Written By Md. Muntasir Sakib, Team MBR

In numerous countries across the globe, there has been a substantial surge in the demand for air conditioning units. Large numbers of individuals are flocking to sellers in search of respite from prolonged heatwaves, thereby driving this heightened demand. While local brands such as Walton, Vision, and Midea offer relatively more affordable options for consumers, the prices of air conditioners remain beyond the means of the middle class. Nevertheless, despite the financial burden of both the initial purchase and subsequent power bills, people continue to gravitate towards air conditioners as they seek relief from soaring temperatures. Consequently, air conditioning units have evolved from being regarded as luxury items to becoming indispensable for promoting a healthy living environment.

Bangladesh, renowned for its tropical monsoon climate marked by heightened humidity levels and notable temperature fluctuations, has been grappling with a decline in green spaces and surface water bodies within its bustling metropolitan cities. This disheartening environmental situation has given rise to the emergence of considerably hotter regions, emphasising the urgent need for air conditioning systems to ensure optimal comfort and well-being. Notably, during the summer season, Dhaka city experiences an average temperature range of 30°C to 38°C, with a recorded peak of 40.4°C in April 2023. The outdoor conditions during this time have become unbearably harsh, characterised by scorching sunrays and relentless heatwaves sweeping across Bangladesh.

In response to this changing climate scenario, there has been a discernible surge in the purchase of air conditioners as people strive to attain respite and relief amidst these challenging circumstances. This growing demand for air conditioning units is significantly driving the sales and consumption of ACs throughout the country. According to the Harvard School of Engineering and Applied Sciences, alarming projections from researchers indicate that if greenhouse gas emissions continue their upward trajectory, it is estimated that by 2050, at least 70% of the population in various countries will be reliant on air conditioning, with even higher dependency rates anticipated in equatorial nations such as India and Indonesia.

Market Overview

According to Globe Newswire, the revenue size of Bangladesh’s air conditioner (AC) market is projected to grow at a CAGR of 15.9% during the forecast period of FY2020–26. According to Statista, the average price of an air conditioner is expected to rise to BDT 52741.93 by the year 2028.

The market has experienced a turnaround, with AC sales expected to increase by at least 30% compared to regular times, as reported by The Daily Star. Bangladesh's hot and humid climate, domestic production, and rising middle class have all contributed to the expansion of the country's air conditioning sector. The air conditioner market in Bangladesh experienced a decline during the COVID-19 era due to a complete statewide lockdown, disruption in the supply chain, financial difficulties, halted manufacturing, and decreased demand for air conditioners. According to the Business Standard, in 2020, sales of air conditioners fell to below 300,000 units compared to 450,000 units sold in 2019. However, as the economy recovered from the effects of COVID-19, the air conditioner market rebounded. According to the Business Inspection, the current size of Bangladesh's AC market is $588 million. According to Research and Markets, the AC market in Bangladesh is projected to expand in the future due to rising urbanisation and an increase in per capita income driven by Vision 2021 and 2041. Air conditioners, like refrigerators, meet approximately 65% of the local demand in Bangladesh, with 35% still being imported. According to the Financial Express, sales of air conditioners rose from 290,000 units in 2016 to 400,000 units in 2022. A report by the Daily Star indicates that industry insiders estimate that at least 500,000 units will be sold this year. Published data further shows that 28% of air conditioners are used in industries, 11% in commercial entities, and 56% in homes, as reported by The Financial Express. Market analysis reveals that 90% of air conditioner sales are generated between the months of April and May. Mr. Nurul Afser, deputy managing director of Electro Mart Limited, reported in an Asia News Network interview that AC sales had been increasing during the last 10 days of April 2023 as a heatwave swept across the country, including Dhaka. According to Statista, for the past decade, the demand for air conditioners has always been on the rise.

The Evolution of Air Conditioners from Luxury to Necessity

The first air conditioners were bulky and expensive and were primarily used for commercial purposes. Initially, whole rooms would need to be devoted to the air conditioners for the necessary venting and piping. The use of more efficient coolants allowed for the miniaturisation of air conditioning units. In 1931, the first personal air conditioners appeared, serving as the prototype for today's portable AC units. These units sat on a window ledge, much like today’s window units. These devices were power-hungry, costlier, and required more maintenance. With technological advancements, air conditioners gradually became compact and affordable, suitable for noncommercial use, with better power efficiency, better controls, and lower maintenance. Air conditioners, which were commonly seen in upper- and upper-middle-class households even in the last decade, are now becoming more common in middle-class households. Rising temperatures and affordable prices are the crucial factors behind the market boom. Air conditioner sales are predicted to rise as the country's residential sector expands and new structures in housing societies are constructed. Many individuals in Bangladesh are flocking to metropolitan areas in quest of improved job prospects, contributing to the country's rapid urbanisation. The need for infrastructure, such as new buildings, rises in conjunction with the population of cities. Air conditioning is increasingly standard in newly built structures because of its association with convenience and modernity. In addition, domestic manufacturing and technological efficiency have led to a decrease in air conditioner prices over time. Air conditioners starting at BDT 43,000 are also available in shops. Mostly, air conditioners at prices ranging from BDT 40,000 to BDT 70,000 are the most popular among household consumers.

