Monthly Business Review - December 2014.pdf

COVER STORYRice Milling in Bangladesh: Staging Spectacular Rise

Rice production in Bangladesh is a crucial part of the national economy. Rice is the staple for the 160 million Bangladeshis who obtain more than 70% of their total calorie from rice. The per capita rice consumption in Bangladesh is higher than that in any other country where rice is the staple. Bangladesh is the worlds sixth largest rice-producer and one of the highest per capital consumer of rice (about 170 kg annually). Rice is deeply rooted in Bangladeshi culture and way of life.

RESEaRCh in fOCuSDhaka apparel Summit 2014: analysis of the prospects & impediments of the 2021 goals

The overall impact of the readymade garment exports is certainly one of the significant in social and economic developments in contemporary Bangladesh. With over one and a half million women workers employed in semi-skilled and skilled jobs producing clothing for exports, the development of the apparel export industry has had far-reaching implications for the society and economy of Bangladesh.

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Volume 10 l Issue 12 l December 2014

ECONOMY

Bangladesh has average level of monetary inequality 20

WB approves over USD 1 billion for three projects 20

TRADE BD, Sri Lanka proceed to free trade agreement 22 RMG to grow export earnings by 5% despite all

odds in 2014 22

REGULATORYNEWS BB to allow non-residents to make outward

remittance from NRTAs 25 NBR eases taxation for cooking oil traders 25

MARKETROUNDUP Major Currency Roundup 26 Commodity Market Roundup 27

INTERNATIONAL Philips expands to medical devices with

USD 1.2 billion Volcano deal 28 China oddments quotas on rare earths after

WTO complaint 28

MONTHINREARVIEW Business-firm specific 30

CAPITALMARKETREVIEW Market Commentary 32

2IDLC MONTHLY BUSINESS REVIEW

Rice is the most important food crop of the developing world. It is the staple food of about half the worlds population. Roughly, 1.60 billion of the worlds poor depend on rice as producers or as consumers. On average, rice accounts for nearly half of the food expenses of poor people and a fifth of their total household expenses. It is well established that the rapid productive growth of rice resulting from the use of improved varieties, fertilizers, and irrigation (popularly known as the Green Revolution) increased production and led to a long-term decline in rice prices. This has been the major factor helping to reduce poverty in Asia over the past several decades.

A rapidly growing world population and the onset of global warming via climate change have caused pessimistic expectations regarding food, water and energy availability. Global food productivity gains have fallen from 2.0% between 1970 and 2000 to 1.1% in 2012 today and all indications point to a continued downward trend. Startlingly, a previous National Intelligence Councils (NIC) report shows that the world has consumed more food than it has produced in seven of the last eight years. The NIC is an organization that produces National Intelligence Estimates, which are intelligence community-wide forecasts of issues and challenges facing the security of the United States. In contrast, in the next 15 to 20 years, the NIC document sees demand for food rising by more than 35%. As a result, the long-term trend of decreasing food prices would decline with staple food consumption expenditure for middle and low-income economy households rising significantly. National Intelligence Council (NIC) has strongly stressed food inflation, as a source of social disharmony.

Rice Processing in Bangladesh

Bangladesh is the worlds sixth largest rice-producer and one of the highest per capita consumer of rice (about 170 kg annually). Rice is deeply rooted in Bangladeshi culture and way of life. It is the staple food of about 160 million people in Bangladesh. In 2011-2012, total consumption of rice was about 34.5 million tons against national production of 34 million tons. Rice production currently accounts for 77% of agriculture land use maintained by some 13 million-farm families. Such magnitude of concentration and involvement for a single crop is quite rare in the world. This massive industry has been experiencing a technological transformation in recent years.

Long gone are the days of dheki (a wooden device for husking paddy to make rice) and chatals (traditional sun-drying husking mills) are following suit. Automatic Rice-processing Mills (ARMs) have already become the prominent players in the rice processing industry of Bangladesh. New ARMs are emerging at an increasing rate than ever, leaving small and medium husking mills (chatals) in a tight corner. As rice is the staple cereal in Bangladesh and with the increase of both the population size and life expectancy at birth (69 years now), it has given the rice processing industry a stable outlook.

Rice Milling in BangladeshStaging Spectacular Rise

- Md. Kamrul Islam


farmers. Previously, the commission agents mostly got payment in advance (commonly known as dadon) to procure and ensure smooth supply of paddy. More recently, the millers have also been able to procure paddy in credit from such aratdaars. Millers process the paddy in the following usual steps:

After processing, the millers sell rice to wholesalers. The final consumers get the supply mostly from grocery shops, which purchase the rice from aratdaars/wholesalers.

Moving towards automation:

Due to rise in income levels, people now prefer processed rice, which is less costly, looks glossy, takes less time to cook, is free from stones & dead rice, and has longer shelf life. To match with the demand of the people, the rice-processing sector in Bangladesh is undergoing a change. New automatic rice mills are being set up at a growing rate. Over the last decade, several hundred automatic and semi-automatic rice mills commenced, in various rice producing zones. Naogaon, Chapainawabganj, Dinajpur, Kushtia and Noapara of Jessore are some districts that have attracted investment to set up big automatic rice mills. The demand for automated rice mills becoming larger because it ensures better quality. Presently, there are approximately 16,400 chatals, 420 semi-automatic rice mills and less than 400 fully automatic rice mills operating in Bangladesh. In 2005, there were only 200 semi-automatic and automatic rice mills. Automated rice mills and semi-automated rice mills can process five times more rice than traditional rice processing mill at a certain time that acts as a motivation for the investment in the automated rice mills.

Source: USDA

Through rice processing industry, more than 16% of our labor force earns their living by producing rice directly and 9% of our labor force earns their livelihood by rice indirectly. Rice processing industry of Bangladesh depends on the seasons very much because some areas produce rice in certain specific seasons and some areas produce rice throughout the year. The rice processing industry of Bangladesh depends mainly on the seasons.

Source: Bangladesh Bureau of Statistics

Rice processing industry provides 65% of the poultry feeds of Bangladesh. Bangladesh currently is sixth in the production of rice around the whole world. The poultry firms depend on the rice processing industry very much because the foods of the poultry firms come mostly from the byproducts of rice.

Around 22% of the worlds agricultural workforce depends on the production of rice. Rice processing industry contributes an average of more than 10% of the economy of the rice depending countries of the world.

Rice processing industry in Bangladesh and around the world has two divisions. They are:

Traditional rice processing

Automated rice processing

In Bangladesh, most of the rice processing depends on the traditional rice processing system. More than 60% of the processed rice in Bangladesh comes from traditional rice processing system. Traditional rice processing system contributes more in Bangladesh because most of the rice producers in Bangladesh still use traditional agricultural systems.

The value chain- Production process

Rice millers are the key players in this industry. They purchase paddy in large quantities from aratdaars (rice commission agents), who in turn procure paddy from various small roaming traders or from large


The cost of setting up husking mills, semi-automated and automated rice mills:

Manual

husking Mill Semi auto

Capacity 22 ton/day 90 ton/day

Boiler N/A N/A

Dryer N/A N/A

Parboiling N/A N/A

Milling 150,000 1,000,000 - 1,200,000

Color Sorter N/A N/ALand (550 maund per yard / 50 decimal for automatic plant)

3,000,000 5,000,000

Power Station 50,000 500,000 -700,000Total approximate cost for 5 Ton /per hour

3,200,000 5,650,000-5,800,000

Source: Bangladesh Rice Research Institute

The establishment costs of automated rice processing mills:

automatic

Satake (Japanese) Buhler (European) Other Chinese BrandCapacity 100 ton/day 100 ton/day 100 ton/dayBoiler USD 62,000 65,000 USD 105,000 USD 62,000 65,000Dryer USD 175,000

USD 620,000 USD 55000 65,000

Parboiling USD 200,000 250,000 USD 100,000 120,000Milling USD 450,000 500,000 USD 710,000 USD 200000 250000Color Sorter USD 150,000 110,000 pound USD 65000 75000

Land (550 maund per yard/ 50 decimal for automatic plant)

BDT 5,000,000 BDT 5,000,000 BDT 5,000,000

Power Station BDT 2,200,000 BDT 2,850,000 BDT 2,200,000

Total approximate cost for 5 Ton /per hour

BDT 9,016,000 - 98,400,000

BDT 135,300,000 - 150,000,000

BDT 45,760,000 - 53,200,000


From the tables we can see that Chinese Brands requires low cost than any other products. Because of that reason most of the investors of automated rice processing mills prefers Chinese brands than Indian and any other brands. Although the investment is very high, the output from the automated rice processing is also high. Automatic mill provides more amount of processed rice than traditional mills.

Type of MillCapacity of production

Power requirement

hulling/polishing

Bran separation

and Grading

husking.6 to 1 ton per hour

30-40 HPRequires 2 to 3 operations

Manually

automaticAt least 2 ton per hour

65-100 HPSeparately from different devices

All activities are done mechanically


From the table excogitate that automatic rice-processing mills can provide more than double processed rice then traditional mills. Because of all that reasons the rice processing industry in going towards automation. Automated rice processing is not only fulfilling

the domestic demands but also fulfilling the demands of foreign markets. In last three years, the contribution of automated rice mills in exporting is going high.

