At Capital Weekly 25 January 2009
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25 January 2009
AT CAPITAL RESEARCH
Asian Tiger Capital Partners
Weekly News Update
AT Capital Weekly Update
Key themes in this issue are: Bangladesh Overview:
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We review the Asian Development Bank (ADB) economic and political update for Bangladesh. They are modestly more bearish than Bangladesh Bank in forecasting FY 09 GDP growth slowing to 5.7%. However, they are far less pessimistic than the World Bank’s equivalent forecast of 4.8%. Perhaps the biggest risk for Bangladesh is the speed at which the global economy in general, and China in particular, is slowing. We discuss some current analysis that suggests that Chinese Q4 GDP growth estimates of 6.8% are grossly over‐optimistic. A number of private forecasters suggest that the manufacturing sector is already in recession and the overall economy barely expanded. Japanese exports to China have collapsed while Chinese electricity demand is also contracting. The recent comments from Treasury Secretary Geithner in his Congressional ratification hearings warning China against manipulating the Yuan, underlines US fears that China will try and depreciate their way out of crisis. The global banking crisis has also re‐surfaced with Barclays bank stock price falling almost 75% in 2 weeks, RBS announcing a USD 41bn loss for 2008, the largest in UK history, and Bank of America leading the way lower among US financials, triggering the resignation of ML CEO John Thain. Bangladeshi exports have been resilient but the authorities need to keep a close watch on demand and margin pressure given the rapid speed of the slump in global demand.
Special Focus:
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This week we discuss the progress made by Bangladesh in terms of regulatory reforms. In addition we review the country’s performance with respect to The World Bank “Doing Business” Survey which suggests Bangladesh still needs to push ahead with making the regulatory environment more business friendly. EDITORS • We also summarize some of the key findings from a recent IFC‐BICF survey of private sector attitudes towards the reform process started by the recent Caretaker Ifty Islam Government, and expectations from the New Government. Managing Partner • Finally we review some of the recent literature on Regulatory Impact Assessment (RIA) ifty.islam@at‐capital.com and conclude that it should be incorporated into Bangladesh’s regulatory reforms initiative. Syeed Khan
Partner syeed.khan@at‐capital.com Jisha Sarwar Senior Research Associate jisha.sarwar@at‐capital.com Asian Tiger Capital Partners UTC Building, Level 16 8 Panthapath, Dhaka‐1215 Bangladesh Tel: 8155144, 8110345 Fax: 9118582 www.at‐capital.com
Collapsing Chinese Electricity Demand Suggests Manufacturing Sector
25 January 2009
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Contents
Page
Bangladesh Overview
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ADB sees modest risks for a growth slowdown
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ADB highlights the need to encourage private investment in infrastructure
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Biggest vulnerability to ADB forecast for Bangladesh GDP growth is a rapid move towards recession in rest of Asia
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The Global Banking Crisis Part 67
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Special Focus: The Need for Reforms
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Stock Market Weekly
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Weekly Stock Market Commentary
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Stock Market News
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Economics
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Economics News
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Sector News Agriculture/ Aviation
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Banking/ Infrastructure & Energy
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Leather Goods
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Pharmaceuticals / Shipbuilding/ Telecoms
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Textiles
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25 January 2009
Bangladesh Overview The ADB published a Political and Economic Update last week that briefly outlined their thoughts on the risks for the economy as well as policy challenges. ADB sees modest risks for a growth slowdown The ADB noted the following on the resilience of the Bangladesh economy in the first half of FY09, which is over the past 6 months: “Economic performance in the first half of FY2009 held up well with a pick up in domestic economic activity and robust growth in exports and remittances. Continued growth in readymade garment production, together with improvements in business confidence and recovery in housing and construction, stimulated industrial activity in the first quarter of FY2009. Falling prices of construction materials and a rise in demand for real estate because of the growth in bank credit and higher remittances helped to revive the construction subsector. Services, especially wholesale and retail trade and transport and telecommunications, also performed well in the first quarter of FY2009. Rapid growth in the mobile phone market and a growing number of healthcare service providers are contributing to robust service sector growth. The continued expansion in agriculture and industry is also likely to have a positive impact on services sector growth. Exports grew by 27% through November 2008 and remittances by 31% through December 2008, over the corresponding periods of the previous fiscal year. “ Looking ahead the ADB only saw growth slowing modestly, with a far less bearish forecast than the World Bank, given that the latter forecast growth for the whole of FY 09 at 4.8%. The ADB suggested that: “Before the onset of the global financial crisis, a 6.5% growth target for FY2009 appeared attainable. With the financial crisis in the advanced economies unfolding and recession setting in, a growth rate of 5.8% seems more likely in FY2009. Industrial growth is expected to moderate to 6.7% from 6.9% in FY2009 as production for exports begins to slow in the second half of the fiscal year with cooling global demand. Deceleration in remittance growth will also dampen domestic demand. Services growth will slow to 6.2%, down from 6.7% in FY2008, due to lower activities in the export sector and declines in consumption spending induced by lower income and moderation in remittance growth. Agriculture is expected to perform well, aided by favorable weather conditions, expansion of cultivable land, and various government support programs. Overall, agriculture is expected to grow at 4.0%, up from 3.6% in FY2008.” On the trade and remittance outlook, the ADB remained quite positive: “The external position should also remain stable with annual export growth projected to be 16.5% in FY2009, still higher than the 15.7% growth in FY2008. Further, the fall in international commodity prices is expected to contain growth in the import bill, which is projected to moderate to 18.0% in FY2009. Although growth in remittance inflows will also slow, the current account in
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Ifty Islam, Managing Partner ifty.islam@at‐capital.com FY2009 is expected to show a modest surplus of 0.8% of GDP. Foreign exchange reserves during the year are expected to remain at a relatively comfortable level equivalent to about 3 months of goods and services imports.” ADB highlights the need to encourage private investment in infrastructure The ADB noted that “(one of) The key challenges for the new Government over the longer term will be to raise infrastructure investment and government revenue mobilization, accelerate Annual Development Program implementation, address deficiencies in institutional capacities in key line agencies, and create more jobs. Addressing power and gas shortages will be critical to encourage private investment to enhance longer‐term growth prospects. Confrontational politics, if it reappears with the restoration of democracy, will also slow down economic activity. “ Biggest vulnerability to ADB forecast for Bangladesh GDP growth is a rapid move towards recession in rest of Asia We believe that the official forecasts of the ADB and other multilateral agencies are lagging the dramatic speed of the slump in demand conditions in the rest of Asia. The Chinese came out recently with their 6.8% estimate of Q4 2008 growth. China publishes its quarterly GDP figure on a year over year basis, differently from the U.S. and most other countries that publish their GDP growth figure on a quarter over quarter annualized seasonally adjusted (SAAR) basis. When growth is slowing down sharply the Chinese way to measure GDP is highly misleading as quarter on quarter growth may be negative while the year over year figure is positive and high because of the momentum of the previous quarters’ positive growth. Indeed if one were to convert the 6.8% y‐o‐y figure in the more standard quarter over quarter annualized figure Chinese growth in Q4 would be close to zero if not negative. Other data confirm that China was in a borderline recession in Q4 and that it may be in an outright recession in Q1: production of electricity plunged 7.9% on a y‐o‐y basis; the Chinese PMI has been below 50 and close to 40 for five months now.
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25 January 2009 With manufacturing being about 40% of GDP, manufacturing is certainly in a sharp recession (negative growth) and the overall economy may be close to a recession So the 6.8% growth was actually a 0% growth – or possibly negative growth – in Q4; and the Q1 figures look even worse. So China is in a recession regardless of what the highly massaged official numbers claim. Albert Edwards, Chief Global Strategist at Societe General, and a well known China bear, has suggested that the Chinese manufacturing sector is already contracting. He stated that : “That this outturn (Q4 Chinese GDP of 6.7%) was bang in line with the median estimate of economists surveyed by Bloomberg makes it all the more unbelievable in my mind. All other economic data worldwide have been surprising massively on the downside and China should be no exception. A few hours earlier, for example, South Korea reported Q4 GDP had declined a hefty 5.6% QoQ, massively worse than a Reuter’s consensus which looked for a contraction of 2.7%! I naively thought that this QoQ decline was already annualized, but it was not. On a US style of reporting, the South Korean economy contracted at a 20% annualized rate in Q4. Asia is in depression. Whatever the heavily manipulated Chinese GDP is telling us, that economy must now be contracting. The Yuan needs to be devalued...we cannot highlight strongly enough how truly mindboggling Japan’s collapse in exports to China are. Last July they were expanding at a 16% yoy pace. Now they are contracting at a 35% yoy rate! This is a phenomenon throughout the region. Hence despite the notoriously manipulated Chinese GDP data showing a shocking slowdown in GDP growth to 6.8% yoy, I would eat my hat if the Chinese economy was doing anything other than contracting right now.” The Global Banking Crisis Part 67 Bank stocks came under severe pressure last week with Bank of America leading the charge lower in the US and Barclays playing the rabbit in the headlights in the UK. The charts below from Bespokeinvestment.com highlight just how extreme the downwards re‐pricing of the financial sector of the S&P 500 has been. The first chart below dates back to 1990, and as shown, the sector closed at its lowest level since March 1995 yesterday. The sector is now down 79% from its highs in 2007. A chart of the sector all the way back to 1940 shows just how much the sector has fallen in such a short period of time.
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Global Markets Last Week – Oil Bounce Appears Unsustainable given Weak Global Economy
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25 January 2009
Special Focus
Need for reforms The need for business reforms has become vital with the realization that the private sector is a key driver of inclusive economic growth and poverty alleviation. In Bangladesh, reforms that aim to simplify business regulations, strengthen property rights, open access to credit, and enforce contracts are necessary, since all these measures can help aid the creation of enterprises that provide employment and economic growth. Although Bangladesh did enact a number of key regulatory reforms, such as reducing the time needed to register property by almost half, its ranking in World Bank’s “Doing Business 2009” th th report nonetheless fell from 104 in 2007 to 110 in 2008. “Doing Business” ranks economies based on 10 indicators that track the time and cost to meet government requirements in starting and operating a business, access to credit , trading across borders, paying taxes, and closing a business. The rankings do not reflect such areas as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates. Doing Business 2009 ranks 181 economies on the overall ease of doing business. The top five are, in order, Singapore, New Zealand, the United States, Hong Kong (China), Denmark, the United Kingdom. According to the report, Bangladesh enacted reforms in starting Businesses and in registering Property. Bangladesh cut the time needed to register property by almost half, from 425 days to 245, through reforms at the Municipal Deed Registry Office. Starting a business has also become easier. Bangladesh made involving lawyers in company registration optional. That eliminated one procedure and reduced the cost by USD 100. The country also did well in terms of "strength of investor protection index" and "strength of legal right index", the report said. However, compared to international best practices, Bangladesh still has a long way to go ‐ the country needs 73 days in starting a business, 231 days in dealing with construction permits, 245 days in registering property, 302 hours per year in paying taxes, 28 days in export and 32 days in import. As a result, among the eight South Asian countries Bangladesh's doing business ranking is fourth followed by the tiny Maldives, Pakistan and Sri Lanka but ahead of giant India, Nepal, Bhutan and Afghanistan. Source: World Bank
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Michael Klein, World Bank Group vice president and IFC chief economist stated that “The [Doing Business] report finds that equity returns are highest in countries that are reforming the most. Investors are looking for upside potential, and they find it in economies that are reforming—regardless of their starting point.” In a recent Daily Star article on regulatory reforms, Anwarul Islam, a member of the Regulatory Reform Core Group representing Bangladesh Bank, wrote: “There are two things we [Bangladesh] need to address immediately. One is to introduce RIA process for new rule/regulation at the ministry/agency level. Another is to give RRC an institutional and permanent shape, preferably through enactment of law. All the country's primary and secondary laws, including the proposed one, should be required to be cleared by the RRC, whatever name we shall call the body. This will definitely improve governance standard in our country. With better international credibility and improved regulatory consistency and predictability, we can become one of the most attractive investment hubs in Asia.” We agree with Mr. Islam that a permanent Regulatory Reform Commission (RRC) and an RIA process are two requirements for creating an effective, transparent, and predictable regulatory system, which will in turn enhance the country’s investment/ business climate and ultimately drive economic growth. In the following sections we discuss results from the “Doing Business 2009” report published by the World Bank, which shows that although there have been successful reforms on several fronts in Bangladesh, major business reforms are still needed, and the RRC needs to play a strong role in implementing these reforms. We also emphasize on the need to develop an RIA process immediately for improving the quality of new and existing regulations.
World Bank “Doing Business 2009” report shows that major reforms still needed Despite the steps taken by the RRC to modernize and simplify the regulatory system in Bangladesh, the country still needs major improvement on several fronts that will ultimately help in creating a dynamic business environment leading to inclusive economic growth.
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25 January 2009 Bangladesh is ranked 90 in the overall ranking for starting a business compared to good practices. It requires 7 procedures, takes 73 days, and costs 25.67 % GNI per capita to start a business in Bangladesh. Procedures such as verifying the uniqueness of the proposed company name with the Registrar of Joint Stock Companies and Firms, filing documents with the Registrar of Joint Stock Companies and Firms for registration, registering with the tax authority and for VAT, should all be simplified in order to ease the process of starting up a business. Dealing with construction permits is also an arduous process in the country ‐ It requires 14 procedures, takes 231 days, and costs 739.81 % GNI per capita to build a warehouse in Bangladesh. Obtaining project clearance and building permit from the City Development Authority (RAJUK), obtaining zoning clearance, receiving foundation inspection and electricity inspection, are some of the procedures that need to be simplified in order to enhance the overall ease of doing business in the country. Although Bangladesh ranks low at 175 (after Pakistan, India, Afghanistan) in registering property compared to global best practices, it has simplified the number of procedures needed to register property, time required to register property, and official costs to register property. The time needed to register property has been cut by almost half, from 425 days to 245, through reforms at the Municipal Deed Registry Office. Simple procedures to register property are associated with greater perceived security of property rights and less corruption. Bangladesh’s ranking for getting credit has fallen from 51 in the 2008 Doing Business report to 59 in the 2009 report. The credit information index in the graph below shows that over the past three years the level of credit information available in Bangladesh
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has remained stagnant, while in South Asia as a whole, there has been a significant improvement in the availability of credit information since 2008. IFC‐BICF stakeholders’ opinion survey shows there is overwhelming support for reforms It is evident from the “Doing Business 2009” report findings that Bangladesh is still lacking behind in a number of areas compared to global practices, which can use major reforms and improvements. Along with specific regulatory reforms pertaining to businesses, such as simplifying procedures for obtaining construction permits, accessing credit, trading across borders, enforcing contracts, reforms in areas of education, corruption, energy, infrastructure, are also mandatory in order to attain higher economic growth. IFC‐BICF conducted a stakeholders’ survey in 2008 (from September to November) in order to analyze how economic and business conditions affect different groups of stakeholders. Stakeholders include citizens, opinion leaders/ elites, businesses, and public officials. The objectives of the surveys were mainly to understand: ‐what are the key perceptions and attitudes of the stakeholders toward economic and business environment in Bangladesh ‐What are the views of the stakeholders about economic and business reforms in Bangladesh ‐How confident are the stakeholders about the economy and business environment in Bangladesh, and how does their level of confidence change over time ‐How does the knowledge and attitude of the stakeholders about economic and business reform issues change over time. The surveys were broken down into three categories – Stakeholders’ Perception Survey (SPS), Business Confidence Survey (BCS), and Public Perception Survey (PPS). With a fairly large sample size, the survey was the first of its kind in Bangladesh. Below are some key findings from the survey results. Perceptions of current business environment A majority of the stakeholders said that the country's economic situation deteriorated in September 2008 but saw improvements in October 2008. This was mainly because high prices of commodities and essentials were a concern in September 2008 but some improvements were seen in October 2008 – in the SPS survey conducted in September, when asked about some of the leading concerns in the economy, 83% of opinion leaders and 84% of the general population surveyed had high prices on the top of
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25 January 2009 their list of concerns, followed by jobs and employment, corruption, electricity, lack of democracy, crime and terrorism, education, etc. Majority of the Stakeholders view Bangladesh’s economic situation is worse than before (SPS, Sept 08) Som ewhat worse 140 Much worse Som ewhat better 120 Much better 100 83 80 81 73 60 40 42 20 34 32 21 13 16 0 2 2 0 SME/Micro General Population Opinion Leaders Similar to the economic situation, the country’s business environment is also viewed as unfavorable, and the situation is not expected to improve anytime soon either. Majority of the businesses view their overall situation is worse today than 3 months In your opinion, what is the overall situation of your business today compared to 3 months ago? Worse 38% 11% Unchanged 35% Better 16% 2% 0% 20% 40% 60% Moderately Better Substantially Better Moderately Better Substantially Better The business confidence survey revealed that there was a complete reversal in the investment situation in the first quarter of FY 2008 compared to the corresponding period of 2007, due to a declining profit margin and a shortage of raw materials. Sixty two % of respondents during the survey said they did not invest during July‐September of 2008 while only 38 % replied in the affirmative. Declining profit margin and shortage or raw materials are the leading constraints for lack of investment (BCS, Oct‐Nov 08) % of Firm s 70 61 52 60 50 38 40 29 28 28 26 30 20 20 10 0
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Overwhelming support for reforms across all groups of stakeholders When asked how much the stakeholders have heard about business reforms, 85% of ordinary citizens and 66% percent of opinion leaders responded by saying that they heard “nothing at all” about reforms; 8% of ordinary citizens and 20% percent of opinion leaders said that they had “some” idea about business reforms. Although both the general population and the elite group do not know or hear much about reforms, their support for reforms is overwhelming – 84% of opinion leaders and 76% of the general population surveyed feel that reforms are necessary for their own economic betterment. Reforms are necessary for the stakeholders (SPS, Sept 08) N e ce ssary N ot ne ce ssary 84 90 76 80 70 60 50 43 00 24 16 20 10 0 Ge ne ral Population O pinion L e ade rs An interesting finding was that reforms in the agriculture sector is given a lot of importance, especially by the general population – 56% of the general population and 31% of opinion leaders stated that the agriculture business climate needs improvement. Most important reforms (SPS, Sept 08) Regardless of which type of reforms the government has been working on, in your opinion, which two of the following areas is most important to reforms? 37 Education 31 35 Corruption 29 32 Political 25 31 Agriculture 56 29 Business 27 13 Crime & Terrorism 22 13 Constitutional 4 10 Infrastructure 4 0 10 20 30 40 50 60 Opinion Leaders General Population Support for particularly business reforms was expressed by both opinion leaders and ordinary citizens during the surveys When asked why they support business reforms, a large number of stakeholders responded that a better business environment will create more job opportunities and will help in controlling inflation. High prices are still a major concern, and so, many believe that a good business climate will ultimately help in lowering prices of essentials.
