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Business
Confidence
Index
2017-18
Volume 2
About LightCastle Partners
Acknowledgments
Strategic Partner
Dear all:
I am excited to present to you the LightCastle Business Confidence Index 2017-18. This is a follow up to our
previous installment, which we did back in 2016-17. We are excited by the Bangladesh opportunity. With a
consistent GDP growth rate of 5 to 7% over a decade, current GDP value in excess of USD 245 billion+ and per
capita income hovering on the ~ USD 1,500, Bangladesh is on its way to becoming a middle income nation by
2021. Moreover, having 1,250+ people per sq. km gives us the unique opportunity to enjoy a density dividend.
Our MAC consumers currently estimated ~7% is projected to triple within a decade. And finally, “technology
leapfrog” will allow us to skip development cycles and propel towards becoming an advanced economy by 2041.
At the risk of sounding too optimistic, we wanted a deeper understanding of prevailing business sentiments in
the immediate future. What would get us through 2018? Amid our transition into economic diversity what are
the industries business leaders are looking at? How do they feel about their own enterprises? Where do they
see the greatest opportunities and what pressing challenges are they facing? To find out, we surveyed the
leadership team of 102 organizations, spanning all three sectors. The results revealed a bitter-sweet sentiment.
While the confidence for the current period has increased from +39 to +43 (on a scale of -100 to +100, using
harmonized confidence calculation), the increase is marginal – categorically speaking, “Cautiously Optimistic.”
However, this sentiment is an average across the sectors. A deeper look suggested business leaders are
confident on verticals like Power & Energy, ICT, Agriculture while cautious on sectors like Banking & Finance,
Real Estate and Logistics. The study goes deeper into each sector and sheds light for this reasoning.
I would like to take this opportunity to thank all the respondents who have contributed. We are positive that you
will find the insights useful and act on the insights to keep contributing to Bangladesh’s growth story.
Sincerely,
Bijon Islam
164.8 1252 15
Mn people per sq. km of land area Mn
145.1 80.2 75
Mn Mn Mn
Sources: World Bank, United Nations, BCG, LightCastle Partners, EPB, ICT Ministry, BTRC
1 EXECUTIVE SUMMARY 6
2 METHODOLOGY 9
8 CONTRIBUTORS 45
confidence in their outlook to the economy. However, they also voice specific
concerns, which if addressed, can help them play an even greater role in
CXO members across a myriad of industries and found the overall business
sentiment in the country to be +43. This marks a 4 points increase from last
year’s score of +39. In other words, the score sends out a cautiously optimistic
However, some concerns still remain in regards to creation of fault lines by the
businesses, recent slump in RMG prices, transportation & logistical hassles and
The findings further suggest that Bangladesh’s top business professionals agree
in the cement and pharmaceutical industries, per unit fall in value in RMG prices
public entities.
times. Moreover, power outages have increased production costs and final
Industry experts opine the following set of actions will help improve the current
capital avenues
When asked to rank the top sectors in the coming decade, business leaders – by
following industries will have the highest possibility to drive larger impacts in
Bangladesh:
• Pharmaceuticals
• Agro-Processing
• Footwear
foregone year in combination with both the present and expectations for the
upcoming year.
Harmonized Business Confidence Index: The indicator was later examined for
between -100 (all respondents carrying negative expectations for the coming
year) and +100 (all respondents carrying positive expectations for the coming
Situation and Expectations, the BCI score induced from the HEI method supplied
Business Confidence = Sampling: The BCI was calculated by surveying 102 C-Suite level executives –
√[(Situation+200) × CEOs, CFOs, COOs and MDs including immediate pipeline – spanning a wide
(Expectations+200)] range of industries. Interviews have been carried out between September 26
- 200 and November 12, 2017. Nearly 90% of the interviews were conducted in person
For this research, we took an approach to select only those industries that have
the highest level of contribution to the country’s GDP. The industries have been
5% 42% 53%
entities.
* Grouped into three categories – Foreign banks, local banks and non-bank financial institutions.
Bangladesh economy is poised to be the next Asian Tiger. Over the last
ten years, the economy has continued to impress by keeping an annual average
growth rate of more than 6%. According to Business Monitor International (BMI)
coming years.