Source: Bangladesh Bureau of Statistics

Export of rice considering both automated and traditional mills

According to the Export Promotion Bureau of Bangladesh, the percentage of exporting of processed rice by the automated mills is growing. Above statistics, we can shows that percentage of rice export by the automated rice mills is growing on a high rate. Therefore investment is increasing in automated rice processing mills because of more rice processing mills are setting up.

Traditional Mills versus Modern automatic Rice Mills:

Traditional rice mills can produce 0.6 to 1 ton of rice per hour. Whereas automated rice mills can produce more than 2 tons of rice per hour. Traditional rice processing mill requires 30-40 horsepower where automated rice mills take 65-100 horsepower. Traditional rice mills need 2 to 3 operations for the cutting and drying of the processed rice. Whereas automated rice processing mills does cutting and drying in only one process. In traditional rice mills, grading and brand separation are manual. In automated rice mills, grading and brand separation are ready automatically. Traditional rice mills are not able to cut the rice into different sizes but automated rice mills can cut the rice into different sizes, for example- Miniket, Nazirshail, etc. The processed rice from automated rice mills requires 12-15 minutes to cook whereas rice processed in traditional mills required 20-25 minutes to cook. The rice processed in automated rice mills is cleanest & finest than rice processed in traditional rice mills. Automated processing involves less stones than traditional processing. Traditional mills cannot produce more than 3 tons of rice whereas automated rice mills can produce more than 5 tons on an average. The by-products of automated rice mills comes after a number of processing because of that bran oil can be produced and the by-product is also good poultry feed. The by-product of traditional rice mills can only be used for poultry feed.


Process flow of Modern automatic Rice Mills:

The modern automated rice milling facility comes in various configurations, and the milling components vary in design and performance.

The total process flow of modern automated rice milling facility consists of following stages.

Stage function

Pre-cleaning Removing all impurities and unfilled grains from the paddy

De-stoning Separating small stones from the brown rice

Husking Removing the husk from the paddy

Husk aspiration Separating the husk from the brown rice/unhusked paddy

Paddy separation Separating the unhusked paddy from the brown rice

Whitening Removing all or part of the bran layer and germ from the brown rice

Grading Separating small and large broken pieces from the unbroken rice

PolishingImproving the appearance of milled rice by removing remaining ran particles and by polishing the exterior of the milled kernel

SortingRemoving foreign materials such as colored, broken, immature and infected grains from milled rice

Weighing and bagging

Preparing milled rice for transport to the customer

Source: Bangladesh Rice Knowledge Bank

Configuration refers to how the components are sequenced. The flow

diagram below shows a modern commercial mill catering to the higher

end market. It has three basic stages, the husking stage, the whitening-

polishing stage, and the grading, blending, and packaging stage.

Problems faced by automated rice millers:

The main problem faced by automated rice millers is the problem of continuous supply of electricity. A research of Bangladesh Agricultural Bureau found that, if the automated rice processing mills get uninterrupted supply of electricity then the percentage of production would go up by more than 35% of current production. Another problem faced by the automated rice millers is the proper amount of price of per K.G. of processed rice from both government and commissioning agent. In 2010, government purchased per K.G. rice from automated rice mills at a rate of 29.50 taka per kilogram whereas at that time the purchase price of per kilo paddy was 27.50 taka from the farmers. Government procurement rate of rice became BDT 31 & BDT 32 for 2013 & 2014 respectively. BDT 18 & BDT 20 rate for per kg paddy for the same period.

Therefore, the rate that government purchased from the automated


rice millers was at break-even point and for some automated rice millers they had to sell at loss. A very crucial problem faced by the automated rice millers is from the commissioning agents from whom the millers buy the paddy. As the rice millers have to depend on the commissioning agents for the uninterrupted supply of paddy because of that reason, the commissioning agents charge a high rate for the paddy that eventually affects the rice market.

Statistical overview of Major food grains import

Source: Bangladesh Bank

From the graph, it is evident that the import of rice as well as wheat has been decreasing in recent years showing positive signs though the overall import has been following upward trend.

items2013-

14R July-Oct

2014-15R

July-Sep

2014-15P

July-Oct

% Changes 4 over 2

B. Agricultural products

189.31 186.82 230.48 21.75

1. Vegetables 50.58 32.43 39.94 -21.04

2. Tobacco 26.36 23.63 34.30 30.12

3. Cut flower 16.96 3.71 4.24 -75

4. Fruits 7.69 26.45 26.49 244.47


In case of commodity-wise export, there is no update of exporting rice and wheat. Very recently, Bangladesh has approved of exporting 50,000 metric ton of rice to Sri-Lanka and Philippines have showed its interest to import rice from Bangladesh.

new Prospects including by products processing:

Bran Oil:

The byproduct of rice is Bran Oil.

Export of bran oil is very much profitable.

Rice bran from Automatic Rice Mills has better quality and price advantage.

1 ton of bran oil costs USD 900 at international market.

Bran oil also sells in the domestic market at 70000 taka per ton.

If Bangladeshi Bran oil of is used domestically then the import of oil will be reduced by 12%-13%.

Poultry feed:

Largest Supplier in poultry feed saving BDT 1200-1300 crore from importing poultry feed

Exports 1200-1400 MT of Poultry feed every year

Since setting up of mills is easy so low entry barrier prevails

The poultry sector accounts for 1% of the GDP of Bangladesh, as per Trading Corporation of Bangladesh.

At present, around 60,000 poultry farms, 70 parent stock farms and six grandparent stock farms in the country.

2nd largest employment generator sector of the economy


importance of rice industry to Bangladesh economy:

Rice is the staple for about 160 million people of Bangladesh. As the national food of our country rice processing industries will very surely play an important role in the economy. About 75% of total people of Bangladesh live in the rural areas. Rice industry directly and indirectly provides 48% of the rural employment that is quite a big amount of labor force.

Rice industry contributes 50% to the total agricultural GDP of Bangladesh and one-sixth of the national income of the country. 13 million families earn their livelihood directly or indirectly from rice industry. Bangladesh earns BDT 2,500-3,000 crore from exporting the by-products of rice, which is the help from rice processing industry. Government earns an amount of BDT 250 crore from the taxes of rice processing industry. In 2014, population growth is about 1.37%. If this rate continues in upcoming days, there will be an intensified need of habitation that will reduce the amount of cultivable land. Bangladesh will require around 27.26 million tons of rice in 2020. Within the mean time, total cultivable area will decline to 10.28 million hectors. This industry has created ways to evade from the cruel grasp of Poverty and provided the workforce with self-employment, self-security and self-esteem.

Rank Countryannual Production in 2012

(million Metric Ton)

1. China 204.3

2. India 152.6

3. Indonesia 69

4. Vietnam 43.7

5. Thailand 37.8

6. Bangladesh 33.9

7. Philippines 33

8. Brazil 11.5

9. Japan 10.7

10. Pakistan 9.4

Source: Food and Agriculture Organization

food Security issues

One of the fundamental rights of the citizens stipulated in the Bangladesh Constitution is food security for all. Food security exists when all people, at all times, have access to sufficient, safe and nutritious food to maintain healthy and productive lives. The key elements of food security are:

a) availability of food: The Bangladesh economy has made respectable progress in rice, tripping production from 11 million ton in 1971 to 33 million in 2012. The per capita rice production has increased substantially over the level at independence. The growth of production achieved by fast adoption by farmers of higher yielding crop varieties developed by scientists, supported by rapid expansion of irrigation infrastructure through private investment in tube wells. Bangladesh used to receive substantial amount of wheat, the secondary staple food, as food aid from developed countries. Commercial import of wheat has however increased despite growth in domestic production until the 1990s, mainly due to the discontinuation of food aid and stagnation of domestic production after a rapid growth in the 1980s. The import has recently exceeded three million tons. It appears that even if Bangladesh achieves self-sufficiency in rice production or becomes a rice exporting country, the import of wheat will continue.

Notable progress achieved in the production of potatoes and vegetables. The growth has been particularly impressive in the last decade. The major problem faced by potato and vegetable production is the volatility in prices leading to large year-to-year fluctuations in production. The production of most other food crops pulses, oilseed and sugarcane has remained stagnant or has declined. The production of oilseeds has picked up in recent years due to favorable prices, some progress in the development of higher yielding varieties, and identification of favorable agro-ecological niche. The dependence of Bangladesh on the world market for the availability of pulses, edible oil and sugar and milk has been growing, along with wheat.

b) access to food: In Bangladesh, 70% of the people live in rural areas where agriculture is the major occupation. Almost 60% of the rural households are engaged in farming. The farming household can access their food from self-production and can trade the surplus with other foods available in the local market. However, the landownership is unequally distributed, and so is the access to food from self-production. Almost 30% of the households do not own any land and another 30% own only up to half an acre. Such tiny landownership is insufficient to meet the food needs of four to five-member households, whatever advanced technology the farmer use. A tenancy market is in operation, which provides access to land to landless and marginal landowners for farming. However, the terms and conditions of tenancy do not favor tenants. Therefore, a large proportion of marginal farmers go the market to access food, as their own production (after payment of rent and interest for loans) is inadequate to meet the household needs. The income is very unevenly distributed and the disparity has been growing. As a result, nearly one-third of the people still live below the poverty line, with inadequate income to access food from the market.

c) utilization of food: The acceleration in economic and agricultural growth has made a positive impact on the diversity of food intake away from the rice and vegetable based diet in favor of quality food.


