IDLC believes, continuous learning and updated knowledge base is the precondition to become a successful professional. Since banks and financial institutions are the heart and soul of a country’s economy in order to overcome the damages caused by the pandemic, it is important for the market leaders of both banking and other industries to be on the same page and develop strategies together. Thus, every sector will be benefitted and our economy can achieve the desired V-shape recovery.

Keeping this in mind, the Corporate Division of IDLC Finance Ltd. has been arranging a series of knowledge-sharing sessions on different industries where the experienced market leaders discuss pandemic recovery strategies for their relevant industries and impart knowledge to the employees in leadership role of IDLC Finance Ltd.

First two sessions were on Bangladesh steel & rerolling industry and RMG sector. Here, the key findings of those two intensive sessions will be discussed. All the sessions have been moderated by Mr. Mesbah Uddin Ahmed, General Manager and Head of Corporate Division, IDLC Finance Limited. Moreover, Honourable MD and CEO of IDLC Finance Ltd. Mr. Arif Khan along with honorable Deputy Managing Director and Head of Business, IDLC Finance Ltd. M. Jamal Uddin were also present in the sessions and ensured their valuable contributions in the discussions.

Bangladesh Steel & Re-Rolling Industry: Before & After The Covid-19

The first session was held on June 13, 2020 and the discussed topic of which was “Bangladesh Steel & Re-Rolling Industry: Before & After The Covid-19”. As resource persons Mr. Sheikh Masadul Alam, Managing Director, Shahriar Steel Mills Ltd. (Former President Bangladesh Automatic Steel and Rerolling Mills Association) and Mr. Aameir Alihussain, Managing Director, BSRM Steel Ltd and Bangladesh Re-rolling mills Ltd. were present. In the session the resource persons shed lights on history, growth and present situation of the industry along with those challenges caused by pandemic, post pandemic scenario and possible way outs were also discussed. 

Steel & Re-rolling Industry a thriving sector of Bangladesh that supplies vital raw materials for country’s infrastructural and structural development. From the beginning, this industry has been increasing capacity gradually in order to meet almost 100% of the domestic requirement. The industry’s capacity is 7.5 Million MT/ Year against 5.5 million MT/Year demand. The industry employs nearly 1.00 million people directly or indirectly throughout the country.

The industry strategically run on overcapacity for two factors. Firstly, seasonality effect: During the rainy season, the demand is comparatively lower than usual, and the need for steel products is much higher in the winter. Therefore, manufacturers keep the capacity matching the peak time demand in the market. Secondly, long forecast: It is not possible to increase the supply instantly following the rising demand in Bangladesh. It takes around 2-3 years to set up a new plant or to increase the capacity of any given factory to a large scale by doing proper planning, land acquisition, electricity and gas capacity improvement, and other time consuming activities. However, it is seen that the utilization is around 75% of total capacity. 

The pandemic of corona virus has also taken a toll on this industry, like all other businesses. Nevertheless, those factories that do bulk raw material procurement and had ample raw materials for the last quarter could operate their factories. Still, they had to suffer due to limited transportation, closure of retail outlets in significant sales hub across the country, and government stoppage of development works for a while.

In April and May, the industry’s overall capacity utilization came down to a 40% level, as many were running in a limited capacity, and others had to stop completely. However, it started to pick-up from the beginning of June with the demand increasing and the return of employees to the manufacturing plants.

For raw materials, the manufacturers have to depend on the international market. A signification portion of the raw material (meltable scrap) is imported from Europe and America. However, the industry didn’t face any supply chain disruption, and the local generation is fine so far. As the economies of the developing countries are reopening, it is expected that there won’t be any such difficulty with procuring raw materials in the coming days as well.

Although the business scenario seems to take time around 6 months to 1 year to reach the pre-COVID level, the experts think that different government moves may help them survive. Capping interest rate to 9.00% p.a. will decrease the financing cost of these industries. Additionally, in the next Fiscal Budget AIT for raw materials import will come down to 4%, which is a positive effect on cost.

Often price fluctuation occurs for steel products in the market. Price of the steel raw materials like meltable scrap and iron ore play the primary role for this. However, major industry players are used to with this, and they follow necessary market intelligence to adapt to this price variability.

Bangladeshi Steel Industry has the potential to export steels to some countries, especially to Seven Sisters of India. But due to embargo made through increasing the tariff by state governments in India has made this unfavorable. However, if the Bangladesh government offers incentives on export, it seems a viable option.

