COVID-19 and Business Confidence in Bangladesh: Findings from the 7th Round of Nationwide Firm-level Survey in January 2022
Citation: Raihan, S., Uddin, M., Ahmed, M. T., Chowdhury, O. R., & Uddin, M. N. (2022). COVID-19 and Business Confidence in Bangladesh: Findings from the 7th Round of Nationwide Firm-level Survey Conducted in January 2022. SANEM Publications, Dhaka, Bangladesh.
Abstract: The seventh round of the Business Confidence Index (BCI) survey commenced in January 2022—at a time when the country had entered a new phase of the COVID-19 pandemic. As the new Omicron variant of the coronavirus threatened a higher level of transmission of infection and consequently a much greater health crisis in comparison with the earlier phases of the pandemic, both businesses and households had to adopt a cautious approach. The situation was further complicated by heightened inflationary pressure, fuel price hikes and declining remittance flow. However, the rapid progress in the vaccination programme hinted at the opportunity for conditional development of the overall economy. While the possibility of more stringent health policies in response to the Omicron variant loomed largely, there were also valid reasons to expect a gradual development owing to the successful take-off of the vaccination program.
Against this backdrop, this study surveyed 502 firms across the country (252 manufacturing and 250 services sector firms). Based on Bangladesh’s most recent available National Accounts Statistics, seven sub-sectors in the manufacturing industry and eight sub-sectors in the services industry were identified. In the manufacturing sector, the study covers RMG, textile, pharmaceutical & chemical, leather & tannery, light engineering, food processing and other sectors. Wholesale, retail, restaurant, transport, ICT and telecommunication, financial sectors, real estate, and other services are covered from the services sector. The number of firms to be surveyed for each sub-sector was determined based on the contribution of the sub-sectors to the Gross Domestic Product (GDP).
Based on the survey responses, this study constructs four indices, namely – (i) Present Business Status Index (PBSI) in October-December 2021 compared to July-September 2021, (ii) Present Business Status Index (PBSI) in October-December 2021 compared to October-December 2020, and (iii) Business Confidence Index (BCI) for January-March 2021 compared to October-December 2021, & (iv) Enabling Business-environment Index (EBI) in October-December 2021. The indices are first prepared at the firm level and later aggregated to the sub-sectoral and sectoral levels incorporating appropriate weights.
Besides such indices measures, this study includes a section on the economic recovery that includes the opinions of the business insiders regarding the economic recovery that Bangladesh might have and the recovery the businesses observed. There is a section on government support and stimulus packages that detailed business thoughts on the availability of the stimulus packages and the overall requirement of government supports. Moreover, the study covers the issues regarding loan financing by firms.
Over the quarters, there has been a gradual recovery in business activities. PBSI (year) approached the mark of 60 in the October-December 2021 quarter from 56.79 in the earlier quarter, indicating a continuation of improvement. The improvement is also visible in all sub-indicators. However, a considerable improvement has been observed in the profitability and sales or export order sub-indicators. Similar to PBSI (year), PBSI (quarter) showed an improvement in business activities in October-December 2021 quarter compared to July-September 2021 quarter.
Overall business confidence in January-March 2022 faced a decline in comparison to the October-December 2021 quarter. The decline is visible across all sub-components of BCI. Most of the sectors expressed lesser confidence for the following quarter, reflecting their growing concern about the advent of Omicron.
A gap between firms’ expectations and reality was observed. Firms were unable to meet the expectations in the October-December 2021 quarter. Firms, in the following quarter, however, were attempting to revise their expectations based on the contemporaneous reality.
The trend of COVID-19 confirmed new cases, positivity rate, death cases and stringency measures have an effect on both business status and business confidence. However, over time and through experience, businesses developed their own perceptions of the severity of COVID-19 waves which impact their future outlook.
The macroeconomic trends that the study investigated are clearly reflected in the micro images. Wage Rate Index, inflation rate, FDI, export, import, and domestic private sector credit growth, for example, were more or less consistent with the businesses’ status and confidence over the quarters.
17% of respondents in the seventh round of the survey (January 2022) observed that Bangladesh was on a path of strong recovery, while it was 21% in the earlier round. Similarly, their views on moderate recovery had fallen to 44% in this round from 52% in the previous round. Despite fuel price hikes and the threat of the new wave of COVID-19, the business recovery rate increased to 60.6% in December 2021 which is higher than that of September 2021 (56.8%) and even higher than the earlier record of 57.4% registered in March 2021.
Only 23% of the surveyed firms received any of the stimulus packages announced by the Government of Bangladesh (GoB). Around 40% of the firms availing of the stimulus package found it to be insufficient.
Among the surveyed firms, 65% said that further government support was required. The required support includes providing low-interest working capital loans, introducing pre-shipment refinance facilities for exporters and social safety net programs for helpless workers.
After a dip in the July-September 2021 quarter, the overall EBI improved and was at that time the highest in the seven rounds of the survey. Despite the overall improvement in EBI, there has been some decline in the tax system, corruption, skilled workforce, transport quality, trade logistics and COVID management sub-indicators. EBI has fallen across the leather, wholesale and real estate sectors.
The third or Omicron wave of COVID-19 significantly impacted the sales or export orders, associated costs related to additional health measures, custom procedural delay and input costs. 71% of firms reported that they observed a decrease in export orders/sales due to Omicron followed by 79% of firms reporting an increase in associated costs related to additional health measures and 82% of firms reporting an increase in input costs. Omicron also increased the risk of a decrease in sales or export orders as reported by 89% of firms, the risk of associated cost increase related to additional health measures as reported by 90% of firms and the risk of an increase in input cost, as reported by 91% of firms.
The impact of the fuel price hike was also significant. 97% of firms reported that they experienced an increase in transportation cost due to fuel price hikes followed by 79% of firms that reported an increase in energy cost. The fuel price hike also increased the risk of an increase in transportation cost as reported by 94% of firms and the risk of an increase in energy cost, as reported by 81% of firms.
29.3% of the surveyed firms availed of any loan in the last three months (October-December 2021). The majority of the medium and large firms took loans from formal sources (e.g banks and non-bank financial institutions). However, micro and small firms took loans from both formal and informal channels. Informal sources of loans were from friends and family, cooperative society, NGOs and Mohajon. Completed paperwork, collateral problems, lengthy procedures, bank-client relationships etc. remain major problems for the firms to avail of any loan from the banks.
