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Covid-19 erodes business confidence

BCI scales down to -19.27 out of 100

FE Report | July 24, 2020 00:00:00

The uncertainties over the Covid-19 pandemic have eroded the country's business confidence index (BCI) at a very low level in the fiscal year 2019-20, according to a study conducted by Light Castle Partners, a consulting firm.

The study revealed on Thursday found the confidence index -19.27 out of 100, a sharp decline from the previous years.

The study was conducted based on in-depth interviews with 59 business leaders from March 2020 to April 2020.

It said that not only the Covid-19, even prior to emergence of the pandemic, business sentiments were overshadowed by concerns pertaining to the banking sector liquidity crunch and the dire consequences of NPLs in commercial banks; declining competitiveness in RMG; and infrastructural bottlenecks.

"After the pandemic struck, not only did the prevailing challenges intensify, but also led to weaker domestic demand, supply chain disruptions, limitations in forward linkage, and scarcity of credit," said the study, released on Thursday in a virtual programme.

The previous editions of the report saw the private sector confidence at +43 (2018) and +39 (2017) respectively.

The index is determined on a scale of -100 to +100 using Harmonized Expectation Indicator (HEI).

Light Castle Partners annually conducts 'Light Castle Business Confidence Index' - a study for gauging the business sentiments of private sector leaders across myriad sectors, having a notable contribution to the country's economy.

However, according to the respondents, the top three industries to hold the most promise in 2019-20 were found to be pharmaceuticals, agriculture and agro-processing and, ICT and ITES.

Reasons for this include structural and competitive sectoral strengths and alignment with anticipated changes in consumers' lifestyles. Interestingly, selection of these top three sectors remains unchanged since the 2017-18 BCI, the study report said.

According to the findings, confidence in the primary sector debilitated markedly due to the perceived disequilibrium of the economy, unfavourable price distribution, and limited access to credit across the agriculture value chain.

The secondary sector experienced relatively better confidence than the primary ones; however, it has been encumbered by high import dependency on raw materials, unfavourable government policies and regulation, lack of credit access, and inadequate infrastructure, the study revealed.

It said the tertiary sector received the highest confidence, driven primarily by technology-enabled services: e-commerce, for instance.

Remarkable gains were made by the Digital Financial Services and the e-business sectors, which appeared among the most promising sectors in this year's BCI for the first time, underscoring their intrinsic growth potential and buoyed, no doubt, by the emerging importance of these sectors in light of a post-pandemic world, it said.

The sector, however, has been unable to reach its potential because of unhealthy competitive strategies, weak logistics and infrastructure, and unavailability of funds and a skilled workforce," the study found.

The business confidence collectively turned out to be the lowest for RMG, banking and finance, and tourism and hospitality, according to the study.

Respondents representing real estate and construction, power and energy, sectors projected a critically low confidence as well.

In addition, sectors those usually propelled by domestic demand like FMCG and consumer durables have experienced a steep drop in sales and confidence level too.

According to the study, almost 40 per cent of the CXO members responded that they are on the process of employee layoff, with the inclination more prominent in manufacturing sectors such as leather and footwear, and RMG and textiles.

"Furthermore, 1 in every 3 respondents expects lower sales in the coming months," according to the findings.

As part of the launch, Light Castle also hosted a panel discussion with four experts from their relative fields.

The panel included Masrur Reaz, Chairman, Policy Exchange Bangladesh; Nihad Kabir, President, Metropolitan Chamber of Commerce & Industry (MCCI) Dhaka; Asif Ibrahim, Chairman, Chittagong Stock Exchange (CSE); and Nasir Uddin Ahmed, Former Chairman, National Board of Revenue (NBR).

Speaking at the programme, Asif Ibrahim said the country needs to look at the global trends of RMG manufacturing and start implementing them in Bangladesh.

"We need to look into lean manufacturing where we reduce wastage and increase productivity."

Opening up on doing business globally, Masrur Reza mentioned that "Bangladesh has zero Free Trade Agreements. We will need to establish bilateral trade agreements before graduating from least developed countries (LDCs) status."

"We need to scope the job market and map the skill gaps in order to facilitate employment and productivity. It's equally important to facilitate job creators alongside job seekers," said Nihad Kabir, President, MCCI.

Moderated by Bijon Islam, CEO of Light Castle, the speakers at the event stressed on taking steps for restoring the private sector's confidence, work on investment-friendly policies and develop eco systems to facilitate employment.

Dr. Nasiruddin said the country needs to look at the entire ecosystem instead of specific sectors. "Only then can we have a comprehensive view and systematic development," he added.

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