In any economy, confidence levels influence and provide information on social and financial developments even as the business confidence index can also be used to check growth and anticipate curves in economic activity.
However, with the Coronavirus pandemic raging across many geographical locations still, business confidence is said to have taken a hit in many countries and Bangladesh is not an exception. Thanks to the increasing cases of COVID-19 which have deepened uncertainty and threatened economic recovery, business confidence in Bangladesh has hit the lowest level in a year, plunging to 41.39 points for the April to June quarter.
And this is as per a survey by the South Asian Network on Economic Modelling (SANEM), which has been publishing the quarterly Business Confidence Index (BCI) since July last year after surveying firms on profitability, investment, employment, wage, business cost and sales/exports even as according to the fourth round of the telephone survey conducted among 503 firms from 5 April to 18 April, business confidence declined sharply to 41.39 points on a scale of 100 for the April-June quarter, from 57.90 in the last quarter.
According to reports, this was the first time the reading has fallen below 50 since the think-tank began following the business confidence a year ago.
Launched in January 2007 in Dhaka, SANEM is a non-profit research organisation registered with the Registrar of Joint Stock Companies and Firms in Bangladesh. It is also a network of economists and policy makers in South Asia with a special emphasis on economic modelling which aims to promote the production, exchange and dissemination of basic research knowledge in the areas of international trade, macro economy, poverty, labour market, environment, political economy and economic modelling besides seeking to produce objective, high quality, country- and South Asian region-specific policy and thematic research.
SANEM contributes in Governments’ policy-making by providing research supports both at individual and organisational capacities and has maintained strong research collaboration with global, regional and local think-tanks, research and development organisations, universities and individual researchers.
It may be mentioned here that a confidence level below 50 reflects a deterioration in the outlook, while a reading above 50 indicates an improvement.
According to reports, the healing economy and business sectors now face a sharp decline in business confidence, which dropped even below the level it reached at the end of the first shutdown in 2020, due to the unexpected resurgence of Coronavirus at the end of March this year even as the fourth round of the quarterly survey of business confidence in Bangladesh conducted by SANEM in collaboration with the Asia Foundation revealed that businesses’ overall status in terms of sales, business costs, wages, employments, investments and profitability had been gradually improving since June 2020 and the trend prevailed until the end of March.
Also, the outlook, held by business bosses who participated in the survey, for the very next quarter, has been improving till for January-March of 2021 since Bangladesh has successfully launched its vaccination campaign on top of a better-than-expected economic performance. But as they saw the virus reappearing with a deadlier face and the Government again had to impose restrictions on daily life to reduce infection and death rates in April, business decision makers began to fear a worse situation over the April-June quarter and that resulted in a drastic dent in the Business Confidence Index (BCI).
Meanwhile, SANEM-Asia Foundation report titled Covid-19 and Business Confidence in Bangladesh: Findings from the 4th Round of a Nationwide Firm-level Survey published virtually revealed BCI had dropped to 41.39 for the April-June quarter, which never went below 50 since the survey began in June 2020, and peaked at 57.9 for the January-March quarter.
This round of the survey provides an opportunity for a better understanding of the pulse of the economy and the sustainability of the recovery path as the Coronavirus situation has deteriorated, maintained SANEM Executive Director Selim Raihan even as according to the survey, 34 per cent of businesses had expected a strong recovery, 52 per cent moderate recovery and only 14 per cent weak recovery before the current spike in Coronavirus caseloads and deaths from the deadly virus.
The survey further underlines that the firms that had thought there might be a strong recovery even as 31 per cent of the respondents believe that there would be a moderate recovery, and a staggering 67 per cent underline that the recovery would be weak.
The deterioration is visible in all of the subcomponents of the BCI; this deterioration poses a threat to the future businesses, said the SANEM Executive Director even as the survey maintained that managers or executives of 253 manufacturing firms and 250 service sector firms were interviewed.
Over the past year, there had been some visible recovery of business activities. The improvement is visible in most of the sub-components of the Present Business Status Index (PBSI). But still, the overall PBSI is low even as the firms, on an average, reportedly have been able to recover 57 per cent of the damages that occurred from March 2020 to March 2021 even if the financial industry has been able to recoup 73 per cent of the losses, followed by pharmaceuticals and chemicals (72 per cent), readymade garment (67 per cent), and textiles (66 per cent).
The survey shows that the firms have not returned to the pre-pandemic level. Even if the business cost indicator improved slightly in the fourth round of the survey, the overall score is still less than 50 points.
Sectors that need attention on a priority basis are light engineering, transport, retail and leather and tannery as their recovery is slow, the survey underlines while adding that about 68 per cent of the surveyed firms are yet to receive any stimulus package and like in the previous three rounds of the survey, the major areas of challenges include a lack of stimulus package, lengthy procedure and difficulty in bank-related services while it goes on to add that no major improvements are observed in these indicators.
Our econometric exercises suggest that stimulus packages are having positive and significant association with firms’ recovery, said Selim Raihan, also a Professor of Economics at the University of Dhaka while adding that SMEs in all sectors should be a priority in channelling the loans and stimulus packages and added that effective implementation of the stimulus package is critically important while going on to call for assessing the stimulus packages that had been implemented so far and that needed to be redesigned and expanded.
Further, according to the survey, remittances, export of goods and services, bank’s credit to the private sector, and vaccination programmes are among the major factors contributing to the overall economic recovery even if there has been little improvement to the Enabling Business-Environment Index from January to March of 2021.
However, corruption, poor trade logistics, unfavourable tax system, access to finance and management of the crisis remain the major challenges, it underlines while Former Lead Economist of the World Bank’s Dhaka office Zahid Hussain, on his part stated the ups and downs in the infection rate would stay for around two more years and so, business confidence could pose as a double-edged sword.
“If you are too much confident that your business would perform better in future, you will expand your business through investing and hiring more. When everyone starts doing it, mobility will increase, and there will be frequent public gatherings. Thus, the prevention of the virus spread will be compromised,” said Zahid, adding, “Overconfidence could be devastating now. Not only businesses, nobody should be overconfident now as experts have unequivocally stated that overconfidence played a major role in the deterioration of the Coronavirus situation in India.”
Business confidence has always been a positive thing as it results in more investment and more economic activities but amid the pandemic, the confidence has an opposite side too as more activities might result in a surge in virus infections, said Dr Zahid.
Going by the views and opinion as expressed by the experts and the survey’s findings, the business confidence level (the score of 41.39 points for the April to June quarter), which is below 50, and reportedly reflects a deterioration in the outlook, does not augur too well, one would agree for sure.