Power, gas shortage main hurdle to economic growth : MCCI survey

FE Team | Published: February 15, 2013 00:00:00 | Updated: February 01, 2018 00:00:00

FE Report A survey by the Metropolitan Chamber of Commerce and Industry (MCCI) has found electricity and gas shortage to be the main impediments to production and economic growth of the country. The chamber conducted the survey on business performance of its member-firms for the first half (H1) of fiscal year (FY) 2012-2013. It also found that despite the impediments, overall production and investment have increased in the country. The MCCI presented the outcome of the survey in its quarterly review for October and December of fiscal '13. "Firms in general cited shortage of electricity and gas as the most serious impediments to production, much more than problems of physical infrastructure, access to credit and the fallout from political conflicts," it said. Besides, the MCCI in its quarterly review, identified inadequate infrastructure, lack of accountability in administration, regulatory inefficiency, less than expected investment and political uncertainty as the major hurdles to the growth of the economy. Furthermore, it attributed low projection of economic growth to weak external and domestic demand, infrastructure deficit, and domestic investment constraints. The World Bank and the UN recently projected the economic growth to be at 5.8 per cent and 6.3 per cent respectively for the current fiscal against the government's forecast of 7.2 per cent, it noted. About agriculture production, the MCCI, referring to export data, said that exports of agricultural products increased by around 24.5 per cent in July-December of FY13, compared to the same period of the previous fiscal. "Fisheries and livestock sub-sectors have performed reasonably well," it added. "Because of the seasonal character of the country's crop sector, the production of all major crops will be spread over the coming months of the fiscal. But indirect evidence, e.g., export data indicates good performance of the agriculture sector," it said. The chamber said, low disbursement of industrial term loans, decline in private sector credit growth, fall in import of capital machinery, and infrastructural bottlenecks may prevent the industrial sector from performing up to its potential. The share of the broad industrial sector in the country's gross domestic product (GDP) increased to 31.26 per cent in FY12 from 30.37 per cent in FY11. But for glaring energy and infrastructural constraints, the sector could have secured a higher share in GDP. "In fact, while most of the country's industries faced power problem, the broad industrial sector managed to grow by 9.47 per cent in FY12, a respectable 1.27 percentage points higher than the 8.20 per cent growth in FY11," the quarterly added. About construction sector, the chamber's review said construction activities in the private sector were at a disadvantageous situation because of the high price of construction materials, liquidity crisis in banks, and high price of land. "The construction sector has performed relatively well in the quarter under review, built on public sector works for rehabilitation of roads and highways," it added The review noted, the power sector performance improved in the quarter under report although the supply of power remains far below the desired level. About the service sector, it observed its growth seems to have been picking up after the relatively slow growth witnessed in fiscal '12. "Some of the sub-sectors like transport and communication, real estate, education and public administration have done well in the quarter under review," it said. The review went on: "Community and social services and financial intermediation have experienced lower growth." The chamber termed the latest monetary policy a restrictive one. In the first quarter of fiscal 13, term loans witnessed a very modest growth, it said. "To limit private sector credit growth, the Bangladesh Bank (BB) kept the repo and reverse repo rates unchanged at 7.75 per cent and 5.75 per cent, respectively. Yet, as of end-November 2012, private sector credit growth was higher than the growth of credit to the public sector," the review said. The MCCI found the revenue collection satisfactory. Buoyed by value added tax (VAT) and income tax receipts, it said, tax revenue collection by the National Board of Revenue (NBR) during July-December of FY13 increased by 14.5 per cent compared to July-December of FY12. It said, the recent fuel price-hike may push up the inflation rate further in the coming months. After nine months of downtrend, the general point-to-point inflation stood at 7.22 per cent in October 2012, down from 11.59 percent in January 