Economy on weak recovery path: Sanem study

Bangladesh is on a path to weak recovery as reflected in a survey, although there are predictions business confidence will improve in the first quarter of the current fiscal year.

About two-thirds or 64% of respondents of the survey spoke of a weak recovery while 27% consider the recovery rate moderate and only 9% perceive the country is on a strong recovery path.

The findings of the survey conducted by South Asian Network on Economic Modeling (Sanem) ‍ and The Asia Foundation were shared on Saturday.

According to the survey entitled "Covid-19 and Business Confidence in Bangladesh: Towards Economic Recovery", there has been a 50% recovery in the confidence of businesspeople. Besides, improvement has also been observed in sales, profit, investment, employment and business cost of the firms.

Findings of the Sanem survey reflect the situation after the surge of a deadlier new variant since March this year that caused more infections and deaths, forcing the government to enforce a series of restrictions from April.

Dr Selim Raihan, executive director of Sanem and professor at Dhaka University, on Saturday presented the survey findings which were based on interviews with owners of industrial and service organisations.

He said most of the better performers that showed strong recovery are in the pharmaceuticals, everyday essentials, and exports sectors.

The survey was conducted on 501 firms in eight divisions and 37 districts in the country, with 255 firms from the manufacturing sector and 246 from the service sector. Survey respondents were categorised by size into micro, small, medium, and large.

Due to the deterioration of recent business activities, firms' internal recovery has gone down to 35% (recovery in July 2021 compared to March 2020) from 57% (recovery in March 2021 compared to March 2020), finds the survey.

The report also analysed business prospects for the current quarter.

Selim Raihan said, "Those who received support from the government's incentive package are in a better state compared to those who didn't. Small enterprises are lagging far behind the medium and large-scale enterprises."

"29% respondents complained about being faced with bribe demands and 47% preferred not to respond to this question, while 24% said they were not asked for a bribe," he added.

He further mentioned that 42% of those who reported bribery claims own small and medium-sized enterprises.

Among the survey participants, 79% have reported that their firms were being denied support under the incentive package owing to various reasons including bribery claims.

However, business confidence is expected to improve in the July-September period of this year, compared to the April-June quarter. The improvement is visible for all of the sub-components of the Business Confidence Index (BCI). This improvement in business confidence shows a hope to revive the private sector.

The latest survey is the fifth in a series of surveys Sanem initiated following the outbreak of Covid-19 in March 2020 to assess the impact of the economy.

Selim Raihan observed that the Covid situation in last April-June was worse than the previous quarter. As a result, the confidence of businesses came down to only 41% in that quarter from about 58% in the previous quarter, he added.

On the other hand, business organisations in Dhaka got 44.63 points in terms of recovery while those outside the capital got 41.21 points.

Selim Raihan thinks businesses in the urban centres have done a bit better than those in rural areas due to a good supply chain and marketing system.

He also observed that the agrarian economy outside Dhaka could maintain a normal pace, but situations of the manufacturing and service sectors were different.

Based on the findings of its four previous studies, Sanem says sales, profit, investment, employment and business costs of firms showed improvement to some extent during April-June this year. However, the business status index (BSI) did not rise to 50% in any area, except in the case of wage. The 50% mark in the BSI means an unchanged status of business confidence compared to the corresponding period of the coronavirus-affected year of 2020. The pace of recovery is slow.

The survey has found that foreign remittances, exports of goods and services, bank credits to the private sector, and vaccination programmes are among the factors that are contributing to the overall economic recovery.

"Over the last one year and a quarter, there have been some visible recoveries of business activities. However, business activities deteriorated in the April-June 2021 quarter compared to the January-March 2021 quarter, which is alarming," Selim Raihan said.

The situation was worse for micro, small and medium firms, non-exporter firms, firms from the services sector, and firms located outside Dhaka, he added.

The survey also finds that 60% of respondents (employers) have got at least one dose of Covid vaccine. However, this finding is not homogenous across sectors and locations. On the other hand, on an average 25.5% of firms' total employees have received at least one dose of Covid shot.

Sanem recommends that the government focus on improving the overall business environment to lower indirect costs of business operation.

The think tank also stressed the need for a wider vaccination coverage to speed up the pace of recovery. The government should therefore continue its mass vaccination programme across the country, said Salim Raihan.

He also noted that effective implementation of the stimulus package is critically important. "An assessment is urgently required on the stimulus package implemented so far. Stimulus packages need to be redesigned and expanded amid the current wave of Covid-19."