Businesses more confident now but soaring costs a big headache: Survey

Despite economic headwinds, Bangladeshi businesses turned out to be more confident about the demand, selling prices, business activities, employment and investment, reveals a survey.

The only indicator that keeps deteriorating is their costs – that of electricity, water and gas, rent, and materials – that are hurting the businesses, according to the Bangladesh Business Confidence Survey 2022-23.

The survey was conducted by the think tank Business Initiative Leading Development (BUILD) and supported by the USAID-funded Feed the Future Bangladesh Trade Activity.

The survey, conducted between September and November last year covering 567 micro, small, medium and large business entities across Bangladesh, asked the businesses about confidence in the March-August period of 2022 and also their expectations for the December 2022-June 2023 period.

The indices – having a score between 0-100, where the bottom half reflects pessimism and the upper half optimism – reveal that overall business confidence surged as the Business Confidence Index (BCI) reached 74.4 during the survey, from 63.6 for the previous six months. It went further higher to 78.2 for the December-June 23 period, giving an optimistic perception of business conditions.

Of the seven components of the survey, the indices reflecting businesses' confidence regarding the demand for their products and services, selling prices they expect to get, the level of activity in business, and employment had a significant jump for the coming days as each of the scores increased to over 90 from less than 67.

The positive factors also translated into the businesses' confidence related to employment and investment.

Over the previous six months, the total employment increase was a bit shy as it happened in only 23% of firms, while it remained unchanged in 72% of firms and declined in 5% of firms.

However, of the 567 surveyed entities, around 80%, including the MSMEs, expect to hire more employees, where apparel dominates.

The confidence was higher among manufacturers across a wide range of industries compared to that of the service sector firms, according to the report published on Sunday at a city hotel.

Representational image: TBS

On the flip side, the increasing costs of businesses have been hurting their confidence as the score came down to a significant low of 12.7 for the first half of 2023 from the moderate pessimistic zone of 44.4 for the previous six months of the survey.

Textile and apparel sector firms find themselves to be the worst hit by the continuous surge in costs as their future cost confidence score dropped to 4.3 from 40.4.

In contrast, service firms' cost confidence index improved to 34.8 from 24.9.

Utility and cost of materials are selected by most of the respondents (95%) as the main cost of doing business for the manufacturing sector, followed by the cost of rent and cost of equipment by 94% of respondents. The cost of utility (66%) is the main factor for the service sector followed by the cost of rent (53%).

Ferdaus Ara Begum, CEO of BUILD, in her keynote, said around 72% of business entities in this survey reported that the overall business cost will increase over the next six months.

"A sector-based specific investigation is needed to find out the possible reasons and circumstances," she said.

She also explained that when business entities are compared based on their year of establishment, it is observed that the confidence level amongst the newly established companies was low compared to those who were already established.

Marc Shiman, chief of the party of USAID Feed the Future Bangladesh, expected the survey would facilitate the government to take decisions to ensure positive confidence of the entrepreneurs in the domestic business environment.

Former BUILD Chairman Abul Kasem Khan suggested significant steps to improve the ease of doing business.