Policy support could flip the light on for light engineering

Stakeholders and experts believe policy support, incentive and exemption from value-added tax (VAT) could make light engineering a bigger sector in the future.

At a webinar hosted by The Business Standard on August 27, they suggested that the small and medium-sized enterprises (SMEs) in the sector should have to be linked with foreign direct investment (FDI) for growth and development.

The webinar titled "Light Engineering Sector: Problem and Prospects" was moderated by The Business Standard Executive Editor Sharier Khan.

Dhaka Chamber of Commerce and Industries (DCCI) President Shams Mahmud said, "We all feel proud to talk about the export volume of our readymade garments sector. But we often forget the contribution of light engineering which is supporting the apparel sector as a backward linkage industries in achieving that target."

The current market size of Bangladesh's light engineering sector is around Tk25,000 crore with an 22-30% annual growth.

The DCCI president noted the light engineering industry has reduced the spare parts import cost for the garments industry, and the sector could be the country's much-anticipated area for export diversification.

Shams Mahmud said private initiatives alone have brought the sector to the position that it is in today.

"Now some help from the government including policy support, incentives and VAT exemption on light engineering products could help the sector play a big role in the future," the DCCI president added.

Meantime, Bangladesh Engineering Industry Owners Association President Md Abdur Razzaque said that the light engineering sector is an essential part of any industry as it provides capital machinery.

"But levying 15% VAT on locally manufactured capital machinery is a burden for the industry," he said.

He commented that these types of tax impositions prompt tax dodging and corruption, depriving the government of revenue and leaving the industrialisation goal unattained.  

At the webinar, Bangladesh University of Engineering and Technology (Buet) Professor Dr M Kamal Uddin said light engineering is lagging behind since it did not get the level playing field that the apparel sector got.   

He said, like Bangladesh-made bicycles which have been gaining popularity in the international market, each locally manufactured product can compete in the global market.

"Numerous products are going to the international market directly and indirectly. Contribution of light engineering to the local GDP [gross domestic product] is around 1.5% while export earning stands at around Tk4,500 crore," he added.

Dr Syed Md Ihsanul Karim, director at the Bangladesh Industrial and Technical Assistance Center, said that light engineering is a "chain-like pyramid" which would not develop without innovations.  

He said talented engineers are leaving the country due to the lack of sophisticated facilities.

"It is sad, but the truth is we will not be able to cope with modern technologies if we fail to keep these engineers," said Ihsanul Karim.

On expansion of light engineering by linking it to FDI, DCCI President Shams Mahmud said there should be a policy guideline for the linkage so that the sector can supply spare parts to foreign companies like Honda, Tata and Samsung.

"If Honda Motor sources its parts from local light engineering enterprises without VAT, someday local SMEs will be able to improve their capacity to manufacture motorcycles locally," he said.

He hoped the current government would take the initiative to formulate a policy framework.

Speakers at the webinar also shed light on the importance of providing garments-like incentives to light engineering. With incentives, Shams Mahmud claimed the sector would be able to manufacture export quality products.

He also urged the stakeholders to change their mindset about the quality of local engineers.

Meantime, Bangladesh Engineering Industry Owners Association President Abdur Razzaque emphasised five initiatives for the development of the sector.

Those are – launching a joint public-private platform which will work to ensure venture capital, technology upgradation, low-cost loans, separate industrial space and providing regular trainings to industry people.

Talking about the prospects, Buet Professor Dr Kamal Uddin said light engineering could manufacture around 3,500 spare parts for the Bangladesh Railway.

Besides, electrical substation parts, aluminum, metal products and biomedic engineering equipment could be manufactured in this sector, he said. 

The speakers point out the challenges for light engineering including lack of access to finance, international goods production guideline, skilled workforces, standard testing process, accreditation, certification and confirmation of infrastructure.