Investment slows down, sectoral performance mixed: MCCI review

---

FE Report
Overall investment in the country slowed down in the first half of fiscal 2007-08, excepting some areas where it was noticeable, says the Metropolitan Chamber of Commerce and Industry (MCCI), Dhaka.
"The targeted recovery from the slow-down of the 3rd and 4th quarters of the last fiscal could not be achieved during the period under review," said the MCCI in its review of economic situation during July-December period.
Following two severe floods and the cyclone, livelihoods of a large segment of the people remain under threat. The distress is likely to continue in view of large-scale loss of Aman harvest, which can not be made up by the coming Boro harvest, it said.
"The services sector growth recorded improvement in the review period. Wholesale and retail trade responded favourably to the change in Government policy during the review period. There was a continuation of the good growth observed in the transport, storage & communication sector. Growth in the services was partly helped by the increase in merchandise imports in the review period, which grew by 18.1 per cent, compared to 11.2 per cent in the last quarter of the previous fiscal," it said.
The MCCI said: "The prices of foodgrains increased by 110 per cent. Prices of other necessities like edible oil also increased by 48 per cent."
It said the government took a number of measures, both fiscal and monetary, to minimise shortages of food and other daily necessities. Bank credits for import of foodgrains have been relaxed, requirements of L/C margins of food items eased and import duties on foodgrains withdrawn, it said adding the government also gave priority to import of foodgrains over other budgetary allocations.
Accordingly, large quantities of foodgrains have been imported. The Bangladesh Bank in its mid-term Monetary Policy announced continued liberal monetary policy and asked the banks to ensure greater flow of agricultural credit, especially to the areas affected by the natural disasters, the MCCI said.
It said commercial banks had large excess liquidity, exceeding Tk 133 billion. To reduce the excess liquidity, the government has been mopping up the same by issuing Treasury Bills. The terms of trade deteriorated during the period, in the wake of higher international prices of some of the main essential items like foodgrains, petroleum and edible oil.
Public investments did not increase. Only 21 per cent of the ADP was implemented in the review period. Flow of foreign direct investment (FDI) also slowed down, it added.
The MCCI said agricultural growth decelerated in the review period owing to the adverse impact of floods in July and September and the cyclone Sidr on November 15. Information from official sources points out that agricultural production declined by 15-20 per cent, reflecting primarily a reduced output in crops, vegetables, livestock, and forestry, it added.
It, however, said only the fisheries sector performed well as fish production increased in the review period.
Quoting the latest manufacturing output data, the MCCI said industrial production increased 7.6 per cent in the first quarter (Ql) of fiscal year (FY) 08 compared to 6.3 percent in Q4 FY07, an increase of 1.3 percentage points. In Q1 FY07, industrial growth was 13.4 per cent.
The output in manufacturing sector increased by 1.6 per cent in QlFY08 compared to 2.1 per cent in Q1 FY07, it said adding the output at mines increased 11.7 per cent, 2.6 percentage points above its 9.1 per cent growth in Q1 FY07. The production of electricity increased by 8.0 per cent in Q1 FY08 compared to 7.4 per cent in Q1 FY07.
The MCCI said the increased output of industrial sector in the review quarter was led by 39.8 per cent growth in intermediate goods imports and 17.9 per cent growth in industrial raw materials imports.
However, during this period the imports of capital machinery fell by 7.12 per cent. In Ql FY07 and Ql FY06, capital machinery imports increased by 30.7 per cent and 44.8 per cent respectively, it said.
The chamber said political uncertainties and increased import duty by the last budget to 10 per cent from 5.0 per cent appeared to be the visible reasons for the decline.
It said during the review period the Bangladesh Bank changed its monetary policy stance as it sought to boost output to check emerging inflationary pressures. Interest rates on treasury bills and the Bangladesh Bank bills were slightly reduced. Credit growth in the private sector in November 2007 accelerated to 17.1 per cent from 15.1 per cent in June 2007, while the credit in other public sector declined by 20.1 per cent compared to increase of 15.0 per cent in June. The growth in government sector credit during the quarter, however, accelerated to 19.8 per cent from 13.94 per cent.