The change in per capita consumption of different items in the food basket for the rural and urban people, as estimated by the Household Income and expenditure surveys (HIES) of the BBS shows that the per capita consumption of rice and wheat has been declining, while the consumption of vegetables, fruits and fish and meat has been growing. However, the level of consumption of other food items, hardly meets the requirement for balance diet as specified by the National Nutrition Council and FAO. Average level of consumption has reached the adequacy level for rice and vegetable, and reached for fruits and fish, but serious deficiency persists for quality food such as pulses, oil, and livestock products. For all the other food items, consumption for all income groups have increased, marginally for the bottom 40 % but substantially for the top 20 %. A recent IFPRI study shows that nearly 20 % of the population is still calorie deficient and the gender disparity in calorie intake persists.

Challenges for achieving food security: The main challenge for achieving and sustaining food security comes from continuing growth of population. However, the population is still increasing by 1.8 million every year. Rice production has to increase by four lakh tons every year to meet the need for staple food for the growing population. The increase in domestic production at that rate would

From overall analysis, we can conclude that the numbers of automating rice mills have been increasing over the last few years and would continue to grow. In addition, Bangladesh is going toward achieving self-sufficiency in food. In upcoming days, the main challenge would be to enhance the production of food grains having the burden of teeming millions of population. The country expects that with the growth of food production, the food processing industry would also expand in a greater extent

(Mr. Md. Kamrul Islam is a Senior Executive Officer of IDLC Finance Limited and currently works at IDLCs Bogra Branch)

be difficult due to several supply side factors.

The arable land has been shrinking by 0.6 % every year due to demand from housing and industries, and infrastructure, as well as loss of land from river erosion. With global warming and climate change, another one-sixth of the land submerged with brackish water due to rising sea levels. The on-going climate has made the monsoon more erratic, raising risks in food production. The soil fertility has been declining due to overexploitation of soil nutrients, and imbalanced use of fertilizers. Due to all these factors, the potential for further increase in production is getting limited. Rice production can further be increased with intensification of land use with the use of shorter maturity varieties and adoption of submergence tolerance, drought tolerance, and saline tolerance varieties in adverse agro-ecological environments such the southern coast and the Haor areas in the Northeast, and the flood-prone areas in the river and coastal chars. The diffusion of hybrid rice could further increase the rice yields, and the yield gaps of existing varieties reduced with the adoption of finer crop management practices, such as the System of Rice Intensification (SRI). Indeed, with all these potentials exploited, Bangladesh could become a rice exporting country.


Dhaka Apparel Summit 2014: Analysis of the prospects & impediments of the 2021 goals

Overview

The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) organized the first-ever summit titled Bangladesh RMG 2021: USD 50 Billion on the 50th Anniversary of Bangladesh, at the Bangabandhu International Conference Centre in the city. The program aimed at devising ways of facing challenges to reach USD 50 billion RMG export landmark by 2021 when Bangladesh will celebrate the golden jubilee of her independence. The Dhaka Apparel Summit was organized with the objective of opening and furthering such dialogue to frame a sustainable road map on building responsible supply chains in the textiles and garment sector that contribute to its sustainable development and inclusive growth of the economy.

The summit featured a number of sessions about Infrastructure, Environmental Sustainability, Future of Workers, Remediation Financing for Transforming Bangladesh Garment Industry, Reinventing the Apparel Model, Assuring Workplace Tranquility, Partnering Media in Development and Social Impact, for more than two days the panels participated by representatives of governments of home and partner countries, international organizations, employers, private sectors, workers representatives, civil society organizations, brand representatives and buyers, academics and media.

The global demand for apparel products is worth USD 450 billion, which is expected to reach USD 650 billion by 2021. To achieve the USD 50 billion apparel export earnings target, Bangladesh needs to increase its share to 8% from the existing 5%. The entrepreneurs benefited from the summit enriching their knowledge about latest apparel technologies and also help domestic apparel makers build a

bridge with the global buyers and experts. Bangladesh earned USD 24.49 billion from RMG export in the fiscal year of 2013-14.

The summit discussed the present business and investment trend, global sourcing dynamics and potential for Bangladesh, priority issues to support the growth potential, compliance issues, supportive policies and coordination between different government agencies, product and market diversification, according to the organizers. The summit conferred how important physical infrastructure, power, gas and energy are to secure the Vision 2021 set for Bangladesh. The discussions focused on devising a strategic action plan to overcome the existing challenges and tap the potential.

infrastructure

Bangladesh needs between USD 74 billion and USD 100 billion in the next decade that is around 7.4% to 10% of GDP in the next ten years to improve infrastructure which, coupled with political stability, is key to attaining USD 50 billion in annual apparel exports in seven years from now. Currently, the government is spending about 2-3% of GDP for infrastructure development; financing and implementation are the constraints. The summit ran a mobile SMS poll where more than half of the participants expressed that better infrastructure is mostly needed for an efficient business supply chain. Maintaining political stability came in second followed by gas and power and industrial engineering. According to a World Bank study on infrastructure requirements in South Asian states, Bangladesh needs to improve six key areas of infrastructure namely transportation, electricity, water supply and sanitation, solid waste management, telecoms and irrigation.

The tremendous success of readymade garment exports from Bangladesh over the last two decades has surpassed the most optimistic expectations. Today, the apparel export sector is a multi-billion-dollar manufacturing and export industry in the country. The overall impact of the readymade garment exports is certainly one of the most significant social and economic developments in contemporary Bangladesh. With over one and a half million women workers employed in semi-skilled and skilled jobs producing clothing for exports, the development of the apparel export industry has had far-reaching implications for the society and economy of Bangladesh.

ANALYSIS MONITOR

10

IDLC MONTHLY BUSINESS REVIEW

Source: Dhaka Apparel Summit

Workplace safety

Bangladesh can become the largest garment exporter in the world if it overcomes certain challenges, including worker safety, which came to the forefront since the Tazreen Fashions fire and Rana Plaza collapse. The tragedies have created an opportunity to take Bangladeshs garment sector to international standards in fire safety, structural soundness of factories and worker rights. The Alliance for Bangladesh Worker Safety, a platform of 26 retailers from North America, stated remediation of factories is a complex process and takes years to complete.

According to Bangladesh Fire Service and Civil Defense, unplanned industrialization, unregulated building construction, lack of fire stations in industrial areas, narrow roads and inadequate awareness on fire safety are some of the major challenges in the garment sector. Besides inspection, remediation and training, it is also necessary to change the mindset of factory owners. Now our focus is on training. We also focus on building capacity of workers representatives, supervisors and managers so that they can continue training themselves and others. International Labor Organization stated that education and investment are important for capacity building of government, regulatory agencies, young entrepreneurs, workers and young professionals, which are the key to ensuring long-term sustainable safety.


factory relocations

The apparel sector needs around USD 3 billion to relocate factories from the capital, as stated by the experts. According to Policy Research Institute, the government should discuss the matter with global lenders, such as the World Bank, Asian Development Bank and Japan International Cooperation Agency to find a finance mechanism with low interest rates to transform the garment industry. Around 1,000 factories need to be relocated from the capital, according to BGMEA. The summit ran a mobile SMS poll at the summit where more than half the participants expressed that access to low-cost finance is the first challenge to factory relocation, followed by sharing remediation costs, lack of lands, high costs, value added taxes on import of safety equipment, and lack of certification for safety items.

Additionally, garment entrepreneurs demanded a reduction in lending rates along with other measures to help manufacturers grab a larger slice of the global apparel market. The interest rates range between 14% and 18% for exporters, stated BGMEA, adding banks charge 6% to 9% in India, 6% in China, 9% in Cambodia, 5.9% in Pakistan, 6.9% in Sri Lanka and 7.9% in Thailand.


The apparel garments industry occupies a unique position in the Bangladesh economy. It is the largest exporting industry in Bangladesh, which experienced phenomenal growth during the last 25 years. The industry plays a key role in employment generation and in the provision of income to the poor. To remain competitive in the post-MFA phase, Bangladesh needs to remove all the structural impediments in the transportation facilities, telecommunication network, and power supply, management of seaport, utility services and in the law and order situation. The government and the RMG sector would have to jointly work together to maintain competitiveness in the global RMG market. Given the remarkable entrepreneurial initiatives and the dedication of its workforce, Bangladesh can look forward to advancing its share of the global RMG market to reach USD 50 billion export landmark by 2021.

