Tyre raring to roll but for lack of policy support

Lack of policy support and raw material crisis are discouraging domestic and foreign entrepreneurs from investing in the tyre industry that has an import-dependent market of more than Tk5,000 crore.

According to industry insiders, although several companies in the country manufacture tyres, about 90% of the annual market demand for more than 25 lakh tyres is met by imports.

Two companies from China and India were set for large investments six to seven years ago but later stepped back from setting up factories, they said, adding some local companies have not started production despite setting up new factories.

Entrepreneurs said setting up a factory capable of producing all types of tyres requires massive investment – Tk1,500 crore minimum – but the domestic demand for tyres, especially for heavy transports, is too low for such factories to utilise their full capacity. As such, the government should make the import of raw materials easier and provide opportunities for export. 

Referring to the lack of supply of the main raw materials for tyre production – including carbon, rubber, different chemicals and yarn – in the country, they told The Business Standard that producing tyres with imported raw materials increases production cost by up to 25%-30% compared to China and India.

On the other hand, importing finished products is more feasible as there is a 10% import duty on it, they added.

Mohammad Aslam, general secretary of the Tyre and Tube Merchant Association, said, "The country currently has a demand for more than 25 lakh heavy vehicle tyres per year. 

"The demand would be more when light vehicle tyres are included. Every year, tyres worth Tk5,000 crore are imported in the country. More than 2,000 traders across the country are involved in this business."

"If the tariff on imported tyres is increased to 25% and local producers are given tax benefits, there will be more investment in this sector. Dependence on foreign tyres will go down only if local factories start production," he added. 

Two large Indian, Chinese investments in limbo

CEAT, the flagship tyre company of RPG Enterprises, India, announced an investment of Tk770 crore in Bangladesh's tyre industry in 2014.

The company also bought land in Bhaluka near Dhaka in 2018 in collaboration with its Bangladeshi partner A K Khan & Company Ltd. However, the company has suspended the investment due to doubts over the utility of its production capacity against the demand for tyres in the country's market.

KM Majedur Rahman, managing director of AK Khan & Company Ltd, said, "The tyre industry is quite costly. A minimum investment of Tk1,500 crore is required to make all types of tyres. The market in Bangladesh cannot absorb the production output of such a large investment. So we need to export. But the government does not have policy support for that."

"India is quite strong in the production of motor parts, including tyres. Chinese and Indian products are available worldwide. Sri Lanka also has many factories. As a result, CEAT is not interested in making such a big investment in Bangladesh," he added.

He further said, "After CEAT, several companies started investing in the tyre industry in Bangladesh. However, it would not be profitable without exemption in taxes and VAT. The export market also has to be created. CEAT has not withdrawn the investment, though. It has kept the market in Bangladesh under observation."

Kunming Iron & Steel Holding Company Ltd, a Chinese company, also has suspended its venture to set up a factory in Bangladesh like CEAT after initially announcing an investment. However, the company has bought land in the Mirsarai Economic Zone with its Bangladeshi partner GPH Group.

After Chinese President Xi Jinping's visit to Bangladesh in 2016, the company announced an investment of $230 crore in Bangladesh in the engineering sector with 17 local companies. The tyre project with GPH Group was one of the investments.

Kamrul Islam, CFO of GPH Group, said, "The plan was to set up a factory to manufacture all types of tyres, including for light and heavy transports. However, the project is currently on hold."

"We had targeted the markets in the USA and Europe. At the time, there was tension between the US and China. But the situation has changed now. The company has moved to Vietnam as investment returns would be easier there than in Bangladesh. The investment plan in Bangladesh has not been cancelled yet, though," he added.

Local players

After the government declared a tax holiday in 2015, the Jamuna Group set up a factory with a production capacity of 25 lakh tyres with an investment of more than Tk2,000 crore. But the company has not gone into production yet.

Jamuna Tyres and Rubber Industries Ltd has completed all the work of the factory at Panchagarh to produce all types of tyres, including for big buses, trucks, passenger transport and motorcycles.

According to officials of the company, tyres manufactured by Jamuna will be more affordable than imported tyres. Around 40% of the production will be exported after meeting local demand.

Mohammad Alamgir Alam, director (Marketing, Sales and Operations) of Jamuna Group, said, "We have already completed recruitment after the installation of machinery. Foreign experts were supposed to arrive in mid-2020. But everything went on pause due to the pandemic. 

"We have plans to export tyres. For this, the government will need to facilitate tax exemption for importing raw materials and give cash incentives."

Meghna Rubber Industries Limited, a subsidiary of Meghna Group, is setting up a new factory at a cost of Tk500 crore to produce tyres for bicycles, buses and trucks. Meghna is currently making tyres for motorcycles, easy bikes, CNG-powered three-wheelers, light trucks and rickshaws. The company also exports bicycle tyres and tubes.

Among the existing tyre producers in the country, Apex Hussain Group has been in the sector for more than two decades. The company currently produces automotive tyres.

But it is the Gazi Group which is still producing the most tyres in the country.

Gazi Tyres manufactures a wide range of tyres for buses, trucks, light commercial vehicles, motorcycles, auto rickshaws, etc.