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25 January 2009 Extent to which citizens agree with the statement that business reforms are much needed in Bangladesh 120 96 100 86 80 60 40 20 12 3 2 1 0 Agree or strongly agree Disagree or strongly Don't know/Refuse disagree Ordinary Citizens Elite Groups Survey results show that the general population and opinion leaders want a greater focus on SMEs The Business Confidence Survey results show that the business condition of SMEs was worsening in the last quarter of calendar year 2008 – 16% of small companies said their situation became “substantially worse” in October, compared to 8% of medium companies and 3% of large companies. That SMEs need a greater attention was also emphasized by both the general population and opinion leaders during the survey – a significant 62 % of the general population, and 61% of opinion leaders stated during the survey that the government should focus more on helping small and medium enterprises. SMEs have long been considered as the principal driving force of Bangladesh’s economy. Along with stimulating private ownership and entrepreneurial skills, SMEs are flexible and can adapt quickly to changing market demand and supply situations, generate employment, help diversify economic activity, and make a significant contribution to exports and trade. At a time such as now, when the economy is vulnerable to the adverse affects of the global financial crisis, boosting the SME sector, known as the economy’s thrust sector, is absolutely imperative. Thus improvements in areas such as access to loans, training on how to start up businesses and procedures required, and registration processes, are necessary in order to encourage SMEs to grow. Attention needed on SME versus large companies (SPS, Sept 08) The Government should be focus more attention on helping small and medium enterprises The Government should be focus more attention on helping large companies 70 62 61 60 50 40 34 30 24 20 10 0 General Population Opinion Leaders
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Some key obstacles faced by the SME/ micro entrepreneurs (SPS, Sept 08) O w n fe ar o f failu r e 43 L e arn in g h o w t o d o b u sin e ss 34 L ack o f acce ss t o lo ans 21 Go ve r n m e n t re gist r at ion p ro ce ss 12 Pr e ssu r e fr o m fam ily, frie n ds 11 Go ve r n m e n t co r r up t io n 10 V alu e add e d t ax (V A T) 4 In co m e t ax 3 I n t e r act io n w it h tax o fficials 1 0 10 20 30 40 50
RRC’s efforts for modernizing the country’s public administration The Regulatory Reform Commission was formed by the caretaker government in October 2007, upon realizing that it is imperative to modernize public administration and simplify legal and procedural complexities, in order to create the right enabling environment for foreign as well as domestic investment. The commission consists of four sub‐committees, within which one is working on utility service related reforms, and one for land registration and related reforms. The RRC is responsible for reviewing and updating all government regulations totaling to about 50,000, many of which are decades old but still being used today – the commission is removing all redundant and inefficient regulations, and is identifying those regulations that should be modified or left unchanged, simplifying certain government forms, and is reducing the time required to process applications and licenses by government departments. (Please refer to Appendix 1 to see some of the key recommendations made by the RRC) One of the important recommendations the RRC made was for the Directorate of Land Registration to be transferred from the Law Ministry to the Ministry of Land to allow a "one‐stop service" for land registration. However, this recommendation is yet to be implemented due to complexities related to the High Court. However, a number of recommendations have been implemented successfully. Following RRC recommendations, the Government started to publish gazette notifications on its website and started developing a new website incorporating all previous gazettes. The RRC suggested that all proposed regulations must be published in draft form for feedback from civil society members before finalization. The commission recommended online registration with the BoI, uniform fees or charges for registration of investment projects and reforms in the BoI. A consultant was appointed for starting online registration and the BoI took the issue of uniform fees into consideration. The commission proposed that Bangladesh Bank should be able to make decisions regarding private sector foreign loans without informing the BoI. In August 2008, the Chief Adviser's Office during the Caretaker government directed the BoI and the BB to implement this within two months.
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25 January 2009 The RRC suggested legalization of "courier service" in the country, by amending the Post Office Act 1898. The Ministry of Post and Telecommunications have implemented this. RRC’s recommendation for reducing the time of giving location clearance and environment clearance certificates was accepted and implemented. The government has also implemented the recommendation regarding bonded warehouse licensing processes. Although the RRC has made over 30 recommendations and has sent them to the ministries for immediate implementation, the implementation process has not been successful in all cases. Red‐ tapism, bureaucratic complexities and some pending cases in the High Court have hindered the progress of the reforms, apart from a few. It has also been reported that some ministries have not cooperated with the RRC. According to The New Nation, a local daily, the RRC selected 202 laws and regulations for review and amendment, and drafted their synopsis. In order to do this, the RRC sent notifications to 47 ministries or departments back in November 2007. However, only nine ministries or departments responded to RRC's request for assistance and cooperation.
Need to adopt Regulatory Impact Assessment (RIA) as a tool to improve regulatory environment In a recent Financial Express article regarding the need for introducing RIA to the regulatory system in Bangladesh, Syed Akhtar Mahmood wrote: “We often talk about streamlining the existing stock of regulations. This is indeed a top priority. But we also need to think about the quality of new regulations. If the flow of new regulations is of poor quality, the stock will remain bad. It is like cleaning the water in a swimming pool. No use doing that if you cannot ensure that the new water flowing in is also clean. So how do you ensure this? The answer lies in introducing a process whereby new rules and regulations, at least the important ones, are subjected to an impact analysis. The idea of an impact analysis is not novel in Bangladesh. When a government agency does a project, say a road, a hospital or a power transmission line, it is required to carry out a cost‐benefit analysis and justify the planned investment. The Planning Commission then reviews the analysis, and approves or rejects the project. Whether these exercises are done properly is of course a matter of debate ‐ Bangladesh is replete with examples of projects that were done on purely political considerations with little analysis of the costs and benefits to society. But the rules of business of the government do require such analysis.” While it is definitely a priority to remove redundant regulations and update the existing ones, the quality and effectiveness of new regulations also need much attention. In short, Regulatory Impact Analysis (RIA) aims to improve the quality of regulations, regulatory institutions and regulatory systems. It is basically a systematic process of evaluating the cost and benefits of regulations. In Bangladesh, new rules and regulations are often introduced without any prior notice or consultation with relevant
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stakeholders. Even where consultation takes place, this is often inadequate and the feedback is not adequately incorporated in the framing of the regulations. This creates major uncertainty regarding the effectiveness of the regulations. RIA examines and measures the likely benefits, costs and effects of new or changed regulations. It provides decision‐makers with valuable empirical data and a comprehensive framework which they can use to assess options and the consequences their decisions may have. RIA is used to define problems and to ensure that government action is justified and appropriate. RIA aims to improve the regulatory environment by: I. Building a regulatory management system–Regulate the regulators through transparency and accountability mechanisms (laws, policies, institutions, enforcement, etc.) II. Improving the quality of new regulations–Control of the flow (RIA, consultation, alternatives, co‐ordination, etc.) III. Upgrading the quality of existing regulations – Control of the stock (deregulation, up‐dating, codification and restatement, formalities, etc.) RIA has been widely used in OECD countries, and is increasingly being used in developing countries also. Around 40 countries have introduced RIA including 90 % OECD countries, while about 20 developing countries are implementing or actively exploring the scope to establish RIA. The Rise in RIA Source: Jacobs & Associates RIA reduces regulatory burdens The chart below shows that the RIA process is extremely comprehensive. Internally, it is the key mechanism for assessing the impact of new or existing regulations, and thereby reducing duplicative and contradictory policies. Also RIA helps to identify possible difficulties and shortcomings during the implementation and enforcement phase of regulation. Externally, RIA promotes regulatory transparency and accountability of administration through consulting with stakeholders and incorporating their suggestions. As its use expands, RIA can help define which government actions are suited to a market economy.
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25 January 2009 Source: presentation made at CRC by Prof. David Parket at the University of Manchester International experience of using RIA More than half of the OECD governments and many Eastern European countries in transition have been successfully using RIA tools in regulatory decisions. The OECD reference checklist for regulatory decision‐making is elaborated in Appendix 2. In Asia, the use of RIA is still a growing concept, but is nonetheless being used in several countries. A survey organized by the Centre on Regulation and Competition (CRC) at the University of Manchester in 2003 ‐2004, indicated that at least nine Asian countries have developed elements of a modern RIA: India, Jordan, Korea, Malaysia, Oman, Pakistan, the Philippines, Sri Lanka, Thailand. Among these countries, the Philippines, Malaysia, and Korea have made significant progress. Philippines established RIA as a legal requirement, though the government had not published the implementing regulations and guidelines. In practice, the Philippines government has concentrated its RIA effort on new economic regulations ‐‐ complementing its efforts through enhanced public consultation and the use of public notices and invitations to comment, followed by public meetings. In Malaysia, elements of a RIA process have been used within the government, though not on a consistent and systematic way. Unlike in the Philippines, the Malaysian RIA, when adopted, was applied to social and environmental regulations as well as to economic ones. In Malaysia, public consultation before the introduction of new regulations seems well developed with all respondents in agreement. Korea, which has attained remarkable economic growth partly due to successful business and economic reforms, introduced RIA to its regulatory system in 1998. In a recent Daily Star article on the Korean experience on reforms, Anwarul Islam wrote, “[In Korea, RIA] enables the public officials in charge of designing regulations to take informed decisions on how to make regulations viable, sound and effective. Assessment areas and factors for RIA include: overview of regulation in question, identifying regulated entities and stakeholders, lifetime of regulation, short description of both the existing regulation being
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reviewed and the new regulation being developed and regulation mapping, i.e., the mapping of relationship between the regulatory proposal in question and the existing regulations relating to it, cost‐benefit‐analysis of alternatives to the regulation in question. The ministry concerned must gather public opinions during the stipulated 20‐day notice and comment period and report the results of its review to those who provided inputs on the relevant regulatory proposals.” Other countries in Asia which have started to experiment with RIA are Vietnam, China and Sri Lanka. Vietnam recently launched a prototype RIA for helping the government reform two key laws: The Unified Enterprise Law and the Common Investment Law. In Sri Lanka, the Institute of Policy Studies together with the Manchester Center for Regulation and Competition, initiated a RIA Working Group where public officials and academic participate on the development of a RIA system for the country. Launching RIA in Bangladesh Efficient and business–friendly governance requires the modern methods and tools of the RIA process. Although there does exist a review process in the government of Bangladesh for new laws, rules and regulations, it merely ensures that the proposed rules and regulations are consistent with the existing ones. But the RIA undertakes more than just that, as it analyzes the impact of proposed rules and regulations. If Bangladesh wants to become one of the most attractive investment hubs in Asia, business regulations need to be predictable and useful, and this can only be done by introducing an RIA process to the regulatory system. Suggestions for effectively developing an RIA system in BD: It will be useful to have a program of regulatory impact analysis (RIA) within various ministries, monitored by an independent body overlooking all the RIA programs. Hence, all new laws and regulations that are passed through each ministry should be justified through basic cost benefit analysis. In order to enact this, all ministries could be asked/ required to answer the basic regulatory quality questions designed by the OECD (Please see Appendix 2). The goal for the justification should be to show that the proposed law or regulation minimizes costs to concerned businesses. As mentioned above, a politically neutral and independent body needs to be in place to monitor, oversee, and strengthen the RIA process. This advisory body should receive the regulatory justification statements, and consult with stakeholders and the business sector, and make the suggestions public. Hence, the public should be involved extensively in the process ‐ interest groups should be consulted widely and in a timely fashion. Korea is a good example where public opinion is integrated into the rule making process – “The RRC has conducted surveys every year to hear the public and experts' opinions on the regulatory reform. The results of survey have been used as feedbacks in setting future policy directions every year” (Anwarul Islam, “Regulatory Reforms: Korean experience”, Daily Star). Consultation before the introduction of new regulations is imperative in creating a transparent and accountable regulatory system.
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Although all regulations need to be justified by a cost benefit analysis, analytical methods can vary as long as RIA identifies and weighs all significant positive and negative effects and integrates qualitative and quantitative analyses. Mandatory guidelines should be issued by the independent oversight body to maximize consistency. Results of RIA must be communicated clearly with concrete implications and options explicitly identified. A common format should be used in order to communicate effectively. The independent body monitoring the RIA process should also be in charge of guidance and training ‐ upgrading the quality and consistency of RIA training government‐wide, and ensuring that good practices around the world are transmitted quickly and efficiently to civil servants.
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The private sector will play a vital role in making RIA successful in Bangladesh. Second, business involvement in RIA has several significant benefits in terms of improved information. Businesspersons, especially those affected by regulations, can constitute cost‐effective sources of the data needed to complete high quality RIA. Consultation can also provide important indications on the feasibility of proposals, on the range of alternatives considered, and on the degree of acceptance of the proposed regulation by affected parties. Moreover, active participation by the business sector means better compliance with the regulation and thus savings in terms of implementation and enforcement.
-
Some of the institutional methods that Bangladesh could explore to maximize business participation in the RIA process consist of establishing (Cordova, Cesar “Enabling Environment and Economic Zones for Private Sector Development in Bangladesh”) • Expert groups, such as academic and industry groups; • Business Test Panels organized for a particular regulation. They can be fast, but data quality can be a problem; • Focus groups, which can provide a wide range of data; • Development together with the business associations of model enterprises that “represent” the affected population; • Opinion surveys, which can identify major issues, and in particular repeatedly running the FIAS administrative barrier surveys, and • Direct interviews with businesspersons. Ifty Islam Managing Partner ifty.islam@at‐capital.com Jisha Sarwar Senior Research Associate jisha.sarwar@at‐capital.com
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11
25 January 2009 APPENDIX 1 Some of the key recommendations made by the RRC and their implementation status (as of mid 2008): 1. All gazette notifications must be published on the website, which has already been implemented with technical assistance from Bangladesh Investment Climate Fund (BICF) ‐‐ a multi‐donor initiative managed by the International Finance Corporation (IFC). 2. All proposed regulations must be published in draft form for feedback from civil society members before finalization. The Ministry of Law, Justice, and Parliamentary Affairs has vetted the amendment of the government's "Rules of Business, 1996" to include "Rule 16," and this recommendation now awaits approval of the council of ministers. 3. The investment registration process of the Board of Investment (BOI) must be simplified. According to Section 10(1) of Investment Board Act, 1989, BOI will introduce speedy online investment registration process through its website. Paper registrations must be processed within 24 hours. According to section 11(5) of the Investment Board Act, 1989, investment enquiries must be answered within 15 days unless otherwise advised. BOI registration service fee is being contemplated to be set at a flat rate, regardless of the proposed investment amount. 4. Sub‐committee on "processing and approval of foreign private loans", under the leadership of Bangladesh Bank's governor, proposed that the sole responsibility and authority for approval of foreign private loans be vested with the Bangladesh Bank. The BOI and BB have been directed by the Chief Adviser's Office to implement the RRC recommendation within two months. 5. The legalization of "courier service" in the country, by amending the Post Office Act 1898. The Ministry of Post and Telecommunications is taking steps to implement this. 6. The Directorate of Land Registration should be transferred from the Law Ministry to the Ministry of Land to allow a "one‐stop service" for land registration. The High Court has placed a writ and stay order against this executive decision for a period of three months. 7. Sub‐committee on location and environmental clearance recommended that the "Bangladesh Environment Conservation Act, 1995" and "Environment Conservation Rules, 1997" be amended by the Department of Environment, so that the time taken to issue Location Clearance Certificates and Environmental Clearance Certificates can be halved. 8. Sub‐committee on duty drawback and exemption system, capital machinery import clearance system, and bonded warehouse licensing system recommended the National Board of Revenue (NBR) to simplify the duty drawback application form by June 30 and move to an industry‐based instead of enterprise‐ based coefficient identification system to streamline the process. NBR is advised to introduce "risk‐based inspection and clearance" system for capital machinery imports, where about 5%‐10% consignments will be inspected by September 30. In addition, NBR is advised to improve Bond Warehouse Licensing Process by allowing non‐association members to apply for such licenses without referrals from members.
AT CAPITAL RESEARCH
APPENDIX 2 The OECD Reference Checklist for Regulatory Decision‐Making 1. Is the problem correctly defined? The problem to be solved should be precisely stated, giving evidence of its nature and magnitude, and explaining why it has arisen (identifying the incentives of affected entities). 2. Is government action justified? Government intervention should be based on explicit evidence that government action is justified, given the nature of the problem, the likely benefits and costs of action (based on a realistic assessment of government effectiveness), and alternative mechanisms for addressing the problem. 3. Is regulation the best form of government action? Regulators should carry out, early in the regulatory process, an informed comparison of a variety of regulatory and non‐ regulatory policy instruments, considering relevant issues such as costs, benefits, distributional effects and administrative requirements. 4. Is there a legal basis for regulation? Regulatory processes should be structured so that all regulatory decisions rigorously respect the “rule of law”; that is, responsibility should be explicit for ensuring that all regulations are authorised by higher‐level regulations and consistent with treaty obligations, and comply with relevant legal principles such as certainty, proportionality and applicable procedural requirements. 5. What is the appropriate level (or levels) of government for this action? Regulators should choose the most appropriate level of government to take action, or if multiple levels are involved, should design effective systems of co‐ordination between levels of government. 6. Do the benefits of regulation justify the costs? Regulators should estimate the total expected costs and benefits of each regulatory proposal and of feasible alternatives, and should make the estimates available in accessible format to decision‐makers. The costs of government action should be justified by its benefits before action is taken. 7. Is the distribution of effects across society transparent? To the extent that distributive and equity values are affected by government intervention, regulators should make transparent the distribution of regulatory costs and benefits across social groups. 8. Is the regulation clear, consistent, comprehensible and accessible to users? Regulators should assess whether rules will be understood by likely users, and to that end should take steps to ensure that the text and structure of rules are as clear as possible. 9. Have all interested parties had the opportunity to present their views? Regulations should be developed in an open and transparent fashion, with appropriate procedures for effective and timely input from interested parties such as affected businesses and trade unions, other interest groups, or other levels of government. 10. How will compliance be achieved? Regulators should assess the incentives and institutions through which the regulation will take effect, and should design responsive implementation strategies that make the best use of them.
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25 January 2009
Stock Market Weekly
DSE performance: 52 weeks
Market news
Weighted avg. P/E Ratio*
This Week Last Week % Change
*Weighted on Market Cap.
17.06 17.34 -1.6%
•
Shinepukur Ceramics to raise BDT 800mn (USD 11.62mn) in bonds.
