Domestic manufacturers are in the soup. Prior to devaluation of Bangladesh Taka (BDT), they faced a myriad of problems that involved persistently high inflation, a dearth of dollars for import and the ever-increasing price of energy, the combined effects of which had already curtailed manufacturing output before this latest development involving the value of BDT. The problem with planning in Bangladesh is that changes don't come in phases but as a shock to the system. The rise in utility bills, hike in prices of octane and diesel, and now Taka devaluation have all been significant. Whereas in other countries, national planners spread out the increase in prices over a period of months, here it just arrives in a day.
The economy has been witnessing the effects of "shrinkflation", because consumers (bulk or retail) are very sensitive to price increases. So many manufacturers have opted to keep prices as they were before and simply reducing the weight / quantity of goods / products sold in the market. This is especially true for consumables like packeted chips, biscuits, etc. There's a lot more air in those bags than products these days.
Contrary to the mantra being propagated that a devaluation of the BDT will help boost exports for readymade apparels (RMG), the principal export item of Bangladesh, the overwhelming dependence on import of most of the primary and raw materials has escaped notice. So, how will devaluation help exports when import costs increase is something that can best be answered by policymakers. In other sectors of the economy like cement to ceramics and pharmaceuticals, the basic principle of imported raw materials costing more remains the same. Devaluation of BDT theoretically should boost exports, but in a heavily import-dependent country like Bangladesh, it will be interesting to see how domestic industry will prosper in this situation.
In the age of rising prices of inputs, manufacturers have some tough decisions to make. Price hikes are inevitable and have already happened in construction. This has had a boomerang effect on the real estate business - more than half the market is dominated by makers of smaller apartments, serving the needs of the middle class. Exact sales figures are hard to come by but many real estate companies have said off the record that sales may be down by as much as 30 per cent or more. Sluggish sales mean leaner profits, and while bigger companies may survive, lots of smaller companies will not.
As one moves to the steel industry, things are dire there. According to a report published in this newspaper, "A top official from a steel manufacturing company said the sector depends on imported raw materials, with nearly 90 per cent of materials like scrap metal and allied products coming from overseas. As soon as news of the taka devaluation broke, a company raised the price of silicon manganese [used in steel production] by Tk 30,000 per tonne", which simply shows that parties supplying raw materials to manufacturers are going to cash in on the bonanza of a shift in monetary policy, since there is little or no mechanism in place to check these outrageous malpractices prevalent in the country by business interests. At the end of the day, policymakers need to rethink how they are going to frame suitable policy. Sudden, whimsical changes in prices of inputs (raw materials to energy) are going to have serious ramifications on domestic manufacturers. The authorities also need to rethink oversight by government bodies because right now there isn't much of it anywhere in the economy.
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