7.11 7.28
6.46 6.52 6.55
6.06 1359 1480
6.01 6.01
5.57 1210
5.05 1085
952
836 856
758
681
616
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17, E
In the past five years, Moody’s and SNP ratings have remained constant with a
steady inflation rate (5-6%) and record high FX reserve. On the contrary,
stagnation of the RMG sector, lower oil prices adversely impacting remittances,
and current account deficit have all proved vital as impediments to growth.
the World Bank’s recent list of “Doing Business Report 2018.” Another critical
entering the workforce each year? How long will it take for it to become the
next Asian Tiger? Well, industry leaders have voiced their opinions through a
cautiously optimistic confidence level of +43, higher than that of last year.
+83.28
+69.92
+60.87
+56.44
+46.22
+43
+39
+37.52 +37.06
+32.74
+28.83
+23.61
Power and Energy : LOWER ENERGY; DIFFICULT DUE TO INCREASED INVESTMENT ON POWER GENERATION
ICT and ITES : ICT BEING THE THURST SECTOR THROUGH MAJOR POLICY DISCOURSE
Logistics : INFRASTRUCTURE ISSUES SUCH AS PORT CONGESTIONS & PROBLEM RELATED TO TRANSPORTATION
Exhibit 4: Investments
Lower 3.9%
Higher 51%
international markets).
Lower 2.9%
Higher 63.7%
100% from the Pharmaceutical and Agro industry expect to generate higher
sales. Surprisingly enough, respondents from the Real Estate also exhibited
upbeat vibes.
Agriculture &
Pharmaceuticals ICT & ITES
Agro-Processing
Much Higher 1%
Lower 15.7%
Higher 24.5%
from natural gas and oil prices globally. On the flip side, majority of the RMG
industrialists posit that prices will drop in the coming year amid increasing
Power RMG
100% 54%
Lower 16.7%
Higher 45.1%
Nearly half of the respondents claim profits will soar in 2018. ICT & ITES,
export in Pharmaceuticals.
Lower 5.1%
Higher 64.1%
Agriculture believe exporting is the way forward while the ICT & ITES industry
Agriculture &
ICT & ITES Pharmaceuticals
Agro-Processing
Lower 3.9%
Higher 52.9%
plants. Therefore, higher employment generation is predicted. The ICT & ITES
participants, however, fear that employment will maintain status quo in the
near future.
sectors. The traffic lights signify the overall outlook of the industry: Green
“Without electricity, you cannot do anything – Agriculture, ICT and all other sectors depend
on the power industry. It is the thrust sector of the government and thus requires more
Much Same/
Higher
Higher No Change
a number of PPP and G2G based investments are running for mitigating the
Bangladesh Energy Regulatory Commission (BERC) has already raised the retail
three times increase in the domestic natural gas prices in the next decade.
skill gap of public entities in dealing with PPP ventures as the biggest obstacle.
Others have cited absence of regulations in the LPG market as a major hurdle.
Panchagarh
Thakurgaon
Nilphamari Lalmonirhat
Dinajpur Rangpur
Kurigram
Gaibandha
Joypurhat Sherpur
Sunamganj
Sylhet
Naogaon Jamalpur Netrokona
Bogra
Bawabgani Mymenshingh
Rajshahi Moulvibazar
Sirajganj
Kishoreganj
Natore Tangail
Habiganj
Nuclear Power Plant, Rooppur
Gazipur
Pabna
Narshingdi
Combined Cycle Gas Based
Power Plant, Meghnaghat Meherpur
Kushtia
Manikganj
B.Baria
Dhaka N.Ganj
Rajbari
Chuadanga
Comilla
Munshiganj
Jhenaidah Faridpur
Magura
Chandpur Khagrachari
Shariatpur
Madaripur
Narail
Jessore Gopalganj
Laxmipur Feni
Barguna
Bandarban
nearly 40% of the country’s population did not have access to electricity in 2014.
However, other sources say the current percentage is smaller (around 20%).
prices. Demand is growing rapidly and the installed power generation capacities
amount of investment across the entire sector is required to meet this demand. THE FOUNDATION:
Agriculture and
“There is immense growth potential in the agriculture sector in the next decade. The sector’s Agro-Processing
growth will be augmented by advanced technology and digitalization, lending power and +69.98
influence to the farmers.”– General Manager of an Agro Inputs Company
Mechanization
60% 40%
Much
Higher
Higher
irrigation. All the respondents expect investments and sales to soar in the
coming year.