Few big players (China-based Kunming Iron and Steel Holding Company, Japan’s Nippon Steel and Sumitomo Metal, and India’s TATA Steel) may enter the market, as reported in many national dailies. Due to the COVID scenario, the investment will be delayed by 1- 2 years because everyone’s challenge now is to reach the pre-COVID level as soon as possible because cash flow management is an essential part of the business. 

Optimism has been seen among the business owners as they can run the factories, maintaining social distancing among the workers. The demand is increasing, and many obstacles to business are gradually ridding away after the countrywide lock down eases.

RMG Sector: The Impact of COVID-19 on the Life-line of the Economy and the Days Ahead

On June 29,2020 the second session titled “ RMG Sector: The Impact of COVID-19 on the Life-line of the Economy and the Days Ahead” took place where as sponsors Mr. M. Abdur Rahim (Feroz), Vice Chairman, DBL Group and Mr. Sharif Zahir, Managing Director, Ananta Group were present. Moreover, Mr. Faruk Ahmed, SEVP & Head of Trade Services Division, The City Bank Limited was also present as representative of the banking sector.

RMG sector accounts for 84.21% of Bangladesh’s total export earnings which makes RMG the largest exporting sector as well as the biggest employer in Bangladesh. As of May, 2020, Global brands and retailers, who purchase clothing goods from Bangladesh, have cancelled & suspended work orders worth USD 3.17 Billion. It directly affected around 2.4 Million workers and the dependents of their income. 

The impact of Covid-19 in the RMG sector of Bangladesh started to be visible from the beginning of March,2020 and till now 350 factories were closed. In the session, the speakers showed concern over more factories to be shut down if the lockdown continues. Even though there are still some orders are being received due to the withdrawal of lock down in many countries, there is still a fear of second wave of transmission.

As per Mr. M. Abdur Rahim (Feroz), Vice Chairman, DBL Group, around 19% negative growth in the export earning of RMG sector is the lowest in the history of BGMEA. He also mentioned that apart from order cancellation, not being able to avail the benefit of Taka 5,000 crore stimulus package for the exportoriented industries by the government is also responsible.

Mr. Sharif Zahir, Managing Director, Ananta Group is optimistic about the situation getting better very soon. Since the stores are gradually opening around the world, the buyers will need new products. Moreover, considering the post Covid consumer buying behavior, there will be huge demand of cheap clothing and fortunately most of the products produced in Bangladesh falls under that category.

Mr. Faruk Ahmed, SEVP & Head of Trade Services Division, The City Bank Limited on the other, predicts that there will be a liquidity crunch since the buyers have been deferring the payments. Moreover, now the buyers want to make payment after selling their products. To avoid such inconvenience, he suggests to introduce products like export credit insurance, factoring etc. The industry experts also agreed that they will need new financial products in order to cater such changed payment pattern of the buyers.

The market experts believe that Bangladesh has a potential of huge market expansion in near future since China is planning on relocating their RMG business. Although, Vietnam is considered to be the strongest competitor here but Bangladesh is in more strategically preferable position to grab that market. It is because the wage in Vietnam is rising and this sector of Vietnam is not as concentrated as Bangladesh. Thus, Vietnam is more of a temporary solution for China but in the long run Bangladesh is more preferable.

This is the high time for Bangladesh to reap the benefit out of the investments it has made in order to ensure compliance in last couple of years. Moreover, all the good sides of the industry have to be communicated to the international buyers. For instance, having highest numbers of green factory, paying salary through MFS during lockdown etc. 

The buyers will now try to choose comparatively stronger and efficient factories since the lead time is decreasing which is a threat to the comparatively mediocre factories. Thus, the factories need to increase their efficiency. Moreover, a huge part of SME sector is related to this RMG sector which also needed to be taken care of.

Innovation, speedy acceptance of the new technologies and new normal norms are also necessary. For example, e-commerce is the rapidly growing platform worldwide but most of the manufacturers of Bangladesh are not aligned with it. Moreover, some policy modification is also necessary in accordance to the new normal.

MD and CEO of IDLC Finance Ltd. Mr. Arif Khan emphasized on working together in this pandemic situation considering everyones’ limitations. He also stated that openness in mind and scope of discussion are very important in such situation.