Entrepreneurs feel pressure as cost of doing business rises

Workers at a garment factory in Bangabandhu Sheikh Mujib Shilpanagar in Chattogram’s MirsaraiProthom Alo file photo

The exchange rate of US dollars rose by about 45 per cent over the past two years. Gas price also increased by 178 per cent; power tariff increased in several phases including an 8 per cent hike in this February. Diesel price was slashed by Tk 0.75 a litre this month after a rise of 38 per cent. On top of that, the pressure of high inflation persists and the interest cap reaches a double digit again. And, this is how the cost of doing business has been on the rise in the country over the past two years.

Several small, medium and big business people from different sectors said they are trying to survive in business after overcoming the impact of the coronavirus pandemic. Uninterrupted gas supply is not available despite the price hike. Global oil prices fell, yet fuel oil prices have been adjusted slightly in the country. On the other hand, the National Board of Revenue (NBR) is taking no initiative on tax and duty exemption despite the depreciation of the taka against the UD dollar. The government is taking no initiative to reduce the cost of doing business either, businesspeople alleged.

Studies conducted by various organisations also found the cost of doing business is on the rise. Business Initiative Leading Development (BILD) conducted a Business Confidence Survey last year. The report said the confidence of entrepreneurs in Bangladesh increased on overall business aspects as well as their burden of costs of raw materials used in manufacturing, as well as power, water, gas tariffs and office rent are also on the rise. If such a situation continues, entrepreneurs will face more pressure in the coming days.

Leading businessman and Apex Footwear managing director Syed Nasim Manzur said at a recent event, “Recently, the cost of various utilities including gas and electricity has increased by 400 per cent and banks’ lending interest by 13 per cent. Freight cost per kilometre reached nearly the highest in the world. If this cost does not drop, we will not survive the competition in the coming days. As a result, we do not need incentive or subsidy, rather reduce the cost of doing business,” he said.

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Rise in cost of doing business

Following the Russia-Ukraine war, fuel oil prices were raised by a record 42 per cent in the country in August 2022, and it was slashed by a meagre 4.38 per cent or Tk 5 a litre in the wake of huge criticism. Since then, prices of diesel and kerosene have remained at Tk 109 a litre, petrol at Tk 125 a litre and octane at Tk 130 a litre. As a result, manufacturing costs increased in light of the transportation cost.

Crude oil prices reached USD 140 per barrel (158.99 litres) at global markets in March 2022 and diesel prices topped USD 170. Price then fell gradually. At that time, the government revised the diesel price setting the global price at USD 139. Global oil prices dropped below USD 70 a barrel last year. Currently, the crude oil price is at USD 8.259 in international markets. Fuel oil prices have not been adjusted since then.

Gas prices have risen by 187 per cent since February last year, and the price of gas was fixed at Tk 30 a unit for own power plant at factories, known as captive, as well as big, median, small and large industries, but a shortage in uninterrupted supply of gas triggers production cost. On the other hand, power terrify increased by 5 per cent at consumer levels in every month from January to March last year. Electricity prices rose again by Tk 0.70 to Tk 8.95 a unit this year.

Businesses have been suffering from volatile exchange rates for the past two years. The exchange rate of USD was Tk 86 a dollar in 2022, which is currently fixed at Tk 110 a dollar by the Bangladesh Bank, but importers purchase dollars at Tk 123-125 per dollar, thus, import of raw materials or goods become costlier and that weakened business competition.

Bangladesh Textile Mills Association (BTMA) president Mohammad Ali told Prothom Alo, “Production cost rose significantly due to the rise of the gas price at an exorbitant rate. The interest rate of the export development fund (EDF) also increased from 2 per cent to 5 per cent. We are receiving Tk 7-8 less per US dollar. Plan to increase power tariff again in underway, yet a kind of looting and plundering is rampant in the power sector.”

“India is the main competitor of Bangladeshi cotton. Our production cost was several cents more than India's per kg of cotton before, which has now risen to another 30 cents per kg due to a rise in business costs. If this continues, textile factories will not flourish in future. If the connecting industry closes, readymade garments will fall in danger in future,” he added.

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Business people say...

Kazi Sazedur Rahman is a successful entrepreneur. He owns KPC Industry, which manufactures paper cups. He also won the SME Foundation Best Entrepreneur Award. He said, “Production cost of a cup worth Tk 1 was 65-70 paisa, but the depreciation of taka against the US dollar increased the cost of importing raw materials. Added to this is the burden of electricity bill. We also had to raise workers’ wages more than the regular time due to inflation. Eventually, the production cost of a cup worth Tk 1 now stands at 90-95 paisa, but we could not increase the product price despite the rise in production costs because demand for paper cups fell due to high inflation.”

This entrepreneur said he closed his office in the capital’s Niketon to reduce the cost of business operations and now he does his office at his factory in Rupganj, Narayanganj. There were 25 paper cup manufacturing companies in the country several years ago, but currently, 4-5 factories are in operation while others are trying to sell their machinery, he added.

Shahriar Steel Mills is based in Konapara of the capital’s Jatrabari area. This steel manufacturing had seen an average of 10 per cent rise in sales over the past couple of years, but sales have fallen by 20 per cent now. Added to this is an additional cost of doing business. Its managing director Sheikh Masadul Alam told Prothom Alo, “We are spending Tk 125 per US dollar to import raw materials. Gas prices were hiked on the ground of LNG being imported, but we are not getting it. Power tariffs also increased. Various taxes and charges of various agencies including trade licences, BSTI, and city corporations also increased. More prices could not be added to the additional production cost.”

The government can offer a slight rebate in the tough time. If they can supply gas, at least they can reduce the price. The government can also charge less tax and duty, and subsidise power to a little extent, he added.

Xclusive Can Limited manufactures cans, ice cream boxes, mobile cans and medicine bottles. It runs a factory in Mazukhan, Gazipur. The company has taken the toll of higher dollar prices and the persisting economic slowdown.

Xclusive Can managing director Syed Nasir told Prothom Alo the exchange rate of US dollars rose by 45-46 per cent over the past two years, and dollars are not available either. On the other hand, tax officials estimate high assessment value during taxation to realize more taxes despite the low price of goods at global markets. Besides, the power tariff increased again last month. The bank lending rate rose to 14 per cent from 9 per cent. “All indicators of the ease of doing business have dropped,” he added.

Centre for Policy Dialogue (CPD) research director Khondaker Golam Moazzem told Prothom Alo businesses in Bangladesh have got used to non-traditional costs as they have to pay bribes regularly in various fields including renewal of licence or government agreements. Added to this is less productivity. For this reason, the cost of doing business is high in Bangladesh compared to the competition. Businesses survive on reducing profits or receiving incentives. So, when prices of gas, electricity and fuel oil increase, business competition capacity faces challenges, and if this pressure lasts long, small and medium businesses cannot survive, he added.