20%
Much
Higher
Higher
reduced the import duty of rice to 5% and was compelled to import 3.5 lac
tonnes of rice. Furthermore, classified loans rose by more than 14% (BDT 6.08
spending are both ever-increasing and consumers are now more conscious of
150
140.9
MAC Population
in millions
100 96.7
THE CONVENIENCE STORE:
49.4
32.7 33.2
45.4
38.9 FMCG
19.3 18.7
+60.87
11.7
5.8 8.5
0
Myanmar Bangladesh Vietnam Philippines Thailand Indonesia
Mac % of populations 11% 15% 7% 12% 21% 34% 33% 42% 69% 72% 38% 53%
becoming more quality conscious. The Bangladesh market has the advantage
Looked another way, the country is enjoying a “density dividend.” The total
MAC population is expanding rapidly at 10.5% annually and at this pace, the
costs, and lack of human talent in the middle and top management.
“With an increasing life expectancy, 5,000 new local doctors and Pharma patent waiver
+56.44 FY17, E 89
FY16 81.2
FY15 72.6
FY14 59.8
FY13 48.3
FY12 44.3
FY11 41
FY10 36.2
The industry is currently catering to 98% of local market demand and exporting
to over 125 countries. All the industry leaders surveyed expect an upsurge in
sales in the coming year. 71% and 80% are hopeful about increase in profits
aspirations to:
diseases
Respondents have also credited policies – Drug Control Ordinance, 1982, which
prohibits foreign pharmaceuticals from selling imported drugs and the WTO’s
Rising raw material costs, power crises and lack of skilled human resources
relatively poor while “brain drain” is also quite prevalent. However, the
66.7%
20%
6.7% 6.7%
Much Same/
Higher Lower
Higher No Change
favors. In fact, it is being touted as the “next RMG sector” of Bangladesh. Roughly
40% of the industry leaders said investments will rise substantially in 2018 and
more than 85% expect greater ICT based jobs. Respondents showed optimism
Sylhet from where the government hopes to export software and IT services
sector, 100% corporate tax exemption has been accorded and various startup
income nation through the success of ICT & ITES industry. Finally, industry
leaders have also expressed satisfaction with the rise in Venture Capital (VC)
The difficulty in payment collections or yields is a challenge particular to the ICT &
ITES industry. Other confronted challenges are financing difficulties due to high
cost of credit and the need for physical assets as collateral, regulatory challenges
However, the government’s efforts in solving such problems can be seen through
collaborations with international consulting firms such as BCG, where BCG will
work for international B2B development. Initiatives such as the CEO Outreach
Programme will help boost investment and create more job opportunities.
understood the correct model. Centralization is key and as a result banks are reducing
BDT Bn
USD Bn
657.31 621.72 734.09 741.48 803.07
The overall confidence level of leaders from the banking industry (52.76) was
Bangladesh Bank has reported classified loans to be BDT 803.07 Bn at the end
reasons for such defaulted loans are lack of corporate governance and excess
competition, both of which led to handing out loans without (proper) credit
All financial institutions are going through capital restructuring due to Basel III
requirements. According to the Basel III framework, banks have to keep at least
10% capital against their risk-weighted assets. However, 9 (out of 57) banks
institutions are raising funds in the form of subordinate debt issue and rights
Industry leaders, from both bank and NBFIs, quoted regulatory challenges such as
incompetency due to lack of specialized training and brain drain from the country.
“Globally, after China, Bangladesh is the second largest garments exporter. China is getting
more expensive, which opens many doors for us. We need to go after product and market
diversification. Locally, RMG sector is the highest contributor to the economy and the
RMG & Textiles, the most sought after industry in the country, has been
consistently covering over 80% of Bangladesh’s export for the last 4 years.