11


Global oil price falls to 5 year lowThe sharp fall in crude over the past three months has produced an unusual amount of concern that, with inflation already dangerously low across much of the developed world, cheaper oil would worsen the problem. Yet, while the lower oil prices would have a one-off arithmetic effect on the price level and hence reduce inflation that should boost growth rather than retarding it. The lower oil prices may hurt capital-intensive extractive industries in the medium term, but they benefit households almost immediately through cheaper petrol and other fuels.

The oil price has fallen by more than 40% since June, when it was USD 115 a barrel. It is now below USD 70. This comes after nearly five years of stability. At a meeting in Vienna on November 27th the Organization of Petroleum Exporting Countries (OPEC), which controls nearly 40% of the world market, failed to reach agreement on production curbs, sending the price tumbling. Moreover, hard hit are oil-exporting countries such as Russia (where the ruble has hit record lows), Nigeria, Iran and Venezuela.

The oil price is partly determined by actual supply and demand, and partly by expectation. The demand for energy is closely related to economic activity. It also spikes in the winter in the northern hemisphere, and during summers in countries which use air conditioning. The supply for oil can be affected by weather (which prevents tankers loading) and by geopolitical upsets. If producers think the price is staying high, they invest, which after a lag boosts supply. Similarly, low prices lead to an investment drought. OPECs decisions shape expectations: if it curbs supply sharply, it can send prices spiking. Saudi Arabia produces nearly 10 million barrels a daya third of the OPEC total.

Four things are now affecting the picture. First of all, demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to other fuels. Second, turmoil in Iraq and Libyatwo big oil producers with nearly 4 million barrels a day combinedhas not affected their output. The market is more optimistic about geopolitical risk. Thirdly, America has become the worlds largest oil producer. Though it does not export crude oil, it now imports much less, creating a lot of spare supply. Finally, the Saudis and their Gulf allies have decided not to sacrifice their own market share to restore the price. They could curb production sharply, but the main benefits would go to countries they detest such as Iran and Russia. Saudi Arabia can tolerate lower oil prices quite easily. The country has USD 900 billion in reserves. Its own oil costs very little (around USD 5-6 per barrel) to get out of the ground.

The main effect of this is on the riskiest and most vulnerable bits of the oil industry. These include American frackers who have borrowed heavily on the expectation of continuing high prices. They

also include Western oil companies with high-cost projects involving drilling in deep water or in the Arctic, or dealing with maturing and increasingly expensive fields such as the North Sea. However, the greatest pain is in countries where the regimes are dependent on a high oil price to pay for costly foreign adventures and expensive social programs. These include Russia (which is already hit by Western sanctions following its meddling in Ukraine) and Iran (which is paying to keep the Assad regime afloat in Syria). The optimistic expert states that economic pain may make these countries more amenable to international pressure. However, the pessimists fear that when cornered, they may lash out in desperation.

ANALYSIS MONITOR

Source: International Energy Agency Source: Bloomberg

12


Aebnit: Answer to all your shopping needs Aebnit is a store at Ahammed Complex, Shafipur, Gazipur. The outlet is basically a departmental store with separate

sections for clothing, footwear, dry food, cosmetics, jewellry, etc. The outlet also sells a wide range of imported ladies purse and bags, shoes etc. In 2004, Mrs. Ismat Ara Asha started an outlet, Reblye of mid and high end RMG items at Shafipur. Later on, the store Aebnit was inaugurated in 2006.

Interview with

Mrs. ismat ara ashaOwnerAebnit

I mostly tried to communicate with my customer in a friendly manner and try to know their feedback and specific demand for goods. I always try to fulfill their demand and make them happy. Thats the biggest power of success.

MBR: how did you come up with the idea of opening a departmental store at Shafipur?

Though I lived in Dhaka, my in-laws are from Shafipur, thus I thought if I start a new business, why not do it in the area I somehow belong to. I always wanted Shafipur to grow and develop, moreover, after 10 years I can see a positive change in the area. Now, many new entrepreneurs started departmental stores like mine at Shafipur.

MBR: how did you start this business and what was the motivational aspect which led you towards entering into this venture?

I used to do a government job, however, when my husband went to do PhD so I had to go along with him to Switzerland for

a few years. In 2003, we returned to Bangladesh and I planned to start my career. However, returning to my previous career was not possible. Also, doing other corporate jobs would have taken my time which I wanted to spend for my little twins. I thought being an entrepreneur can have flexible. So, the first thing that came to my mind was to start retailing clothes in a fashion I saw in Europe. Since Shafipur was a growing urban centre, a very modern sales store must have a future. I just took that challenge.

MBR: What are the important factors which should be considered while opening a new departmental store?

In order to open a new departmental store, it is very important to have some space accessible to its potential customers and also one should understand the tastes and the purchasing

Owner : Mrs. Ismat Ara Asha

Year of Establishment

: 2004

Website : No

Main Product :Clothing for ladies, gents and kids, Leather goods, Toys, Cosmetics, Jewelry, etc.

Number of Outlets : 3

Space : 7000 square feet.

Number of Employees

: 22

ENTREPRENEURS CORNER

13


capacity of the people in that area. I saw no shops in Gazipur like the ones in Dhaka, so it turned out quite well as I have a large showroom with huge lightening which people preferred with much appreciation.

MBR: Do you have any plan to open outlets in Dhaka city?

Yes, I have plans to open new outlets in Dhaka. I wish to open more outlets consequently with the growth of my business. However, my next venture will be in Savar and then in Dhaka.

MBR: how do you think of such unique name like aebnit?

To be honest, most people wonder what Aebnit is and how did I think of giving such unique name of my shop. Actually it is the name of a small village in the area of Emmental in Switzerland where I lived in with my family. My twins were also born there. To remember all those sweet memories in that village I used the name.

MBR: Do you have any plan to diversify your stores product?

Yes, initially I began with clothes only. Now I sell leather goods, cosmetics, jewelry and toys etc.

MBR: Being a successful business person, how do you manage your family along with running your business?

Everybody needs to manage family. One cannot just ignore family for the sake of doing business. I need to plan my time for my kids, other members and relatives. Mutual understanding with the husband and the kids is important in order to manage both.

MBR: how do you ensure customers satisfaction level?

I mostly tried to communicate with my customer in a friendly manner and try to know their feedback and specific demand for goods. I always try to fulfill their demand and make them happy. Thats the biggest power of success.

MBR: how many employees are operating in your outlets?

Currently, I have twenty-two employees. However, during the Eid festivals I hire some part-timers to manage the rush.

MBR: Where do you see aebnit in the next 5 years?

In the next five years, I wish to open new outlets in Dhaka and also in area surrounding Dhaka like Savar for instance.

MBR: What kind of challenges did you face while operating in this line of business and how did you overcome them?

Frankly speaking, I did not face that many challenges as a women and people actually helped me and they appreciated my efforts in setting up the business and thought I was brave enough to be able to do such an outlet. Usually, people are friendly in general. MBR: What are your advices to someone who wants to start a similar business?

My advice is to understand the demands of the locality, their needs and what will satisfy them if a new business is commenced there. Customer care should be the top most priority for any business to get more satisfied customers. Finally, innovation is really important for starting a new business.

14


BUzzwORDSTARTUP

Evolution of a startup company

In the late 1990s, the most common type of Startup Company was a dotcom. To speculate on the emergence of these new types of businesses, venture capital was extremely easy to obtain during that time due to competition among investors. Unfortunately, most of these internet startups eventually went bust due to major oversights in their underlying business plans, such as a lack of sustainable revenue. However, there were a handful of internet startups that did survive when the dotcom bubble burst. Internet bookseller Amazon.com and internet auction portal eBay are examples of such companies.

Startup companies can come in all forms and sizes. A critical task in setting up a business is to conduct research in order to validate,

assess and develop the ideas or business concepts in addition to opportunities to establish further and deeper understanding on the ideas or business concepts as well as their commercial potential. The business models for startups are generally found via a bottom-up or top-down approach. A company may cease to be a startup as it passes various milestones, such as becoming publicly traded in an IPO, or ceasing to exist as an independent entity via a merger or acquisition. The companies may also fail and cease to operate altogether.

Back in the 90s, the investors were generally most attracted to those new companies distinguished by their risk/reward profile and scalability. To be precise, they have lower startup costs, higher risk, and higher potential return on investment. Some of the successful startups are typically more scalable than an established business, in

A company that is in the initial stage of its operations is a startup company. These companies are often initially bank rolled by their entrepreneurial founders as they attempt to capitalize on developing a product or service for which they believe there is a demand. Moreover, due to limited revenue or high costs, most of these small scale operations are not sustainable in the long term without additional funding from venture capitalists. In the current economy, a lot of people around the world are unable to find jobs and are turning to entrepreneurship and starting their own companies instead. The dream of entrepreneurship has become more motivating than the goal of working for 40 years and living out their final years on retirement savings.