•
ACI to raise BDT 1.3bn (USD 18.88mn) in bonds
•
Bangladesh remains decoupled from both regional and global markets
•
RSI indicators have moved back to neutral territory
suggesting market overbought condition has corrected • Fuel and Power + Investment lead the way lower Regional stock market performance (last week)
DSE performance: 30 days
Market summary Index performance Opening of this week Closing of this week Change within a week (%) Change within a week (Point) Capitalization and turnover Number of Trading Days Market Capitalization (USD bn) Total Turnover (USD mn) Daily Avg. Turnover (USD mn) Total Volume (mn) Daily Avg. Volume (mn)
AT CAPITAL RESEARCH
Valuation snapshot
DSE General Index
DSE 20
2695.58 2671.06 -0.9% -24.5
2,199.3 2,189.2 -0.5% -10.1
This Week
Last Week
5 14.80 209 41.75 124
5 15.15 255 50.91 156
25
31
Issues
Advanced Declined Unchanged
Not Traded
% Change -2.34% -18.0% -18.0% -20.7% -20.7%
This Week 144 121 3 31
Last Week 104 158 2 29
Banks Cement Ceramic Engineering Food & Allied Fuel & Power Insurance Investment IT Jute Miscellaneous Paper & Printing Pharmaceuticals Service & Real Estate Tannery Textiles
Aug‐08 19.08 10.96 49.92 39.11 17.85 17.81 23.17 45.08 41.44 16.16 25.46 8.36 23.97 20.57 19.05 15.74
Sector P/E Sep‐08 Oct‐08 Nov‐08 18.24 15.62 15.62 10.34 10.32 8.91 43.93 41.76 32.17 41.36 40.8 31.94 19.44 17.09 14.77 20.2 19.14 16.29 24.77 23.12 17.69 55.48 28.93 21.42 45.64 47.89 33.96 16.16 14.18 14.18 33.95 32.2 23.32 8.08 9.97 7.32 28.45 30.25 26.26 22.87 23.55 18.74 19.89 18.44 14.87 15.45 14.55 12.43 Source: Dhaka Stock Exchange
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25 January 2009
Weekly Stock Market Commentary This week the market was down by 0.9% for the third consecutive week, and the daily average turnover was down by 16.5%. The turnover volume dropped significantly as investors, especially retail investors, remained shaky amid the recent bearish trend in the market. Out of 297 stocks, 144 advanced, 121 declined, 3 remained unchanged and 29 were not traded. Two newly listed companies started trading this week. BSRM joined the stock market by floating 2mn ordinary shares at BDT 100 each, while Republic Insurance joined by offloading 90,000 ordinary shares at BDT 100 each. Similar to the previous week, this week retail investors also focused intensively on Z‐listed stocks. Among the top ten gainers, nine of them were from Z‐list categories. Z‐list stocks are categorised by virtue of their lack of compliance with SEC regulations (Ex. filing of accounts) or are unprofitable – so are largely constituted of companies lacking fundamental qualities. RSI indicators have moved back to neutral territory suggesting market overbought condition has corrected The Relative Strength Index (RSI) of the DSE General Index is now at 48 .8 with a consolidating trend in the last three days of this week. Also the MACD line is below and parallel to its 9 days signal line, showing that a significant trend has not developed yet. As can be seen in the chart below, the key overbought/oversold indicators for the DGEN are 70 and 30 respectively. Typically when the RSI hits 70, the market tends to correct and sell off, as was the case earlier this month, whereas when the RSI hits 30, we typically get a bounce. The principal behind momentum indicators is that they capture when too much of the market is positioned in one direction. If there are a majority of investors who are long the market, there is diminishing numbers of prospective buyers which leaves the market vulnerable to profit‐taking. The current RSI does not give any strong technical signal in either direction suggestion consolidation until the market receives some new fundamental news. RSI and MACD movement of DSE General Index:
AT CAPITAL RESEARCH
Bangladesh remains decoupled from both regional and global markets With the Sensex down almost 6% last week and the KSE down a massive 17%+, the moves in the DGEN remain extremely muted. With the S&P 500 down 3.5 % and the European stock markets also down sharply, Bangladesh remains one of the few truly de‐ coupled EM markets in the world. Sector Update – Fuel and Power + Investment lead the way lower This week the “Fuel and Power” and “Investment” sectors declined significantly by 4.9% and 4.1%, respectively. The major reason of the decline in the “Fuel and Power” sector is the 100% bonus share and 50% cash dividend issued by Padma Oil Company Ltd., a state owned petroleum products distribution company. After the record date which was January 18, the price of this stock dropped by 47% and thus affected the market capitalization of the “Fuel and Power” sector, though the bonus share has not started trading in the market. In the “Investment” sector, among the 17 mutual funds, only three increased while prices of rest of the unit funds decreased. The “Engineering” sector grew by 5% this week, largely driven by “Atlas Bangladesh Ltd.”, a state owned motorcycle and three wheeler assembling company. Atlas Bangladesh Ltd. is the second largest company in the engineering sector, as it contributes 20% towards the sector’s total market capitalization. The “IT” sector grew by 1% last week following an increase of 2.7% the previous week. The sector is showing a rising trend recently with the new government's thrust in the area. According to DSE statistics, the IT issues' weighted average price earnings (P/E) ratio surged 46.5 in 2008 against 15.2 in 2007 and 11.1 in 2006. The rising P/E ratio of this sector implies the investors’ positive perception about the growth of the sector.
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25 January 2009
AT CAPITAL RESEARCH
Stock Market News Shinepukur Ceramics to raise BDT 800mn (USD 11.62mn) in bonds The Daily Star, Tuesday January 20, 2009
Shinepukur Ceramics, an export‐oriented bone china and porcelain tableware manufacturing company, has decided to borrow BDT 800mn (USD 11.62mn) from its parent company Beximco by issuing convertible bonds , in order to set up a new bone china unit. However, in order to issue bonds, the company’s shareholders and the Securities and Exchange Commission must approve. The new bone china manufacturing unit, which is expected to be completed in October 2009, aims to increase production capacity and sales turnover. Production capacity will increase by 150% to 25,000 pieces a day from currently 10,000 manufactured pieces. Additional exports worth BDT 1.1bn (USD 15.98mn) and a net profit of BDT 200mn (USD 2.9mn) is expected to be generated. Shinepukur signed an agreement with a German company on th January 18 for setting up the new unit at the Beximco Industrial Park at Gazipur. http://www.thedailystar.net/story.php?nid=72078
ACI to raise BDT 1.3bn (USD 18.88mn) in bonds The Daily Star, Monday January 19, 2009
Advanced Chemical Industries (ACI) Limited has decided to raise BDT 1.30bn (USD 18.88mn) by issuing convertible zero coupon bonds, for loan repayment and fresh investments. A zero coupon bond is a bond bought at a price lower than its face value, with the face value repaid at the time of maturity. Convertible zero coupon bond means that the bond is convertible into a company's common stock or share. The issuance of the 'ACI 20% Convertible Zero Coupon Bond', the first of its kind, is however subject to the approval of the Securities and Exchange Commission. The maturity period of the bond is five years with yearly redemption, meaning that 20% value of the bond will be repaid to the investors each year with a 10.5% discount rate. Along with the discount or interest, the investors, excluding banks and insurance companies, will get tax exemption on the income generated from the zero coupon bonds. The bonds will be traded on the Dhaka and Chittagong stock exchanges. The bond will be issued through both private placement and an initial public offering. Alliance Financial Services Ltd is the issue manager of the bond, and Industrial and Infrastructure Development Finance Co Ltd is the facility manager. ACI, which has investments in pharmaceuticals, consumer brands and commodity products, agribusinesses, crop care and public health, livestock and fisheries, fertiliser and seeds business, posted net profits of BDT 362.5mn (USD 5.27mn) in 2007. http://www.thedailystar.net/story.php?nid=71947
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AT CAPITAL RESEARCH
25 January 2009
DGEN Performance YTD
DGEN Performance LTM
Turnover leaders (All figures in mn) BDT 1285 Beximco Pharma 1074 BEXIMCO Shinepukur Ceramics Limited 991 939 Titas Gas Summit Power 754 BSRM Steels Limited 584 375 Grameen One: Scheme2 Uttara Bank 345 339 ACI Formulation Limited Summit Alliance Port Limited 326
Best performers* USD
Meghna PET Shaympur Sugar Rangamati Food Quasem Silk Quasem Textile
18.7 15.6 14.4 13.6 11.0 8.5 5.5 5.0 4.9
% Change 49.0% 37.8% 35.9% 35.7% 32.6%
Lexco B Monospool Paper Bd. Welding Electrodes Al-Amin Chemicals Megha Condensed
4.7
Worst performers*
30.3% 29.0% 28.7% 28.6% 26.5%
Correlation with other indices*
51.0% 13.8% 11.6% 5.5% 5.1% 3.0% 2.4% 2.1% 1.9% 1.2% 1.2% 0.7% 0.5% 0.1% 0.03% 100%
S&P500
S&P500
1
Sensex
NIKKEI225
Hangseng
DSE
KSE100
Sensex
0.609533
1
NIKKEI225
0.479296
0.57751
1
KSE100
0.137983
0.245628
0.136849
1
SSECI
0.315464
0.411735
0.245613
0.09449
SSECI
FTSE100
1
FTSE100
0.843726
0.610483
0.494904
0.238387
0.431538
1
Hangseng
0.704434
0.677905
0.526227
0.110829
0.509843
0.786434
DSE
0.161589
0.193995
0.103366
1
‐0.05588 0.035032 0.131261 0.143725 * Based on the last 86 months’ USD returns Source: AT Capital Research
1
*As of November 30, 2008
Research Team Ifty Islam Managing Partner
-8.2% -7.9% -7.3% -7.1% -6.6%
*By closing price Source: Dhaka Stock Exchange
Source: Dhaka Stock Exchange
Market cap. by sector* Banks Fuel & Power Pharmaceuticals Insurance Cement Miscellaneous Engineering Foods Textile Service & Real Estate Tannery Ceramics IT Paper & Printing Jute Total
% Change -46.7% -25.3% -16.7% -10.7% -9.7%
Padma Oil Co. BEMCO Al-Haj Textile Eagle Star Textile National Housing Finance and Investment Ltd. 8th ICB M.F. 3rd ICB M.F. Pragati life Insurance Global Insurance BEXTEX Limited
Syeed Khan
Partner
ifty.islam@at‐capital.com
syeed.khan@at‐capital.com
Mohammad Emran Hasan Senior Associate
emran.hasan@at‐capital.com
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16
AT CAPITAL RESEARCH
25 January 2009
Economics Selected macroeconomic indicators
Market news
20‐Jan‐08
13‐Jan‐09
20‐Jan‐09
Forex reserves (USD mn)
5677.81
5471.15
5430.92
USD‐BDT average rate
68.5800
68.9500
68.9499
13.79
9.32
9.48
Call money rate
• • •
Dec‐07 Remittances (USD mn) Annual %age change
Dec‐08
2007‐08
635.34
765.79
7,914.78
14.46
20.53
32.39
• •
P
Nov‐07 Imports (USD mn) Annual %age change
Nov‐08
2007‐08
1,661.80
1,816.50
21,629.00
7.91
9.31
26.07
•
Exports (USD mn) Annual %age change
Nov ‐08
Current A/C Balance (USD mn)
1297.47
14,110.80
24.94
13.37
15.87
P
Sep‐08
20.00
Recession fears loom over shrimp exports
2007‐08
1144.47
Sep‐07
Uptrend in export earnings continues Manpower export suffers blow as KL bans overseas recruitment BEPZA expects to attract more investments in EPZs Series of BB steps to expedite flow of inward remittances
•
P
Nov ‐07
Country's trade balance narrows in first half of FY 09 Inflow of foreign aid normal
2007‐08
46.00
Latest treasury yields
672.00 Auction date
P
Nov‐07 Tax revenue (USD mn) Annual %age change
Nov‐08
Tenor & security type
2007‐08
Weighted average yield
506.24
551.57
6,868.43
Dec-08
91-day T-bill
7.91%
26.59
8.96
27.06
Dec-08
182-day T-bill
8.16%
Dec-08
364-day T-bill
8.58%
Dec-08
5-year T-bond
10.60%
Dec-08
10-year T-bond
11.72%
Source: Selected indicators by Bangladesh Bank, 21 January 2009
Source: Bangladesh Bank
Latest Bangladesh Inflation Rates Oct‐08 General
7.26
6.12
6.03
226.88
223.98
220.64
Inflation Non‐food
Dec‐08
207.14
Inflation Food
Nov‐08
209.31
204.90
8.08
6.68
6.83
186.13
184.95
184.29
5.95
5.25
4.76
Inflation
Source: Bangladesh Bureau of Statistics
Jisha Sarwar Senior Research Associate Jisha.sarwar@at‐capital.com
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25 January 2009
Economic News Country's trade balance narrows in first half of FY 09 th The Financial Express, Sunday January 25 , 2009 The country's balance of trade in the first half of fiscal year 2009 narrowed to USD 3.2bn from USD 3.5bn during the same period a year ago, owing to a rise in exports and decline in imports. During the first two quarters of FY 09 (July – Dec) exports earnings stood at USD 7.5bn while import payments were USD 10.7bn. During the same period in FY 08, the country received USD 6.49bn for exports while import payments were USD 9.078bn. The country's export target for the current fiscal year has been fixed at USD 16.29bn, 15.5% higher than FY 08. During the last fiscal year, the country exported goods worth USD 14.5bn and made import payments of USD 20.37bn. Export growth was 18.33% during the first 6 months of FY 09, which is around 3 percentage points higher than the projected target. The country's overall import payment during the first six‐ month of FY 09 grew by only 6.84% compared to 17.25% during the same period in FY 08, mainly due to declining prices of fuel, edible oil and other commodities in the international market. If the present trend continues, it will ease pressure on the country’s balance of payment and will help strengthen the country's foreign exchange reserve, which stood at USD 5.6bn on January 22, 2009. http://www.thefinancialexpress‐ bd.info/search_index.php?page=detail_news&news_id=56958
Satisfactory inflow of foreign aid The Financial Express, Saturday January 24th, 2009 Inflow of foreign aid into Bangladesh has not been affected by the global financial downturn, as the government has received USD 830.41mn in foreign aid during the first half of the current financial year. The amount received was USD 8.0mn higher than that received during the corresponding period of last financial year (2007‐08). The government expects to receive USD 2.14bn in aid during the current fiscal year. Out of the total amount, USD 65mn is expected to come as food aid, USD 10mn as commodity aid, USD 1.72bn as project aid and USD 350mn as budgetary support credit. Out of the total USD 830.41mn disbursed foreign assistance during July‐December of this fiscal year, USD 748.62mn was given as loan, and only USD 81.79mn was given as a grant. http://www.thefinancialexpress‐bd.info/2009/01/24/56831.html Manpower export suffers blow as KL bans overseas recruitment rd The Financial Express, Friday January 23 , 2009 Bangladesh's manpower export is expected to decline significantly as Malaysia’s government declared that it will not hire new foreign workers in the manufacturing and services sectors amid
AT CAPITAL RESEARCH
fears that its economic crisis will lead to more job losses for locals. Malaysian Home minister Syed Hamid Albar told the country's leading English daily, New Straits Times, that there is no reason to bring in foreigners after a government report showed 45,000 people will be laid off at the end of January. The two sectors ‐ manufacturing and services ‐ employ one million foreign workers currently. These employees will be allowed to work until their permits expire, unless they are laid off before then. Malaysia's Deputy premier Najib Razak said the foreign workers will be sent back in batches so as not to jeopardize the country's economy. "Almost all of the 131,000 Bangladeshis that found jobs in Malaysia in 2008 were in the manufacturing and services sector," said a senior official of Bangladesh Bureau of Manpower and Training (BMET). "A hiring freeze in Malaysian may result in drastic drop in manpower exports and remittance. Already thousands of workers have returned home from Singapore," he added. Malaysia was the third biggest employer of Bangladeshi workers last year, followed by Saudi Arabia and the United Arab Emirates (UAE). Manpower exports in December slumped by nearly 50 % to 44,000, the worst monthly figure last year. A record 875,055 Bangladeshi found overseas jobs last year, with the UAE employing 419,355 and Saudi Arabia 132,124 people. During the period, eight million overseas workers sent home a record USD 8.9bn, which accounts for over 12 % of Bangladesh's gross domestic product (GDP). http://www.thefinancialexpress‐bd.info/2009/01/23/56716.html BEPZA expects to attract more investments in EPZs nd The Financial Express, Thursday January 22 , 2009 The Bangladesh Export Processing Zones Authority (BEPZA) is expecting to attract more investments in the country' Export Processing Zones (EPZs) as the government has approved their proposal for setting up two new EPZs. The country will have a total of 10 EPZs after the two new zones in Feni and Meghna are set up. BEPZA officials stated that their decision for expansion was mainly based on the high demand and flow of both local and foreign investment. In fiscal year 2008, total investment was USD 302.19mn, almost a 100% increase from USD 152.37mn in fiscal year 2007. Investments reached USD 74.7mn during the first six months of the current financial year. According to Prasanta Bhusan Barua, a member (Investment Promotion) of the BEPZA, the BEPZA signed agreements worth USD 1.4bn with a number of investors last year. Data showed that the BEPZA's contribution to total national export is increasing steadily. In FY 08, the total export of EPZs was worth USD 2.4bn, which was 17.2% of Bangladesh's total export of USD 14.11bn; In FY 07 the total export of EPZs was USD 2.06bn.
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25 January 2009
AT CAPITAL RESEARCH
Export earnings stood at USD 1.26bn during the first two quarters of the current fiscal year (July 08 – Dec 08). Currently, a total of 292 enterprises are operating in eight EPZs and, 125 plants in the process of being implemented. Of the 292 industrial plants, 173 are foreign‐owned, 48 are joint ventures and the rest 71 are owned by local investors. Currently 228,932 people are working in the EPZs. Of them 82,416 (36%) are male and the rest are female (64%). BEPZA officials stated that each EPZ will have a central effluent treatment plant. Chittagong Waste Treatment Plants Ltd. has been approved for setting up such a plant in the CEPZ. http://www.thefinancialexpress‐bd.info/2009/01/22/56645.html Series of BB steps to expedite flow of inward remittances The Financial Express, Tuesday January 20th, 2009 The Bangladesh Bank (BB) has taken a series of measures aiming to expedite the flow of remittances into the country. The BB has recently formed a seven member committee, the first of its kind, in order to monitor and supervise the overall inflow of remittances. Furthermore, the BB has given permissions to three private commercial banks (PCBs) recently for setting up exchange houses in Malaysia and United Kingdom. Both Malaysia and UK are important sources of remittances. Earlier, the BB took an initiative to boost remittance inflow from Malaysia. As part of the move, the BB asked ten commercial banks to submit action plans for increasing the flow of inward remittances from the country. Bangladesh received a total of USD 92.44mn in remittances from Malaysia in fiscal year 2008 compared to only USD 11.84mn in fiscal year 2007. Remittance inflow from UK also grew from USD 886.9mn in FY 07 to USD 896.1mn in FY 08. Remittance inflow reached USD 486mn during the first half of this month. In December Bangladesh received USD 765.8mn in remittances from abroad, an increase of USD 4.4mn from November. The country's foreign exchange reserve stood at USD 5.5bn on Monday due to robust growth in remittance inflow, according to the central bank. http://www.thefinancialexpress‐ bd.info/search_index.php?page=detail_news&news_id=56499
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25 January 2009
Sector News
AT CAPITAL RESEARCH
Agriculture ACI will open 200 chain‐shops as it forays into organized retailing The Financial Express, Sunday, January 25, 2009 Leading conglomerate ACI plans to open around 20 value stores across the country in the next four months, making it the first company to do nationwide organized retailing. The company has opened two stores in Dhaka and plans to replicate them across the country. At present the company is working with the price propositions; they want to make the chain stores affordable for the mass people. An official from the company stated, “We have already opened up two stores and will open at least 20 by May. We have a plan to launch 200 stores in prime locations."
http://www.thefinancialexpress‐ bd.com/search_index.php?page=detail_news&news_id=56962
Agro‐based industries to be set up in CHT The Daily Star, Saturday, January 24, 2009 The government will set up agro‐based industries in the Chittagong Hill Tracts (CHT) region. Fruits like lemon, pineapple, orange, jackfruit and guava are largely grown in three hill districts of the region. If agro‐based industries are established then various food products can be produced by processing the fruits. http://www.thedailystar.net/story.php?nid=72650
Give enough loans to Boro farmers The Daily Star, Monday, January 19, 2009 Bangladesh Bank asked eight public sector banks, who distribute 80% of total agricultural loans, to provide adequate loans to farmers during the Boro season. The BB mandate followed the government’s recent decision to cut fertilizer and diesel prices. Bangladesh Bank Deputy Governor directed the banks to give quick and hassle‐free loans to farmers so that they do not face any financial problems in buying agricultural inputs including fertilizers and seeds. He told managing directors of the banks to monitor proper distribution of loans at the field level. He said Bangladesh Bank would monitor their progress. http://www.thedailystar.net/story.php?nid=71973
Recession fears loom over shrimp exports The Daily Star, Monday January 19th, 2009 Shrimp exports are expected to fall significantly this year, as the price and demand for shrimps have fallen in developed countries, the main consumers of local shrimp exports. Buyers in the US and Europe have been urging Bangladeshi exporters to reduce shrimp prices. According to industry insiders, the price of shrimp has dropped by USD 1 per pound, or about BDT 155 per kilogram, in late 2008 compared to the 2007 price.