clothing globally. Bangladesh is also the leading exporter in South Asia with 6.4%
share of the global market, followed by India (3.5%), Sri Lanka (1.2%) and Pakistan
(1.2%). Industry leaders have cited that China’s working population is ageing and
hence is demanding higher wages. This puts cost pressures on the Chinese
117
28 25 18
16 15
7 6 6
China EU (28 Bangladesh Vietnam India Hongkong Turkey Indonesia Cambodia USA
countries)
adopting a ‘China plus one’ policy in order to diversify away from China and
market share in Europe. In addition, Bangladesh is now the top denim exporter
to EU with a market share of 21.18%. This has come about as a result of heavy
competitive prices and shorter lead times. As an LDC, Bangladesh enjoys duty
and quota free access to the EU market under provision of GSP. However,
it will lose this provision. Over 50% of the respondents claimed poor
also mentioned that due to a dip in demand, many players are taking orders
below costs to run their lines, which are lowering the benchmark price. Nearly
catastrophe. Additionally, we have several green factories currently operating. The world
does not see us as non-compliant anymore. This implies RMG business is back on track,
which in turn, benefits the Logistics industry.”– Head of Ocean Freight at Multinational
Logistics Firm
“Long lead time” is a phrase prevalent in the trade sector of Bangladesh. The
logistics industry, a support system for all other industries, plays a vital role in
shortening such lead times. Majority of the leaders in the other industries have
complained about the infrastructure and logistics of the country. Leaders of the
logistics industry do not disagree either. They complain port congestion to be the
COMPLETING THE biggest challenge of 2017, when vessels in Chittagong port had to wait up to even
LAST MILE: 10 days at the outer anchorage due to an accident. They even said the existing
+32.74
On the positive side, the government is taking initiatives to tackle this problem.
They are investing time and resources on the development of Payra port, which
will have direct rail, road, and waterway linkages with Dhaka. The government is
also taking several internal city development initiatives such as the construction
Economic Operators (AEO) is being introduced within the next year to cut down
from the ports, the program will involve almost no physical check of import and
Firms will have to invest in supply chain security and comply with specific
customs requirements in return for the benefits from this fast-track program.
Customers are more informed. Profit margin is low. There is a need for decentralization
25,000
18,000 18,000
15,000 15,500
14,000 15,000
12,500
12,000 12,000 12,000 12,000
11,000
10,000
9,500
7,500
8,000
HEART IS WHERE
7,000 7,000
5,500 6,000 6,000
Dhanmondi Gulshan Banani Baridhara Lalmatia Mirpur Uttara Shaymoli Real Estate
Source: LightCastle Primary Research +28.83
The once glorious real estate sector has been facing a slump for quite some
time. The government has promised to ensure home for all by 2021, but it has
regulations have slowed down this sector. While interest rates may have come
However, while half of the business leaders interviewed predict prices to go up,
the rest expect no changes in prices in the upcoming year, which goes hand in
the construction of a high rise building while another stating the government
bodies must work more like a private organization to reach a clear consensus
on every decision.
50% 50%
Same/
Higher
No Change
income people (to purchase flats) and decentralization away from Dhaka
are necessary factors to pull the industry out of its current sorry state.
“Cement use is multi-dimensional. Currently the profit margin is low but the business is
based on volume. Economies of scale is the only way to sustain and in the long run big
80.0%
40.0
69.5% 38.0
69.0%
68.2%
28.0
25.0 73.7%
22.0
21.0
20.0
64.0%
62.5%
Source: Industry Players' Estimate and EBLSL Research and The Daily Star
quite challenging for industry players. Demand increases in winter and falls in
asymmetry in the market. Construction and real estate activities are the major
in the real estate sector has adversely affected the demand for cement, higher
12.2%
1.1%
-3.3%
-6.0%
-14.1%
Source: Industry Players' Estimate and EBLSL Research and The Daily Star
(clinkers) are imported. 80% of the total costs attribute to raw material costs,
lowering margins. To that end, all respondents maintained that rising raw
downward trend in global clinker price has somewhat helped the industry gain
back foothold.
Regulatory Challenges
6%
Business Operational Challenges
9% 27%
Infrastructure/Logistics
9%
Human Capital
12%
Access to Finance
19%
18% External Shocks
Others
As every economy, Bangladesh economy also has its own share of problems, which creates
hindrances for businesses across sectors. This, in turn, challenges the confidence level of
industry leaders. Even though business leaders claimed that 2017 was a relatively more fruitful
year than 2016, they did not fall short in voicing some pertinent frustrations and despair.