A startup company or startup is a company, a partnership or temporary organization designed to search for a repeatable and scalable business model. These companies, in general are newly created, are in a phase of development and research for markets. The term startup became popular internationally during the dot-com bubble when a great number of dot-com companies were founded.

15


the sense that they have the potential to grow rapidly with limited investment of capital, labor or land.

Startups encounter several unique options for funding. Angel investor helps startup companies begin operations, exchanging seed money for an equity stake. In practice though, many startups are initially funded by the founders themselves. Factoring is another option, though not unique to startups. Some new funding opportunities are also developing in crowd funding.

Startup ideas

Startups start with an idea about how the world should be different in a very significant way. Uber started with the belief that it should be easier to call a cab from your smartphone. Zipcar started with the idea that you should be able to have access to a car without paying the full cost of ownership. PayPal started with the idea that it should be easy to make a payment with a credit card online. Microsoft started with the idea that everyone needed a personal computer.

Amazon started with the idea that you should be able to buy books easily online.

The companies we know today exist because their founders built businesses around those ideas. And the ideas were so groundbreaking that they turned billion-dollar industries on their heads. Microsoft ended the era of the typewriter with the personal computer. Amazon makes it easier to shop from your living room.

These companies used technology to shorten the distance between two points, and therefore create a new, more efficient way for people to live and work. Using a PC was more efficient than a typewriter, which means Microsoft opened up billions of dollars of productivity by shortening the distance between writers and writing. Uber shortens the distance between passengers and drivers. Zipcar shortens the distance, in terms of dollars spent on car ownership, between people and their destination. Shortening the distance between two points with technology is called disruption, because it upsets the pre-existing balance in the market, often the result releases billions of dollars of productivity into the economy.

The goal of every startup is to change the way the world works in a meaningful way, and in the doing, to create a massive amount of value for the founders, their investors, their employees, and the markets they disrupt. The process of creating that value is risky and unstable, but the risk is in direct proportion to the potential rewards. Startup founders stand to make millions if they successfully grow their startups into companies.

The final element of a startup is the people who step up and join the battle since startup life is volatile and risky. The hours are long and grueling. One of the bigger challenges is the constant changes that the company is undergoing in their rapid growth. Each change in the company requires that every employee, from the founders and the executive team on down, be willing to evolve and adapt to the changing needs of the company. This requires a high degree of introspection and adaptability. In addition to the huge markets and the disruptive products, one of the biggest products of a startup is its people. A successful startup will generate a cadre of battle-hardened people capable of achieving great things.

16


ENTREPRENEURS ASSISTANCE TOOL

To run any business, a permission of the Government is required. Trade license or business license is the first steps to start a business in any place all over the world. In general, trade license is usually issued by local business authorities, hence, in Bangladesh, trade License of an entity is issued from the office of respective City Corporation or Union Council. In City Corporation area or urban area, ward Commissioner is mainly liable for issuing trade license. In rural area, Union Council issue trade license for doing any kind of business in the respective Union Council area.

Most of the business requires the following documents for trade license:

for proprietorship business:

Photographs of proprietor

Copy of rent receipt or rental agreement

Trade License for industries:

Photographs of proprietor

Copy of rent receipt or rental agreement

No objection declaration from nearby area

Location map of the industry

Fire certificate copy

Trade License for Limited Company:

Memorandum of Association and Article of Association

Incorporation Certificate

for Residential hotel/Printing Press: Permission require from Deputy Commissioner

for Recruitment agency: Need earlier license from Manpower Export Bureau

for Travel agency: Need prior approval from Civil Aviation AuthorityProcess of getting Trade License from Dhaka City Corporation

Trade License fees

For getting trade license you must pay stipulate fees and also the fees depend on the business activities.

For instance, for import business trade license, one needs to pay only the stipulated fees for import business.

For trade license of export business, one should pay fees stipulated for export business.

Trade License

17


Process of getting Trade License from Dhaka City Corporation

Steps Trade License for Commercial firm Trade License for Manufacturing firm

First Step

Collect KA Form from respective zonal office of Dhaka City Corporation.* KA Form is mandatory to use for a commercial firm. All of the zonal offices use same KA Form for Commercial Firm.

Collect I Form from respective zonal office of Dhaka City Corporation.* I Form is mandatory to use for a manufacturing firm. All of the zonal offices use same I Form for Manufacturing Firm.

Second Step

Complete the KA Form and submit it to local ward commissioner office for justification.

Complete the I Form and submit it to local ward commissioner office for validation.

Third StepCollect Trade License Book by paying BDT 50/- and submit application to Dhaka City Corporation Zonal office with supporting documents.

Collect Trade License Book by paying BDT 50/- and submit application to Dhaka City Corporation Zonal office with supporting documents.

Fourth Step

After submission of the application, licensing supervisor would visit the business entity to verify provided information.

After submission of the application licensing supervisor visit the business entity to verify provided information.

Fifth Step

When verification is complete, the business should go to the Dhaka City Corporation office to pay the require fees to collect Trade License. The fee depends on the business categories.

When verification has completed, the business should go to the Dhaka City Corporation office to pay the require fees and collect Trade License. The fee depends on the business categories.

Sixth StepFor collection of trade license one should pay signboard fee. Signboard fee is applicable 30% of license fee.

For collection of trade license one should pay signboard fee. Signboard fee is applicable 30% of license fee.

For export and import business, one should pay both export and import business fees (export business trade license fees + import business trade license fees).

Additionally, signboard charges should be paid which equal 30% of respective trade license fees.

The fees also vary between City Corporation area and rural area.

For limited company, fees depend on paid up capital.

The fees should be paid at any bank as designated on the trade license form.

Trade License Renewal Process:

Trade license should renew every year by paying requires fees. The fee is same as first time trade license collection fee. Also, 30% signboard fee should to be paid.

A demand bill should be taken from the trade license book. The licensing supervisor would check the expiring date and fill up the particulars of demand bill and gives the booklet to the business.

The required fee should be deposited to designated bank through demand bill. In this way license is generally renewed.

A developed nation is a prosperous nation.

At IDLC, we help you contribute to this process.

We are in the business of financing happiness.

20


Inflation rate hits two-year low The inflation rate declines to 6.21% in November which was around 6.60% in October, which is the lowest in 24 months. Conversely in 2012, inflation increased to 6.55% in November from 5.16 % in October in the same year.

According to the Bangladesh Bureau of Statistics (BBS) data, food inflation was the biggest driver behind the drop in overall inflation last month which slide to 6.44% from 7.16% in October 2014. However, due to a rise in house rent, transportation costs, education and medical expenses and other non-food items inflation reached 5.84 % in November from 5.74 % in the previous month.

The declining inflation trend facilitates the government to meet the fiscal current fiscal 2014-2015s target of 6.5 %. Inflation declined in both urban and rural areas last month. In rural areas, it dropped to 6.05 % from 6.49 % in October, and in urban areas to 6.51 % from 6.79 %. In October, non-food inflation went up as two major religious

festivals took place at the beginning of the month and in November rise in non-food inflation was caused by said a recent surge in bank loans suggested by Central bank officials.

ECONOMY

Source: Bangladesh Bureau Statistics (BBS)

Germany to provide EUR 60 million for power transmission development

Bangladesh has average level of monetary inequality

In order to improve power transmission in the countrys western region, Germany would provide assistance worth EUR 60 million to Bangladesh. Meanwhile, Germany has provided USD 1788.1 million foreign aid to Bangladesh since the countrys independence, including USD 1520.2 million in grants and USD 267.9 million in loans, according to the flow of external resources for 2012-13 fiscal year released by the Economic Relations Division (ERD).

The German government through KfW Development Bank is one of the major implementing agencies of German Development Cooperation would lend its support for the first time in the countrys power sector under the Improvement of Power Transmission. KfWs

activities in Bangladesh focus on energy efficiency - renewable energy, health sector including family planning and governance and local development.

The ERD stated that the German government would provide EUR 45 million as loan, while the rest EUR 15 million would come as grant and it was also added that Power Grid Company of Bangladesh (PGCB) would implement the project after the feasibility study is completed. Additionally, Kfw is expected to provide EUR 138 million in 2016 to improve countrys power transmission lines as well as also likely to provide another EUR 20 million to Bangladesh in 2016 for urban development in Barisal and Satkhira.

According to a World Bank report titled Addressing Inequality in South Asia, Bangladesh along with other South Asian countries has moderate level of monetary inequality. The country has ranked third among the countries in the region in terms of level of low inequality. Afghanistan and Pakistan have performed better than Bangladesh while Nepal, India, Sri Lanka, Maldives and Bhutan have achieved lower position.

The monetary inequality in South Asia was not too high but it was increasing, and if standard monetary indicators are considered, South Asia has modest level of inequality stated World Bank. As per the report, in consumption inequality, performance of the South Asian countries remained between 0.28 and 0.40 out of 1 in Gini coefficients, a method of inequality measurement. Bangladeshs score is around 0.30 and Bangladesh has also secured third position in terms of the share of the poorest 40% of households in the total consumption.