In fiscal year 2008, the price of 16 to 30 grade shrimps, which accounts for around 65% of the total frozen shrimp export, ranged between USD 5.20 and USD 5.50, but now it has come down to as low as USD 4, marking a 30‐32% decline, According to the BFFEA (Bangladesh Frozen Foods Exporters Association). In Bangladesh frozen food is the second highest export earner after apparels. In FY 2008, the country exported frozen foods worth USD 534mn. The government set a target of USD 574mn for this fiscal year, but exporters revised it up to USD600mn. Shrimp accounts for over 80 % of frozen food products. The European Union, USA and Japan are the three main markets for Bangladesh's frozen shrimp, with the EU and the US accounting for 48 % and 40 %, respectively, of total exports. About 10mn people are directly and indirectly involved with the shrimp business, which is concentrated in the Khulna district. The BFFEA has already requested the government to create an emergency fund for the shrimp exporters to protect them from a liquidity crisis. According to the association, formation of a 40 % interest‐free block account facility for a period of four to five years will help the industry cope with the situation. http://www.thedailystar.net/newDesign/news‐details.php?nid=71944
Aviation Two new airlines will begin operations in Dhaka soon The Daily Star, Wednesday January 21, 2009 Two new airlines ‐ Indian Kingfisher Airlines and the Malaysian carrier AirAsia Berhad ‐ will begin operations in Dhaka within the next three months. Kingfisher Airlines, owned by Indian liquor baron Vijay Mallya, will operate on the Dhaka‐Kolkata route from mid‐February, and will be the sixth airline on the route. Air Asia, one of the most low‐cost carriers in Asia, will start Dhaka‐Kuala Lumpur flights from early March. The airline plans to operate seven flights a week. http://www.thedailystar.net/newDesign/news‐details.php?nid=72259
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25 January 2009
Banking Five foreign banks fail to disburse agriculture loans The Daily Star, Thursday January 22nd, 2009 Despite the central bank's order, five foreign commercial banks, including HSBC, have failed to disburse any agriculture loans during the first two quarters of FY 09. Other banks that have not disbursed any farm credit include Bank Al‐Falah, Habib Bank, State Bank of India and Woori Bank. Nearly BDT 1340mn (USD 19.46mn) in agriculture loans was disbursed by nine foreign banks during the first two quarters of the current fiscal year; these banks include Standard Chartered (USD 14.49mn), Citi Bank NA (USD 2.47mn), Commercial Bank of Ceylon (USD 2.03mn) and National Bank of Pakistan (USD 0.44mn). The central bank last year asked all local private and foreign commercial banks to allocate a reasonable amount of their total loan portfolio for farm credit. The BB is now considering setting a farm credit target for private and foreign commercial banks in order to boost agriculture output. http://www.thedailystar.net/newDesign/news‐details.php?nid=72370
Infrastructure & Energy
10 power plants on government's priority list The Daily Star, Sunday January 25, 2009
As part of its efforts to solve the country's chronic power crisis, the new government has decided to implement 10 power plant projects, which were initiated by previous governments. Eight of the projects will be implemented by the public sector while two will be undertaken by the private sector. The proposed projects to be implemented in the public sector are 300MW Siddhirganj peaking plant, 360MW Haripur plant, 150MW Sirajganj plant, 150MW Khulna plant, 150MW Bhola plant, 150MW Sylhet plant and the 210MW Khulna power plant. The private sector plants are 450MW Bibiyana and 450MW Sirajganj power plants.
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Among the projects, loan agreements were signed by the previous governments for Siddhirganj, Sirajganj, Khulna and Bhola power plants. As per the agreements, the World Bank is supposed to finance the Siddhirganj plant while Japanese JBIC will finance the Haripur project. The Asian Development Bank (ADB) will finance the Sirajganj and Khulna power plants, while the Islamic Development Bank (IDB) will finance the Bhola project. http://www.thedailystar.net/story.php?nid=72829
WB to fund gas exploration The Financial Express, Sunday January 25, 2009 The World Bank has agreed to fund exploration of natural gas in Bangladesh for the first time in its history. Finance and energy ministry officials said the fund would be primarily provided to the state‐owned oil and gas exploration company, BAPEX, to discover new reserves in two of its untapped onshore blocks in greater Mymensingh. BAPEX has not undertaken any exploration activities during the last decade, which resulted in an over‐dependence on foreign oil companies and a shortfall of 250 mn cubic feet of gas a day since November last year. The blocks in Mymenshingh have been considered hydrocarbon rich, however, BAPEX needs to conduct an intensive exploration drive to extract gas from them. BAPEX has planned to conduct a 2400 kilometre two‐dimensional (2D) seismic survey, geophysical and geological studies and a delineation of the drillable subsurface structure. http://mail.google.com/mail/?zx=u7n4lumq4oej&shva=1#inbox Revenue generation, investment in infrastructures key challenges The Financial Express, Saturday January 24th, 2009 The Asian Development Bank (ADB) has said the key challenges for the new government over the longer term will be to raise infrastructure investment and government revenue mobilization and accelerate the Annual Development Program (ADP) implementation. Other challenges include improvement of institutional capacities in key line agencies, creation of more jobs and coping with power and gas shortages for encouraging private investment to enhance longer‐term growth prospects, according to the ADB’s recently published report on Bangladesh's 'Political and Economic Update'. http://www.thefinancialexpress‐ bd.com/search_index.php?page=detail_news&news_id=56836 Gas shortage affects private initiative to generate power in EPZs The Financial Express, Saturday January 24th, 2009 The plan for export processing zones in the country to run industrial units with the electricity produced by their own plants has not yet materialized due to a shortage of gas supply. Bangladesh Export Processing Zones Authority (BEPZA) officials said six private power plants with a combined capacity of 240
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25 January 2009 megawatt were scheduled to start power generation in 2008. However, only the plant in the Dhaka EPZ started its operation on a trial basis two weeks ago. Power plants in Chittagong and Karnaphuli EPZs were installed by December 2008. However, private power companies, who won the bid for producing power at Comilla, Adamjee and Ishwardi EPZs, are waiting for gas supply. http://www.thefinancialexpress‐ bd.com/search_index.php?page=detail_news&news_id=56833 BB to finance captive power plants through' IPFF project The Financial Express, Friday January 23rd, 2009 The central bank will finance the installation costs of captive power plants along with small power projects (SPP) under its investment promotion and financing facility (IPFF) project. Additional funds will be made available by the central bank shortly through two private commercial banks (PCBs) for setting up two more SPPs in Feni and Chittagong to add at least 33 Megawatt (MW) of electricity to the national grid. Dhaka Bank Limited will finance the Doreen Powerhouse and Technology Limited to set up an 11MW SPP at Feni while Eastern Bank Limited has agreed to provide loans to Regent Power Limited for setting up a 22MW power plant in Chittagong. The WB earlier provided USD 50mn for the IPFF Project for long‐ term financing of infrastructure projects under the Public‐Private Partnership (PPP) framework while the government offered USD 10mn as co‐financer of the project. http://www.thefinancialexpress‐ bd.com/search_index.php?page=detail_news&news_id=56712
Tullow appoints BAPEX to explore gas at Bangura The Financial Express, Thursday January 22, 2009
State‐owned petroleum exploration and production company BAPEX has entered into a deal with a foreign oil company to produce gas in the Bangura field in the Comilla district. Irish company Tullow has recently appointed BAPEX to start gas production from its non‐operative well‐3 at the Bangura field. Tullow plans to produce an additional 25 to 30mn cubic feet of gas per day (mmcfd) from the Bangura field. The gas field, located in Block‐ 9, has been producing about 100mmcfd of gas from well‐1, 2 and 5. Well‐3 was developed in October 2008. Tullow owns 30% of the total gas in Block‐9, while Canadian Niko Resources and BAPEX own 60% and 10%, respectively. http://www.thefinancialexpress‐ bd.com/search_index.php?page=detail_news&news_id=56700
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Power secretary, Nasiruddin Ahmed said, “The caretaker government took steps to generate around 1100MW of additional electricity. As per that plan, around 322MW electricity was added by December 2008. We are expecting around 730MW of additional electricity by June this year’. He further stated that an additional 157.5MW electricity is expected to be generated in January, 131MW in February, 287MW in March, 105MW in May and 50MW electricity in June from a number of short and long‐ term power plants, small IPPs and one public sector power plant. http://www.newagebd.com/2009/jan/20/nat.html#1
Leather Goods Leather exports slow in financial rout The Daily Star, Sunday January 25, 2009 Exports of finished leather and leather goods declined by around 18% during the July‐November period of the current fiscal year. According to the former chairman of the Bangladesh Finished Leather, Leather Goods and Footwear Exporters Association, Mr. Sultan, the consumption of leather and its prices in the international market went down by 30% last year, following a decline in international production by 6%. Industry insiders expect leather exports to drop by 25% in FY 09, which will directly affect 195 tanneries in the country. There are four types of leather ‐‐ rawhide, wet blue, crushed and finished leather. Bangladesh mainly exports crushed and finished leathers, demand for which dropped in the international market due to the global economic crisis. Leather is one of the most important export items of the country. Some of the most common leather items are shoes, bags and purses. Currently, the leather industry is worth around USD 508mn a year, with exports accounting for USD 284mn in FY 08.Of the total leather exports from Bangladesh, 80% is crushed leather and the remaining is finished. The main exporting countries are Italy, Japan, Korea and China, Sultan said. According to Mr. Sultan, the government should take necessary measures to develop and protect the leather industry. “Essential chemicals, such as sodium chloride and sulfuric acid that are needed for conversion of animal hides to leather, have to be imported and are very expensive,” he said. Sultan suggested that the government should reduce import duties and VAT on these chemicals. http://www.thedailystar.net/newDesign/news‐details.php?nid=72831
Pharmaceutical
Government to initiate power plant projects in pipeline New Age, Tuesday January 20, 2009 The Awami League‐led alliance government has taken an initiative to develop the costly rental power plants and small independent power plants, which were approved by the interim government.
Local co starts manufacturing raw materials for pharmaceuticals The Daily Star, Thursday, January 22, 2009 Active Fine Chemicals (AFC), a private company, started manufacturing raw materials and chemical reagents for the pharmaceutical industry, with an aim to reduce import dependency.
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25 January 2009 Although Bangladesh’s pharma industry has successfully secured a place in the global market in a short span of time, all of its necessary raw materials still need to be imported from abroad. A few local pharmaceutical companies that do produce raw materials can produce only 5% of the total requirement, and most of these products are used by themselves; the rest is imported from abroad. AFC hopes to supply a major portion of the required raw materials, which will save both time and costs. The company is expected to supply raw materials worth BDT 2bn (USD 29.2mn) to the local market this year. AFC's factory has already been set up in Munshiganj at the cost of about BDT 500mn (USD 7.3mn). According to the senior vice president of the company, AFC has already started producing a number of raw materials, including reagents used in different laboratories. It will be possible soon to produce raw materials used in cancer and diabetes preventive medicines, he said. He also stated that a team of chemical engineers comprising of members from the US and India are now working with the company. http://www.thefinancialexpress‐bd.info/2009/01/22/56642.html
Shipbuilding Shipbuilders dispel recession fears The Daily Star, Thursday January 22, 2009 Local shipyards have been receiving enquiries from foreign buyers about small vessels, despite a downturn in the global shipbuilding industry caused by the global recession. However, according to local shipbuilders, buyers are offering lower prices as steel prices have declined. Bangladesh, which has recently entered the global shipbuilding market, is yet to face any cancellation in orders or delays in payments. So far, local shipyards‐‐ mainly Ananada Shipyard and Western Marine Shipyard ‐ have received over USD 600 worth of orders for making more than 40 vessels, with a capacity below 15,000 dead weight tonnes (DWT). Most of the orders for these ships come from European countries like Germany and Denmark. According to industry insiders, there are about 300 small and large dockyards, generating about 100,000 jobs, but only a few companies have been able to attract foreign buyers. http://www.thedailystar.net/newDesign/news‐details.php?nid=72371
Telecoms Operators ask government to lift SIM card tax www.bdnews24.com, Wednesday January 21, 2009 Mobile‐phone operators asked the government to remove the BDT 800 (USD 11.8) SIM card tax. During a meeting held on Wednesday, the members of the Association of Mobile Telephone Operators Bangladesh asked the telecoms minister Raziuddin Ahmed Razu to look further into the Telecom Ordinance 2008. According to AMTOB president and AKTEL director Fazlur Rahman,
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the SIM card tax has increased customers' expenses and impeded growth in the sector. Officials present at the meeting represented grameenphone, AKTEL, CityCell, Teletalk, WARID and Banglalink, and also the ministry. http://bdnews24.com/details.php?id=74333&cid=4
ATC Comment: The 6 mobile operators paid around USD 121mn in sim taxes last year. This is impeding growth in the industry in terms of mobile operators’ profitability and acquisition of new mobile subscribers. Of the 6 mobile operators, only Grameenphone is profitable, as the operators largely have to subsidies sim prices in order to attract new customers. On the other hand, lowering mobile sim taxes to Pakistan’s level (around BDT 500) would allow mobile operators to sell sims at prices that are affordable for the rural population, as that is where mobile subscriber growth is expected to be in the future. State‐owned BSCCL keen to run new cable link The New Nation, Thursday January 22, 2009 State‐owned BSCCL (Bangladesh Submarine Cable Company Ltd) is interested in setting up an alternative submarine cable link in the country. Bangladesh is now linked to SEA‐ME‐WE‐4 submarine cable, the link managed and maintained by BSCCL. Of the 24.12 gigabyte capacity, 7.5 GB is being used, statistics show. http://nation.ittefaq.com/issues/2009/01/22/news0295.htm
TeleTalk network to be expanded The New Nation, Monday January 19, 2009 Post and Telecommunications Minister Rajiuddin Ahmed Raju Sunday said state‐owned TeleTalk mobile’s network and broadband would be extended to upazila and village levels as soon as possible. A task force probe recently found serious irregularities in the implementation of TeleTalk projects that caused losses of over BDT 2000mn (USD 29.4mn). The implementation period of the project was from 2002 to 2004, but it ended in July 2008. Although the original estimated cost of the project was BDT 5940mn (USD 86.22mn), total costs ended up being BDT 8010mn (USD 117.8mn) due to alleged corruption. TeleTalk, which entered the market in 2005, has the lowest number of subscribers among the 6 mobile operators, with only 0.98mn subscribers. The operator has established its network in 64 districts, 355 Upazilas, and along most of the highways. http://nation.ittefaq.com/issues/2009/01/19/news0029.htm
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Textiles NGWF for re‐fixing garment workers' minimum wages The Financial Express, Sunday, January 25, 2009 The National Garments Workers Federation (NGWF) has demanded a re‐adjustment of the minimum wage for garments workers. According to the NGWF members, the minimum wage for apparel workers was fixed at BDT 1,662 (USD 24.26) in 2006, and has not been revised since then. The NGWF also stated that the Bangladesh Labor Law 2006 should be amended to protect the interest of the workers. The NGWF urged the government to give workers of the country's export processing zones trade union rights as per the convention of the International Labor Organization. http://www.thefinancialexpress‐ bd.com/search_index.php?page=detail_news&news_id=56979
Japanese firm seeks to buy USD 600mn RMG The Daily Star, Friday, January 23, 2009 One of the largest Japanese retail chains, Uniqlo, has decided to purchase readymade garments (RMG) worth more than USD 600mn from Bangladesh in 2009. Currently, Uniqlo purchases RMG products worth USD 3bn from different countries a year ‐ Bangladeshi products will make up 20% of the company’s total purchases of USD 3bn in 2009. Uniqlo currently has stores in 30 countries, and has a network of over 750 stores in Japan. Bangladesh exported woven items worth USD 20.801mn and knitwear items worth USD 7.234mn to Japan in FY 08, according to the Export Promotion Bureau. http://www.thedailystar.net/story.php?nid=72522
Garment exports to new destinations on the rise The Daily Star, Wednesday, January 21, 2009 The volume of garment exports to new destinations is increasing, as manufacturers aim for market diversification. Exporters have been exporting garment products to Brazil and Mexico, the two new export destinations since mid‐2008. The chairman of Dekko Group stated that they have already shipped trousers, shirts and some other woven garments, worth USD 500,000, to Mexico. More shipments to that country are in the pipeline. The group has recently started exporting to Brazil. They are also looking at exporting to some other new destinations such as Japan, Russia and South Africa. According to EPB statistics, Bangladesh exported woven garments worth USD 5.350mn and knitwear items worth USD 7.374mn to Russia in FY 08. During the same period, the country exported woven products worth USD 32.873mn and knitwear products worth USD 27.662mn to Mexico. In Brazil, another emerging export destination for Bangladesh, woven items worth USD 3.090mn and knitwear items worth USD 13.281mn were exported in FY 08. During the same fiscal year, the country exported woven products worth USD 16.977mn and knitwear products worth USD 12.211mn to South Africa.
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http://www.thedailystar.net/newDesign/news‐ details.php?nid=72258 German co. invests USD 200m to set up mega textile factory in Bangladesh The Financial Express, Thursday, January 22, 2009 A top German company is setting up one of the world's largest textile factories in Gazipur. Steffen Mohler, marketing and sales director of Multiline Limited, said his company is investing USD 200mn in a state‐of‐the‐art knit composite manufacturing facility. The company already bought 80 bighas of land in Gazipur and is purchasing another 220 bighas in the same area. It will have 14 factory halls employing more than 10,000 workers, once it goes into production in early 2010. The factory will have all the forward and backward linkages ‐ spinning, weaving, dying and washing and sewing in one compound ‐ along with a three‐star hotel to house German technicians. This will be the biggest German investment in Bangladesh and by far the largest the country's textile sector has attracted from a foreign investor. Previous investments in the sector have not exceeded USD 25mn. http://www.thefinancialexpress‐bd.info/2009/01/22/56689.html
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25 January 2009
AT Capital Team – Dhaka Ifty Islam Managing Partner Syeed Khan Partner Akther Ahmed Senior Advisor Senior Advisor Masud Khan Jisha Sarwar Senior Research Associate Mohammad Emran Hasan Senior Associate Research Associate S Adeeb Shams Ahmad Sajid Research Associate Abdullah‐Al‐Farooq Research Analyst M. Emrul Hasan Research Analyst IT Analyst Md. Zahidur Rahman Ohidul Alam Chowdhury Analyst Sohana Alam Seraj Office Manager
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© Copyright 2008. Asian Tiger Capital Partners Limited, Level 16, UTC Tower, Panthapath, Dhaka – 1215, Dhaka, Bangladesh. All rights reserved. When quoting please cite “AT Capital Research”. The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Asian Tigers Capital Partners or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Asian Tigers Capital Partners Limited. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.
