Dr. Arif Dowla, CEO, ACI Bangladesh Ltd. Successful Investment Experience Case 2: leading domestic investor
Monday, 17 May 2010
Thank you for giving me this opportunity to speak here. The way I perceived this problem is not so much of ACI, but in terms of how a large local investor looks at opportunities in Bangladesh and how they take it forward from that point in terms of looking at the micro-economic situation and then translating it into an opportunity.
Grameen Phone has been critical to allow us to move forward to the next level as a company. There are many businesses that we have in Bangladesh, but primarily if you categorize; it will only be agri-business. We are the largest agri-cultural integrator in Bangladesh. Grameen Phone is still directly or indirectly helping us in many. We are a very large pharmaceutical company, and we also engaged ourselves in the consumer brands and retails.
I will be talking about how we perceive Bangladesh and its opportunities; then specifically about the opportunities in agribusinesses and pharmaceuticals; and also the new opportunities that we are looking at, e.g. the ship building industry. So I am going to touch on that to see how a local organization tries to evolve and seeks out opportunities as it moves forward because in many ways we are a diversified group. Regarding the question of diversification, right now we find that in most of the businesses that we are into, we are either the market leader or among the top three companies there. So we see that at the moment we have no reason necessary to focus but I believe a time will come when we will have to say that, "enough of diversification, to move forward we need to focus"; but such a time doesn't look like it has arrived yet.
We are noticing massive growth in our consumer SKUs. These are our relatively obvious points, but I think the reason why that is happening is because as disposable income increases, more people are able to afford the goods for which we had a very low penetration. There are 25 million households and we found out that with any little marginal improvement in disposable incomes or people's ability to pay, a massive increase in the amount of people to come into the umbrella of certain class of products. I think that is why the ratio of these two areas explains why so many companies are growing because we have hardly penetrated into the population. Say for example a highly penetrated item, the ACI salt is only selling to 4 million households per month instead of 25 million out there. With any marginal growth our business is expected to double; this is because the product is fairly commoditized and so our opportunities are very large. So any economic shift, any contribution from mobile or internet penetration, or any economic improvement directly contributes to our growth at a geometric rate.
The World Economic Forum listed the investment challenges a country like Bangladesh may have. So I think number one comes out to be corruption, and then comes inadequate supply of infrastructure, inefficient Government bureaucracy, political instability, access to financing and it goes on and on. However, one of the things that our country does not have is poor work ethic in national labor force. That is a very big positive thing on which we are working on.
Agri-efficiency and wealth creation for farmers is a theme for ACI and this had a six-prong strategy. The six areas are seeds; fertilizers; crop care and public health care that include pesticides, insecticides and fungicides; and then it starts with efficiency-enhancer that is agri-machinery; and animal health that is resolving the protein deficiency problem.
Another big area is pharmaceutical export. If we are able to launch them early, then we will have an opportunity to diversify. If we delay for too long, then we will not. The reason is that as time goes by, the competitive index and the specialization level will increase to a point where we will not be able to diversify so much. But these are the things that are in the back of the mind of a very large group who are mostly leaders in their respective areas.
Protein deficiency is a very important thing for ACI, so we are looking at it in a big way. Food and agro-processing is another. In agro-efficiency the additional competency required is medium and so the probability of success is also medium. I just want to point out something for the ship building industry, which is that the competency and alignment is very high; it is something that we are considering. The amount of focus and concentration as a country that we need to put is extremely high and this is why government and private industries have to get together. The actual outcome of this can potentially be much bigger than the RMG sector and it is just something that is staring at us on the face. We have to focus all our minds together starting with policy and regulations, all the way to getting the land and other things organized. We have to operate here as a nation, just like South Korea has done controlling more than 20 percent of the trade in this area. This is something that is not going to be accidental for Bangladesh.
There are many things here which I believe are accidental for Bangladesh. Agri-business in not one of them; it is fundamental to Bangladesh both on supply and demand side- no escape from this. We have enough mouths and the mouths are getting bigger. The bellies are getting bigger. We have very little land and agri-efficiency can be achieved because we are achieving three tons of rice per hectare, while India is doing seven and Japan is doing twelve; so the opportunity is there, the requirement is there. It's a no brainer that agri-efficiency has to happen.