Bangladesh should accelerate growth and increase expenditure in the public sectors including education and health to reduce inequality. Land reform and imposition of wealth tax could reduce inequality, stated Bangladesh Institute of Development Studies. According to the experts, quality education in the primary and secondary level should be ensured that would play role in reducing inequality.

21


wB approves over USD 1 billion for three projects

Germany to lend EUR 50 million RMG compliance fund

According to an agreement among Economic Relations Division (ERD) Additional Secretary and World Bank Lead Economist and Acting Country, the World Bank would provide USD 60 million to modernize Bangladeshs value added tax (VAT) administration and to boost tax revenue and will support the VAT administration system to become fully compliant with Bangladeshs Right to Information (RTI) Act. The project facilities the ratio of VAT to Gross Domestic Product (GDP) to increase by 3.7% in 2012-13 and at least one percentage point of GDP by 2019.

As stated by an ERD, the project will improve taxpayer services, encourage better compliance and increase tax revenue by automating the VAT system. In order to raise awareness of the need to register and file for VAT, the project will embrace a campaign

that would introduce modern business processes and Information Technology systems as well as a more transparent service-oriented tax administration, registration, return processing, and online tax payment. The project would seek to increase the number of active registered taxpayers to 85,000 within the next five years compared to around 35,000 VAT payers.

Three Projects funded by WB(in millions of

USD)

Third Primary Education Development Programme 400

Multipurpose Disaster Shelter Project 375

Income Support Programme for the Poorest Project

300


With regard to cope with global standard, the German government would lend EUR 50 million compliance fund for the countrys textile industry. A Memorandum of Understanding (MoU) was signed at secretariat between the Federal Ministry for Economic Cooperation and Development and ministry of commerce from their respective sides. It was also stated that the ministry would request the German buyers to raise the price of each pair of jeans by one euro on top of the existing price.

The German government would give financial assistance to the first 10 textile factories to make them fully compliant and this would help to draw the attention of big buyers from Germany which has already

provided Bangladeshi export items with duty-free and quota-free access to its market, according to the ministry of commerce.

Germany would be the first destination of our export products that will topple the US market and on the other hand, the visiting German Economic Cooperation and Development minister considered the MoU to be the second stage of funding program through German GIZ, as stated by ministry of commerce. Additionally, the German government would launch a website early next year which would explain details of import goods and the way they would be manufactured in accordance with social and environmental issues.

Selected Economic Indicators

item Period/as of Value/ bn Period/ as of Value/ bn +/(-)%

Foreign Exchange Reserve (USD) December'14 17.83 November'14 21.53 -17.20%

Workers Remittances (USD) November'14 1.06 October'14 1.01 5.02%

Revenue Collection (BDT) October'14 89.14 September'14 113.55 -21.50%

Broad Money (M2) (BDT) October'14 7250.03 September'14 7250.03 0.00%

Reserve Money (RM) (BDT) October'14 6403.17 September'14 1436.33 345.80%

Total Domestic Credit (BDT) October'14 5938.93 September'14 6582.19 -9.77%

Credit to Private Sector (BDT) October'14 4684.67 September'14 5223.99 -10.32%

Source: December 2014, Selected Economic Indicator, Bangladesh Bank

22


TRADE

Export continues to grow in Bangladesh l

RMG to grow export earnings by 5% despite all odds in 2014 l

Bangladesh proposes tender to import 50,000 tons of wheat l

BD, Sri Lanka proceed to free trade agreement l

According to the Ministry of Commerce, the countrys exports would continue to grow, although Bangladesh does not enjoy any duty benefit on export of garment items to the USA. It was also stated that the countrys export volume was USD 30.19 billion in 2013-14, which is expected to grow to USD 33.2 billion in the next fiscal year.

Bangladesh is economically well ahead among 48 least developed

countries in the world, and has been termed as one of the 11 emerging nations, at an opening of Bangladesh International Trade and Export Fair at Halishahar in the port city of Chittagong. The port city is the gateway of Bangladesh and the development of the country hinges on the connectivity development among Chittagong and other parts of the country and also that the government is working to develop Chittagong as a commercial hub of the country, according the ministry of land.

The export earnings from the RMG sector rose by nearly 5% to USD 22.25 billion in January-November in 2014 compared to 2013 despite facing several challenges. According to the Export Promotion Bureau (EPB), Bangladesh fetched USD 22.25 billion in 11 months of 2014, which was USD 21.22 billion in the previous year.

As stated by Export Promotion Bureau, the knitwear export stood at USD 11 billion with a rise of 6.723% from the previous years USD 10.4 billion and woven products earned USD 11.15 billion growing at 3.05% as the previous years figure was USD 10.8 billion. Bangladesh government has set an export target of USD 26.9 billion from the RMG sector for the fiscal year 2014-15. As per BGMEA data, over 40 lakh workers are employed in the industry and 80% of them are women mostly from the rural area. But Bangladeshs RMG sector faced several accidents due to intensified political violence and repeated labor unrests in 2013.

In order to be more competitive, Bangladeshi RMG sector needs cash incentives and policy support from the government and BGMEA has set an export target of USD 50 billion by 2021 to mark the 50 years of Bangladesh Independence.

With intent to boost reserves, the countrys state grain buyer issued a new international tender to import 50,000 tons of wheat. Since the current financial year, this is the third international wheat purchase tender issued by Bangladesh. The imports are crucial for the South Asian nation to feed its poor and keep domestic prices stable. The Directorate General of Food wants to import 900,000 tons of wheat in the current fiscal year.

The country received the lowest offer at USD 270 a ton from Glencore in its first tender. Another tender is due to open on December 14. The state grain buyer has also agreed to buy 250,000 tons of Ukrainian wheat at USD 297.50 a ton including cost, freight, insurance and other port-related expenses in a government-to-government deal with Ukraine.

In contrast, strong output and good reserves have prompted the Bangladesh government to come up with a rice export pact with Sri Lanka, where rice prices have turned up after production dropped due to an 11-month drought, which experts consider to be the worst in recent history. Rice is the staple food for Bangladeshs 160 million people while wheat consumption is rising, with domestic production having stagnated at nearly 1 million tons.

In order to make a free trade agreement (FTA) between Bangladesh and Sri Lanka, an extensive progress has been completed by both countries. During a meeting, ICCB assured the minister for extending possible cooperation from the private sector and requested the Sri Lankan minister to expedite the FTA process for expanding trade between the two countries.

Department of Commerce has already completed the trade agreement study report on their side and has exchanged their respective reports. On September 23, 2014, Sri Lanka and Bangladesh inked their second bilateral joint Working Session in Colombo and bilateral trade between the two countries was jumped by 67% in 2013 to USD 139.23 million from USD 83.19 million in 2012.

23


INVESTORS CORNER

Export Processing zones Statistics l Cumulative export in eight EPZs at the

end of July-September FY 2013-14 was USD 42390.06 million as compared to USD 34,502.37 mn at the end of FY 2013-14.

Cumulative investment in eight EPZs at the end of September 2014 for the FY 2013-2014 was USD 3330.17 million as compared to USD 2,785.49 mn at the end of FY 2013-14.

Cumulative employment in eight EPZs at the end of September 2014 for the FY 2013-2014 was 401,759 employees while in FY 2013-14, it was 374,008 employees.

Source: Bangladesh Export Promotion Zone Association

USD in million

ItemJuly-

November 2014-15

July-November

2013-14Change

Knitwear 4,997.78 4,899.82 2%Woven RMG 4,693.47 4,753.53 -1%Frozen Food 300.76 324.81 -7%Home Textile 298.61 297.78 0%Leather 173.49 194.39 -11%Chemical Products 44.41 40.14 11%Foot Wear 201.81 172.34 17%Engineering Products 180.61 153.17 18%Agricultural Products 282.51 229.48 23%Raw Jute 43.21 49.47 -13%Others 853.42 844.68 1%Total 12,070.08 11,959.61 1%

Source: Export Performance for December FY2014-15; Export Promotion Bureau, Bangladesh Bank

Category wise Export Import LC statistics USD in million

Items July- October, 2014 July- October, 2013FLCO SOLC OSTLC FLCO SOLC OSTLC

Capital Machinery 1,044 917 4,278 971.67 715 3,266Textile Fabrics (B/B & Others) 2,123 1,869 2,832 1,961 1,905 2,790Rice and Wheat 627 415 439 483 561 421Chemicals & Chem. Products 1,321 1,201 1,803 1,109 1,038 1,411Petroleum & Petro Products 1,417 1,556 1,389 1,767 1,152 1,709Edible Oil & Oil Seeds 311 327 636 318 405 727Raw Cotton 674 744 1,013 600 763 902Scrap Vessels 210 274 275 293 293 361Pulses 143 130 129 83 169 169Cotton Yarn 400 437 549 304 330 499Paper and Paper Board 102 100 111 119 106 102Synthetic Fibre & Yarn 215 216 262 158 167 270Sugar and Salt 294 253 405 231 210 584Others 5,096 4,500 7,628 5,053 3,834 5,926Total 13,978 12,941 21,750 12,478 11,649 19,136

FLCO= Fresh LC Opening, SOLC= Settlement of LC, OSTLC= Outstanding LCSource: Major Economic Indicators; Monthly Update, July 2014, Bangladesh Bank

24


With intent to obtain privileged sales of calendars, diaries and greeting cards, the printing industry is looking forward to the New Year and Christmas. As stated by Bangladesh Mudran Shilpa Samity (BMSS), the organization expect to raise 50-60% in sales of calendars, diaries and greeting cards this year compared to the previous year due to an improvement in political environment.

