Pragoti's imports, car sales nosedive amid govt austerity, dollar crisis

Infograph: TBS

Pragoti Industries Limited, the country's lone state-owned automobile assembler, is at risk of snapping its decade-long winning streak and plunging into losses as government institutions have stopped buying cars as part of an austerity policy amid a dollar crisis.

Besides, the Bangladesh Bank has raised the letter of credit (LC) margin to 100% for luxury goods, including cars, in a move to ease the country's import cost burden.

As a result, the company's import of car parts has drastically dropped.

According to Pragoti Industries, usually it sells more than 900 vehicles every year. Even in the last financial year ending in June 2022, after overcoming the Covid-19 pandemic, the company sold 711 cars. And in the fiscal 2020-21, it sold 342 cars despite the pandemic.

However, due to the government's cost-cutting policy, government institutions have stopped buying cars. Therefore, sales of Pragoti cars have decreased considerably. In normal times, the company sells an average of over 70 cars per month. But in the first two and a half months of the current financial year beginning in July, it could sell only 22 cars.

Similarly, Pragoti imports parts for 1,000 cars every year. It brings in parts at least five times a year, including those of 200 cars with every shipment. But in January this year, the company opened the last LC to import parts of 200 cars. Since then, it has not imported any parts in the last eight months.

On condition of anonymity, several officials of the company said Pragoti is at risk of falling into losses as it depends only on the sale of cars to state-owned companies. In order for it to carry on as a sustainable and profitable organisation, priority should be given to the private sector as well as the public sector.

Even during the current crisis, private car assembling companies are doing business in the country while Pragoti faces a risk of losses as it depends only on government institutions. That is why it is important to focus on increasing marketing skills in a competitive market, they added.

On 3 July, the government issued a circular stopping the procurement of new vehicles for ministries and divisions in fiscal 2022-23 as part of its austerity measures toward preserving foreign exchange reserves and taming inflation.

A Finance Division directive on the day asked all government, semi-government, autonomous and other bodies to suspend purchases of vehicles for the current financial year with allocations under both operating and development budgets.

The directive noted that the replacement of even old cars would come under the purview of a new decision.

Mentioning that government institutions are the main buyers of the company, Md Akter Hossain, managing director of Pragoti, said, "Pragoti is in a bit of a crisis in the current financial year as the purchase of vehicles at the government level has stopped."

"However, once the crisis in the country is over, Pragoti will return exactly to where it was before," he added.

Md Akter Hossain expressed the hope that through the implementation of various development plans and projects, Pragoti Industries will brighten the image of the country in the world by manufacturing "Made in Bangladesh" cars.

He told The Business Standard that even during the pandemic, the company was in the profit stream besides providing a large amount of revenue to the government exchequer.

Due to the fear of losses in the current year, Pragoti Industries still offered government institutions the opportunity to buy cars in minimum numbers. But the finance ministry has rejected the proposal. Since then, Pragoti has been at risk of losses due to declining car sales.

According to Pragoti data, in fiscal 2021-22, it posted a profit of Tk7.28 crore before tax and the amount was Tk38.5 crore in the previous year.

The state-run assembler logged a profit of Tk76.2 crore in fiscal 2019-20, Tk101.33 crore in fiscal 2018-19, Tk95.49 crore in fiscal 2017-18 and Tk86.88 crore in fiscal 2016-17.

In fiscal 2018-19, it sold a maximum of 1,448 cars against its annual target of selling 900 cars. Although there is a target of production and sale of 1,000 cars in the current financial year, officials of the company think that 90% of the target will not be achieved due to the current situation.

Pragoti Industries under the Bangladesh Steel and Engineering Corporation has been profitable for almost a decade. The company imports brand new car parts from the global markets and markets them after assembling.

The capacity of the Pragoti car assembling plant established at Barbakund, Chattogram is 1,300 units per year. The company assembles and markets 900 to 1,000 cars annually.

However, the implementation of government projects slowed after the coronavirus outbreak in the country. Purchases of cars for government work have also been reduced. Car sales started again after the pandemic waned, but in recent times, the government has taken to austerity measures due to various complications, including the dollar crisis in the country. This stopped the purchase of government vehicles.

Gandhara Industries Limited was established in 1966 as a privately-owned car assembling factory in the port city, with technical support from General Motors of England. In 1972, the company was nationalised as Pragoti Industries Limited.