Home appliance market set to grow to $10bn

Bangladesh's fast growing electronic appliances market has tripled to nearly $2.4 billion in a decade, helped by the growth of the economy that has created a stronger consumer class.

Experts forecast a stronger pace over this decade as demand is set to boost further amid more investments by homegrown and foreign brands for a gradual localisation of their production to benefit from the government policy of lesser taxes and duties to reduce unit prices.

The market for televisions, refrigerators, washing machines and other home appliances would quadruple to an annual size of $10 billion by 2030, estimates UCB Asset Management, a new generation investment industry firm.

Analysts at the firm expect the average annual growth rate in the ongoing decade will increase to 17%, from the previous decade's average of 14%. 

The electronics industry of the country that began with assembling radio sets way before independence is now assembling almost everything the local consumers need, including the high-tech smartphones and laptops.

An increasing number of local plants are manufacturing items like refrigerators, televisions, air conditioners, washing machines and other home appliances, while their value addition and competition dramatically reduced unit prices to make those affordable to all.

Thanks to the government policies that incentivised local productions and ignited the market takeoff as soon as companies poured billions of taka to capitalise on the localisation opportunity and bring unit prices down for the vast local market of a rapidly growing middle and affluent class.

Countrywide electrification, rising income, changing demography and lifestyle, increasing affordability, and easier consumer financing in conjunction helped the market grow.

In a recent report, "Poised to Unlock the Next Wave: Bangladesh Consumer Durables Outlook in the Fresh Decade," UCB Asset Management analysts said both the demand drivers and supply facilitators will help the expected unprecedented growth in consumer durables sector.

The demand drivers

The analysts pointed out electrification success as a major driver that boosted the demand of consumer electronics and home appliances.

In 2010, less than 60% of the population was electricity users which grew to almost 100% already as the government prioritised countrywide electrification a decade ago and invested a lot to engage the private sector power producers.

An increase in purchasing power of people is apparent as the per-capita gross national income grew by 9% from the last fiscal year to $2,227 now, while the World Bank data show that the figure was $800 in 2010.

Citing Boston Consulting Group and Light castle partners projection, UCB Asset Management said the middle and affluent class of population would grow to 3.4 crore in 2025 and at the end of the decade the number would be at least 4.5 crore.

Projected geographic distribution of the largest consumer class for electronic products is also very encouraging as 63 towns are set to host at least one  lakh middle-class and affluent people each.

UCB Asset Management estimates that the number of such towns to reach 90 by the end of this decade with the consumer base further widening in the already affluent neighborhoods.

On top of the increasing financial strength of people, socio-economic changes are emerging as strong boons for the electronics and appliances industry.

Female labour force participation has increased to 38.7% now from 30% a decade ago while the South Asian average is still 23.6%.

As the number of working women grows, so will the demand for home appliances that make their lives easier.

Female labour force participation was primarily in the apparel industry and they were from low-income households. In recent years, women's participation in jobs is significantly increasing from the middle and affluent class, boosting the demand further.

In line with rapid urbanisation and more women at work, the number of nuclear families are on the rise and such families tend to invest more in the products that make their lives easier, smarter.

Nowadays, an average Bangladeshi spends 2 hours and 48 minutes a day surfing social media online, mostly on Facebook, says the UCB report.

Who would buy electronics before them, if affordable?

The supply facilitation

Increasing supply from the local plants has made electronics and home appliances ever affordable and the industry is competing more to drag their costs and prices down.

Even in the early 2000s, only a very few companies like Singer Bangladesh used to assemble television sets and refrigerators here while many firms used to import electronics and home appliances to sell at higher prices.

Local entrepreneurs' vision and continuous efforts, like that in Walton Hi-Tech Industries, supported by the government policies from time to time, turned out to be a game changer.

Walton, beginning in 2008 with a fair capital of Tk10 crore, now has grown to be the second largest listed company in the country with its annual revenue of over Tk7,000 crore and profits surpassing Tk1,600 crore last fiscal year.

As the government is facilitating their ever increasing investments by offering tax and duty incentives against local manufacturing, dozens more brands opted in for the localisation to stay in the game.

To compete with Walton, Singer invested in its local refrigerator plant in the middle of the last decade, it is also manufacturing televisions and many other products here in Bangladesh. 

LG's local partner Butterfly, Samsung's local partner Fair Technologies invested in local manufacturing of refrigerators, televisions, air conditioners and washing machines.

Also the local brands including Jamuna, Minister, Vision, and Orion have built their own manufacturing facilities to better compete in the electronics and appliance market.

Keeping in mind the faster growth potential in the market, other local market players like Rangs also are investing for their own factories.

Gradual technology acquisition amid the up-scaling of manufacturing for an expanding market and of course an increasing competition helped price reduction dramatically in the very price sensitive mass market.

With increasing efficiency, the manufacturing ecosystem also has introduced bulk supply businesses for some vital parts for the electronics and appliances industry, such as compressors for refrigerators and air conditioners.

Over the last one decade, the average cost of an LCD panel here has come down from Tk18,000 to Tk2,000, an air-conditioner compressor's cost halved to Tk15,000 on average, while refrigerator compressors cost Tk4,000 now – almost one-fourth of what it used to be a decade ago, UCB analysts said citing their interviews with industry people.

Against a continuous rise in monthly income for almost all the people and the increasing disposable income for the middle and affluent class, the dramatic drop in unit prices for even upgraded electronic appliances have dropped over the decade and the trend is set to continue to create more buyers.

An increasing access to financing the durables purchases is another facilitator of the industry. If one has a credit card, one can avail 12-24 months of no-interest monthly instalment facilities to buy their needed electronics and appliances.

Those who do not have credit cards can also purchase on a hire purchase basis with a nominal down payment and pay the monthly installments from the countrywide retail outlets, especially by Walton and Singer.

The thirst for further growth

Given the low penetration levels of consumer durables products, the Bangladesh growth tale is set for a major push, said Sudipta Rashad, an analyst at UCB Asset Management who authored the report.

Bangladesh is seeing major changes in its policies, especially those related to the regulatory and business environment. Companies are going to find it much easier to set up local assembly facilities, he added.

The government recently proposed some significant policy support to consumer durables industries for their good profit margin against cost-effective catering to the increasing market demand for their products.

Home and kitchen appliances makers will avail tax exemption until mid-2031 if their local value addition is at least 30%.

Washing machine and kitchen appliances production will be exempted from value added taxes, the advance income tax reduced to 3% from 4% to make raw material imports easier, while the government also suggested that the current concessionary duties on raw material imports for refrigerator and compressors would be maintained.

"Equitable distribution of benefits for future growth will be attained with rapid advancements in the field of electronics, which is in line with Vision 2041 of the government," said Sudipta Rashad.

The policy support would further encourage wonderful rise stories like that of Walton that has almost phased out imports of refrigerators through serving more than 70% of the local market alongside exporting to almost every corner of the world.

Walton's Managing Director Golam Murshed previously told The Business Standard that his company as the largest local market player was extending its footsteps into more product lines, innovating more in the existing products and aggressively looking to position in the global market.

The appliances industry is gradually including products like vacuum cleaners, kitchen appliances like grinders, blenders and many others that only can make daily life easier and companies are investing more there too.