Growth of broad money M2 decelerated to 15.1 per cent in November 2007 from 17.0 per cent in June 2007 while the growth of the more liquid narrow money (Ml) decelerated to 16.9 per cent from 17.4 per cent in June 2007, it said.
The MCCI said disbursement of industrial credit during July-September of the review period grew by 9.0 per cent. The disbursement of agricultural credit during July-December of the review period was 61.4 per cent higher than that of during the same period of the last fiscal year. However, recovery of agricultural credit during this period was 30.9 per cent lower than that of the same period of the previous fiscal. As a result, net disbursement of agricultural credit increased in the same period.
Quoting the latest manufacturing output data, it said industrial production increased 7.6 per cent in Ql FY08 compared to 6.3 per cent in Q4 FY07, an increase of 1.3 percentage points. In Q1 FY07, industrial growth was 13.4 per cent. The output in manufacturing sector increased by 1.6 per cent in Ql FY08 compared to 2.1 per cent in Q1 FY07. The output at mines increased 11.7 per cent, 2.6 percentage points above its 9.1 per cent growth in Q1 FY07. The production of electricity increased by 8.0 per cent in Q1 FY08 compared to 7.4 per cent in Q1 FY07.
It said during the review period, Bangladesh Bank changed its monetary policy stance as it sought to boost output to check emerging inflationary pressures. Interest rates on treasury bills and Bangladesh Bank bills were slightly reduced. Credit growth in the private sector in November 2007 accelerated to 17.1 per cent from 15.1 per cent in June 2007, while the credit in other public sector declined by 20.1 per cent compared to increase of 15.0 per cent in June. The growth in government sector credit during the quarter, however, accelerated to 19.8 per cent from 13.94 per cent.
The MCCI said the growth of inward remittances was 20.5 per cent in July-December of FY08 compared to 31.3 per cent during the same period in FY07. It is noticeable that the remittances recorded a much higher growth of 49.2 per cent in October of the current fiscal. In absolute terms, the total amount of remittances stood at US$3447 million in July-December of FY08 compared to US$2861 million in July-December of FY07, and US$2179 million in July-December of FY06.
It said the foreign exchange market remained relatively stable during the period under review. The stability was underpinned by growth in remittances, which helped overcome the pressure of the relatively higher growth of imports than exports. On December 23, 2007, the foreign exchange reserve stood at US$5430 million or US$1552 million higher than the end December 2006 level. Foreign exchange reserve at end-December 2007 was equivalent to 3.5 months of estimated goods imports. As of end-December 2006, the foreign exchange reserve was US$3878 million compared to US$2826 million in December 2005.
According to the latest data, average CPI inflation rose to 8.65 per cent in November from 7.10 per cent in the Q4 FY07. The 12-month point-to-point inflation increased to 11.21 per cent at end November 2007 from 9.2 per cent at end June 2007. The highest point-to-point inflation of 11.73 per cent was in October 2007. Inflation in the review quarter was mainly due to the damage caused by the floods in July and September as well as higher international commodities prices. In the review quarter, the inflation rate in the rural areas was higher than that in the urban areas.
The MCCI said the measures taken by the government to tackle the inflationary situation and escalating prices of food grains and other daily necessities, are widely felt to have been effective in the short term. There are, however, expectations that having tackled the short term problems, the government's decisions should no longer be taken on an ad hoc basis. Decisions like credit availability for import of food grains, easing requirements for L/C margins for food items and withdrawal of import duties should be taken in planned and well-coordinated manner. Similarly, there are viewpoints that stringent measures should be taken against elements who disrupt the supply chains of daily necessities to benefit from the artificial supply shortages.
On the other hand, it is widely expected that setting up of Bangladesh Better Business Forum and Regulatory Reforms Commission will have a favourable impact on the investment climate.
Limited survey of selected business firms indicates that business in the domestic oriented industries is still good. Amongst the export oriented industries, woven garments sector is in turmoil as the export has fallen by 9.3 per cent, knitwear is doing well as the exports remained stable, the leather sector is doing well (exports are up by 2.7 per cent), exports of ceramic and home textiles have gone up by 11.5 per cent and 6.0 per cent respectively. On an average, dividends declared by some of the listed companies show an increase of 15 per cent to 30 per cent though much of the period covered during the dividend year relates to July 2007, i.e., prior to the floods and cyclone.