The market is also expanding due to factors such as the increasing number of development projects and the proliferation of SMEs across major cities. Bangladesh has made great strides in reducing poverty and expanding its economy in recent years. People's ability to buy appliances like air conditioners increases as their salaries do. Many people are taking advantage of the decreasing cost of air conditioners to upgrade their comfort level. As the economy of Bangladesh improves, more and more people can afford what were once regarded as extravagant items. Consumer tastes are shifting as disposable income rises. Comfort, sleep, and productivity are just some of the advantages of air conditioning that are increasingly recognised. People are becoming more comfortable spending money on themselves as they enter the middle class. The demand for air conditioners is also benefited by the easy availability of EMI facilities via both card and cash down payment, bringing AC within the grasp of middle-class families. There has been a steady rise in the share of Bangladeshi households with electrical service. The government of Bangladesh has been hard at work modernising and expanding the country's electrical grid and generating capacity. More people will be able to afford to keep their homes comfortably cool during the warmer months as the reliability of their electricity supply increases. This has added fuel to the demand for air conditioning. More people can use cooling devices like air conditioners if they have reliable access to electricity.

Keeping the office at a pleasant temperature and humidity level is one way to keep employees present and productive. Heat exhaustion and heatstroke, brought on by extreme heat, are potentially fatal conditions. Those with specific medical issues, the elderly, and young children may require constant access to air conditioning. Mr. Tanvir Rahman Sajib, chief executive officer at Walton Air-Conditioner, told The Business Standard (TBS) that they witnessed more than 100% growth this April and more than 400% growth compared to normal time. Furthermore, according to market insiders, the local market is expected to expand by double digits due to a rise in the sales of energy-efficient air conditioning systems and the increased adoption of cutting-edge technology.

On the contrary, the global raw material crisis, low availability of semi-conductors, and dollar crisis have driven air conditioner prices up. After analysing the market, it has been found that air conditioner prices have increased by 15-20% compared to last year's prices. According to a report by the Financial Express in 2023, air conditioner prices for households have shot up, with prices increasing by about 20% compared to last year.

Local Production of Air Conditioners in Bangladesh

As per the Bangladesh Air-conditioning Equipment Importers Association (BAEIA) in 2021, domestically produced air conditioner units occupied about 70% of the market share, while the rest (30%) belonged to foreign brands.

As the import duty on raw materials for refrigerators and air conditioners has been waived until 2025, locally manufactured air conditioners are beginning to dominate the market. Also, foreign brands are being motivated to set up local production facilities in Bangladesh. To capitalise on this expanding market, global brands like Samsung and LG have established local assembly and production facilities. Mr. Mesbah Uddin Ahmed, chief marketing officer at Fair Group, implies all the local brands stepped into AC production mainly due to in-house production, according to The Business Standard. The Dhaka Tribune reported that, since 2010, as part of policy support to boost the business, local refrigerator producers have been exempt from VAT. However, they also reported that, the government imposed a 5% VAT on locally built refrigerators and air conditioners for FY2022-23 in order to make the market more competitive and increase tax collection.

The Daily Star reported that, over the past decade, local and international companies have invested approximately BDT 3000 crore in the establishment of manufacturing facilities, creating approximately 100,000 direct and indirect jobs. Since the need for air conditioning in homes and businesses alike has increased dramatically, brands like General, LG, Samsung, Hitachi, Daikin, and Mitsubishi, as well as locally manufactured brands such as Walton, Vision, and Midea, are growing in popularity in Bangladesh for making energy-efficient and high-quality air conditioners that meet a variety of requirements and budgets. The top local and foreign brands are listed as follows:

Most of the revenue from the air conditioner segment is generated in metropolitan areas, mostly Dhaka and Chittagong. According to market experts, domestically produced AC units from brands like GREE, Walton, Singer, Midea, and Vision currently account for 70%–75% of Bangladesh's market. There are a large variety of options in terms of pricing and functionality for air conditioners from both international and domestic manufacturers. The market for HVAC split systems is the largest, followed by window air conditioners. There has been a rise in demand for inverter air conditioners, which are better for the environment and use less energy.

Overcoming Challenges

The escalating demand and utilisation of air conditioners necessitate careful power planning within a country, owing to the substantial energy consumption associated with these cooling systems. The surge in air conditioner usage places a strain on the power grid, thereby intensifying the overall demand for electricity. However, the ramifications extend beyond mere power dynamics, as the widespread adoption of air conditioning engenders profound environmental consequences.

Air conditioners, being voracious consumers of energy, exert added pressure on power grids, exacerbating the release of greenhouse gases during electricity generation. Furthermore, the production, repair, and disposal of air conditioning units contribute to resource depletion and waste accumulation, exacerbating ecological concerns. Inadequate maintenance practises can also give rise to indoor air pollution, further underscoring the need for conscientious care and upkeep.

To mitigate these detrimental environmental effects, it is imperative to champion cooling technologies that prioritise energy efficiency. By endorsing such innovations, we can foster sustainable practises that minimise the carbon footprint associated with air conditioning. Simultaneously, promoting proper maintenance protocols becomes crucial to preserving air quality and reducing pollutants. Additionally, exploring alternative avenues to curtail the ecological impact of air conditioning usage stands as an essential endeavour in our pursuit of a greener future.

The author is working as a Credit Analyst at IDLC Finance Limited and can be reached at SMuntasir@IDLC.com