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Asian Tiger Capital Partners
Weekly News Update
AT Capital Weekly Update
Key themes in this issue are: Bangladesh Overview:
•
• • • • •
•
We review the Asian Development Bank (ADB) economic and political update for Bangladesh. They are modestly more bearish than Bangladesh Bank in forecasting FY 09 GDP growth slowing to 5.7%. However, they are far less pessimistic than the World Bank’s equivalent forecast of 4.8%. Perhaps the biggest risk for Bangladesh is the speed at which the global economy in general, and China in particular, is slowing. We discuss some current analysis that suggests that Chinese Q4 GDP growth estimates of 6.8% are grossly over‐optimistic. A number of private forecasters suggest that the manufacturing sector is already in recession and the overall economy barely expanded. Japanese exports to China have collapsed while Chinese electricity demand is also contracting. The recent comments from Treasury Secretary Geithner in his Congressional ratification hearings warning China against manipulating the Yuan, underlines US fears that China will try and depreciate their way out of crisis. The global banking crisis has also re‐surfaced with Barclays bank stock price falling almost 75% in 2 weeks, RBS announcing a USD 41bn loss for 2008, the largest in UK history, and Bank of America leading the way lower among US financials, triggering the resignation of ML CEO John Thain. Bangladeshi exports have been resilient but the authorities need to keep a close watch on demand and margin pressure given the rapid speed of the slump in global demand.
Special Focus:
• •
This week we discuss the progress made by Bangladesh in terms of regulatory reforms. In addition we review the country’s performance with respect to The World Bank “Doing Business” Survey which suggests Bangladesh still needs to push ahead with making the regulatory environment more business friendly. EDITORS • We also summarize some of the key findings from a recent IFC‐BICF survey of private sector attitudes towards the reform process started by the recent Caretaker Ifty Islam Government, and expectations from the New Government. Managing Partner • Finally we review some of the recent literature on Regulatory Impact Assessment (RIA) ifty.islam@at‐capital.com and conclude that it should be incorporated into Bangladesh’s regulatory reforms initiative. Syeed Khan
Partner syeed.khan@at‐capital.com Jisha Sarwar Senior Research Associate jisha.sarwar@at‐capital.com Asian Tiger Capital Partners UTC Building, Level 16 8 Panthapath, Dhaka‐1215 Bangladesh Tel: 8155144, 8110345 Fax: 9118582 www.at‐capital.com
Collapsing Chinese Electricity Demand Suggests Manufacturing Sector
25 January 2009
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Contents
Page
Bangladesh Overview
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ADB sees modest risks for a growth slowdown
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ADB highlights the need to encourage private investment in infrastructure
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Biggest vulnerability to ADB forecast for Bangladesh GDP growth is a rapid move towards recession in rest of Asia
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The Global Banking Crisis Part 67
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Special Focus: The Need for Reforms
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Stock Market Weekly
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Weekly Stock Market Commentary
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Stock Market News
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Economics
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Economics News
18 20
Sector News Agriculture/ Aviation
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Banking/ Infrastructure & Energy
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Leather Goods
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Pharmaceuticals / Shipbuilding/ Telecoms
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Textiles
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25 January 2009
Bangladesh Overview The ADB published a Political and Economic Update last week that briefly outlined their thoughts on the risks for the economy as well as policy challenges. ADB sees modest risks for a growth slowdown The ADB noted the following on the resilience of the Bangladesh economy in the first half of FY09, which is over the past 6 months: “Economic performance in the first half of FY2009 held up well with a pick up in domestic economic activity and robust growth in exports and remittances. Continued growth in readymade garment production, together with improvements in business confidence and recovery in housing and construction, stimulated industrial activity in the first quarter of FY2009. Falling prices of construction materials and a rise in demand for real estate because of the growth in bank credit and higher remittances helped to revive the construction subsector. Services, especially wholesale and retail trade and transport and telecommunications, also performed well in the first quarter of FY2009. Rapid growth in the mobile phone market and a growing number of healthcare service providers are contributing to robust service sector growth. The continued expansion in agriculture and industry is also likely to have a positive impact on services sector growth. Exports grew by 27% through November 2008 and remittances by 31% through December 2008, over the corresponding periods of the previous fiscal year. “ Looking ahead the ADB only saw growth slowing modestly, with a far less bearish forecast than the World Bank, given that the latter forecast growth for the whole of FY 09 at 4.8%. The ADB suggested that: “Before the onset of the global financial crisis, a 6.5% growth target for FY2009 appeared attainable. With the financial crisis in the advanced economies unfolding and recession setting in, a growth rate of 5.8% seems more likely in FY2009. Industrial growth is expected to moderate to 6.7% from 6.9% in FY2009 as production for exports begins to slow in the second half of the fiscal year with cooling global demand. Deceleration in remittance growth will also dampen domestic demand. Services growth will slow to 6.2%, down from 6.7% in FY2008, due to lower activities in the export sector and declines in consumption spending induced by lower income and moderation in remittance growth. Agriculture is expected to perform well, aided by favorable weather conditions, expansion of cultivable land, and various government support programs. Overall, agriculture is expected to grow at 4.0%, up from 3.6% in FY2008.” On the trade and remittance outlook, the ADB remained quite positive: “The external position should also remain stable with annual export growth projected to be 16.5% in FY2009, still higher than the 15.7% growth in FY2008. Further, the fall in international commodity prices is expected to contain growth in the import bill, which is projected to moderate to 18.0% in FY2009. Although growth in remittance inflows will also slow, the current account in
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Ifty Islam, Managing Partner ifty.islam@at‐capital.com FY2009 is expected to show a modest surplus of 0.8% of GDP. Foreign exchange reserves during the year are expected to remain at a relatively comfortable level equivalent to about 3 months of goods and services imports.” ADB highlights the need to encourage private investment in infrastructure The ADB noted that “(one of) The key challenges for the new Government over the longer term will be to raise infrastructure investment and government revenue mobilization, accelerate Annual Development Program implementation, address deficiencies in institutional capacities in key line agencies, and create more jobs. Addressing power and gas shortages will be critical to encourage private investment to enhance longer‐term growth prospects. Confrontational politics, if it reappears with the restoration of democracy, will also slow down economic activity. “ Biggest vulnerability to ADB forecast for Bangladesh GDP growth is a rapid move towards recession in rest of Asia We believe that the official forecasts of the ADB and other multilateral agencies are lagging the dramatic speed of the slump in demand conditions in the rest of Asia. The Chinese came out recently with their 6.8% estimate of Q4 2008 growth. China publishes its quarterly GDP figure on a year over year basis, differently from the U.S. and most other countries that publish their GDP growth figure on a quarter over quarter annualized seasonally adjusted (SAAR) basis. When growth is slowing down sharply the Chinese way to measure GDP is highly misleading as quarter on quarter growth may be negative while the year over year figure is positive and high because of the momentum of the previous quarters’ positive growth. Indeed if one were to convert the 6.8% y‐o‐y figure in the more standard quarter over quarter annualized figure Chinese growth in Q4 would be close to zero if not negative. Other data confirm that China was in a borderline recession in Q4 and that it may be in an outright recession in Q1: production of electricity plunged 7.9% on a y‐o‐y basis; the Chinese PMI has been below 50 and close to 40 for five months now.
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25 January 2009 With manufacturing being about 40% of GDP, manufacturing is certainly in a sharp recession (negative growth) and the overall economy may be close to a recession So the 6.8% growth was actually a 0% growth – or possibly negative growth – in Q4; and the Q1 figures look even worse. So China is in a recession regardless of what the highly massaged official numbers claim. Albert Edwards, Chief Global Strategist at Societe General, and a well known China bear, has suggested that the Chinese manufacturing sector is already contracting. He stated that : “That this outturn (Q4 Chinese GDP of 6.7%) was bang in line with the median estimate of economists surveyed by Bloomberg makes it all the more unbelievable in my mind. All other economic data worldwide have been surprising massively on the downside and China should be no exception. A few hours earlier, for example, South Korea reported Q4 GDP had declined a hefty 5.6% QoQ, massively worse than a Reuter’s consensus which looked for a contraction of 2.7%! I naively thought that this QoQ decline was already annualized, but it was not. On a US style of reporting, the South Korean economy contracted at a 20% annualized rate in Q4. Asia is in depression. Whatever the heavily manipulated Chinese GDP is telling us, that economy must now be contracting. The Yuan needs to be devalued...we cannot highlight strongly enough how truly mindboggling Japan’s collapse in exports to China are. Last July they were expanding at a 16% yoy pace. Now they are contracting at a 35% yoy rate! This is a phenomenon throughout the region. Hence despite the notoriously manipulated Chinese GDP data showing a shocking slowdown in GDP growth to 6.8% yoy, I would eat my hat if the Chinese economy was doing anything other than contracting right now.” The Global Banking Crisis Part 67 Bank stocks came under severe pressure last week with Bank of America leading the charge lower in the US and Barclays playing the rabbit in the headlights in the UK. The charts below from Bespokeinvestment.com highlight just how extreme the downwards re‐pricing of the financial sector of the S&P 500 has been. The first chart below dates back to 1990, and as shown, the sector closed at its lowest level since March 1995 yesterday. The sector is now down 79% from its highs in 2007. A chart of the sector all the way back to 1940 shows just how much the sector has fallen in such a short period of time.
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Global Markets Last Week – Oil Bounce Appears Unsustainable given Weak Global Economy
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25 January 2009
Special Focus
Need for reforms The need for business reforms has become vital with the realization that the private sector is a key driver of inclusive economic growth and poverty alleviation. In Bangladesh, reforms that aim to simplify business regulations, strengthen property rights, open access to credit, and enforce contracts are necessary, since all these measures can help aid the creation of enterprises that provide employment and economic growth. Although Bangladesh did enact a number of key regulatory reforms, such as reducing the time needed to register property by almost half, its ranking in World Bank’s “Doing Business 2009” th th report nonetheless fell from 104 in 2007 to 110 in 2008. “Doing Business” ranks economies based on 10 indicators that track the time and cost to meet government requirements in starting and operating a business, access to credit , trading across borders, paying taxes, and closing a business. The rankings do not reflect such areas as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates. Doing Business 2009 ranks 181 economies on the overall ease of doing business. The top five are, in order, Singapore, New Zealand, the United States, Hong Kong (China), Denmark, the United Kingdom. According to the report, Bangladesh enacted reforms in starting Businesses and in registering Property. Bangladesh cut the time needed to register property by almost half, from 425 days to 245, through reforms at the Municipal Deed Registry Office. Starting a business has also become easier. Bangladesh made involving lawyers in company registration optional. That eliminated one procedure and reduced the cost by USD 100. The country also did well in terms of "strength of investor protection index" and "strength of legal right index", the report said. However, compared to international best practices, Bangladesh still has a long way to go ‐ the country needs 73 days in starting a business, 231 days in dealing with construction permits, 245 days in registering property, 302 hours per year in paying taxes, 28 days in export and 32 days in import. As a result, among the eight South Asian countries Bangladesh's doing business ranking is fourth followed by the tiny Maldives, Pakistan and Sri Lanka but ahead of giant India, Nepal, Bhutan and Afghanistan. Source: World Bank
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Michael Klein, World Bank Group vice president and IFC chief economist stated that “The [Doing Business] report finds that equity returns are highest in countries that are reforming the most. Investors are looking for upside potential, and they find it in economies that are reforming—regardless of their starting point.” In a recent Daily Star article on regulatory reforms, Anwarul Islam, a member of the Regulatory Reform Core Group representing Bangladesh Bank, wrote: “There are two things we [Bangladesh] need to address immediately. One is to introduce RIA process for new rule/regulation at the ministry/agency level. Another is to give RRC an institutional and permanent shape, preferably through enactment of law. All the country's primary and secondary laws, including the proposed one, should be required to be cleared by the RRC, whatever name we shall call the body. This will definitely improve governance standard in our country. With better international credibility and improved regulatory consistency and predictability, we can become one of the most attractive investment hubs in Asia.” We agree with Mr. Islam that a permanent Regulatory Reform Commission (RRC) and an RIA process are two requirements for creating an effective, transparent, and predictable regulatory system, which will in turn enhance the country’s investment/ business climate and ultimately drive economic growth. In the following sections we discuss results from the “Doing Business 2009” report published by the World Bank, which shows that although there have been successful reforms on several fronts in Bangladesh, major business reforms are still needed, and the RRC needs to play a strong role in implementing these reforms. We also emphasize on the need to develop an RIA process immediately for improving the quality of new and existing regulations.
World Bank “Doing Business 2009” report shows that major reforms still needed Despite the steps taken by the RRC to modernize and simplify the regulatory system in Bangladesh, the country still needs major improvement on several fronts that will ultimately help in creating a dynamic business environment leading to inclusive economic growth.
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25 January 2009 Bangladesh is ranked 90 in the overall ranking for starting a business compared to good practices. It requires 7 procedures, takes 73 days, and costs 25.67 % GNI per capita to start a business in Bangladesh. Procedures such as verifying the uniqueness of the proposed company name with the Registrar of Joint Stock Companies and Firms, filing documents with the Registrar of Joint Stock Companies and Firms for registration, registering with the tax authority and for VAT, should all be simplified in order to ease the process of starting up a business. Dealing with construction permits is also an arduous process in the country ‐ It requires 14 procedures, takes 231 days, and costs 739.81 % GNI per capita to build a warehouse in Bangladesh. Obtaining project clearance and building permit from the City Development Authority (RAJUK), obtaining zoning clearance, receiving foundation inspection and electricity inspection, are some of the procedures that need to be simplified in order to enhance the overall ease of doing business in the country. Although Bangladesh ranks low at 175 (after Pakistan, India, Afghanistan) in registering property compared to global best practices, it has simplified the number of procedures needed to register property, time required to register property, and official costs to register property. The time needed to register property has been cut by almost half, from 425 days to 245, through reforms at the Municipal Deed Registry Office. Simple procedures to register property are associated with greater perceived security of property rights and less corruption. Bangladesh’s ranking for getting credit has fallen from 51 in the 2008 Doing Business report to 59 in the 2009 report. The credit information index in the graph below shows that over the past three years the level of credit information available in Bangladesh
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has remained stagnant, while in South Asia as a whole, there has been a significant improvement in the availability of credit information since 2008. IFC‐BICF stakeholders’ opinion survey shows there is overwhelming support for reforms It is evident from the “Doing Business 2009” report findings that Bangladesh is still lacking behind in a number of areas compared to global practices, which can use major reforms and improvements. Along with specific regulatory reforms pertaining to businesses, such as simplifying procedures for obtaining construction permits, accessing credit, trading across borders, enforcing contracts, reforms in areas of education, corruption, energy, infrastructure, are also mandatory in order to attain higher economic growth. IFC‐BICF conducted a stakeholders’ survey in 2008 (from September to November) in order to analyze how economic and business conditions affect different groups of stakeholders. Stakeholders include citizens, opinion leaders/ elites, businesses, and public officials. The objectives of the surveys were mainly to understand: ‐what are the key perceptions and attitudes of the stakeholders toward economic and business environment in Bangladesh ‐What are the views of the stakeholders about economic and business reforms in Bangladesh ‐How confident are the stakeholders about the economy and business environment in Bangladesh, and how does their level of confidence change over time ‐How does the knowledge and attitude of the stakeholders about economic and business reform issues change over time. The surveys were broken down into three categories – Stakeholders’ Perception Survey (SPS), Business Confidence Survey (BCS), and Public Perception Survey (PPS). With a fairly large sample size, the survey was the first of its kind in Bangladesh. Below are some key findings from the survey results. Perceptions of current business environment A majority of the stakeholders said that the country's economic situation deteriorated in September 2008 but saw improvements in October 2008. This was mainly because high prices of commodities and essentials were a concern in September 2008 but some improvements were seen in October 2008 – in the SPS survey conducted in September, when asked about some of the leading concerns in the economy, 83% of opinion leaders and 84% of the general population surveyed had high prices on the top of
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25 January 2009 their list of concerns, followed by jobs and employment, corruption, electricity, lack of democracy, crime and terrorism, education, etc. Majority of the Stakeholders view Bangladesh’s economic situation is worse than before (SPS, Sept 08) Som ewhat worse 140 Much worse Som ewhat better 120 Much better 100 83 80 81 73 60 40 42 20 34 32 21 13 16 0 2 2 0 SME/Micro General Population Opinion Leaders Similar to the economic situation, the country’s business environment is also viewed as unfavorable, and the situation is not expected to improve anytime soon either. Majority of the businesses view their overall situation is worse today than 3 months In your opinion, what is the overall situation of your business today compared to 3 months ago? Worse 38% 11% Unchanged 35% Better 16% 2% 0% 20% 40% 60% Moderately Better Substantially Better Moderately Better Substantially Better The business confidence survey revealed that there was a complete reversal in the investment situation in the first quarter of FY 2008 compared to the corresponding period of 2007, due to a declining profit margin and a shortage of raw materials. Sixty two % of respondents during the survey said they did not invest during July‐September of 2008 while only 38 % replied in the affirmative. Declining profit margin and shortage or raw materials are the leading constraints for lack of investment (BCS, Oct‐Nov 08) % of Firm s 70 61 52 60 50 38 40 29 28 28 26 30 20 20 10 0
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Overwhelming support for reforms across all groups of stakeholders When asked how much the stakeholders have heard about business reforms, 85% of ordinary citizens and 66% percent of opinion leaders responded by saying that they heard “nothing at all” about reforms; 8% of ordinary citizens and 20% percent of opinion leaders said that they had “some” idea about business reforms. Although both the general population and the elite group do not know or hear much about reforms, their support for reforms is overwhelming – 84% of opinion leaders and 76% of the general population surveyed feel that reforms are necessary for their own economic betterment. Reforms are necessary for the stakeholders (SPS, Sept 08) N e ce ssary N ot ne ce ssary 84 90 76 80 70 60 50 43 00 24 16 20 10 0 Ge ne ral Population O pinion L e ade rs An interesting finding was that reforms in the agriculture sector is given a lot of importance, especially by the general population – 56% of the general population and 31% of opinion leaders stated that the agriculture business climate needs improvement. Most important reforms (SPS, Sept 08) Regardless of which type of reforms the government has been working on, in your opinion, which two of the following areas is most important to reforms? 37 Education 31 35 Corruption 29 32 Political 25 31 Agriculture 56 29 Business 27 13 Crime & Terrorism 22 13 Constitutional 4 10 Infrastructure 4 0 10 20 30 40 50 60 Opinion Leaders General Population Support for particularly business reforms was expressed by both opinion leaders and ordinary citizens during the surveys When asked why they support business reforms, a large number of stakeholders responded that a better business environment will create more job opportunities and will help in controlling inflation. High prices are still a major concern, and so, many believe that a good business climate will ultimately help in lowering prices of essentials.