According to industry insiders, market size of printing, including textbooks, stands at around BDT 3,500 crore and sales of calendars and diaries run into about BDT 270 crore annually. Nowadays, more and more people are engaged in sending digital cards to greet near and dear ones and e-cards now accounts for 30% of the total demand for greeting cards in the country.

Printing industry in festive optimism l

According to the industry experts, the market size of baby diapers in Bangladesh is around BDT 400 crore, of which 70% are totally captured by the multinational companies. The usages of the baby diaper are increasing day by day due to more womens involvement in jobs, enhancement of purchase capacity and health awareness. Baby diapers have been emerged as a new business opportunity for the local manufacturers to capture domestic market through substituting imports.

As most of the working women choose to use the diapers for their babies, the demand for nappies is on the upswing. As stated by local manufacturers, around 70% of its total demand is met by imports while the local manufacturers contribute the rest. Only four brands are locally manufactured while 14 brands are imported from abroad.

As stated by a banker, a service holder has no other option for his kid, rather than using diapers as it helps me to remain tension-

free whenever he leaves his child to domestic help. Nowadays in Bangladesh, the use of baby diapers is not a luxury one, rather a necessity. As the 100% raw materials are imported, the government should lower tariff to help the local industry growth.

Baby diaper creates new business era l

BUSINESS

25


REGULATORY NEwS

In order to ensure the loan situation of the sectors large borrowers, Bangladesh Bank is set to embark on a two-step program. As stated by BB official, the large borrowers have proved as a threat to the health of most banks and the central bank is set to form a dynamic panel to closely monitor the performance of the large borrowers and devise a mechanism to restructure their risky loans.

As reported by BB, the sectors capital adequacy ratio may drop 2.69% to take it below the critical 10%. Many of the large borrowers have been lobbying for long-term restructuring of their

loans with the help of the banks that prevents their default loan portfolios from ballooning. Top 20 borrowers account for around BDT 43,000 crore and of them, one borrower owes around BDT 7,000 crore.

According to central bank statistics the total defaults stood at BDT 57,290 crore and BDT 40,583 crore at the end of September and December respectively. They also reported that loan defaults have swelled by BDT 16,708 crore in the first nine months of the year, which has put the central bank in a state of great concern.

With intent to make the payment of value-added tax at one stage instead of three, the National Board of Revenue (NBR) is ready to make simpler taxation for soybean and palm oil processors. According to NBR, the cooking oil processors will pay 15% VAT at the import level only and now they pay 10% VAT at the time of import, mainly from Indonesia, Malaysia, Brazil and Argentina.

According to processors, private sector processors import nearly 15 lakh tons of palm and soybean oil a year to feed the domestic market that requires 18 lakh tons. After paying a portion of the 15% VAT at the import level and 4% VAT at the dealers level, the processors have to pay BDT 4,110 and BDT 3,700 for each ton of soybean and palm oil, respectively, at the refining stage.

In order to increase the prospects of Islamic finance in the country, Bangladesh Bank (BB) stated that the central bank is actively considering introduction of Sukuk Islamic bond. Sukuk is a certificate representing ownership of tangible assets or assets of a particular project or special investment

activity. Unlike the conventional bonds it is an Islamic equivalent to a bond, which merely represents ownership of a debt; Sukuk grants the investor a share of an asset, along with the commensurate cash flows and risks.

According to BB, the central bank is actively

considering introduction of the Sukuk in the market, however the bond will be local, not sovereign. The central bank is also preparing guidelines for Islamic banks of the country. The guidelines would inspect the Shariah compliance of the Islamic banks of the country and Islamic finance products.

The central bank would allow the non-residents to make outward remittance from their non-resident taka accounts. Bangladesh Bank (BB) took the move as part of its foreign exchange liberalization program. The BB issued a circular to all banks, non-bank financial institutions and stakeholders stating that from now on the non-residents would be allowed to make outward remittance from their NRTAs maintained with the local banks after taking approval from the central bank.

According to BB, the taka accounts maintained with banks in Bangladesh by individuals, firms and companies stationed outside the country are known as non-resident taka accounts. The circular states that the non-residents would be able to make outward remittance from the NRTAs to maintain their emergency expenses in the foreign countries. The non-residents would be allowed to procure permissible goods and services by using their NRTAs and they will be able to bring the products to their respective countries.

The central bank had earlier imposed embargo on outward remittance from NRTAs to tackle excessive pressure on the foreign exchange reserve and to contain money laundering. The NRBs are now sending around USD 15 billion inward remittance in a financial year. Therefore, the BB has opened the window for the NRBs to encourage them to use the legal banking system.

Bangladesh Bank increases focus on large borrowers l

NBR eases taxation for cooking oil traders l

Central bank plans to introduce Islamic bond l

BB to allow non-residents to make outward remittance from NRTAs l

26


Exchange and Forward Rates l (As of December 30, 2014)Major Currency Exchange Rates

CurrencyBC Sell

BDTTT Buy

BDTUSD 78.95 77.95EUR 97.00 93.00GBP 124.10 120.10AUD 66.30 63.11JPY 0.68 0.64CHF 81.92 77.96SEK 10.16 9.66

Major Currency Exchange Rates

CurrencyBC Sell

BDTTT Buy

BDTCAD 70.04 66.67HKD 10.12 9.70SGD 59.79 56.83AED 21.56 20.50SAR 21.73 20.69DKK 12.92 12.28KWD 270.42 257.03

Exchange Rate of Some Currencies

CurrencyCurrency Per

USDBDT per

Currency

INR 63.77 1.23PKR 100.99 0.78LKR 131.40 0.60THB 32.97 2.38MYR 3.50 22.40

Source: Standard Chartered Bank.

MARKET ROUNDUP

December, 2014

Money Market lThe Bangladesh interbank call money rate was around 7.50% 8.50% on 28 December, 2014.

Foreign Exchange Market lLocal: The USD/BDT rate was slightly up as on 30 December, 2014 as it was last business day of the year. Trading volume was steady with more cross currency transactions.

international: The yen gained sharply against both the dollar and euro on 30 December 2014 as investors sought the traditional safety of the Japanese currency amid end-of-year nerves over economic risks ahead. The prospect of Greece dropping the euro returned to haunt the single currency after a failed effort to elect a new Greek president on Monday, but there are broader concerns over growth and the effects of six years of money-printing heading into 2015. Concerns over global demand have shown up in a collapse in oil to less than USD 60 a barrel and crude prices were heading lower again on 30 December 2014, dragging stock markets and the dollar with them.

Currency Market Roundup

Financial Sector Prices l The spread of weighted average lending and deposit rate declined to 5.09% in December 2014 which was 5.10% November 2014. The weighted average call money rate in the interbank market went up from 7.77% in November 2014 and stood at 7.46% at

December, 2014. Bangladesh Bank has changed repo and reverse repo rate at 7.25% and 5.25% respectively, following a declining revision by 50 basis point

effective from February 1, 2013.

Treasury Bill/Bond Auction Information lAuction Date Tenure & Name of the Securities Sale Value (in BDT mn) Weighted Average Yield (%)

17/11/2014 30-day BB Bill 99.57 5.25

29/12/2014 91 days T.Bill 7579.118 7.35

29/12/2014 182 days T.Bill 5536.986 7.75

22/12/2014 364 days T.Bill 5021.384 8.21

03/12/2014 2 yr T.Bond 5000 8.59

10/12/2014 5yr T.Bond 7000 9.6617/12/2014 10yr T.Bond 4000 10.9224/12/2014 15yr T.Bond 297.7 11.47

24/12/2014 20yr T.Bond 125 11.98* Sale value not applicable, Face Value used. Source: Bangladesh Bank

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Commodity Market Roundup

International Commodity Prices lCommodity Unit Price 28 December 2014 (USD /unit) Price 28 November 2014 (USD /unit) Change +/(-)

Crude Oil Barrel 56.52 66.15 -0.15

Gold Ounce 1177.00 1182.75 0.00

Silver Ounce 15.77 15.97 -0.01

Nickel Tonne 15275.00 16325.00 -0.06

Tin Tonne 18795.00 20375.00 -0.08

Lead Tonne 1847.50 2065.00 -0.11

Aluminium Tonne 1834.00 2099.00 -0.13

Zinc Tonne 2152.50 2270.50 -0.05

Copper Tonne 6361.00 6621.50 -0.04

Source: LBMA; Worldal; WTRG.