Some of these industries here will either be captured by Bangladesh or will slip away from our hands due to technological innovations. The opportunity is still there; it is a window. For example Data Entry was an opportunity for Bangladesh to enter into the IT area. We completely missed that boat because of unavailability of band-width; otherwise local companies would have jumped into that wagon and that would have been our entry point into the IT. We missed that chance. Then came the medical transcription. Now all these things are automated. Data entry is no longer required because optical sensors can do the job automatically. So we missed that entry boat. Now our entry boat is in a very high set up. The competency alignment in the IT is very high because even software is becoming a cut and paste problem. Most of the software is written; the only software can't write are innovative software. So you have to enter into the innovation space which makes it very difficult in the IT. So probability of success is medium, but this is something that is bound to happen because of our population, in 20 years time it will happen but we as local companies are trying to make sure that it happens in 10. Investment in the agriculture may act as opportunities in machineries, fertilizers and seeds; these are for increasing the efficiencies and these are a must.
We see protections, technical formulation, bio technology, pharmaceuticals which is poultry and dairy vaccines, to be very important because in a small country like this, disease spreads very quickly and vaccines will be a critical element. Fish and poultry feeds, plants growth regulators, then post harvest processing, cold storage, grain and seed store, starch processing, production milk and meat production, agriculture are also vital. Technologies- breeding technology, biotechnology, irrigation system and technology; these are the things that we are looking at from the agri side. Despite all that, 95 percent of all agricultural seeds are imported; this is an area that requires massive improvement as yield originates from seeds it is the genetic quality of the seeds that determines it.
I just want to mention one important issue in terms of operating as a local business. Every time there is a new regulation coming in, there is the divide between the compliant and the non-compliant and we consistently find that the compliant people are being punished. Whenever there is a law, we get worried because now we constantly have to operate in an uneven playing field. Compliance must be ensured even before new laws are created because the company that complies and wants to do everything right are continuously being punished and that is one of the biggest road blocks for the local investors like us.
There are a lot of gaps in the pharmaceutical market, but here I would also say this is slightly higher hanging fruit than the agribusinesses. Opportunities of ACI: huge pharmaceuticals industry but we have not been able to go backwardly to basic chemicals. We still buy most of our formularize seeds; $221 million worth of raw materials come from different countries to us. We should be able to backward integrate and then forward integrate so that we have competency in exports. These are also opportunities that we see but they are slightly hard to reach. Thank you.
Grameen Phone has been critical to allow us to move forward to the next level as a company. There are many businesses that we have in Bangladesh, but primarily if you categorize; it will only be agri-business. We are the largest agri-cultural integrator in Bangladesh. Grameen Phone is still directly or indirectly helping us in many. We are a very large pharmaceutical company, and we also engaged ourselves in the consumer brands and retails.
I will be talking about how we perceive Bangladesh and its opportunities; then specifically about the opportunities in agribusinesses and pharmaceuticals; and also the new opportunities that we are looking at, e.g. the ship building industry. So I am going to touch on that to see how a local organization tries to evolve and seeks out opportunities as it moves forward because in many ways we are a diversified group. Regarding the question of diversification, right now we find that in most of the businesses that we are into, we are either the market leader or among the top three companies there. So we see that at the moment we have no reason necessary to focus but I believe a time will come when we will have to say that, "enough of diversification, to move forward we need to focus"; but such a time doesn't look like it has arrived yet.
We are noticing massive growth in our consumer SKUs. These are our relatively obvious points, but I think the reason why that is happening is because as disposable income increases, more people are able to afford the goods for which we had a very low penetration. There are 25 million households and we found out that with any little marginal improvement in disposable incomes or people's ability to pay, a massive increase in the amount of people to come into the umbrella of certain class of products. I think that is why the ratio of these two areas explains why so many companies are growing because we have hardly penetrated into the population. Say for example a highly penetrated item, the ACI salt is only selling to 4 million households per month instead of 25 million out there. With any marginal growth our business is expected to double; this is because the product is fairly commoditized and so our opportunities are very large. So any economic shift, any contribution from mobile or internet penetration, or any economic improvement directly contributes to our growth at a geometric rate.
The World Economic Forum listed the investment challenges a country like Bangladesh may have. So I think number one comes out to be corruption, and then comes inadequate supply of infrastructure, inefficient Government bureaucracy, political instability, access to financing and it goes on and on. However, one of the things that our country does not have is poor work ethic in national labor force. That is a very big positive thing on which we are working on.
