The combined effect of a three-year decline in gas supply and the first-ever negative growth in electricity supply has hampered industrial production in the current fiscal year, resulting in the lowest sector growth rate in four years, according to a report by the Bangladesh Bureau of Statistics (BBS).
Provisional estimates from the BBS indicate that the industrial sector is projected to grow by 6.66% in the 2023-24 fiscal year, which is 1.71 percentage points lower than the 8.37% growth seen in the previous fiscal year and significantly lower than the 10.29% growth achieved in the 2021 fiscal year.
The economists and representatives of the private sector blame the fewer investment due to the lack of investment environment caused by shortage of energy and power, liquidity crisis in the banking sector and reducing aggregate demand following a high inflation.
They said that the cost of production surged due to increase in prices of gas and electricity against the decree in supply.
The report revealed that the production of natural gas and crude petroleum projected to decrease by 2.84% in the current fiscal year, following decrease of 4.67% in the FY-22 and 4.18% in FY-23.
The report also found a 0.21% drop in electricity supply first ever a negative growth, which was 3.40% in the last fiscal.
Analyzing the historical data of the BBS, it found that the economy observed double digit growth in seven fiscal since 2011 and the sector grew by about 8.98% in the last 13 years.
The decrease in supply of energy and power pushed back the private sector investment with the GDP to 23.51%, lowest in nine years, further revealed the report.
Towfiqul Islam Khan, Senior Research Fellow at the Centre for Policy Dialogue (CPD) told that, the environment for investment is degrading for the last couple of years in the country.
Private sector investment and foreign direct investment also facing a decreasing trend, which has a negative impact on the growth of the industrial production, he added.
“Investment should be boost up to increase growth,” he said adding, the security of energy and power sector must be ensured.
The growth in the industrial sector fell to 3.61% in the FY-20 due to the several prolonged lockdown to tackle Covid-19 pandemic, after a growth of 11.63% in the FY-19.
The sector recovered in the FY-21 with a 10.29% growth and it reducing further for three years in a row.
The review showed that manufacturing, the largest sub-sector of the industrial sector, registered a growth of 6.58% in the current fiscal lower than the previous fiscal’s 8.89%. The growth in this sector has been decelerating since 11.59% growth in the FY-21.
The growth of large industries in the current financial year stands at 6.60%, down from 8.38% in the previous year. And the growth in small, medium and micro industries decreased to 6.84% from 9.15%.
Similarly, there has been a big decline in the growth of the cottage industry this fiscal. This sub-sector projected to grow by 6.08%, which is 3.93 percentage points lower than the previous year's 10.01% growth.
It is impossible to realize new investment and boost industrial production in absence of power and energy, said Rizwan Rahman, former president of the Dhaka Chamber of Commerce and Industry.
He said that the production cost of the industry has increased due to the increase in the price of gas and electricity. Entrepreneurs are not getting loans from banks due to increase in government debt. The cost of production is also rising due to rising interest rates.
Commenting that the industrial entrepreneurs are lacking in confidence, he said, entrepreneurs are lacking in confidence due to instability in most indicators of the macro economy. He also thinks that investment will not increase if the confidence of entrepreneurs is not restored through the improvement of gas, electricity and banking system.
A review of data from the BBS showed that the rate of investment as a proportion of GDP increased by three basis points to 30.98% percent in the current fiscal from 30.95% in the previous fiscal. However, private sector investment declined by 0.67 percentage points during the same period.
According to the report, private sector investment fell to 23.51% of GDP in the current fiscal year from 24.18% in the previous fiscal.
About 22.07% of the GDP was invested by the private sector in the financial year 2014-15 and it increased to 23.70% in the FY-16.
In subsequent years, private sector investment varied from 24% to 25% of the GDP. As such, the contribution of private sector investment to GDP in the current fiscal has fallen to the lowest position in the last nine years.