Global food price in November 2014 were virtually unchanged from October, but 13 points or 6.4% below November 2013.While the price indices of both cereals and vegetable oils rose last month, they fell markedly in the case of sugar and dairy products and remained stable in the case of meat.

Cereal Price averaged 183 points in November which was up by 4.7 points or 2.6% from October, but still 11.3 points or 5.8% down year-on-year. The November increase marked the first significant monthly gain since March 2014, as large supplies and prospects of another good production in 2014 continued to weigh on prices.

Price of oils & fats augmented to 164.9 points in November, which was up 1.2 points or 0.7% month-on-month, but 16.9% below November 2013. Last months rise was mainly driven by an improvement in palm oil prices, following production slowdowns in Malaysia and Indonesia and steady global import demand. Quotations for sunflower oil also remained firm on lower than anticipated global production.

Dairy products saw a rapid fall of 6.2 points or 3.4% over October and 72.7 points or 29% less year-on-year; the substantial fall in international milk product prices over the past 12 months compares with a more modest year-on-year decline for the FAO Food Price Index overall. Since the beginning of the year, when prices were exceptionally high, quotations for dairy products have fallen, mainly as a result of increased export availability and a reduction in the pace of importation by some of the major markets, especially China and the Russian Federation.

Meat price remained unchanged from its revised value for October and averaged 210.4 points in November. The quotations for most

types of meat, in particular bovine meat, are at historic highs, and the Index stands 24.8 points 13.3% above its corresponding level in 2013. The quotations for all types of meat were stable in November, with the exception of ovine meat which moved moderately higher.

Sugar price decreased in November to an average 230 points which was down 7.6 points or 3.2% from October 2014.Last months decline reflected a return of rainfalls in the main sugar producing region in Brazil, the worlds largest sugar producer and exporter, which reduced concerns over the potential effect of a prolonged drought that had affected the country. Against a backdrop of ample supplies, international sugar prices remained about 8 percent below their level in November 2013.

Global food price remained steady for the third consecutive month l

Source: Food and Agricultural Organization

faO food Price index

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INTERNATIONAL

International Economic Forecast Year on year percentage change

GDP CPI2014 2015 2016 2014 2015 2016

Global (PPP Weight) 3.2% 3.5% 3.7% 3.7% 3.7% 3.7%

Advanced Economies 1.9% 2.2% 2.5% 1.4% 1.4% 1.9%

Euro Zone 0.8% 1.1% 1.8% 0.5% 0.8% 1.3%

Developing Economies 4.5% 4.7% 4.9% 5.9% 5.8% 5.5%

Forecast as of December 2014Source: Wells Fargo Securities, LLC

China oddments quotas on rare earths after wTO complaint lChina has scrapped its quota system restricting exports of rare earth minerals after losing a World Trade Organization (WTO) case. In 2009, Beijing imposed the restriction while the country tried to develop its own industry for the 17 minerals, which are crucial to making many hi-tech products, including mobile phones. Last year, a WTO panel ruled that China had failed to show the export quotas were justified.

China dominates in rare earth production. It is estimated to be

responsible for 90% of its production, despite only having a third of the worlds deposits. Under the new guidelines, rare earths would still require an export license but the amount that can be sold abroad will no longer be covered by a quota. The United States, the European Union and Japan had complained that China was limiting exports in a bid to drive up prices. The complaint, upheld by the WTO, also said the quota was designed to gain market advantage for domestic producers with cheaper access to the raw materials.

Philips expands to medical devices with USD 1.2 billion Volcano deal lPhilips has settled to acquire US-based medical device maker Volcano Corp for USD 1.2 billion including debt, which is the largest healthcare acquisition in seven years. Philips stated the acquisition of Volcano makes equipment that allows doctors treating heart disease to see inside patients veins and measure blood flow that would lead to synergies in research and development and in sales and expects to add to Philips earnings per share. Volcano makes catheters that can slide into veins to make ultrasound scans of the interiors of blood vessels, allowing doctors to treat without putting patients under the knife.

As stated by the experts, Philips made an expensive acquisition which would make strategic sense in the long term. Philip, a diversified conglomerate that made everything from televisions to light bulbs to X-ray machines, is turning to its historic lighting division to focus on its higher-margin healthcare business. Minimally invasive surgery is the way forward where the patient goes home the next day with having less complication. Philips expects to grow in the portion of healthcare spending 5% of budgets.

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Selected Economic & Financial Indicators l% change on year-on-year

CountryGlobal domestic product Consumer prices

Unemployment rate, %

Current account balance Interest rates, % 10-year govt

bonds, latestLatest qtr 2015 latest 2014Latest 12

months, $bn% of GDP

2014United States 2.4 3.9 3.0 1.7 1.7 5.8 -389.2 -2.3 2.07China 7.3 7.8 7.0 1.4 2.1 4.1 206.0 2.4 3.64Japan -1.3 -1.9 1.1 2.9 2.7 3.5 6.8 0.3 0.37Britain 3.0 2.8 2.6 1.0 1.5 6.0 -147.5 -4.5 1.85Canada 2.6 2.8 2.4 2.4 2.0 6.6 -41.2 -2.5 1.75France 0.4 1.1 0.8 0.3 0.6 10.5 -38.0 -1.5 0.88Germany 1.2 0.3 1.3 0.6 0.9 6.6 289.6 7.0 0.60Russia 0.7 0.0 -1.0 9.1 7.6 5.1 60.3 2.6 15.80Hong Kong 2.7 6.8 2.6 5.2 4.3 3.3 4.6 1.7 1.79India 5.3 8.1 6.5 4.4 7.3 8.8 -23.4 -2.0 7.99Singapore 2.8 3.1 3.9 0.1 1.1 2.0 58.9 20.7 2.16Brazil -0.2 0.3 0.8 6.6 6.3 4.7 -84.4 -3.8 12.8Mexico 2.2 2 3.3 3.9 4.7 4.8 -25.4 -1.9 6.16

*% change on previous quarter, annual rate. Source: The Economist.** The Economist poll or Economist Intelligent Unit estimate/forecast.

The price of making a plastic bottle

Plastic bottles are ubiquitous but the cost of producing them varies dramatically around the world, thanks mainly to differences in raw-material costs and energy prices. The main type of plastic used, polyethylene terephthalate (PET), is made from naphtha, an oil derivative, which can be partly substituted with ethane, a natural-gas derivative. Very little ethane is traded internationally, so only places where natural gas is cheap and abundant use it to make PET. Because of its shale-gas boom, these now include America as well as the Middle East. Europe and Asia rely only on expensive naphtha. In these places the higher cost of fuel and electricity also push up production costs for plastic bottles.

Insight Analysis l

Markets Index Dec 16th% Change on

One WeekDec 31st, 2013

In Local currency In USDUnited States (DJIA) 17068.9 -4.1 3.0 3.0United States (S&P 500) 1972.7 -4.2 6.7 6.7United States (NAScomp) 4547.8 -4.6 8.9 8.9China (SSEA) 3165.3 5.8 42.9 39.8Japan (Nikkei 225) 16755.3 -5.9 2.8 -7.8Britain (FTSE 100) 6331.8 -3.0 -6.2 -10.9Canada (S&P TSX) 13861.5 -2.4 1.8 -7.1Germany (DAX) 9563.9 -2.3 0.1 -9.1Hong Kong (Hang Seng) 22670.5 -3.5 -2.7 -2.7India ( BSE) 26781.4 -3.7 26.5 23.3Pakistan (KSE) 30876.3 -3.8 22.2 28.0Singapore (STI) 3215.1 -3.2 1.5 -1.6

Source: The Economist

International Market Movement l

Source: IEA World Energy Outlook 2014

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MONTH IN REARVIEwBusiness-firm Specific l

Management Change l

With intent to buy tickets, people often have to spend a considerable amount of time jostling with traffic and travelling to bus counters. However, the days of waiting in queues for bus tickets seem over. As stated by a website, www.shohoz.com, the website would enable travelers to buy tickets online. In order to sell both SMS tickets and paper tickets, they accept payments by cash, mobile banking or credit cards. The company charges BDT 21 for each ticket sold online or offline and BDT 50 for home delivery. The website now sells tickets of major routes such as Dhaka to Chittagong, Khulna, Sylhet, Barisal, Coxs Bazar, Magura and Jhenaidah and travelers can also buy tickets from them by making phone calls to a designated number or via messages. Shohoz has ticketing software that is being used at bus counters and is synchronized with the website, enabling buyers to see which seats are available. The portal has provided partner operators with an online booking system which helps them manage their inventory and prevent dubious or duplicate bookings, ultimately saving costs and improving workflow efficiencies.

With intent to capitalize on the

Monthly Business Review - December 2014.pdf

Documents

Transcript of Monthly Business Review - December 2014.pdf