An engineering uptick

While most of the export-oriented industries are witnessing their exports decline amid the pandemic, the engineering sector stands out in the crowd by posting a 57.64% growth in the first eight months of the fiscal 2020-21 compared to the same period a year ago.

What is even more intriguing is that the sector has registered this staggering pick up in exports after three consecutive years of negative growth.

According to the Export Promotion Bureau (EPB), exports of engineering products amounted to Tk2,876.50 crore in the July-February period of this fiscal year – up by 44.55% from the government target of Tk1,990 crore set for the period.

In the first eight months of FY20, the sector's export earnings stood at Tk1,824.73 crore.

People concerned think the increase in the export of engineering products, especially those from the light engineering sector, is promising.

Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry (DCCI), attributed the recent surge in light engineering sector exports mostly to the continuation of a 15% cash incentive on its exports till FY22.

"Light engineering was also declared the industry of the year in 2020 by the Ministry of Industries. This has largely boosted the confidence of investors in the sector and more businesses are now showing interest to develop the sector," he said.

Prime Minister Sheikh Hasina in January 2020 announced "Light Engineering" as the product of the year.

The government also announced a 15% cash incentive on exports of light engineering products.

According to the EPB, exports of engineering products increased by 35% in the 2016-17 financial year over the previous year.

After that, the sector remained in a negative growth trajectory for three years in a row.

The year-on-year export growth of the sector was negative at 14.18% in FY20, while the sector saw its annual export earnings decrease by 48.32% and 4.12% in FY18 and FY19, respectively.

Export products and destinations

According to the EPB, engineering products that Bangladesh currently exports include iron-steel, copper wire, stainless steel ware, engineering equipment, electric products, bicycles and others.

These products are exported to India, the UAE, Britain, Japan, Malaysia, Singapore, Turkey, the USA, Pakistan, Thailand, China, Myanmar, Italy, Portugal, Korea, Chad, Switzerland, Australia, Greece, Kuwait, Kenya, Nepal, Timor, Yemen, France, Hong Kong, Sri Lanka, Belgium, Burundi, Brazil, Columbia, Germany, Algeria, Egypt, Spain, Honduras, Singapore, Estonia, the Netherlands and Chile.

According to official data, exports of iron-steel increased by 82.39% in In the first eight months of the current fiscal year when compared to the same period a year ago, while copper wire export rose by 32.43%, engineering equipment 69.76%, electric products 40.70%, bicycles 40.90% and others by 108.86%.

Meanwhile, exports of stainless steel wire decreased by 33.66% year-on-year in the July February period of this year.

Pandemic pushes up bicycle demand

Bangladesh exports bicycles and other non-motorised cycles to Australia, Austria, Belgium, Canada, Switzerland, Germany, Denmark, Spain, Finland, the UK, France, Italy, Japan, the Netherlands, Poland, Portugal, Sweden, Slovakia, Taiwan, the USA and various other countries of Europe and America.

During July-December of FY21, the country's export earnings from bicycles was Tk378.07 crore; the highest export worth Tk178.31 crore was to the UK followed by Germany which imported bicycles worth Tk115.93 crore.

Kamruzzaman Kamal, director (marketing) of Pran-RFL, which has been exporting bicycles to 10 countries since 2015, told TBS that the demand for bicycles has increased worldwide and the main reason for this is the avoidance of public transport during the coronavirus period. "Many people have bought bicycles to travel to their office."

Traders in the sector believe that if the government discourages the import of bicycles through policy support, it will be possible to double the demand for locally-manufactured bicycles in the domestic market.

Over 10,000 products

According to the Bangladesh Engineering Industry Owners Association, there are about 50,000 factories across the country that directly employ about six lakh skilled and semi-skilled workers.

On the other hand, around 60 lakh people are indirectly dependent on this sector.

The sector's contribution to the country's gross domestic product (GDP) is about 3%. Over 10,000 products are manufactured in this sector.

The engineering sector in Bangladesh currently involves an investment of around Tk1,20,000 crore ($14.28 billion). Sales of goods and services in the domestic market are around Tk30,000 crore.

The global market size of the sector is close to $8 trillion.

Demand for cluster-based light engineering industries

In the country, light engineering factories manufacture all types of modern machineries and spare parts of automotive technology. The artisans also make the basic machineries and parts that are the driving force of industrial factories.

The sector currently includes agricultural machinery and equipment, marine equipment, mould and die, textile equipment, jute mill equipment, tea garden and mill equipment and machinery, construction industry equipment and parts, bakery industry equipment and parts, metal furniture, paper mill equipment, animal husbandry industry machinery and spare parts and spare parts for automobiles.

After meeting the domestic demand, these products are now exported.

At the outset, factories in this sector were located mainly in Dholaikhal, Tipu Sultan Road, Narinda, Taher Bagh, Banagram, Jinjira, Keraniganj and other areas of Old Dhaka.

Later, entrepreneurs set up factories in Bogura, Syedpur, Jashore, Chattogram, Kishoreganj, Brahmanbaria, Pabna, Natore, Rajshahi, Naogaon, Cumilla, Noakhali and other districts.

Entrepreneurs in this sector said even though light engineering is a prospective industrial sector in Bangladesh, its full potential is not being utilised owing to various problems.

They think the situation will change if low-cost loans, policy support, technological advancement of entrepreneurs, and effective initiatives in setting up industrial parks can be ensured.

Abdur Razzak, president of the Bangladesh Engineering Industry Owners Association, said, "We are losing competitiveness.

"Earlier, many capital machinery used to be made in our factories, but the imposition of various taxes and VAT is now discouraging factories from making capital machinery. As a result, the import of such machines is increasing, while local industries are closing down."

He also noted that even though the government has shown willingness to help this sector, the tax structure announced by the National Board of Revenue, especially VAT and import duty on raw materials, seems to be inconsistent with the government's desire for industrialisation.

"This sector should be taken forward not for the sake of any individual or group, but for the greater national interest," said Razzak.

According to a recent DCCI event, the annual turnover in the light engineering sector is $1.6 billion.

To take the sector forward, DCCI President Rizwan Rahman stressed the need for formulating policies by the NBR, creating a level playing field for the local light engineering sector and developing cluster-based light engineering industries across the country for the expansion of metallurgical laboratories, local spare parts and the sector in general.

At the DCCI event he said even though a 15% VAT has been levied on the local production of light engineering products, there is no VAT on the import of such products.

A study by the Brac Institute of Governance and Development (BIGD) found that at the time of the pandemic shutdown, only 2% of light engineering enterprises were fully open and 29% were partially open.

Some 61% of enterprises have fully reopened since the shutdown was lifted on 31 May last year, and more than one-third have reduced their regular working hours.

Despite the increase in the volume of work, the sales volume in small and informal enterprises has decreased by about 55% compared to the pre-Covid period.

Moreover, 49% of enterprises with relatively low capital are on the verge of collapse following the shutdown.

The BIGD study was conducted on about 2,000 light engineering institutes.