Second wave cuts deep into business confidence

The healing economy and business sectors now face a sharp decline in business confidence, which dropped even below the level it reached at the end of the first shutdown in 2020, due to the unexpected resurgence of coronavirus at the end of March this year. 

The fourth round of the quarterly survey of business confidence in Bangladesh conducted by the South Asian Network on Economic Modelling (Sanem) in collaboration with The Asia Foundation revealed that businesses' overall status in terms of sales, business costs, wages, employments, investments, and profitability had been gradually improving since June 2020 and the trend prevailed until the end of March. 

Also, the outlook, held by business bosses who participated in the survey, for the very next quarter has been improving till for January-March of 2021 since Bangladesh has successfully launched its vaccination campaign on top of a better-than-expected economic performance. 

But as they saw the virus reappearing with a deadlier face and the government again had to impose restrictions on daily life to reduce infection and death rates in April, business decision makers began to fear a worse situation over the April-June quarter and that resulted in a drastic dent in the Business Confidence Index (BCI).  

The Sanem-Asia Foundation report titled "Covid-19 and Business Confidence in Bangladesh: Findings from the 4th round of a nationwide firm-level survey" and published virtually on Sunday revealed BCI had dropped to 41.39 for the April-June quarter, which never went below 50 since the survey began in June 2020, and peaked at 57.9 for the January-March quarter. 

Expectation vs reality     

Sanem Executive Director Dr Selim Raihan, also a professor of economics at the University of Dhaka, presented the keynote at the webinar. 

His paper suggests that following the first shock in business in the April-June quarter of 2020, businesses had been expecting a better next quarter each time. The reality supported their expectation as they continually expressed gradual improvements in business. 

The Present Business Status Index (PBSI) that compares the state of business with that in the same quarter of the previous year reached 40.55 in the January-March quarter this year while the quarter-on-quarter PBSI peaked to above 50.

Both the indices were identified at below 30 in the April-June quarter last year as the nationwide shutdown ate away sales for most businesses. 

A score above 50 indicates a better situation compared to the corresponding period while below 50 indicates a worse status. 

In contrast, for the first time amid the pandemic, businesses' outlook deteriorated and it was like they were in a better state but feared for worse.   

The descent in confidence was mainly because businesses are expecting more in line with reality nowadays, explains Dr Raihan. 

The World Bank's former lead economist Dr Zahid Hussain and Dhaka Chamber of Commerce and Industry President Rizwan Rahman spoke at the webinar as panellists while The Asia Foundation's Country Representative Kazi Faisal Bin Seraj delivered the welcome remarks. 

Recovery expectation gloomy again 

Just before the second wave in Bangladesh, over half of the business respondents were expecting a moderate economic recovery, while more than one-third were counting on a very strong economic recovery. 

Now, after the current virus surge, only 2% dare to expect a strong economic recovery while 67% anticipate a weak recovery of the national economy. 

Perhaps the pessimistic anticipation was backed by the businesses' own scenario of recovery from the 2020 bottom to the pre-pandemic level.  

The surveyed firms on average recovered only 57% of their pre-pandemic business over the last one year.

Of the 503 firms surveyed from 6 April to 18 April, fairly representing their sectors, industries, firm size and location, only 14% averted slides in business up to the end of March, compared to their pre-pandemic level.

Moreover, 17% were still stuck at virtually zero recovery and around half were partially running at the end of March when the virus was resurging but there was no lockdown. 

Enabling Business Environment Index

Of the elements based on which businesses expressed themselves, cost appeared to be the biggest concern since its score is significantly lower than the other elements, it being about the status of present business or the expectation for the quarter coming forward. 

The experts, including Dr Zahid, are not ready to blame the pandemic alone for the intimidating cost of doing business; it is rather the persisting business environment here.  

The Sanem survey asked businessmen about 10 indicators that enable a better business environment. These are electricity connection and quality, availability of skilled workers, transport quality, business or property registration, access to finance, tax system, government support for industries, Covid-19 crisis management, trade logistics, and corruption. 

The Enabling Business Environment Index comprising the elements improved to 47, moderately higher than the three previous quarters but still cost is the biggest concern for businesses. 

Only 22% of the surveyed firms received low-cost loans under the government stimulus package and the receivers were mainly concentrated in large, structured sectors, including apparel and textile, leather, food, financial, and pharmaceuticals. 

Despite being at the top of the affected sectors' list, light engineering, real estate, retail, other manufacturing, wholesale, restaurant, transportation, and other services availed less of the easier loans the government had announced to fight the pandemic slowdown.  

Smaller businesses falter more 

Micro and small businesses lagged behind the medium and large firms whether or not it was about reporting the state of business or expressing the outlook or availing stimulus loans or proving own resilience. 

Dr Zahid said the stimulus focused on the structured labour-intensive sectors while the unstructured small enterprises do not have a voice to raise to seek support despite the fact that they contribute more to employment across the country than the big structured employers. 

The Dhaka chamber president called for special attention and specific guidelines to support small industries. 

Echoing Dr Selim, Rizwan also urged the government to make sector-specific support plans and their strong implementation as different sectors are telling different stories. 

Improving business environment is a must for winning the confidence of investors and tax is a key area for reforms, he said, adding that the government should initiate programmes to expand the tax net instead of taxing the existing taxpayers a lot. 

Business confidence has always been a positive thing as it results in more investment and more economic activities but amid the pandemic, the confidence has an opposite side too as more activities might result in a surge in virus infections, said Dr Zahid. 

Citing health experts, he said herd immunity might not be a reality before the end of 2022 and until then, the pandemic might disrupt life. 

The discussants said health measures are key.