Industrial production slumps amid investment crisis

The country is experiencing stagnant investment due to various issues, including high interest rates, instability in industrial zones and a power and energy crisis.

This has stunted job creation, and industrial production has hit rock bottom.

Amid the push to create extensive employment for the youth as part of building a new, equitable Bangladesh following the student-people uprising, entrepreneurs are grappling with multiple crises. They say that with law and order unsettled and the investment climate not improving, business people lack confidence in making new investments.

On top of this, as the policy interest rate rises, bank loan interest rates are also climbing. Businessmen worry that excessive interest rates may reduce investment and employment.

Sales have plummeted for most companies in the ongoing turmoil. Following this, restrictions on imports to save dollars were introduced. Production has dropped to zero in some factories due to delays in securing Letters of Credit (LCs) and the energy crisis, with energy shortages halting 25 to 40% of production. Strikes and legal cases in factories have severely impacted the heavy industry, garments, and textile sectors, negatively affecting export growth.

These crises have had multifaceted negative effects on the economy, leading to an increase in foreign debt and import costs.

Businesspeople indicate that business was sluggish at the end of the previous government’s term. Though there was hope that things would improve with a new government, the surge in attacks, property damage, and murder cases against business people has dampened their confidence. Many are now afraid and feel forced to step back from new investments.

Abdul Awal Mintoo, a former president of FBCCI, said, “Those creating employment through investment in the country have been victimised. To secure jobs for the unemployed, investment is needed, but there is no conducive investment environment. Investors are facing a four-fold crisis.”

Mir Nasir Hossain, another former president of FBCCI, stated, “Bank loan interest rates have risen from 9% to 14–15%. In this scenario, sustaining businesses with such high interest rates is challenging. Moreover, loan defaulter rules have been revised; now, if an instalment is not paid, a defaulter status is assigned after 90 days. This is concerning. Alongside rising interest rates, fuel is not being supplied as needed.”

Rizwan Rahman, former president of the Dhaka Chamber of Commerce & Industry (DCCI), commented, “When someone wants to invest in a country, security is the first consideration. Why would they invest if they don’t feel safe? Law enforcement needs to bring the situation under control with maximum capability.”

Operating costs have increased by 30%. Data reveals that current conditions have caused a 30% increase in business operating costs. Bank loan interest rates have exceeded 15% due to multiple hikes. The sustained crisis over nearly two and a half years has caused the dollar rate to rise by about 41%, reducing imports by 30%, and thus constricting industrial production. Transportation costs have also surged, making it costlier to import raw materials.

Entrepreneurs claim that incorrect policies from various regulatory agencies and sporadic circulars have turned many entrepreneurs into loan defaulters. They argue that they didn’t voluntarily default but were pushed into it due to government policies. Therefore, there is a call to provide long-term policy support to sustain entrepreneurs who have defaulted due to policy decisions. Otherwise, they fear a prolonged stagnation in employment and the economy.

Business people impacted by Bangladesh Bank's flawed policies, the dollar crisis, post-COVID issues, and the Russia-Ukraine war are being urged to receive support for continuity in business or to exit the market if they cannot sustain it.

Factory attacks and business anxiety

In August and September, industrial zones like Savar, Ashulia, Tongi, and Gazipur witnessed extreme instability. Although large-scale disruptions subsided in October, sporadic violence continues. Foreign buyers are expressing concerns, shifting new export orders to other countries due to perceived risks. This turmoil is benefiting competitor nations, boosting their exports.

Expressing concern over law and order in industrial areas, Ahsan Khan Chowdhury, CEO of Pran-RFL Group, said at a Dhaka Chamber event, “We’re struggling. I’m afraid to even visit my factory, wondering if I’ll return safely. If businesspeople fear going to their own factories, how can they sustain business activities in the future?'

Foreign investment falls by 8.8 percent

Direct foreign investment has also declined, with a decrease of 8.8% in the 2023–24 fiscal year compared to 2022–23. According to the latest report from Bangladesh Bank, net foreign investment at the end of 2023–24 was $1.47 billion, down from $1.61 billion the previous year, marking a drop of $142 million.

The report indicates that most foreign direct investment came into the textile sector, followed by banking, pharmaceuticals and energy.

Investment concerns due to rising interest rates

To control high inflation, Bangladesh Bank has been raising policy interest rates, with loan rates now at 15%. As Letters of Credit for capital machinery imports and private investment decline amid an overall economic slump, the business community is alarmed by the further increase in policy rates.

Recently, Bangladesh Bank raised the policy rate by 50 basis points to 10 percent, marking the fifth rate hike this year and the third under Governor Ahsan H Mansur.

Former FBCCI President Md Jashim Uddin said, “Around 80% of our economy depends on the informal sector, and 70% of people operate outside the banking sector. Industrial sectors like gas, electricity and raw materials require substantial subsidies. With most raw materials relying on imports, increasing policy rates to curb inflation could backfire. This could impact business competitiveness, stagnate investment, and paradoxically, raise inflation risks by threatening employment.”

Data from Bangladesh Bank shows that in the first two months of the 2024–25 fiscal year, loan applications for capital machinery imports amounted to $285 million, a 43.71% drop compared to the same period last year. Import of primary raw materials also fell by 9.81% during this period.

Lowest industrial production growth

Industrial production has collapsed amid global crises and political instability. In the last quarter of the 2022–23 fiscal year, production growth stood at 10.16%, but this dropped to only 3.98% in the last quarter of the following fiscal year. Compared to previous years, growth has nearly halved.

Data from the Bangladesh Bureau of Statistics (BBS) shows that growth in the industrial sector has fallen to 5.34% this fiscal year, the lowest since the onset of the COVID-19 pandemic. Last year, this sector’s growth was 8.37%. In the two previous fiscal years, growth rates were 9.86% and 10.29%, respectively, indicating a sharp downturn.

Industrialists attribute the decline in growth to a lack of investment-friendly conditions, as gas and electricity supplies dwindle while costs rise. At the same time, liquidity shortages in the banking sector and increased government borrowing from domestic sources have left private entrepreneurs struggling to access essential loans.

Government taking steps to support local industry: Finance and Trade Adviser

Finance and Trade Adviser Dr Salehuddin Ahmed said, “The government is taking effective steps to support the development of local industries, which is boosting business confidence. Our reserves are growing, and the economy is recovering. While it may take time to achieve full recovery, we are working towards it, and a political government will return to power sooner or later.'

He further said, “The government is prioritising food, energy, fertiliser, and pesticide sectors, with continued support for the private sector in these areas. We are striving to support private sector development.'"