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25 January 2009 Extent to which citizens agree with the statement that business reforms are much needed in Bangladesh 120 96 100 86 80 60 40 20 12 3 2 1 0 Agree or strongly agree Disagree or strongly Don't know/Refuse disagree Ordinary Citizens Elite Groups Survey results show that the general population and opinion leaders want a greater focus on SMEs The Business Confidence Survey results show that the business condition of SMEs was worsening in the last quarter of calendar year 2008 – 16% of small companies said their situation became “substantially worse” in October, compared to 8% of medium companies and 3% of large companies. That SMEs need a greater attention was also emphasized by both the general population and opinion leaders during the survey – a significant 62 % of the general population, and 61% of opinion leaders stated during the survey that the government should focus more on helping small and medium enterprises. SMEs have long been considered as the principal driving force of Bangladesh’s economy. Along with stimulating private ownership and entrepreneurial skills, SMEs are flexible and can adapt quickly to changing market demand and supply situations, generate employment, help diversify economic activity, and make a significant contribution to exports and trade. At a time such as now, when the economy is vulnerable to the adverse affects of the global financial crisis, boosting the SME sector, known as the economy’s thrust sector, is absolutely imperative. Thus improvements in areas such as access to loans, training on how to start up businesses and procedures required, and registration processes, are necessary in order to encourage SMEs to grow. Attention needed on SME versus large companies (SPS, Sept 08) The Government should be focus more attention on helping small and medium enterprises The Government should be focus more attention on helping large companies 70 62 61 60 50 40 34 30 24 20 10 0 General Population Opinion Leaders
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Some key obstacles faced by the SME/ micro entrepreneurs (SPS, Sept 08) O w n fe ar o f failu r e 43 L e arn in g h o w t o d o b u sin e ss 34 L ack o f acce ss t o lo ans 21 Go ve r n m e n t re gist r at ion p ro ce ss 12 Pr e ssu r e fr o m fam ily, frie n ds 11 Go ve r n m e n t co r r up t io n 10 V alu e add e d t ax (V A T) 4 In co m e t ax 3 I n t e r act io n w it h tax o fficials 1 0 10 20 30 40 50
RRC’s efforts for modernizing the country’s public administration The Regulatory Reform Commission was formed by the caretaker government in October 2007, upon realizing that it is imperative to modernize public administration and simplify legal and procedural complexities, in order to create the right enabling environment for foreign as well as domestic investment. The commission consists of four sub‐committees, within which one is working on utility service related reforms, and one for land registration and related reforms. The RRC is responsible for reviewing and updating all government regulations totaling to about 50,000, many of which are decades old but still being used today – the commission is removing all redundant and inefficient regulations, and is identifying those regulations that should be modified or left unchanged, simplifying certain government forms, and is reducing the time required to process applications and licenses by government departments. (Please refer to Appendix 1 to see some of the key recommendations made by the RRC) One of the important recommendations the RRC made was for the Directorate of Land Registration to be transferred from the Law Ministry to the Ministry of Land to allow a "one‐stop service" for land registration. However, this recommendation is yet to be implemented due to complexities related to the High Court. However, a number of recommendations have been implemented successfully. Following RRC recommendations, the Government started to publish gazette notifications on its website and started developing a new website incorporating all previous gazettes. The RRC suggested that all proposed regulations must be published in draft form for feedback from civil society members before finalization. The commission recommended online registration with the BoI, uniform fees or charges for registration of investment projects and reforms in the BoI. A consultant was appointed for starting online registration and the BoI took the issue of uniform fees into consideration. The commission proposed that Bangladesh Bank should be able to make decisions regarding private sector foreign loans without informing the BoI. In August 2008, the Chief Adviser's Office during the Caretaker government directed the BoI and the BB to implement this within two months.
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25 January 2009 The RRC suggested legalization of "courier service" in the country, by amending the Post Office Act 1898. The Ministry of Post and Telecommunications have implemented this. RRC’s recommendation for reducing the time of giving location clearance and environment clearance certificates was accepted and implemented. The government has also implemented the recommendation regarding bonded warehouse licensing processes. Although the RRC has made over 30 recommendations and has sent them to the ministries for immediate implementation, the implementation process has not been successful in all cases. Red‐ tapism, bureaucratic complexities and some pending cases in the High Court have hindered the progress of the reforms, apart from a few. It has also been reported that some ministries have not cooperated with the RRC. According to The New Nation, a local daily, the RRC selected 202 laws and regulations for review and amendment, and drafted their synopsis. In order to do this, the RRC sent notifications to 47 ministries or departments back in November 2007. However, only nine ministries or departments responded to RRC's request for assistance and cooperation.
Need to adopt Regulatory Impact Assessment (RIA) as a tool to improve regulatory environment In a recent Financial Express article regarding the need for introducing RIA to the regulatory system in Bangladesh, Syed Akhtar Mahmood wrote: “We often talk about streamlining the existing stock of regulations. This is indeed a top priority. But we also need to think about the quality of new regulations. If the flow of new regulations is of poor quality, the stock will remain bad. It is like cleaning the water in a swimming pool. No use doing that if you cannot ensure that the new water flowing in is also clean. So how do you ensure this? The answer lies in introducing a process whereby new rules and regulations, at least the important ones, are subjected to an impact analysis. The idea of an impact analysis is not novel in Bangladesh. When a government agency does a project, say a road, a hospital or a power transmission line, it is required to carry out a cost‐benefit analysis and justify the planned investment. The Planning Commission then reviews the analysis, and approves or rejects the project. Whether these exercises are done properly is of course a matter of debate ‐ Bangladesh is replete with examples of projects that were done on purely political considerations with little analysis of the costs and benefits to society. But the rules of business of the government do require such analysis.” While it is definitely a priority to remove redundant regulations and update the existing ones, the quality and effectiveness of new regulations also need much attention. In short, Regulatory Impact Analysis (RIA) aims to improve the quality of regulations, regulatory institutions and regulatory systems. It is basically a systematic process of evaluating the cost and benefits of regulations. In Bangladesh, new rules and regulations are often introduced without any prior notice or consultation with relevant
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stakeholders. Even where consultation takes place, this is often inadequate and the feedback is not adequately incorporated in the framing of the regulations. This creates major uncertainty regarding the effectiveness of the regulations. RIA examines and measures the likely benefits, costs and effects of new or changed regulations. It provides decision‐makers with valuable empirical data and a comprehensive framework which they can use to assess options and the consequences their decisions may have. RIA is used to define problems and to ensure that government action is justified and appropriate. RIA aims to improve the regulatory environment by: I. Building a regulatory management system–Regulate the regulators through transparency and accountability mechanisms (laws, policies, institutions, enforcement, etc.) II. Improving the quality of new regulations–Control of the flow (RIA, consultation, alternatives, co‐ordination, etc.) III. Upgrading the quality of existing regulations – Control of the stock (deregulation, up‐dating, codification and restatement, formalities, etc.) RIA has been widely used in OECD countries, and is increasingly being used in developing countries also. Around 40 countries have introduced RIA including 90 % OECD countries, while about 20 developing countries are implementing or actively exploring the scope to establish RIA. The Rise in RIA Source: Jacobs & Associates RIA reduces regulatory burdens The chart below shows that the RIA process is extremely comprehensive. Internally, it is the key mechanism for assessing the impact of new or existing regulations, and thereby reducing duplicative and contradictory policies. Also RIA helps to identify possible difficulties and shortcomings during the implementation and enforcement phase of regulation. Externally, RIA promotes regulatory transparency and accountability of administration through consulting with stakeholders and incorporating their suggestions. As its use expands, RIA can help define which government actions are suited to a market economy.
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25 January 2009 Source: presentation made at CRC by Prof. David Parket at the University of Manchester International experience of using RIA More than half of the OECD governments and many Eastern European countries in transition have been successfully using RIA tools in regulatory decisions. The OECD reference checklist for regulatory decision‐making is elaborated in Appendix 2. In Asia, the use of RIA is still a growing concept, but is nonetheless being used in several countries. A survey organized by the Centre on Regulation and Competition (CRC) at the University of Manchester in 2003 ‐2004, indicated that at least nine Asian countries have developed elements of a modern RIA: India, Jordan, Korea, Malaysia, Oman, Pakistan, the Philippines, Sri Lanka, Thailand. Among these countries, the Philippines, Malaysia, and Korea have made significant progress. Philippines established RIA as a legal requirement, though the government had not published the implementing regulations and guidelines. In practice, the Philippines government has concentrated its RIA effort on new economic regulations ‐‐ complementing its efforts through enhanced public consultation and the use of public notices and invitations to comment, followed by public meetings. In Malaysia, elements of a RIA process have been used within the government, though not on a consistent and systematic way. Unlike in the Philippines, the Malaysian RIA, when adopted, was applied to social and environmental regulations as well as to economic ones. In Malaysia, public consultation before the introduction of new regulations seems well developed with all respondents in agreement. Korea, which has attained remarkable economic growth partly due to successful business and economic reforms, introduced RIA to its regulatory system in 1998. In a recent Daily Star article on the Korean experience on reforms, Anwarul Islam wrote, “[In Korea, RIA] enables the public officials in charge of designing regulations to take informed decisions on how to make regulations viable, sound and effective. Assessment areas and factors for RIA include: overview of regulation in question, identifying regulated entities and stakeholders, lifetime of regulation, short description of both the existing regulation being
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reviewed and the new regulation being developed and regulation mapping, i.e., the mapping of relationship between the regulatory proposal in question and the existing regulations relating to it, cost‐benefit‐analysis of alternatives to the regulation in question. The ministry concerned must gather public opinions during the stipulated 20‐day notice and comment period and report the results of its review to those who provided inputs on the relevant regulatory proposals.” Other countries in Asia which have started to experiment with RIA are Vietnam, China and Sri Lanka. Vietnam recently launched a prototype RIA for helping the government reform two key laws: The Unified Enterprise Law and the Common Investment Law. In Sri Lanka, the Institute of Policy Studies together with the Manchester Center for Regulation and Competition, initiated a RIA Working Group where public officials and academic participate on the development of a RIA system for the country. Launching RIA in Bangladesh Efficient and business–friendly governance requires the modern methods and tools of the RIA process. Although there does exist a review process in the government of Bangladesh for new laws, rules and regulations, it merely ensures that the proposed rules and regulations are consistent with the existing ones. But the RIA undertakes more than just that, as it analyzes the impact of proposed rules and regulations. If Bangladesh wants to become one of the most attractive investment hubs in Asia, business regulations need to be predictable and useful, and this can only be done by introducing an RIA process to the regulatory system. Suggestions for effectively developing an RIA system in BD: It will be useful to have a program of regulatory impact analysis (RIA) within various ministries, monitored by an independent body overlooking all the RIA programs. Hence, all new laws and regulations that are passed through each ministry should be justified through basic cost benefit analysis. In order to enact this, all ministries could be asked/ required to answer the basic regulatory quality questions designed by the OECD (Please see Appendix 2). The goal for the justification should be to show that the proposed law or regulation minimizes costs to concerned businesses. As mentioned above, a politically neutral and independent body needs to be in place to monitor, oversee, and strengthen the RIA process. This advisory body should receive the regulatory justification statements, and consult with stakeholders and the business sector, and make the suggestions public. Hence, the public should be involved extensively in the process ‐ interest groups should be consulted widely and in a timely fashion. Korea is a good example where public opinion is integrated into the rule making process – “The RRC has conducted surveys every year to hear the public and experts' opinions on the regulatory reform. The results of survey have been used as feedbacks in setting future policy directions every year” (Anwarul Islam, “Regulatory Reforms: Korean experience”, Daily Star). Consultation before the introduction of new regulations is imperative in creating a transparent and accountable regulatory system.
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Although all regulations need to be justified by a cost benefit analysis, analytical methods can vary as long as RIA identifies and weighs all significant positive and negative effects and integrates qualitative and quantitative analyses. Mandatory guidelines should be issued by the independent oversight body to maximize consistency. Results of RIA must be communicated clearly with concrete implications and options explicitly identified. A common format should be used in order to communicate effectively. The independent body monitoring the RIA process should also be in charge of guidance and training ‐ upgrading the quality and consistency of RIA training government‐wide, and ensuring that good practices around the world are transmitted quickly and efficiently to civil servants.
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The private sector will play a vital role in making RIA successful in Bangladesh. Second, business involvement in RIA has several significant benefits in terms of improved information. Businesspersons, especially those affected by regulations, can constitute cost‐effective sources of the data needed to complete high quality RIA. Consultation can also provide important indications on the feasibility of proposals, on the range of alternatives considered, and on the degree of acceptance of the proposed regulation by affected parties. Moreover, active participation by the business sector means better compliance with the regulation and thus savings in terms of implementation and enforcement.
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Some of the institutional methods that Bangladesh could explore to maximize business participation in the RIA process consist of establishing (Cordova, Cesar “Enabling Environment and Economic Zones for Private Sector Development in Bangladesh”) • Expert groups, such as academic and industry groups; • Business Test Panels organized for a particular regulation. They can be fast, but data quality can be a problem; • Focus groups, which can provide a wide range of data; • Development together with the business associations of model enterprises that “represent” the affected population; • Opinion surveys, which can identify major issues, and in particular repeatedly running the FIAS administrative barrier surveys, and • Direct interviews with businesspersons. Ifty Islam Managing Partner ifty.islam@at‐capital.com Jisha Sarwar Senior Research Associate jisha.sarwar@at‐capital.com
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25 January 2009 APPENDIX 1 Some of the key recommendations made by the RRC and their implementation status (as of mid 2008): 1. All gazette notifications must be published on the website, which has already been implemented with technical assistance from Bangladesh Investment Climate Fund (BICF) ‐‐ a multi‐donor initiative managed by the International Finance Corporation (IFC). 2. All proposed regulations must be published in draft form for feedback from civil society members before finalization. The Ministry of Law, Justice, and Parliamentary Affairs has vetted the amendment of the government's "Rules of Business, 1996" to include "Rule 16," and this recommendation now awaits approval of the council of ministers. 3. The investment registration process of the Board of Investment (BOI) must be simplified. According to Section 10(1) of Investment Board Act, 1989, BOI will introduce speedy online investment registration process through its website. Paper registrations must be processed within 24 hours. According to section 11(5) of the Investment Board Act, 1989, investment enquiries must be answered within 15 days unless otherwise advised. BOI registration service fee is being contemplated to be set at a flat rate, regardless of the proposed investment amount. 4. Sub‐committee on "processing and approval of foreign private loans", under the leadership of Bangladesh Bank's governor, proposed that the sole responsibility and authority for approval of foreign private loans be vested with the Bangladesh Bank. The BOI and BB have been directed by the Chief Adviser's Office to implement the RRC recommendation within two months. 5. The legalization of "courier service" in the country, by amending the Post Office Act 1898. The Ministry of Post and Telecommunications is taking steps to implement this. 6. The Directorate of Land Registration should be transferred from the Law Ministry to the Ministry of Land to allow a "one‐stop service" for land registration. The High Court has placed a writ and stay order against this executive decision for a period of three months. 7. Sub‐committee on location and environmental clearance recommended that the "Bangladesh Environment Conservation Act, 1995" and "Environment Conservation Rules, 1997" be amended by the Department of Environment, so that the time taken to issue Location Clearance Certificates and Environmental Clearance Certificates can be halved. 8. Sub‐committee on duty drawback and exemption system, capital machinery import clearance system, and bonded warehouse licensing system recommended the National Board of Revenue (NBR) to simplify the duty drawback application form by June 30 and move to an industry‐based instead of enterprise‐ based coefficient identification system to streamline the process. NBR is advised to introduce "risk‐based inspection and clearance" system for capital machinery imports, where about 5%‐10% consignments will be inspected by September 30. In addition, NBR is advised to improve Bond Warehouse Licensing Process by allowing non‐association members to apply for such licenses without referrals from members.
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APPENDIX 2 The OECD Reference Checklist for Regulatory Decision‐Making 1. Is the problem correctly defined? The problem to be solved should be precisely stated, giving evidence of its nature and magnitude, and explaining why it has arisen (identifying the incentives of affected entities). 2. Is government action justified? Government intervention should be based on explicit evidence that government action is justified, given the nature of the problem, the likely benefits and costs of action (based on a realistic assessment of government effectiveness), and alternative mechanisms for addressing the problem. 3. Is regulation the best form of government action? Regulators should carry out, early in the regulatory process, an informed comparison of a variety of regulatory and non‐ regulatory policy instruments, considering relevant issues such as costs, benefits, distributional effects and administrative requirements. 4. Is there a legal basis for regulation? Regulatory processes should be structured so that all regulatory decisions rigorously respect the “rule of law”; that is, responsibility should be explicit for ensuring that all regulations are authorised by higher‐level regulations and consistent with treaty obligations, and comply with relevant legal principles such as certainty, proportionality and applicable procedural requirements. 5. What is the appropriate level (or levels) of government for this action? Regulators should choose the most appropriate level of government to take action, or if multiple levels are involved, should design effective systems of co‐ordination between levels of government. 6. Do the benefits of regulation justify the costs? Regulators should estimate the total expected costs and benefits of each regulatory proposal and of feasible alternatives, and should make the estimates available in accessible format to decision‐makers. The costs of government action should be justified by its benefits before action is taken. 7. Is the distribution of effects across society transparent? To the extent that distributive and equity values are affected by government intervention, regulators should make transparent the distribution of regulatory costs and benefits across social groups. 8. Is the regulation clear, consistent, comprehensible and accessible to users? Regulators should assess whether rules will be understood by likely users, and to that end should take steps to ensure that the text and structure of rules are as clear as possible. 9. Have all interested parties had the opportunity to present their views? Regulations should be developed in an open and transparent fashion, with appropriate procedures for effective and timely input from interested parties such as affected businesses and trade unions, other interest groups, or other levels of government. 10. How will compliance be achieved? Regulators should assess the incentives and institutions through which the regulation will take effect, and should design responsive implementation strategies that make the best use of them.
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25 January 2009
Stock Market Weekly
DSE performance: 52 weeks
Market news
Weighted avg. P/E Ratio*
This Week Last Week % Change
*Weighted on Market Cap.
17.06 17.34 -1.6%
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Shinepukur Ceramics to raise BDT 800mn (USD 11.62mn) in bonds.
