Burgeoning Prospect for the Light Engineering in Bangladesh

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The Light Engineering (LE) sector makes a remarkable contribution to the economy of Bangladesh. The sector has innumerable prospects in poverty alleviation through employment generation; increasing contribution to GDP; growth of the local industries, reduction in import of LE products, and increasing export opportunity. Industry insiders claim that the sector is contributing 3 per cent to the GDP. According to the Ministry of Industries, the sector shares the domestic market worth USD12 billion. The existence of abundant low-cost labour and high domestic and external demand are the dominant reasons behind the burgeoning prospects of the LE sector in Bangladesh.

The LE enterprises are small firms that produce machinery, equipment, tools, metallic household appliances, sanitaryware, electrical, electronic, electro-mechanical, and mechatronic products mainly by metals through engineering and technological processes. The major products are spare parts for paper and cement mills, bicycles, light fittings, construction equipment, batteries, electrical wires and cables, iron chains, cast iron articles, carbon rods, automobile spares, electrical and electronics items, and stainless-steel wares. Around 50,000 LE industries are operating in the country. According to the Bangladesh Engineering Industry Owners Association (BEIOA), the LE sector manufactures 10,000 types of products.

According to the industry insiders, the sector created 3,00,000 direct and 30,00,000 indirect job opportunities in different backward and forward linkage industries. A Dhaka Chamber of Commerce and Industry source predicted export earnings from the sector would be around USD 15 billion by 2041. The source estimated that the world market size is about USD 8 trillion, which has created a burgeoning prospect for Bangladesh to export LE products. Light Engineering Road Map prepared by the SME Development Working Committee of the Business Initiative Leading Development for the Ministry of Commerce, projected the export volume for the sector in 2030 to the tune of USD12.56 billion(BSS, 16 January 2023).

Despite having a brighter prospect, the LE sector faces many challenges in the evolving market and trade globalisation. The sector is mostly based on traditional and indigenous technologies. Apart from competition in the global market, the changes in customer needs and preferences drive LE entrepreneurs to innovate or upgrade products. In the evolving industrial context, the production techniques and processes are trailing the sector uncompetitive except in areas where precision and sophistication are less important. Lack of quality raw materials, shortage of skilled manpower, market information gap, lack of access to finance, and inadequate communication infrastructure are other crucial challenges. The Bangladesh Institute of Development Studies report identified a 33.6 per cent skill gap in the sector.

According to the Bangladesh Investment Development Authority, the sector meets 50 per cent of the overall demand of the country. In the 2021-22 fiscal year, the sector saw a significant year-on-year export growth of 50.4 per cent to USD 795.63 million from USD 529 million in the 2019-2020 fiscal (BBS and EPB). However, the export volume for fiscal 2022-23 dropped to USD 585.85 million. The export target of engineering products for 2023-24 has been fixed at USD 630 million (EPB). The main export markets for light engineering products are Thailand, Japan, the Netherlands, India, South Korea, the United Kingdom, Taiwan, and Pakistan.

However, with the recent government initiatives, the prospect for the sector is getting brighter. In the budget for the 2022-23 fiscal, the government provided a 10-year tax holiday for LE producers. Besides, there was a VAT exemption for the production and commercial distribution of power tiller and the supply of locally collected scrap in the foundry industry. The LE is considered a thrust sector and was given the highest priority in the Export Policy 2021-24.

The government has formulated the Light Engineering Industry Development Policy 2022, which aspires to ensure infrastructural development, easy financing, and industrial incentives for the sector during its implementation between 2022 and 2027. Low-interest loans will be provided from a special fund for the purchase of new technologies as well as the development of existing ones. The policy sets eleven strategic objectives: infrastructural development, modernisation and development of technology, development of forward and backward linkages, human resource development, market development, and expansion, research and development, establishment of industry clusters, development of common facility, quality assurance and certification, access to finance, development of investment climate.

The policy outlines a time-bound action plan for addressing the challenges inhibiting its growth. It is expected that the Finance Division and Bangladesh Bank will take the initiative to establish a venture capital fund to ease the production process of LE products by 2025. A thirty-five-member high-powered Industrial Development Council chaired by the industries minister will review and monitor the implementation of the policy. The policy also intends to help the sector thrive to attain the goal of increasing the industrial sector’s contribution to 40 percent of GDP by 2027.

A dedicated industrial park and industrial cluster, an e-commerce platform for LE entrepreneurs, re-skilling and up-skilling to form a technologically skilled workforce, enforcement of AI, rationalisation of raw material import duty, strategy to attract domestic and foreign investment will further boost the sector both in the domestic and foreign market.

The LE would be more value-adding and can earn substantial foreign currency if provided with adequate financial, technical, infrastructural, and marketing support. With the appropriate policy support, the sector can stride as the backward linkage for many mainstream local industries such as garments, leather and footwear, electronics, food, agro-processing, and pharmaceuticals. The LE sector must harness appropriate technology and infuse more investment to enhance domestic and global competitiveness as well as increase the quantity of production.

Source: The Financial Express