Agri-efficiency and wealth creation for farmers is a theme for ACI and this had a six-prong strategy. The six areas are seeds; fertilizers; crop care and public health care that include pesticides, insecticides and fungicides; and then it starts with efficiency-enhancer that is agri-machinery; and animal health that is resolving the protein deficiency problem.
Another big area is pharmaceutical export. If we are able to launch them early, then we will have an opportunity to diversify. If we delay for too long, then we will not. The reason is that as time goes by, the competitive index and the specialization level will increase to a point where we will not be able to diversify so much. But these are the things that are in the back of the mind of a very large group who are mostly leaders in their respective areas.
Protein deficiency is a very important thing for ACI, so we are looking at it in a big way. Food and agro-processing is another. In agro-efficiency the additional competency required is medium and so the probability of success is also medium. I just want to point out something for the ship building industry, which is that the competency and alignment is very high; it is something that we are considering. The amount of focus and concentration as a country that we need to put is extremely high and this is why government and private industries have to get together. The actual outcome of this can potentially be much bigger than the RMG sector and it is just something that is staring at us on the face. We have to focus all our minds together starting with policy and regulations, all the way to getting the land and other things organized. We have to operate here as a nation, just like South Korea has done controlling more than 20 percent of the trade in this area. This is something that is not going to be accidental for Bangladesh.
There are many things here which I believe are accidental for Bangladesh. Agri-business in not one of them; it is fundamental to Bangladesh both on supply and demand side- no escape from this. We have enough mouths and the mouths are getting bigger. The bellies are getting bigger. We have very little land and agri-efficiency can be achieved because we are achieving three tons of rice per hectare, while India is doing seven and Japan is doing twelve; so the opportunity is there, the requirement is there. It's a no brainer that agri-efficiency has to happen.
Some of these industries here will either be captured by Bangladesh or will slip away from our hands due to technological innovations. The opportunity is still there; it is a window. For example Data Entry was an opportunity for Bangladesh to enter into the IT area. We completely missed that boat because of unavailability of band-width; otherwise local companies would have jumped into that wagon and that would have been our entry point into the IT. We missed that chance. Then came the medical transcription. Now all these things are automated. Data entry is no longer required because optical sensors can do the job automatically. So we missed that entry boat. Now our entry boat is in a very high set up. The competency alignment in the IT is very high because even software is becoming a cut and paste problem. Most of the software is written; the only software can't write are innovative software. So you have to enter into the innovation space which makes it very difficult in the IT. So probability of success is medium, but this is something that is bound to happen because of our population, in 20 years time it will happen but we as local companies are trying to make sure that it happens in 10. Investment in the agriculture may act as opportunities in machineries, fertilizers and seeds; these are for increasing the efficiencies and these are a must.
We see protections, technical formulation, bio technology, pharmaceuticals which is poultry and dairy vaccines, to be very important because in a small country like this, disease spreads very quickly and vaccines will be a critical element. Fish and poultry feeds, plants growth regulators, then post harvest processing, cold storage, grain and seed store, starch processing, production milk and meat production, agriculture are also vital. Technologies- breeding technology, biotechnology, irrigation system and technology; these are the things that we are looking at from the agri side. Despite all that, 95 percent of all agricultural seeds are imported; this is an area that requires massive improvement as yield originates from seeds it is the genetic quality of the seeds that determines it.
I just want to mention one important issue in terms of operating as a local business. Every time there is a new regulation coming in, there is the divide between the compliant and the non-compliant and we consistently find that the compliant people are being punished. Whenever there is a law, we get worried because now we constantly have to operate in an uneven playing field. Compliance must be ensured even before new laws are created because the company that complies and wants to do everything right are continuously being punished and that is one of the biggest road blocks for the local investors like us.
There are a lot of gaps in the pharmaceutical market, but here I would also say this is slightly higher hanging fruit than the agribusinesses. Opportunities of ACI: huge pharmaceuticals industry but we have not been able to go backwardly to basic chemicals. We still buy most of our formularize seeds; $221 million worth of raw materials come from different countries to us. We should be able to backward integrate and then forward integrate so that we have competency in exports. These are also opportunities that we see but they are slightly hard to reach. Thank you.