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ACI to raise BDT 1.3bn (USD 18.88mn) in bonds
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Bangladesh remains decoupled from both regional and global markets
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RSI indicators have moved back to neutral territory
suggesting market overbought condition has corrected • Fuel and Power + Investment lead the way lower Regional stock market performance (last week)
DSE performance: 30 days
Market summary Index performance Opening of this week Closing of this week Change within a week (%) Change within a week (Point) Capitalization and turnover Number of Trading Days Market Capitalization (USD bn) Total Turnover (USD mn) Daily Avg. Turnover (USD mn) Total Volume (mn) Daily Avg. Volume (mn)
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Valuation snapshot
DSE General Index
DSE 20
2695.58 2671.06 -0.9% -24.5
2,199.3 2,189.2 -0.5% -10.1
This Week
Last Week
5 14.80 209 41.75 124
5 15.15 255 50.91 156
25
31
Issues
Advanced Declined Unchanged
Not Traded
% Change -2.34% -18.0% -18.0% -20.7% -20.7%
This Week 144 121 3 31
Last Week 104 158 2 29
Banks Cement Ceramic Engineering Food & Allied Fuel & Power Insurance Investment IT Jute Miscellaneous Paper & Printing Pharmaceuticals Service & Real Estate Tannery Textiles
Aug‐08 19.08 10.96 49.92 39.11 17.85 17.81 23.17 45.08 41.44 16.16 25.46 8.36 23.97 20.57 19.05 15.74
Sector P/E Sep‐08 Oct‐08 Nov‐08 18.24 15.62 15.62 10.34 10.32 8.91 43.93 41.76 32.17 41.36 40.8 31.94 19.44 17.09 14.77 20.2 19.14 16.29 24.77 23.12 17.69 55.48 28.93 21.42 45.64 47.89 33.96 16.16 14.18 14.18 33.95 32.2 23.32 8.08 9.97 7.32 28.45 30.25 26.26 22.87 23.55 18.74 19.89 18.44 14.87 15.45 14.55 12.43 Source: Dhaka Stock Exchange
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13
25 January 2009
Weekly Stock Market Commentary This week the market was down by 0.9% for the third consecutive week, and the daily average turnover was down by 16.5%. The turnover volume dropped significantly as investors, especially retail investors, remained shaky amid the recent bearish trend in the market. Out of 297 stocks, 144 advanced, 121 declined, 3 remained unchanged and 29 were not traded. Two newly listed companies started trading this week. BSRM joined the stock market by floating 2mn ordinary shares at BDT 100 each, while Republic Insurance joined by offloading 90,000 ordinary shares at BDT 100 each. Similar to the previous week, this week retail investors also focused intensively on Z‐listed stocks. Among the top ten gainers, nine of them were from Z‐list categories. Z‐list stocks are categorised by virtue of their lack of compliance with SEC regulations (Ex. filing of accounts) or are unprofitable – so are largely constituted of companies lacking fundamental qualities. RSI indicators have moved back to neutral territory suggesting market overbought condition has corrected The Relative Strength Index (RSI) of the DSE General Index is now at 48 .8 with a consolidating trend in the last three days of this week. Also the MACD line is below and parallel to its 9 days signal line, showing that a significant trend has not developed yet. As can be seen in the chart below, the key overbought/oversold indicators for the DGEN are 70 and 30 respectively. Typically when the RSI hits 70, the market tends to correct and sell off, as was the case earlier this month, whereas when the RSI hits 30, we typically get a bounce. The principal behind momentum indicators is that they capture when too much of the market is positioned in one direction. If there are a majority of investors who are long the market, there is diminishing numbers of prospective buyers which leaves the market vulnerable to profit‐taking. The current RSI does not give any strong technical signal in either direction suggestion consolidation until the market receives some new fundamental news. RSI and MACD movement of DSE General Index:
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Bangladesh remains decoupled from both regional and global markets With the Sensex down almost 6% last week and the KSE down a massive 17%+, the moves in the DGEN remain extremely muted. With the S&P 500 down 3.5 % and the European stock markets also down sharply, Bangladesh remains one of the few truly de‐ coupled EM markets in the world. Sector Update – Fuel and Power + Investment lead the way lower This week the “Fuel and Power” and “Investment” sectors declined significantly by 4.9% and 4.1%, respectively. The major reason of the decline in the “Fuel and Power” sector is the 100% bonus share and 50% cash dividend issued by Padma Oil Company Ltd., a state owned petroleum products distribution company. After the record date which was January 18, the price of this stock dropped by 47% and thus affected the market capitalization of the “Fuel and Power” sector, though the bonus share has not started trading in the market. In the “Investment” sector, among the 17 mutual funds, only three increased while prices of rest of the unit funds decreased. The “Engineering” sector grew by 5% this week, largely driven by “Atlas Bangladesh Ltd.”, a state owned motorcycle and three wheeler assembling company. Atlas Bangladesh Ltd. is the second largest company in the engineering sector, as it contributes 20% towards the sector’s total market capitalization. The “IT” sector grew by 1% last week following an increase of 2.7% the previous week. The sector is showing a rising trend recently with the new government's thrust in the area. According to DSE statistics, the IT issues' weighted average price earnings (P/E) ratio surged 46.5 in 2008 against 15.2 in 2007 and 11.1 in 2006. The rising P/E ratio of this sector implies the investors’ positive perception about the growth of the sector.
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25 January 2009
AT CAPITAL RESEARCH
Stock Market News Shinepukur Ceramics to raise BDT 800mn (USD 11.62mn) in bonds The Daily Star, Tuesday January 20, 2009
Shinepukur Ceramics, an export‐oriented bone china and porcelain tableware manufacturing company, has decided to borrow BDT 800mn (USD 11.62mn) from its parent company Beximco by issuing convertible bonds , in order to set up a new bone china unit. However, in order to issue bonds, the company’s shareholders and the Securities and Exchange Commission must approve. The new bone china manufacturing unit, which is expected to be completed in October 2009, aims to increase production capacity and sales turnover. Production capacity will increase by 150% to 25,000 pieces a day from currently 10,000 manufactured pieces. Additional exports worth BDT 1.1bn (USD 15.98mn) and a net profit of BDT 200mn (USD 2.9mn) is expected to be generated. Shinepukur signed an agreement with a German company on th January 18 for setting up the new unit at the Beximco Industrial Park at Gazipur. http://www.thedailystar.net/story.php?nid=72078
ACI to raise BDT 1.3bn (USD 18.88mn) in bonds The Daily Star, Monday January 19, 2009
Advanced Chemical Industries (ACI) Limited has decided to raise BDT 1.30bn (USD 18.88mn) by issuing convertible zero coupon bonds, for loan repayment and fresh investments. A zero coupon bond is a bond bought at a price lower than its face value, with the face value repaid at the time of maturity. Convertible zero coupon bond means that the bond is convertible into a company's common stock or share. The issuance of the 'ACI 20% Convertible Zero Coupon Bond', the first of its kind, is however subject to the approval of the Securities and Exchange Commission. The maturity period of the bond is five years with yearly redemption, meaning that 20% value of the bond will be repaid to the investors each year with a 10.5% discount rate. Along with the discount or interest, the investors, excluding banks and insurance companies, will get tax exemption on the income generated from the zero coupon bonds. The bonds will be traded on the Dhaka and Chittagong stock exchanges. The bond will be issued through both private placement and an initial public offering. Alliance Financial Services Ltd is the issue manager of the bond, and Industrial and Infrastructure Development Finance Co Ltd is the facility manager. ACI, which has investments in pharmaceuticals, consumer brands and commodity products, agribusinesses, crop care and public health, livestock and fisheries, fertiliser and seeds business, posted net profits of BDT 362.5mn (USD 5.27mn) in 2007. http://www.thedailystar.net/story.php?nid=71947
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15
AT CAPITAL RESEARCH
25 January 2009
DGEN Performance YTD
DGEN Performance LTM
Turnover leaders (All figures in mn) BDT 1285 Beximco Pharma 1074 BEXIMCO Shinepukur Ceramics Limited 991 939 Titas Gas Summit Power 754 BSRM Steels Limited 584 375 Grameen One: Scheme2 Uttara Bank 345 339 ACI Formulation Limited Summit Alliance Port Limited 326
Best performers* USD
Meghna PET Shaympur Sugar Rangamati Food Quasem Silk Quasem Textile
18.7 15.6 14.4 13.6 11.0 8.5 5.5 5.0 4.9
% Change 49.0% 37.8% 35.9% 35.7% 32.6%
Lexco B Monospool Paper Bd. Welding Electrodes Al-Amin Chemicals Megha Condensed
4.7
Worst performers*
30.3% 29.0% 28.7% 28.6% 26.5%
Correlation with other indices*
51.0% 13.8% 11.6% 5.5% 5.1% 3.0% 2.4% 2.1% 1.9% 1.2% 1.2% 0.7% 0.5% 0.1% 0.03% 100%
S&P500
S&P500
1
Sensex
NIKKEI225
Hangseng
DSE
KSE100
Sensex
0.609533
1
NIKKEI225
0.479296
0.57751
1
KSE100
0.137983
0.245628
0.136849
1
SSECI
0.315464
0.411735
0.245613
0.09449
SSECI
FTSE100
1
FTSE100
0.843726
0.610483
0.494904
0.238387
0.431538
1
Hangseng
0.704434
0.677905
0.526227
0.110829
0.509843
0.786434
DSE
0.161589
0.193995
0.103366
1
‐0.05588 0.035032 0.131261 0.143725 * Based on the last 86 months’ USD returns Source: AT Capital Research
1
*As of November 30, 2008
Research Team Ifty Islam Managing Partner
-8.2% -7.9% -7.3% -7.1% -6.6%
*By closing price Source: Dhaka Stock Exchange
Source: Dhaka Stock Exchange
Market cap. by sector* Banks Fuel & Power Pharmaceuticals Insurance Cement Miscellaneous Engineering Foods Textile Service & Real Estate Tannery Ceramics IT Paper & Printing Jute Total
% Change -46.7% -25.3% -16.7% -10.7% -9.7%
Padma Oil Co. BEMCO Al-Haj Textile Eagle Star Textile National Housing Finance and Investment Ltd. 8th ICB M.F. 3rd ICB M.F. Pragati life Insurance Global Insurance BEXTEX Limited
Syeed Khan
Partner
ifty.islam@at‐capital.com
syeed.khan@at‐capital.com
Mohammad Emran Hasan Senior Associate
emran.hasan@at‐capital.com
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16
AT CAPITAL RESEARCH
25 January 2009
Economics Selected macroeconomic indicators
Market news
20‐Jan‐08
13‐Jan‐09
20‐Jan‐09
Forex reserves (USD mn)
5677.81
5471.15
5430.92
USD‐BDT average rate
68.5800
68.9500
68.9499
13.79
9.32
9.48
Call money rate
• • •
Dec‐07 Remittances (USD mn) Annual %age change
Dec‐08
2007‐08
635.34
765.79
7,914.78
14.46
20.53
32.39
• •
P
Nov‐07 Imports (USD mn) Annual %age change
Nov‐08
2007‐08
1,661.80
1,816.50
21,629.00
7.91
9.31
26.07
•
Exports (USD mn) Annual %age change
Nov ‐08
Current A/C Balance (USD mn)
1297.47
14,110.80
24.94
13.37
15.87
P
Sep‐08
20.00
Recession fears loom over shrimp exports
2007‐08
1144.47
Sep‐07
Uptrend in export earnings continues Manpower export suffers blow as KL bans overseas recruitment BEPZA expects to attract more investments in EPZs Series of BB steps to expedite flow of inward remittances
•
P
Nov ‐07
Country's trade balance narrows in first half of FY 09 Inflow of foreign aid normal
2007‐08
46.00
Latest treasury yields
672.00 Auction date
P
Nov‐07 Tax revenue (USD mn) Annual %age change
Nov‐08
Tenor & security type
2007‐08
Weighted average yield
506.24
551.57
6,868.43
Dec-08
91-day T-bill
7.91%
26.59
8.96
27.06
Dec-08
182-day T-bill
8.16%
Dec-08
364-day T-bill
8.58%
Dec-08
5-year T-bond
10.60%
Dec-08
10-year T-bond
11.72%
Source: Selected indicators by Bangladesh Bank, 21 January 2009
Source: Bangladesh Bank
Latest Bangladesh Inflation Rates Oct‐08 General
7.26
6.12
6.03
226.88
223.98
220.64
Inflation Non‐food
Dec‐08
207.14
Inflation Food
Nov‐08
209.31
204.90
8.08
6.68
6.83
186.13
184.95
184.29
5.95
5.25
4.76
Inflation
Source: Bangladesh Bureau of Statistics
Jisha Sarwar Senior Research Associate Jisha.sarwar@at‐capital.com
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25 January 2009
Economic News Country's trade balance narrows in first half of FY 09 th The Financial Express, Sunday January 25 , 2009 The country's balance of trade in the first half of fiscal year 2009 narrowed to USD 3.2bn from USD 3.5bn during the same period a year ago, owing to a rise in exports and decline in imports. During the first two quarters of FY 09 (July – Dec) exports earnings stood at USD 7.5bn while import payments were USD 10.7bn. During the same period in FY 08, the country received USD 6.49bn for exports while import payments were USD 9.078bn. The country's export target for the current fiscal year has been fixed at USD 16.29bn, 15.5% higher than FY 08. During the last fiscal year, the country exported goods worth USD 14.5bn and made import payments of USD 20.37bn. Export growth was 18.33% during the first 6 months of FY 09, which is around 3 percentage points higher than the projected target. The country's overall import payment during the first six‐ month of FY 09 grew by only 6.84% compared to 17.25% during the same period in FY 08, mainly due to declining prices of fuel, edible oil and other commodities in the international market. If the present trend continues, it will ease pressure on the country’s balance of payment and will help strengthen the country's foreign exchange reserve, which stood at USD 5.6bn on January 22, 2009. http://www.thefinancialexpress‐ bd.info/search_index.php?page=detail_news&news_id=56958
Satisfactory inflow of foreign aid The Financial Express, Saturday January 24th, 2009 Inflow of foreign aid into Bangladesh has not been affected by the global financial downturn, as the government has received USD 830.41mn in foreign aid during the first half of the current financial year. The amount received was USD 8.0mn higher than that received during the corresponding period of last financial year (2007‐08). The government expects to receive USD 2.14bn in aid during the current fiscal year. Out of the total amount, USD 65mn is expected to come as food aid, USD 10mn as commodity aid, USD 1.72bn as project aid and USD 350mn as budgetary support credit. Out of the total USD 830.41mn disbursed foreign assistance during July‐December of this fiscal year, USD 748.62mn was given as loan, and only USD 81.79mn was given as a grant. http://www.thefinancialexpress‐bd.info/2009/01/24/56831.html Manpower export suffers blow as KL bans overseas recruitment rd The Financial Express, Friday January 23 , 2009 Bangladesh's manpower export is expected to decline significantly as Malaysia’s government declared that it will not hire new foreign workers in the manufacturing and services sectors amid
AT CAPITAL RESEARCH
fears that its economic crisis will lead to more job losses for locals. Malaysian Home minister Syed Hamid Albar told the country's leading English daily, New Straits Times, that there is no reason to bring in foreigners after a government report showed 45,000 people will be laid off at the end of January. The two sectors ‐ manufacturing and services ‐ employ one million foreign workers currently. These employees will be allowed to work until their permits expire, unless they are laid off before then. Malaysia's Deputy premier Najib Razak said the foreign workers will be sent back in batches so as not to jeopardize the country's economy. "Almost all of the 131,000 Bangladeshis that found jobs in Malaysia in 2008 were in the manufacturing and services sector," said a senior official of Bangladesh Bureau of Manpower and Training (BMET). "A hiring freeze in Malaysian may result in drastic drop in manpower exports and remittance. Already thousands of workers have returned home from Singapore," he added. Malaysia was the third biggest employer of Bangladeshi workers last year, followed by Saudi Arabia and the United Arab Emirates (UAE). Manpower exports in December slumped by nearly 50 % to 44,000, the worst monthly figure last year. A record 875,055 Bangladeshi found overseas jobs last year, with the UAE employing 419,355 and Saudi Arabia 132,124 people. During the period, eight million overseas workers sent home a record USD 8.9bn, which accounts for over 12 % of Bangladesh's gross domestic product (GDP). http://www.thefinancialexpress‐bd.info/2009/01/23/56716.html BEPZA expects to attract more investments in EPZs nd The Financial Express, Thursday January 22 , 2009 The Bangladesh Export Processing Zones Authority (BEPZA) is expecting to attract more investments in the country' Export Processing Zones (EPZs) as the government has approved their proposal for setting up two new EPZs. The country will have a total of 10 EPZs after the two new zones in Feni and Meghna are set up. BEPZA officials stated that their decision for expansion was mainly based on the high demand and flow of both local and foreign investment. In fiscal year 2008, total investment was USD 302.19mn, almost a 100% increase from USD 152.37mn in fiscal year 2007. Investments reached USD 74.7mn during the first six months of the current financial year. According to Prasanta Bhusan Barua, a member (Investment Promotion) of the BEPZA, the BEPZA signed agreements worth USD 1.4bn with a number of investors last year. Data showed that the BEPZA's contribution to total national export is increasing steadily. In FY 08, the total export of EPZs was worth USD 2.4bn, which was 17.2% of Bangladesh's total export of USD 14.11bn; In FY 07 the total export of EPZs was USD 2.06bn.
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25 January 2009
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Export earnings stood at USD 1.26bn during the first two quarters of the current fiscal year (July 08 – Dec 08). Currently, a total of 292 enterprises are operating in eight EPZs and, 125 plants in the process of being implemented. Of the 292 industrial plants, 173 are foreign‐owned, 48 are joint ventures and the rest 71 are owned by local investors. Currently 228,932 people are working in the EPZs. Of them 82,416 (36%) are male and the rest are female (64%). BEPZA officials stated that each EPZ will have a central effluent treatment plant. Chittagong Waste Treatment Plants Ltd. has been approved for setting up such a plant in the CEPZ. http://www.thefinancialexpress‐bd.info/2009/01/22/56645.html Series of BB steps to expedite flow of inward remittances The Financial Express, Tuesday January 20th, 2009 The Bangladesh Bank (BB) has taken a series of measures aiming to expedite the flow of remittances into the country. The BB has recently formed a seven member committee, the first of its kind, in order to monitor and supervise the overall inflow of remittances. Furthermore, the BB has given permissions to three private commercial banks (PCBs) recently for setting up exchange houses in Malaysia and United Kingdom. Both Malaysia and UK are important sources of remittances. Earlier, the BB took an initiative to boost remittance inflow from Malaysia. As part of the move, the BB asked ten commercial banks to submit action plans for increasing the flow of inward remittances from the country. Bangladesh received a total of USD 92.44mn in remittances from Malaysia in fiscal year 2008 compared to only USD 11.84mn in fiscal year 2007. Remittance inflow from UK also grew from USD 886.9mn in FY 07 to USD 896.1mn in FY 08. Remittance inflow reached USD 486mn during the first half of this month. In December Bangladesh received USD 765.8mn in remittances from abroad, an increase of USD 4.4mn from November. The country's foreign exchange reserve stood at USD 5.5bn on Monday due to robust growth in remittance inflow, according to the central bank. http://www.thefinancialexpress‐ bd.info/search_index.php?page=detail_news&news_id=56499
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25 January 2009
Sector News
AT CAPITAL RESEARCH
Agriculture ACI will open 200 chain‐shops as it forays into organized retailing The Financial Express, Sunday, January 25, 2009 Leading conglomerate ACI plans to open around 20 value stores across the country in the next four months, making it the first company to do nationwide organized retailing. The company has opened two stores in Dhaka and plans to replicate them across the country. At present the company is working with the price propositions; they want to make the chain stores affordable for the mass people. An official from the company stated, “We have already opened up two stores and will open at least 20 by May. We have a plan to launch 200 stores in prime locations."
http://www.thefinancialexpress‐ bd.com/search_index.php?page=detail_news&news_id=56962
Agro‐based industries to be set up in CHT The Daily Star, Saturday, January 24, 2009 The government will set up agro‐based industries in the Chittagong Hill Tracts (CHT) region. Fruits like lemon, pineapple, orange, jackfruit and guava are largely grown in three hill districts of the region. If agro‐based industries are established then various food products can be produced by processing the fruits. http://www.thedailystar.net/story.php?nid=72650
Give enough loans to Boro farmers The Daily Star, Monday, January 19, 2009 Bangladesh Bank asked eight public sector banks, who distribute 80% of total agricultural loans, to provide adequate loans to farmers during the Boro season. The BB mandate followed the government’s recent decision to cut fertilizer and diesel prices. Bangladesh Bank Deputy Governor directed the banks to give quick and hassle‐free loans to farmers so that they do not face any financial problems in buying agricultural inputs including fertilizers and seeds. He told managing directors of the banks to monitor proper distribution of loans at the field level. He said Bangladesh Bank would monitor their progress. http://www.thedailystar.net/story.php?nid=71973
Recession fears loom over shrimp exports The Daily Star, Monday January 19th, 2009 Shrimp exports are expected to fall significantly this year, as the price and demand for shrimps have fallen in developed countries, the main consumers of local shrimp exports. Buyers in the US and Europe have been urging Bangladeshi exporters to reduce shrimp prices. According to industry insiders, the price of shrimp has dropped by USD 1 per pound, or about BDT 155 per kilogram, in late 2008 compared to the 2007 price.
