75% entrepreneurs in light engineering sector worried over future of business: Study

About 75% of the entrepreneurs in the light engineering firms are deeply worried over the future of their business, thanks to the supply chain disruption caused by the Covid-19, reveals a study.

The study also says about 61% of the enterprises are facing a shortage in raw materials as the supply chain disruption has led them to either cut their production or hike the product prices.

The study identifies increasing the product prices and reducing production as an inappropriate strategy to cope with the raw material shortage.

Brac Institute of Governance and Development (BIGD) of Brac University published the findings at a webinar on Sunday. They surveyed nearly 2,000 light engineering firms in the country.

File Photo: TBS

Asadul Islam, professor of Economics at Monash University, and Atiya Rahman, senior research associate at BIGD, presented the findings at the webinar.

The report said only 2% of the engineering enterprises were fully open and about 29% were partially open during the lockdown. But about 61% of them are now fully operating and 37% are cutting down either their business days or hours after the lockdown was lifted.

Small and informal enterprises are still experiencing an immense drop in their sales – about 55% – from their pre-Covid-19 level, explained the report.

Asadul Islam said certain service sectors, where physical interactions are essential such as beauty parlours, hotels, tailoring, are facing a severe drop in sales and are on the verge of collapse due to their nature of service.

Photo: Rehman Asad

The study said light engineering is one of the largest sub-sectors of small and medium enterprises (SMEs) in Bangladesh, accounting for 2% of its gross domestic product (GDP) and employing over two million workers.

The adverse effects of the pandemic are particularly acute on this essential sector.

The pandemic has put poorer enterprises at a higher risk of a permanent shutdown, Asadul said, explaining enterprises with lower capitals during the pre-Covid-19 period are less likely to operate their business at full capacity after the end of the lockdown.

Similarly, after the economy reopened, 49% of the poorer enterprises collapsed but the collapse rate among the richer ones is 25%.

The report identified the government stimulus package as a hope of recovery for the SME sector but expressed frustration owing to fewer applications and lower fund disbursements.

Asadul Islam said 63% of the enterprises know about the stimulus package and only 3% applied for the support. Only one among the surveyed enterprises has received support so far.

Representational Image. Photo: Rehman Asad

He also said the enterprises that had higher profits before the pandemic or were open during the lockdown or have a higher amount of current sales are also more likely to apply for the government support.

The report further said female workers are working more days and maintaining health guidelines relatively better than their male counterparts. But they are still losing jobs and having the poorest income recovery.

Atiya Rahman warned that if this gender disparity is left unaddressed, it can put women's empowerment in Bangladesh into jeopardy.

She recommended paying special attention to certain highly vulnerable sectors, such as beauty parlours and hotels, and increasing the accessibility of the government stimulus package.

Dr Imran Matin, executive director of the BIGD, said, "The actual rate of profit and revenue and recovery starts to look very fragile. We need to look into each of these components and see how they are affecting the enterprises."

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Dr Kazi Iqbal, senior research fellow at Bangladesh Institute of Development Studies, said, "We see most of the surveyed firms do not have a recovery plan. One of the ways to help these firms, therefore, would be to assist them in preparing a recovery plan."

Dr Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue, said, "SMEs are still struggling to make profits even after the economy has reopened. It indicates the domestic demands constraint caused by the pandemic has not improved."