Light engineering: Businesses suffer as raw material crisis hits production

The raw material prices soared in the global market soon after the commencement of the Russia-Ukraine war.

It invited an acute dollar crisis and prompted the central bank to impose import restrictions in phases to keep the situation under control.

The government raised the fuel oil prices and reduced the use of oil in power generation. Then the days of load shedding began. The power situation improved slightly in winter, but other issues remained unchanged.

All these adversities put the light engineering sector in a tight corner while the small and medium enterprises suffered the most.

According to businesses, different types of spare parts, including steel products, aluminum, bearings, are used in light engineering factories. These raw materials witnessed a 50 to 75 per cent hike in their prices throughout the last one year.

Adding more to the woe, the businesses have to wait for months to open letters of credit (LC) in the banks, to import raw materials amid the dollar crisis. It has created a terrible shortage of raw materials in the market, the traders said.

Also, the amount of purchase orders has subsided to a good extent due to the high production cost. Still, the factories are struggling to deal with the remaining orders with the limited raw materials. More or less, all enterprises have now been in trouble.

Old Dhaka is the heart of the light engineering industry. Some workshops started repairing motor vehicles and jute mill machinery on the Tipu Sultan road there in the mid-20th century. Later, some of them began producing spare parts. The businesses later spread to the adjacent areas as well as remote districts like Bogura, Sirajganj, and Sylhet.

The promising sector, however, did not flourish as per expectation, rather remained stuck in a bottleneck. Most of the workshops now produce small nuts and bolts and repair car engines and factory machinery. Also, some are manufacturing agricultural and construction machinery, molds for plastic products, paper mill rollers, bread and bakery machinery.

Some 3200 workshops are listed with the engineering industry owners association. Also, there are thousands of unlisted factories across the country. The number of light engineering workshops would total at more than 50,000. Around 90 per cent of them mostly repair car engines and factory machinery and the remaining 10 per cent are engaged in producing spare parts and nuts-bolts.

Janata Engineering has been running business in Chuadanga for the last three decades. Initially, they used to make paddle threshers using the scraps of cow plows. But they now produce around 40 types of agricultural machines as per the requirements of the farmers. The machinery includes seeder, bed planter, potato tillers, corn threshers, rice-wheat threshers, various sprayers, and mini tillers for weed control in farms.

Oli Ullah, proprietor of Janata Engineering, has been requesting two banks for around six months to open letters of credit (LC) worth USD 70,000 to import raw materials from China. No banks opened Lcs for him during the long period.

He finally got the job done with the help of a third bank.

Talking to Prothom Alo over the phone, Oli Ullah told Prothom Alo on Friday that they could not open the LCs even after making full payment. It created a crisis of raw materials. Some alternatives are available in the market, but the quality is not up to the mark.

“Hence, I had no choice but to reduce production in the factory. On the other hand, the importers are grabbing the market taking advantage of the situation. This is not good for the agricultural sector of the country,” he added.

There are large light engineering factories in various BSCIC industrial zones and export processing zones (EPZs) of the country. They are exporting engineering machinery, steel electrical products, bicycles and motorcycles.

Exports of engineering products declined in the first half of the current fiscal year 2022-23. According to the export promotion bureau (EPB), the exports were worth USD 790 million in the last financial year 2021-22, which was 50 per cent higher than the previous year.

The exports amounted to USD 260 million dollars in the first six months of the current fiscal, which is down by 41.24 per cent from the previous year’s same period.

Abur Razzak, president of Bangladesh engineering industry owners association, said they are going through a multifaceted crisis. The iron smelting companies saw a significant growth in their production cost due to the increased price of gas and furnace oil.

Again, a container of raw materials used to cost USD 1100 to be imported from China, but it jumped to USD 3800 and later came down to USD 3200. The bigger problem is that the dollar crisis is impeding LCs. In consequence, the raw material price doubled in the country and the crisis is hindering production here.

Abdur Razzak further said their purchase orders dropped remarkably due to the high price of raw materials. Many traders have lost their capitals to run their businesses in the previous six to seven months. Many even had to borrow to meet basic expenses.

He demanded a 50 per cent waiver on electricity bills to help the light engineering enterprises survive. A financial subsidy creates opportunities for corruption, but a subsidy in electricity bills helps the entrepreneurs gather a minimum capital, he added.