Extended lockdown ups business worries

How is the business going? What does a stricter lockdown after Eid really mean to industries?

The Business Standard asked a number of executives of top 10 manufacturing sectors the questions to gauge their sentiments as the country is set to enter a harder lockdown that will require factories to remain shuttered for two weeks after Eid holidays, keeping them away from production for at least 18 days.

All surveyed businesses saw their sales drop during the two-week nationwide strict lockdown starting from the first day of this month and some did worse than others, depending on the nature of business and consumer demand of their products.

Although sales were much lower than usual, fast-moving consumer goods (FMCG), construction materials and consumer household durables had better sales than furniture and flats.

FMCG companies kept their production on to maintain a safe inventory. Manufacturers of electronics and electrical equipment, cement and MS rod also reported good stocks ready to supply.

Poor sales led to a stockpile of corporate furniture and companies cut production by half during the last two weeks.

Businesses fear the further lockdown and factory closure after Eid may lead to a cash flow crisis in the real estate, steel, automobile and two-wheeler sectors while a leading FMCG company and a steel maker have expressed concern about working capital deficit.

Entrepreneurs also fear the closure of all factories, including those in the consumer goods and food processing industry, after Eid will cause huge losses.

Factory closure will cost steelmakers more than any other as their units need to operate round the clock. Shutting down of factories will lead to additional fixed costs for idle time in the sector. Workers wage, payments to suppliers and other parties might also be a problem for the steel industry.

The textile industry, however, stands out as an exception with a surge in demand from the overseas buyers. They want the government to allow them to stay open to continue production after the Eid holidays.

Work continued at real estate sites but demand for flats fell as movement restrictions reduced on-site visits of potential buyers.

Direct supply to sites and limited night-time sales helped cement and rod industries maintain a third of their normal sales during the latest phase of strict lockdown.

Dr Ahsan H Mansoor, executive director of the Policy Research Institute, said, "70% of the country's economy depends on consumer spending. It's alarming that daily necessary consumer products are still 30% behind the normal trend. It proves people cannot spend money due to income shocks."

He also stressed the need for a survey by the government to verify the manufacturers' claims.

Even consumer dailies are moving slow

Amid the strict lockdown over the first two weeks of this month, offices were partially open, restaurants were only allowed to deliver and takeaways. All but emergency products and services were halted, and people were confined in their homes.

During the period, even consumer dailies that are supposed to be least affected, moved slower as there were no social occasions and the average consumer tightened their purse strings, observed Biswajit Saha, executive director of City Group, the largest consumer company in the country.

Sales dropped by 40% during the disrupted two weeks, he informed, adding the company, however, kept the pace of production for the sake of scale that would help afford wages.

The fresh phase of lockdown announced to be put in force after Eid holidays might affect the working capital of many companies after a short spike in sales during Eid, said Kamruzzaman Kamal, director of consumer items giant PRAN-RFL Group.

Realtors fear cash flow crisis

The real estate sector continued construction work during the recently concluded strict lockdown as the government rationally did not impose any restriction on projects.

Eased cargo transportation through free roads and availability of workers together helped realtors ready their flats for future buyers, said Tareq Alam, managing director of a leading real-estate company Concord.

But, as buyers were not visiting sites during the lockdown, demand for flats came down by 20%-30%, he said.

Cash flow might emerge as a concern for real estate companies after Eid, he said.

Construction material to face tighter situation

With the consolidated interim demand amid a series of lockdowns since early 2020, steel, rod, cement and other construction material were moving fast enough until the lockdown this month, according to Md Shahidullah, vice president of Bangladesh Cement Manufacturers Association and also the Secretary General of Bangladesh Steel Manufacturers Association.

The government allowed rod, cement, and tile factories to operate during the lockdown that ended on Wednesday. But it did not help a lot as the dealer points across the country, that channel around 70% of the factory yields, faced strict restrictions preventing outlet operation.

Direct shipment to project sites and a negligible night-time sales from dealerships together helped construction material industry hold 30%-35% of their regular sales amid the lockdown, estimated Shahidullah, who is the managing director of Metrocem Cement and Metrocem Steel.