In fiscal year 2008, the price of 16 to 30 grade shrimps, which accounts for around 65% of the total frozen shrimp export, ranged between USD 5.20 and USD 5.50, but now it has come down to as low as USD 4, marking a 30‐32% decline, According to the BFFEA (Bangladesh Frozen Foods Exporters Association). In Bangladesh frozen food is the second highest export earner after apparels. In FY 2008, the country exported frozen foods worth USD 534mn. The government set a target of USD 574mn for this fiscal year, but exporters revised it up to USD600mn. Shrimp accounts for over 80 % of frozen food products. The European Union, USA and Japan are the three main markets for Bangladesh's frozen shrimp, with the EU and the US accounting for 48 % and 40 %, respectively, of total exports. About 10mn people are directly and indirectly involved with the shrimp business, which is concentrated in the Khulna district. The BFFEA has already requested the government to create an emergency fund for the shrimp exporters to protect them from a liquidity crisis. According to the association, formation of a 40 % interest‐free block account facility for a period of four to five years will help the industry cope with the situation. http://www.thedailystar.net/newDesign/news‐details.php?nid=71944
Aviation Two new airlines will begin operations in Dhaka soon The Daily Star, Wednesday January 21, 2009 Two new airlines ‐ Indian Kingfisher Airlines and the Malaysian carrier AirAsia Berhad ‐ will begin operations in Dhaka within the next three months. Kingfisher Airlines, owned by Indian liquor baron Vijay Mallya, will operate on the Dhaka‐Kolkata route from mid‐February, and will be the sixth airline on the route. Air Asia, one of the most low‐cost carriers in Asia, will start Dhaka‐Kuala Lumpur flights from early March. The airline plans to operate seven flights a week. http://www.thedailystar.net/newDesign/news‐details.php?nid=72259
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25 January 2009
Banking Five foreign banks fail to disburse agriculture loans The Daily Star, Thursday January 22nd, 2009 Despite the central bank's order, five foreign commercial banks, including HSBC, have failed to disburse any agriculture loans during the first two quarters of FY 09. Other banks that have not disbursed any farm credit include Bank Al‐Falah, Habib Bank, State Bank of India and Woori Bank. Nearly BDT 1340mn (USD 19.46mn) in agriculture loans was disbursed by nine foreign banks during the first two quarters of the current fiscal year; these banks include Standard Chartered (USD 14.49mn), Citi Bank NA (USD 2.47mn), Commercial Bank of Ceylon (USD 2.03mn) and National Bank of Pakistan (USD 0.44mn). The central bank last year asked all local private and foreign commercial banks to allocate a reasonable amount of their total loan portfolio for farm credit. The BB is now considering setting a farm credit target for private and foreign commercial banks in order to boost agriculture output. http://www.thedailystar.net/newDesign/news‐details.php?nid=72370
Infrastructure & Energy
10 power plants on government's priority list The Daily Star, Sunday January 25, 2009
As part of its efforts to solve the country's chronic power crisis, the new government has decided to implement 10 power plant projects, which were initiated by previous governments. Eight of the projects will be implemented by the public sector while two will be undertaken by the private sector. The proposed projects to be implemented in the public sector are 300MW Siddhirganj peaking plant, 360MW Haripur plant, 150MW Sirajganj plant, 150MW Khulna plant, 150MW Bhola plant, 150MW Sylhet plant and the 210MW Khulna power plant. The private sector plants are 450MW Bibiyana and 450MW Sirajganj power plants.
AT CAPITAL RESEARCH
Among the projects, loan agreements were signed by the previous governments for Siddhirganj, Sirajganj, Khulna and Bhola power plants. As per the agreements, the World Bank is supposed to finance the Siddhirganj plant while Japanese JBIC will finance the Haripur project. The Asian Development Bank (ADB) will finance the Sirajganj and Khulna power plants, while the Islamic Development Bank (IDB) will finance the Bhola project. http://www.thedailystar.net/story.php?nid=72829
WB to fund gas exploration The Financial Express, Sunday January 25, 2009 The World Bank has agreed to fund exploration of natural gas in Bangladesh for the first time in its history. Finance and energy ministry officials said the fund would be primarily provided to the state‐owned oil and gas exploration company, BAPEX, to discover new reserves in two of its untapped onshore blocks in greater Mymensingh. BAPEX has not undertaken any exploration activities during the last decade, which resulted in an over‐dependence on foreign oil companies and a shortfall of 250 mn cubic feet of gas a day since November last year. The blocks in Mymenshingh have been considered hydrocarbon rich, however, BAPEX needs to conduct an intensive exploration drive to extract gas from them. BAPEX has planned to conduct a 2400 kilometre two‐dimensional (2D) seismic survey, geophysical and geological studies and a delineation of the drillable subsurface structure. http://mail.google.com/mail/?zx=u7n4lumq4oej&shva=1#inbox Revenue generation, investment in infrastructures key challenges The Financial Express, Saturday January 24th, 2009 The Asian Development Bank (ADB) has said the key challenges for the new government over the longer term will be to raise infrastructure investment and government revenue mobilization and accelerate the Annual Development Program (ADP) implementation. Other challenges include improvement of institutional capacities in key line agencies, creation of more jobs and coping with power and gas shortages for encouraging private investment to enhance longer‐term growth prospects, according to the ADB’s recently published report on Bangladesh's 'Political and Economic Update'. http://www.thefinancialexpress‐ bd.com/search_index.php?page=detail_news&news_id=56836 Gas shortage affects private initiative to generate power in EPZs The Financial Express, Saturday January 24th, 2009 The plan for export processing zones in the country to run industrial units with the electricity produced by their own plants has not yet materialized due to a shortage of gas supply. Bangladesh Export Processing Zones Authority (BEPZA) officials said six private power plants with a combined capacity of 240
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21
25 January 2009 megawatt were scheduled to start power generation in 2008. However, only the plant in the Dhaka EPZ started its operation on a trial basis two weeks ago. Power plants in Chittagong and Karnaphuli EPZs were installed by December 2008. However, private power companies, who won the bid for producing power at Comilla, Adamjee and Ishwardi EPZs, are waiting for gas supply. http://www.thefinancialexpress‐ bd.com/search_index.php?page=detail_news&news_id=56833 BB to finance captive power plants through' IPFF project The Financial Express, Friday January 23rd, 2009 The central bank will finance the installation costs of captive power plants along with small power projects (SPP) under its investment promotion and financing facility (IPFF) project. Additional funds will be made available by the central bank shortly through two private commercial banks (PCBs) for setting up two more SPPs in Feni and Chittagong to add at least 33 Megawatt (MW) of electricity to the national grid. Dhaka Bank Limited will finance the Doreen Powerhouse and Technology Limited to set up an 11MW SPP at Feni while Eastern Bank Limited has agreed to provide loans to Regent Power Limited for setting up a 22MW power plant in Chittagong. The WB earlier provided USD 50mn for the IPFF Project for long‐ term financing of infrastructure projects under the Public‐Private Partnership (PPP) framework while the government offered USD 10mn as co‐financer of the project. http://www.thefinancialexpress‐ bd.com/search_index.php?page=detail_news&news_id=56712
Tullow appoints BAPEX to explore gas at Bangura The Financial Express, Thursday January 22, 2009
State‐owned petroleum exploration and production company BAPEX has entered into a deal with a foreign oil company to produce gas in the Bangura field in the Comilla district. Irish company Tullow has recently appointed BAPEX to start gas production from its non‐operative well‐3 at the Bangura field. Tullow plans to produce an additional 25 to 30mn cubic feet of gas per day (mmcfd) from the Bangura field. The gas field, located in Block‐ 9, has been producing about 100mmcfd of gas from well‐1, 2 and 5. Well‐3 was developed in October 2008. Tullow owns 30% of the total gas in Block‐9, while Canadian Niko Resources and BAPEX own 60% and 10%, respectively. http://www.thefinancialexpress‐ bd.com/search_index.php?page=detail_news&news_id=56700
AT CAPITAL RESEARCH
Power secretary, Nasiruddin Ahmed said, “The caretaker government took steps to generate around 1100MW of additional electricity. As per that plan, around 322MW electricity was added by December 2008. We are expecting around 730MW of additional electricity by June this year’. He further stated that an additional 157.5MW electricity is expected to be generated in January, 131MW in February, 287MW in March, 105MW in May and 50MW electricity in June from a number of short and long‐ term power plants, small IPPs and one public sector power plant. http://www.newagebd.com/2009/jan/20/nat.html#1
Leather Goods Leather exports slow in financial rout The Daily Star, Sunday January 25, 2009 Exports of finished leather and leather goods declined by around 18% during the July‐November period of the current fiscal year. According to the former chairman of the Bangladesh Finished Leather, Leather Goods and Footwear Exporters Association, Mr. Sultan, the consumption of leather and its prices in the international market went down by 30% last year, following a decline in international production by 6%. Industry insiders expect leather exports to drop by 25% in FY 09, which will directly affect 195 tanneries in the country. There are four types of leather ‐‐ rawhide, wet blue, crushed and finished leather. Bangladesh mainly exports crushed and finished leathers, demand for which dropped in the international market due to the global economic crisis. Leather is one of the most important export items of the country. Some of the most common leather items are shoes, bags and purses. Currently, the leather industry is worth around USD 508mn a year, with exports accounting for USD 284mn in FY 08.Of the total leather exports from Bangladesh, 80% is crushed leather and the remaining is finished. The main exporting countries are Italy, Japan, Korea and China, Sultan said. According to Mr. Sultan, the government should take necessary measures to develop and protect the leather industry. “Essential chemicals, such as sodium chloride and sulfuric acid that are needed for conversion of animal hides to leather, have to be imported and are very expensive,” he said. Sultan suggested that the government should reduce import duties and VAT on these chemicals. http://www.thedailystar.net/newDesign/news‐details.php?nid=72831
Pharmaceutical
Government to initiate power plant projects in pipeline New Age, Tuesday January 20, 2009 The Awami League‐led alliance government has taken an initiative to develop the costly rental power plants and small independent power plants, which were approved by the interim government.
Local co starts manufacturing raw materials for pharmaceuticals The Daily Star, Thursday, January 22, 2009 Active Fine Chemicals (AFC), a private company, started manufacturing raw materials and chemical reagents for the pharmaceutical industry, with an aim to reduce import dependency.
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25 January 2009 Although Bangladesh’s pharma industry has successfully secured a place in the global market in a short span of time, all of its necessary raw materials still need to be imported from abroad. A few local pharmaceutical companies that do produce raw materials can produce only 5% of the total requirement, and most of these products are used by themselves; the rest is imported from abroad. AFC hopes to supply a major portion of the required raw materials, which will save both time and costs. The company is expected to supply raw materials worth BDT 2bn (USD 29.2mn) to the local market this year. AFC's factory has already been set up in Munshiganj at the cost of about BDT 500mn (USD 7.3mn). According to the senior vice president of the company, AFC has already started producing a number of raw materials, including reagents used in different laboratories. It will be possible soon to produce raw materials used in cancer and diabetes preventive medicines, he said. He also stated that a team of chemical engineers comprising of members from the US and India are now working with the company. http://www.thefinancialexpress‐bd.info/2009/01/22/56642.html
Shipbuilding Shipbuilders dispel recession fears The Daily Star, Thursday January 22, 2009 Local shipyards have been receiving enquiries from foreign buyers about small vessels, despite a downturn in the global shipbuilding industry caused by the global recession. However, according to local shipbuilders, buyers are offering lower prices as steel prices have declined. Bangladesh, which has recently entered the global shipbuilding market, is yet to face any cancellation in orders or delays in payments. So far, local shipyards‐‐ mainly Ananada Shipyard and Western Marine Shipyard ‐ have received over USD 600 worth of orders for making more than 40 vessels, with a capacity below 15,000 dead weight tonnes (DWT). Most of the orders for these ships come from European countries like Germany and Denmark. According to industry insiders, there are about 300 small and large dockyards, generating about 100,000 jobs, but only a few companies have been able to attract foreign buyers. http://www.thedailystar.net/newDesign/news‐details.php?nid=72371
Telecoms Operators ask government to lift SIM card tax www.bdnews24.com, Wednesday January 21, 2009 Mobile‐phone operators asked the government to remove the BDT 800 (USD 11.8) SIM card tax. During a meeting held on Wednesday, the members of the Association of Mobile Telephone Operators Bangladesh asked the telecoms minister Raziuddin Ahmed Razu to look further into the Telecom Ordinance 2008. According to AMTOB president and AKTEL director Fazlur Rahman,
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the SIM card tax has increased customers' expenses and impeded growth in the sector. Officials present at the meeting represented grameenphone, AKTEL, CityCell, Teletalk, WARID and Banglalink, and also the ministry. http://bdnews24.com/details.php?id=74333&cid=4
ATC Comment: The 6 mobile operators paid around USD 121mn in sim taxes last year. This is impeding growth in the industry in terms of mobile operators’ profitability and acquisition of new mobile subscribers. Of the 6 mobile operators, only Grameenphone is profitable, as the operators largely have to subsidies sim prices in order to attract new customers. On the other hand, lowering mobile sim taxes to Pakistan’s level (around BDT 500) would allow mobile operators to sell sims at prices that are affordable for the rural population, as that is where mobile subscriber growth is expected to be in the future. State‐owned BSCCL keen to run new cable link The New Nation, Thursday January 22, 2009 State‐owned BSCCL (Bangladesh Submarine Cable Company Ltd) is interested in setting up an alternative submarine cable link in the country. Bangladesh is now linked to SEA‐ME‐WE‐4 submarine cable, the link managed and maintained by BSCCL. Of the 24.12 gigabyte capacity, 7.5 GB is being used, statistics show. http://nation.ittefaq.com/issues/2009/01/22/news0295.htm
TeleTalk network to be expanded The New Nation, Monday January 19, 2009 Post and Telecommunications Minister Rajiuddin Ahmed Raju Sunday said state‐owned TeleTalk mobile’s network and broadband would be extended to upazila and village levels as soon as possible. A task force probe recently found serious irregularities in the implementation of TeleTalk projects that caused losses of over BDT 2000mn (USD 29.4mn). The implementation period of the project was from 2002 to 2004, but it ended in July 2008. Although the original estimated cost of the project was BDT 5940mn (USD 86.22mn), total costs ended up being BDT 8010mn (USD 117.8mn) due to alleged corruption. TeleTalk, which entered the market in 2005, has the lowest number of subscribers among the 6 mobile operators, with only 0.98mn subscribers. The operator has established its network in 64 districts, 355 Upazilas, and along most of the highways. http://nation.ittefaq.com/issues/2009/01/19/news0029.htm
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25 January 2009
Textiles NGWF for re‐fixing garment workers' minimum wages The Financial Express, Sunday, January 25, 2009 The National Garments Workers Federation (NGWF) has demanded a re‐adjustment of the minimum wage for garments workers. According to the NGWF members, the minimum wage for apparel workers was fixed at BDT 1,662 (USD 24.26) in 2006, and has not been revised since then. The NGWF also stated that the Bangladesh Labor Law 2006 should be amended to protect the interest of the workers. The NGWF urged the government to give workers of the country's export processing zones trade union rights as per the convention of the International Labor Organization. http://www.thefinancialexpress‐ bd.com/search_index.php?page=detail_news&news_id=56979
Japanese firm seeks to buy USD 600mn RMG The Daily Star, Friday, January 23, 2009 One of the largest Japanese retail chains, Uniqlo, has decided to purchase readymade garments (RMG) worth more than USD 600mn from Bangladesh in 2009. Currently, Uniqlo purchases RMG products worth USD 3bn from different countries a year ‐ Bangladeshi products will make up 20% of the company’s total purchases of USD 3bn in 2009. Uniqlo currently has stores in 30 countries, and has a network of over 750 stores in Japan. Bangladesh exported woven items worth USD 20.801mn and knitwear items worth USD 7.234mn to Japan in FY 08, according to the Export Promotion Bureau. http://www.thedailystar.net/story.php?nid=72522
Garment exports to new destinations on the rise The Daily Star, Wednesday, January 21, 2009 The volume of garment exports to new destinations is increasing, as manufacturers aim for market diversification. Exporters have been exporting garment products to Brazil and Mexico, the two new export destinations since mid‐2008. The chairman of Dekko Group stated that they have already shipped trousers, shirts and some other woven garments, worth USD 500,000, to Mexico. More shipments to that country are in the pipeline. The group has recently started exporting to Brazil. They are also looking at exporting to some other new destinations such as Japan, Russia and South Africa. According to EPB statistics, Bangladesh exported woven garments worth USD 5.350mn and knitwear items worth USD 7.374mn to Russia in FY 08. During the same period, the country exported woven products worth USD 32.873mn and knitwear products worth USD 27.662mn to Mexico. In Brazil, another emerging export destination for Bangladesh, woven items worth USD 3.090mn and knitwear items worth USD 13.281mn were exported in FY 08. During the same fiscal year, the country exported woven products worth USD 16.977mn and knitwear products worth USD 12.211mn to South Africa.
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http://www.thedailystar.net/newDesign/news‐ details.php?nid=72258 German co. invests USD 200m to set up mega textile factory in Bangladesh The Financial Express, Thursday, January 22, 2009 A top German company is setting up one of the world's largest textile factories in Gazipur. Steffen Mohler, marketing and sales director of Multiline Limited, said his company is investing USD 200mn in a state‐of‐the‐art knit composite manufacturing facility. The company already bought 80 bighas of land in Gazipur and is purchasing another 220 bighas in the same area. It will have 14 factory halls employing more than 10,000 workers, once it goes into production in early 2010. The factory will have all the forward and backward linkages ‐ spinning, weaving, dying and washing and sewing in one compound ‐ along with a three‐star hotel to house German technicians. This will be the biggest German investment in Bangladesh and by far the largest the country's textile sector has attracted from a foreign investor. Previous investments in the sector have not exceeded USD 25mn. http://www.thefinancialexpress‐bd.info/2009/01/22/56689.html
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25 January 2009
AT Capital Team – Dhaka Ifty Islam Managing Partner Syeed Khan Partner Akther Ahmed Senior Advisor Senior Advisor Masud Khan Jisha Sarwar Senior Research Associate Mohammad Emran Hasan Senior Associate Research Associate S Adeeb Shams Ahmad Sajid Research Associate Abdullah‐Al‐Farooq Research Analyst M. Emrul Hasan Research Analyst IT Analyst Md. Zahidur Rahman Ohidul Alam Chowdhury Analyst Sohana Alam Seraj Office Manager
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AT Capital Team – North America/Asia Zarif Munir Professor Jahangir Sultan, Ph.D. M. Nasim Ali Iqbal Hussain Robert Kraybill
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© Copyright 2008. Asian Tiger Capital Partners Limited, Level 16, UTC Tower, Panthapath, Dhaka – 1215, Dhaka, Bangladesh. All rights reserved. When quoting please cite “AT Capital Research”. The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Asian Tigers Capital Partners or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Asian Tigers Capital Partners Limited. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.
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