New firms shy away from entering biz amid economic worries, elections

ISMAIL HOSSAIN | Published: December 26, 2023 22:56:42

The number of new businesses registered in the country dropped 20 per cent in the six months to December compared to the previous half-year, thanks to economic worries both at home and abroad.
Besides, this slump comes in the run-up to the national election slated for January 7, 2024.
The Registrar of Joint Stock Companies and Firms (RJSC) registered around 4,500 businesses across various categories -- companies, one-person companies, societies, partnerships and trade associations -- in the first half of the current fiscal year (July-December 2023).
Given the existing economic worries and heated political climate, economists and business leaders warn that this downward trend is likely to continue in the second half of FY24.
Year-on-year figures of new firm registration also paint a bleaker picture.
Compared to 13,485 in FY22, only 10,738 new firms were registered in FY23, marking a 20 per cent decline. This follows a peak of 14,826 registrations in FY21, with subsequent falls in the ensuing years.
RJSC sources said daily registrations have plummeted to an average of 18, down from 33 just two years ago.
The decline is particularly stark for company registrations (excluding other firm types), which plunged by a third, from 12,125 in the 2020-21 fiscal year to 8,021 in the FY2022-23.
This trend continues in the current fiscal year, with only around 3,150 companies registered so far -- less than a third of the figure at the same point in the previous year.
The corresponding period in FY23 saw approximately 4,200 new firms registered.
On dipping registration, RJSC's revenue has also suffered, falling from Tk 2.96 billion in 2021-22 to Tk 2.70 billion in the recently concluded year.
Based on the current registration trend, the department anticipates a further decline of at least 20 per cent in its income for the 2023-24 fiscal year.
Until December 26, 2023, there were around 288,000 companies registered with the RJSC.
Industry leaders and economists are pinning the blame for the plummeting number of new businesses on a cocktail of economic woes: uncertainties, a foreign currency crunch, high costs and meagre returns.
According to them, new ventures, it seems, are opting for caution over risk-taking.
"The decline in firm registrations mirrors the existing economic conditions," said M Masrur Reaz, chair of the Policy Exchange of Bangladesh -- a private sector think-tank.
"Current challenges are creating a specific hurdle, making new enterprises wary of taking the plunge."
Mr Reaz identified several contributing factors: a sharply depreciating local currency taka, soaring inflation, a crippling cost of doing business, trouble with wage bills and import restrictions on raw materials and capital machinery.
These factors, he warned, not only discourage domestic start-ups but also cast a shadow on foreign direct investment (FDI) and the capital market.
To see a revival in new enterprise creation, Reaz advocated for tackling economic uncertainties head-on, including taming currency devaluation and stabilising the balance of payments to ease import constraints.
His suggestions also include lowering the overall cost of doing business, improving investment climate and adopting better tax enforcement practices.
"An enabling policy and regulatory environment is key to attracting new entrepreneurs, supporting existing businesses growth and encouraging the formalisation of informal enterprises," Mr Reaz concluded.
Echoing almost the same, a former president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) said, "Uncertainties are instilling fear in new ventures."
In the face of the current global and domestic storms, even established businesses are struggling to stay afloat, he commented.
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