The model to let construction and heavy industries run during restrictions worked well to strike a balance between lives and livelihoods earlier and this should continue, opined Aameir Alihussain, managing director of the country's largest steel manufacturer BSRM.

It is very tough for material manufacturers to absorb a disruption in the production cycle as they run 24-hour production cycles, he said, adding fixed costs are too high for the factories.

Shahidullah expressed fear that cash payments to workers, suppliers and other parties before Eid would not be supported by the cash inflow over the period and the working capital crisis would intensify for most of the factories after the forthcoming Eid.

If the post-Eid lockdown does not allow their factories to run, that would be a deeper hurt on his industries, he added.

Masud Khan, advisor to the country's cement export leader Crown Cement, is less worried about the post-Eid shutdown as it would not make a big difference in sales.

Generally, there remains a little lag over up to two weeks in cement sales after Eid due to construction slowdown as workers take some time to return to sites after the festival, he said.

Production halt would be a disruption for sure, he agreed.

Furniture industry already down  

As the sales outlets are closed, large furniture factories owned by corporate houses have more than halved their production and are suffering overstock problems. They are running short of new material for fresh productions, said Selim H Rahman, managing director of the country's largest furniture company Hatil.

Rahman, also the president of Bangladesh Furniture Industries Owners Association, said around 80,000 small furniture factories adjacent to their sales centers are completely shut down now.

The industry is struggling to recover from the already absorbed shocks and the extension of the lockdown would hurt them more while the interim relaxation would barely help boost sales.

People would remain busy with priority and Eid-related purchases over this week rather than buying new furniture, he added.

Automobile, two-wheeler industries hit hard

Automobile and two-wheeler factories were shut down during the series of lockdowns and an even bigger problem for the companies was the shuttered sales points.

Disruption in supply chain, production and sales together caused a double-digit drop in sales of two-wheelers last year despite seeing record spikes in sales in several months.

The rollercoaster ride is still there as none of the problems went away and is hurting the companies through loss of production, sales and also profits, said Biplob Kumer Roy, chief executive officer of TVS Auto Bangladesh Ltd, the second largest brand in the two-wheeler market of Bangladesh.

Automobile and two-wheeler factories are shuttered and a week of relaxation between two phases of strict lockdown would barely allow companies to come back in production as they have to maintain chains, Biplob said.

Electronics, appliances expect partial recovery in a week

Online orders made up about 15% of the lost sales of electronics and electrical appliances during the two-week strict lockdown, said Engineer Golam Murshed, managing director of Walton Hi-Tech Industries, the country's largest electronics company.

Eid-ul-Azha boosts their refrigerator sales and a week of relaxation would help the company recover a lot, he hoped.

"We are equipped with stocks in outlets across the country and hope for a great sale over the week," he said.

Textile worries most

Mohammad Ali Khokon, president of the Bangladesh Textile Mills Association, said textile and apparel factories are running at full pace while most are overburdened with export orders and the industry is doing better than last year.

But exporters are very tense as the post-Eid lockdown will not allow them in production for two weeks after Eid.

Mostafiz Uddin, managing director of Bangladesh Denim Expert Ltd, a leading denim exporter of the country, said his company would miss a million dollar shipment due to the post-Eid lockdown.

After the latest announcement of the upcoming shutdown, a number of buyers contacted him to make sure of on time shipments.

"Since the outbreak of the pandemic, we are currently witnessing a peak in export orders and at this very time our factories will have to remain closed," he expressed his frustration about the series of disruptions in business.

"We appreciate the lockdown, but the relaxation ahead of the Eid and a complete lockdown for the two following weeks will disrupt our business," said Khokon.

"Workers who are at work now would go home having a 20-day vacation and the rural outbreak of Covid-19 would worsen," he added.

He suggested that the complete lockdown be put in force before Eid and continue till late this month. This would discourage millions of workers from leaving stations and help contain the virus, he said.  

"If the government listens to us, it would keep the pace of production and exports and also better impede the virus."

His industry was allowed to continue production amid the general restriction on economic activities for the sake of exports, while the factories claimed to have ensured health measures at work.