2012, it noted. "The general point-to-point inflation rose in December 2012 by 0.47 percentage point to 7.69 per cent from 7.22 per cent in October 2012 because of a rise in prices of some food items." The rates of food and non-food inflation stood at 7.33 per cent and 8.43 per cent respectively in December 2012 while they were at 6.45 per cent and 9.31 per cent on a corresponding basis in November 2012. Despite a decrease in the non-food inflation, the general (and food) inflation had increased in December 2012 mainly due to a rise in prices of food items including rice, 'atta', pulses, fish, meat, spices, vegetable oil and milk, the review added. About the banking sector, it observed, the interest-rate spread in private and foreign banks was much higher than that in other banks. The average spread of state-owned banks (SBs), specialised banks, private commercial banks (PCBs) and foreign commercial banks (FCBs) were 4.89 per cent, 2.85 per cent, 5.35 per cent and 8.83 per cent respectively, in November, 2012. The lending rate of SBs, specialised banks, PCBs and FCBs were 12.08 per cent, 12.44 per cent, 14.64 per cent and 14.40 per cent respectively. And the deposit rates of such four categories of banks were 7.19 per cent, 9.59 per cent, 9.29 per cent and 5.57 per cent respectively in November, 2012. The MCCI quarterly pointed out that the weighted average spread between lending and deposit rates offered by the commercial banks narrowed slightly in December, 2012 compared to November, 2012. According to BB data, the spread came down to 5.33 per cent in December from 5.41 per cent in November as an effect of continued pressure from the BB, businessmen and industrialists. The average lending rate and deposit rate in December, 2012 was 13.80 per cent and 8.47 per cent, respectively, which was 13.94 per cent and 8.53 per cent in November, 2012. About small and medium enterprise (SME) loans, the review noted that banks and non-banking financial institutions (NBFIs) were reluctant to disburse SME loans to the manufacturing sector as the credit risk in the sector was higher than in the trade sector. It further said the amount disbursed as SME loans in the first nine months of 2012 was 84.1 per cent of their annual target. Among the total SME loans disbursed, 63.6 per cent went to the trade sector, 31.5 per cent to the manufacturing sector, and the rest 4.9 per cent to the service sector. The SMEs in manufacturing sector were deprived of adequate loans during the period under report because a large portion of loans was disbursed to the trade sector, the chamber said. The women entrepreneurs also did not get the required SME loans during the period as banks and NBFIs disbursed only Tk. 17.24 billion (1,724 crore) among them, which was just 3.5 per cent of the total disbursed loans. About the capital market, it said, the stock market passed another depressing year for investors. The government and market regulator took numerous steps and assured investors of bringing back stability, but the market has continued to remain depressed. The restructuring of the Bangladesh Securities and Exchange Commission (BSEC), legal actions against the manipulators, decision to demutualize the stock exchanges, and amendments to the securities rules and regulations, failed to bring back investors' confidence, the MCCI noted. About domestic food procurement programme in fiscal '12, the target of public food grains procurement, the chamber pointed out was revised upward from 1.15 mmt to 1.35 mmt. Actual procurement during the year was 1.43 mmt, of which 1.33 mmt was rice and 0.10 mmt was wheat. The MCCI suggested that because of the importance of agriculture in the economy, the government must seriously address all inter-related problems faced by the sector. There is a need to provide support services to help accelerate production and marketing of agro-products, it noted. It said, the government policy should be directed to enhance production, facilitate marketing of products and ensure a reasonable profit margin for the growers. In particular, continuation of agricultural subsidies and ensuring their proper utilization and encouraging farmers to grow more profitable crops as an alternative to only rice-rice cropping patterns would significantly contribute to enhancing productivity, production, and value addition in agriculture, the chamber observed. The flow of term loans should be increased significantly during the rest of the current fiscal to boost industrial investment, it said. The rate of implementation of the Annual Development Programme (ADP) should be enhanced to marked extent so that the remaining 70 per cent of the ADP could be implemented in the remaining six months of the current fiscal, the MCCI suggested.