The biggest problem cited by the respondents was regulatory challenges. Industry
an unfavorable taxation, existence of grey markets and unethical practices have created
difficulties for businesses. One Managing Partner of a consulting firm expressed how the
prohibition of using a translation of the law (in any other language) has raised barriers for
Business operational challenges adversely affect profits in the form of rising raw
material costs especially in the cement and pharmaceutical industries. The per unit
fall in value and increase in volume in the RMG sector is another difficulty. Other
problems include the struggles in handling working capital especially in the ICT & ITES
sector.
Infrastructure/Logistics (18%)
Port congestions, mainly in the export-import oriented industries, and power &
energy crisis, especially in the manufacturing industries, have snatched away the
transportation problems also add to the woes relating to infrastructure and logistics.
Although 2.1 million young people enter the job market each year, respondents
While many industry leaders were satisfied by lower interest rates, mostly ICT & ITES
sector respondents complained about the high cost of credit and difficulties faced in
availing finance, especially the need for physical assets as collateral for loans.
Threat of imports in the FMCG industry and threat of foreign players in the ICT & ITES
Others (6%)
Respondents have cited some other challenges which cannot be clubbed into any of
respective industries.
Industries
Regulatory Challenges
Infrastructure/Logistics
Human Capital
Access to Finance
External Shocks
FMCG
Pharmaceuticals
Logistics
Real Estate
Cement
highest growth opportunities in the next decade. The top 6 chosen industries are:
(USD 2-3 Bn), smart city project (USD 0.5 Bn) and airport digitization project
· Ongoing auto rice mill boom and consolidation in the frozen food, fish,
· Bangladesh Bank and largest private investors are investing in this sector
· Policy makers are focusing on it while non-politicians are also becoming
more engaged
· Greater scope in the domestic market as diseases gradually move from acute
to chronic diseases
Estate
· ‘China plus one’ policy: Bangladesh can capture China’s loss in market
Europe
· Emergence of high value items such as intimate wears and jackets (product
diversification)
believe the public and private sectors can work in coordination with each other for the economy to achieve
higher growth in the near future. Key agreed upon recommendations are presented below:
When it comes to exports, it is high time the government shifts its focus from the RMG sector to other industries
such as Footwear and ICT. Other industries need to be incentivized to level the playing field. Formulating and
adopting strategies for trade in services will help uplift the ICT sector. The World Bank has recently approved
USD 100 Mn to support the country in diversifying exports in labor and skill intensive industries beyond the
RMG sector. In order to increase competitiveness, the government should come forward to increase non-RMG
firms’ access to international markets, and enhance their ability to conform to global standards.
Private sector leaders claim government entities require capacity building to reduce sluggishness in operations.
Leaders have suggested such government entities must work like private sector organizations and with greater
unity to improve efficiency. Red-tapes need to be removed to speed up the process of starting a business.
Construction permits need to be issued faster while the time taken for a company to be connected to the
national grid needs to be lessened. Simplifying property registration process and fully digitizing tax submission
Port congestions must be addressed by increasing the number of ports and modernizing the existing ones in
order to shorten lead times. Additionally, customs efficiency must be enhanced. National highways need to be
upgraded to 4 or more lanes and road safety must be improved. New bridges to ensure undisturbed traffic flow
To develop capacity of human resources, skill development has become a necessity. This will not only enhance
the quality of final goods but also reduce waste and increase labor income. A comprehensive strategy for talent
development needs to be formulated. This involves formal and informal training along with improvements in
Streamlining the Financial Sector and scaling up the use of alternative capital avenues
The financial sector must be regulated and supervised properly by an independent body such as the central
bank to reduce the struggle with loan defaults. Government must strengthen corporate governance which
would help strengthen the lending processes in different commercial banks. Additionally, the government
should promote opportunities that can be availed from venture capital, impact investments, private equity and
accelerator programs.
The good news is that the overall optimism in the country’s business world is higher than last year. The
cautiousness reflected in the score can be overcome by mitigating the challenges mentioned. With an average
annual economic growth of 6% over the last decade, Bangladesh has the potential to be the 28th largest econo-
my by 2030 as projected by PwC. By integrating information technology in every industry, lowering power
deficit, enabling infrastructural improvements and lessening regulatory challenges to facilitate more commerce,
the country can generate higher employment – giving rise to one of the most important economies of the world.