Investment needed in motorcycle parts making

What the industry needs to harness full potential

• Motorcycle industry needs component manufacturing
• Government should generously incentivise local vendors
• Registration should be free from cumbersome process and high fees
• Two-wheeler loans should be abundant and convenient
• Manufacturing incentives prevailing before Covid-19 should be restored

At this stage of its journey, the motorcycle industry needs investments for component manufacturing in Bangladesh so that more value addition can sufficiently reduce unit prices and help the market grow, so believe motorcycle industry entrepreneurs. 

At a pre-budget webinar recently organised by The Business Standard, representatives of the top motorcycle brands said the motorcycle market in Bangladesh has doubled to around half a million units a year since 2018, following a fair extent of localisation of manufacturing. 

It was thanks to the government's industry development policy that had Tk8,000 crore in investments brought in by brands, enabling the industry to cater to more than 90% of local market demand alongside reducing unit prices by more than one-fourth. 

But this is far behind the potential, believe the entrepreneurs, as the industry projects an annual market of two million units. The desired scale would make more value addition feasible and make the most popular mobility product affordable.

At present, Bangladesh needs investments in component manufacturing, without which the motorcycle industry will not go far, said Matiur Rahman, president of Bangladesh Motorcycle Assemblers and Manufacturers Association (BMAMA), at the webinar.   

"We, from the industry, have sought incentives for component manufacturers in the upcoming budget," said Matiur, managing director and chairman of Uttara Group, which is manufacturing Bajaj motorcycles locally and leading the market. 

The incentives for component manufacturers should be more than what the motorcycle brands are availing against their value addition, he suggested. 

Motorcycle manufacturers in Bangladesh pay less duties, as low as 36%, against their local value addition through frame and swing arm building as well as engine assembling, while assemblers of imported parts pay around 90% in duties and taxes on import value and importers of completely built units pay more than 150% in duties and taxes in total.   

Despite local manufacturing and a price drop in recent years, motorcycles are still selling at much higher prices here in Bangladesh than in India and other regional countries. 

It is because motorcycle manufacturers in those countries are using raw material components locally available, while Bangladeshi plants are importing most of the same. Duties and taxes on these add to their cost, said Hafizur Rahman Khan, president of Motorcycle Manufacturers and Exporters Association of Bangladesh. 

Competitiveness needed 

Price reduction is the key challenge for local motorcycle plants as they need competitiveness both in the home and export markets, said Hafizur, who is also chairman of Runner Automobiles Ltd, which pioneered motorcycle manufacturing in Bangladesh almost a decade ago. 

Runner is also the lone Bangladeshi exporter of motorcycles and suffers from a lack of cost competitiveness in the industry. 

"The government rejected our plea for bonded warehouse facilities which could have offset the existing high duties and taxes for motorcycle raw materials and components," Hafizur said.

Duty drawback is a lengthy process and the announced 10% cash incentive against motorcycle exports is insufficient as the paid duties and taxes are higher, he said by way of explaining the need for manufacturing components locally.

Bangladesh has eight motorcycle manufacturers but not even eight component manufacturers, said Hafizur. In industries, he noted, a bigger number of component manufacturers are needed to cater to the motorcycle plants.

The government has been stressing the very possible development of the light engineering sector, which hosts most automobile component manufacturers across the world. 

Experts opine that component makers, if they flourish, can also export their products alongside catering to the local motorcycle plants, a picture observed in India, Thailand and China.  

For the next take-off 

The first take-off by the country's motorcycle market in 2018-19 was due to local manufacturing. 

The annual market of 5.5 lakh units slid to 4.8 lakh in 2020 as the plants suffered supply disruptions due to the Covid-19 pandemic, despite the fact that demand had spiked several times as more people preferred two-wheelers for social distancing. 

If the government addresses the prevailing problems the industry faces, the market will cross the million-unit milestone in the next two years, said Matiur Rahman. 

BMAMA General Secretary Biplob Kumar Roy said the next take-off could be fuelled by convenient two-wheeler loans, which is virtually absent in Bangladesh as banks ask for too many papers and take more than a month to finance a motorcycle purchase. 

In other regional countries, banks' collaboration with dealerships enabled financing in 10 minutes at showrooms, said Shah Muhammad Ashequr Rahman, FCA, head of finance and commercial at Bangladesh Honda Private Ltd. 

The central bank should actuate the plan to enable commercial banks to disburse convenient two-wheeler loans under the SME financing category. 

Biplob Kumar Roy, who is chief executive officer of TVS Auto Bangladesh Ltd, the second largest brand in the Bangladesh market, said in Bangladesh, average people think of motorcycle purchases as investments and most of them find it hard to spend nearly or more than Tk1 lakh for a one-time payment.

If bank loans are affordable and available, motorcycle buyers will grow significantly in number throughout Bangladesh, he said, and thus the journey towards a target market size may see its next take-off.

Not only financing but the industry is also in dire need of a lowering of costs and an end to hassles involved in motorcycle registration, said Abdul Musabbir Ahmad, managing director of Nitol Niloy Group, which is a joint venture partner of India's motorcycle giant Hero Motocorp.

"If SIM cards can be electronically registered in shops, why not motorcycles?" he said. "It is an impractical way to take all the vehicles to the road transport authorities for registration."  

Matiur said, "We requested a pre-registration process by dealerships. We offered advance fee payments against a certain number of motorcycle registrations so that customers can get rid of the hassles. But the Bangladesh Road Transport Authority turned down the request as its law is yet to support such a process."   

Bangladesh Honda's Shah Muhammad Ashequr Rahman thanked the government for partially rationalising the registration fees last year, while the added cost of getting a motorcycle on roads is still many times higher than in peer countries.

Alongside reducing the duty burden, the government should be reducing the industry's operational costs too, said the finance head of Bangladesh Honda.

All motorcycle manufacturers suffer from working capital problems as their Tk8-10 crore in positive balance of advance tax accounts are stuck at the National Board of Revenue and the office does not adjust the balance on time, he said.

The lack of clear policy matters often creates problems for the companies at ports and customs and these should be resolved, said Matiur.

Ashequr urged a rationalising of the tax authority's allowable limit of royalty payments to foreign technology providers as well as administrative and entertainment costs as those are not realistic. He also called for a stop to charging taxes, such as the 32.5% tax on the said expenses beyond the impractical limits.

Insurance costs are also higher in Bangladesh compared to what the companies pay abroad and such costs add to unit prices, he added.

Fahim Adnan Khan, head of corporate affairs at Rancon Motorbikes Ltd, which manufactures Suzuki motorcycles in Bangladesh, said the industry uninterruptedly enjoyed market growth only for a year after its massive investments in 2017-18 and it has been suffering from last year's withdrawal of some incentives for manufacturing, such as value-added tax exemption for manufacturers.

Manufacturers need a restoration of the incentives which prevailed before the pandemic, he said.