Covid-19 uncertainties wreck private sector confidence: Study

From 13.2 percent, the private sector credit growth slowed to single digits during the January-December period last year.

Business leaders' confidence had already taken a serious hit due to worsening macroeconomic indicators such as liquidity crisis and increase in default loans. But the onslaught of the deadly Covid-19 pandemic that began earlier this year has resulted in their confidence hitting rock bottom.

Private firm LightCastle Partners made the revelation on Thursday through their flagship publication "LightCastle Business Confidence Index (BCI) 2019-20," at an online event. The Business Standard was the media partner of the programme.

Publishing the results of a survey conducted on businessmen and entrepreneurs, the firm revealed that the Business Confidence Index (BCI) has dropped to –19.27 points this year, in the backdrop of the Covid-19 outbreak in Bangladesh.

The BCI stood at 43 points in 2018. So, the index dropped 62.27 points within just two years.

The report also mentioned that Bangladesh lacks an adequate policy framework and infrastructure to revive the economy from its fragile state.

And if this situation continues, the country might witness a significant level of negative impact on the investment and the employment sectors in coming days.

According to the study, about 43.10 percent of respondents anticipated that the level of investment will reduce by the next six months, while 38.98 percent of respondents predicted lower employment in the same period.

Moreover, about 59.3 percent of members surveyed believed that the current performance of the economy is moderately to substantially worsening compared to that in the previous year's cycle.

Meanwhile, 80 percent of the respondents believe that the performance will degrade by the next six months.

The report explained that primary sectors of the economy dealing with agricultural inputs, agricultural commodities, fisheries, livestock and energy have expressed the lowest confidence with -40.91 points of index.

The confidence index for the secondary sector having RMG & Textiles, Pharmaceuticals, agro-processing, power, footwear, furniture, plastic, automobile, cement, steel, electronics, ceramic showed -30.58 point of business confidence.

The tertiary sector expressed the highest level of confidence with -6.97 points.

Zahedul Amin, co-founder and director of the LightCastle Partners, presented the key findings from the study.

Meanwhile, Masrur Reaz, chairman of the Policy Exchange, Nihad Kabir, president of the Metropolitan Chamber of Commerce & Industry (MCCI), Asif Ibrahim, chairman, Chittagong Stock Exchange (CSE), Nasiruddin Ahmed, former chairman of National Board of Revenue (NBR) expressed opinions as panelists.

While presenting the report, Zahedul Amin said the report aims at gauging the business sentiments of private sector leaders across more than 20 dominant sectors.

Surveyed with 59 C-Suite level executives – CEOs, CFOs, COOs, and MDs – this year's business confidence is found to be critically low, -19.27, influenced largely by the pandemic induced uncertainties and the fragile state of the financial sector even before the global crisis.

He also said the previous editions of the report for the year 2017-18 saw the private sector confidence at 43 points, which was 39 in 2016-17.  The index is determined on a scale of –100 to +100 using the Harmonized Expectation Indicator (HEI), he added.

Ivdad Ahmed Khan Mojlish, managing director LightCastle Partners, said, a –100 index implies that none of the business people have confidence, while a 100 index implies that all of the people have positive confidence.  

"Confidence level of business leaders was positive in the last two reports, and it was increasing. The level of confidence degraded significantly in the new report," he added.

The report mentioned that declining demand, curtailed capacity, pessimistic perception, inadequate infrastructure, restricted financial resources, frail policies are the main challenges towards the revival of the economy.

About 39 percent of the total C-suite members cited weak demand as a major problem, while 44 percent of them referred to their constrained ability in relation to operations.

About 27 percent of the participants in the study mentioned the weak infrastructure and facilities present in the country to be restrictive to their operations.

Financial constraints surfaced as the major challenge common to 64 percent of the industries. Fourteen of the 59 companies complained about the high cost of credit in the market that ultimately increased the cost of capital.

About 37 percent of the decision-makers found the policies and regulations of the country to be unfavorable for their businesses, read the report.

The keynote speaker of the event, Zahedul Amin said, "Low debt to GDP Ratio and forex reserves will act as a cushion against the current economic shock." 

He also emphasised on the importance of diversification of the export basket to reduce dependency on RMG, and considering deferment of LDC graduation in 2024 in order to revive the economic wheel.

Furthermore, 1 in every 3 respondents expects lower sales in the coming months. Employment, however, is expected to increase in technology-driven industries such as ITES, digital advertising and, E-platforms.

The study also highlighted the status of the financial sector in accordance with the rising NPLs, low private sector growth credit, high interest rates on government savings schemes and the brunt from the potential wave of defaults that need to be borne by the commercial banks deriving from the Covid-19 stimulus packages.

The report has found some hope and confidence among business people for three promising sectors like the pharmaceuticals, agriculture and agro-processing, and the IT (Information Technology) and ITES (Information Technology Enabled Services) sectors.

The top 3 sectors remain unchanged since the 2017-18 report. About 32 percent of respondents identified the pharmaceuticals and agro-processing as promising sectors of the economy, while 25 percent of the respondents identified ICT & ITES sectors.

Chairman of the Policy Exchange, Masrur Reaz said, "Employment is the most disrupted sector amid the Covid-19 pandemic, and the situation is worsening due to returnees from abroad.

"The government should introduce more initiatives to protect jobs and livelihood of poor people. It could declare more stimuli to create jobs and protect employment directly."

He added, "The government should put more emphasis on the rural economy and prioritise the products of micro and small industries in the public procurement process to protect those sectors.

"Bangladesh has zero Free Trade Agreements. We will need to establish bilateral trade agreements before graduating from the LDC (least developed countries) status."

Chittagong Stock Exchange Chairman Asif Ibrahim said, "We have to look at the global trends of RMG manufacturing, and start implementing them in Bangladesh. We need to look into lean manufacturing where we can reduce wastage and increase productivity.

Meanwhile, MCCI President Nihad Kabir said, "We need to scope the job market and map the skill gaps in order to facilitate employment and productivity. It is equally important to facilitate job creators alongside job seekers.

"About 2-3 million people enter the job market every year. The government should have a comprehensive strategy to create jobs for them."

Former chairman of the NBR, Dr Nasiruddin stated, "We need to look at the entire ecosystem instead of specific sectors. Only then can we have a comprehensive view and systematic development."

The Policy Exchange Bangladesh was the knowledge partner of the online event, while the Youth Policy Forum was the outreach partner.