Fall of capital machinery import indicates stagnation in investments
Abu Sazzad: Economist expressed their deep concern for declining the import of capital machinery and industrial raw materials because Bangladesh is mainly depended these two equipments for its industrial production.
Stakeholders said they are failing to expand their existing business due to poor investment in the country. According to a Daily Industry report, in june, private sector credit growth marked 6 years low which is hindering the rapid industrailisation in the country. The private sector growth was 11.26 per cent in July.
Experts said, the fall in the imports of capital machinery indicates stagnation in investments in the country. Besides, sluggishness in import of industrial raw materials also suggests that the country’s industrial production was not satisfactory.
Fresh opening of import LCs in June 2019 decreased by 16.81percent as compared to the corresponding month of the previous year and stood at USD 57.75 billion. Of the sectoral distribution of total LCs opening, the share of industrial raw materials is 33.79percent, intermediate goods is 11.07percent, machinery for miscellaneous industry is 11.41percent, consumer goods is 10.37 percent, capital machinery is 8.09 percent and petroleum & petroleum products is 7.21percent in FY19, according to the latest data of Bangladesh Bank.
As on June this year, the foodgarin import declined by 61.29 per cent due to bumper food production in the country which is a positive indication for the economy.
On the other hand, the import of capital machinery and industrial raw materials import declined by 27.80 per cent and 1.56 per cent respectively.
Industry insiders said, the import of industrial raw materials are holding the lion share of import in Bangladesh for meeting the demand of industrial production.
Bangladesh is mainly depended on imported raw material for industrial production. China and India are the major destinations for import of industrial raw materials.
According to Global Economist Forum (GEF), Bangladesh needs higher industrial production to become a mid-income status country until 2030. Considering this, Bangladesh is being to forced import the industrial raw materials, said GEF. They have underscored the need for strengthening the backward linkage industries to supply the raw materials for boosting industrial production as well as reducing import cost. Higher import payment especially for industrial raw materials is increasing the rising concern of trade gap of the country.
During the period, the LC openings surged due to the higher import orders for Industrial raw material, petroleum and capital machinery, said an official of the central bank. The jump in LC openings for the payment of imports has not been seen before.
“There’s nothing to worry about,” said Ahsan H Mansur, executive director of the Policy Research Institute. Necessary equipment imports for the ongoing mega projects have abnormally increased LC openings, he said.
Orders for equipment for the mega projects were the main reason behind the soaring LC openings, he said.
Higher imports of fuel oil, capital machinery and industry raw materials have added to import costs, he added.
On its economic impact, the economist said: “The rising import is seen as a positive sign for the economy. Increasing import orders for the raw materials and the capital machinery mean rising investment.”
“Some products were imported under cover of other products. Often empty containers arrive. People make money through over-invoicing,” Mansur said. “That’s why I’m a bit anxious too.”
The higher import payment may put pressure on the country’s foreign exchange reserves, said Mansur. “We were in a comfortable position for a long time. The reserves had risen to almost $34 billion. But higher imports will cut into the reserves,” he said.
“If export earnings and remittances had increased there would not have been any problem. But remittance and export earnings are increasing at a slower pace.”
Experts hoped the possibility of good grain import would go up in the next couple of months because of the significant increase in rice production, which will certainly help ease the pressure on the BoP.
The import payment would be more in the coming months as the capital machineries and raw materials import were slower for election, economists predicted. The major import payment before JS pools were LNG, food grains, fuel oil, edible oil but time has come to import capital machineries and industrial raw materials and for this, the trade gap could be increased in the remaining moths of the current fiscal.
Bangladesh is a consumer country and depends on import for its industrialisation. Due to lack of strong backward linkage industries, stakeholders are forcing to import for their production.
The lion’s share of foreign currency comes from contribution of the RMG sector, but the maximum portion of raw materials are imported from different foreign destinations, as a result, every year the country has to pay a huge amount. However, experts have underscored the need to strengthen the backward linkage industries especially for the RMG sector with a view to promoting themselves and reducing the payment from the country’s current account balance. Despite impressive growth of remittance and export earnings, the current account balance is declining recently due to higher payments toward imports costs, insiders said.
Abdus Salam Murshedy, president of Exporters Association of Bangladesh told that every year the RMG stakeholders are importing raw materials from abroad for their production, but, if we can supply such accessories at a lower cost locally, it will help development of the economy.
The government is forced to pay the huge amount of import as we still cannot improve backward linkage industries of the RMG sector, he said.
He urged the government to promote the backward linkage industries especially in the RMG sector which will save huge import payments.