conducive to business expansion and investment. "Domestic investors will gradually come if the conditions improve. Foreigners won't invest if locals aren't confident. They understand statistics better and monitor political stability closely."

Mintoo, also a vice-chairman of Bangladesh Nationalist Party which eyes assuming office in the next elections, suggested measures to foster investment: "Fix the financial sector, increase money supply for investment, restore social order, and ensure political stability."

Economists advocate for a corruption-free, stable environment, improved law and order, and disciplined financial sectors to drive investment and economic growth. 

Dr Salehuddin Ahmed, Finance Adviser to the interim government, said, "We are focusing on reducing overall business costs, stopping corruption, and providing regulatory support. Diversifying exports beyond RMG, including leather, plastic, and electronics, is crucial."

Government initiatives

The interim government has initiated reforms in the banking system and financial sector, aiming to boost investment. Dr Salehuddin Ahmed said, "When domestic investors are worried, foreigners hesitate too. The government emphasizes lowering interest rates and reducing hidden costs. Regulatory support and diversification of exports are also priorities."

While resolving the ongoing crisis will take time, steps must be taken to prevent sudden factory closures and layoffs. 

Economists say many factories were running on government funds and some of which were export-oriented and performed well. Banks must restructure transactions to avoid sudden closures, they advised preferring scrutiny and selection.

As Bangladesh navigates this challenging period, fostering a supportive environment for business and investment remains critical for its economic recovery and future growth.