Interviewed By Akhlaqur Rahman Sachee, Team MBR

Mr. Faraaz A. Rahim is the Executive Director at Rahimafrooz Batteries Limited. He has been with the company’s Storage Power Business since 2010, in various local and international scopes, currently leading a sales and marketing force of over 100 team members and revenues exceeding USD 60 million. The company holds the position of market leader in Bangladesh and has a presence in over 50 international markets. Mr. Rahim has been a key catalyst in the company’s regrowth since the post-COVID-19 market decline. Prior to joining Rahimafrooz, he was working with Brummer & Partners Asset Management Company as an Investment Analyst. Earlier, he was with Twentieth Century Fox London in its Branding and Merchandising team, and prior to that, at Aramark Food Company USA in its Marketing and Distribution division. Mr. Rahim completed BSc in Business Administration from Boston University School of Management in 2008. He is an executive committee member of the Dhaka Chamber of Commerce & Industry and the Accumulators Battery Manufacturers & Exporters Association of Bangladesh. He is also the National Member’s Squash Champion for 2023–24 and an active member of the country’s Gulshan Club and Kurmitola Golf Club. Team MBR was fortunate enough to have a conversation with Mr. Rahim and receive his take on the battery industry in Bangladesh.

Akhlaqur Rahman Sachee: The local market size of lead-acid batteries is more than BDT 12,000 crore, and it has been observed that the market is growing at a rate of 10% to 15% every year. Would you kindly share with us what drivers are fueling the growth the local lead-acid battery manufacturing industry is experiencing?

Faraaz A. Rahim: The local market size was expected to hit BDT 12,000 crore in 2024, as per a projection that was made in 2020. However, because of the ongoing greenback crisis impacting imports of vehicles, the policy for motorcycles and three-wheeler CNG autorickshaws reducing the number of registrations, and the sluggish economic growth resulting from lower economic activities, the growth in the battery industry did not take place as projected. The only major growth in this industry arose from the backup battery segment (generator/IPS) in the last two years, which was also limited due to the dollar crisis. Currently, the market is standing at around BDT 10,000 crore. A market growth of 5% to 7% is expected in the next few years, assuming a stable recovery from the existing macro-economic situation. 

Akhlaqur Rahman Sachee: Lead-acid batteries have a wide scope of applications, which include off-grid solar panel systems, easy bikes, battery-run rickshaws, passenger transports, commercial vehicles, IPS systems, UPS systems, telecommunication towers, and so on. Would you kindly shed some light on the areas from which a major portion of the total demand is being triggered?

Faraaz A. Rahim: Among the aforementioned applications of lead-acid batteries, the major portion of the demand comes from three-wheeler electric vehicles, which are known as easy-bikes in our country. These easy-bikes use batteries of different technologies and sizes, consuming around 60% of the total production of batteries. Battery consumption by passenger cars and commercial vehicles together is around 20%. The backup and stationary segment, which includes IPS, solar panels, telco, UPS, and other systems that require power storage, consists of around 15% to 18% of the market. Other smaller segments (motive power, special usage, etc.) roughly cover around 3% to 5%.

Akhlaqur Rahman Sachee: As lithium batteries are soon going to be produced in the country, the battery industry is expected to experience significant transformations. What are your thoughts regarding the projected shift in demand for lead-acid batteries with the arrival of locally produced lithium batteries?

Faraaz A. Rahim: Lithium batteries come with both positives and negatives. It is the current best technology for power storage (not for starter battery applications), but it is not considered to be a sustainable technology. As a result, aggressive research is going on to invent new technologies, and those have been trialled in many countries already. Lithium in the battery world is considered a transient technology until a more sustainable and environmentally friendly technology can be invented for mass production.

Lithium has positive characteristics such as higher cycle life (longer life) and high power density (quick charge and power output capacity). It also has a lighter weight, and it is non-spillable. These characteristics have made the lithium battery evolve as a trending technology, particularly because the new generation of electric vehicles would not be possible without lithium batteries.

However, the downsides of lithium batteries include the relatively higher costs in comparison to lead-acid batteries, the lack of resale value, the risk of catching deadly fires while in operation, the scarcity of materials used for the production of lithium cells, and the inability to recycle lithium batteries on a large scale. The developed countries dump used batteries after refurbishing them to underdeveloped countries for applications demanding lower power performance as their recycling policy. Once the lithium batteries sold around the world reach their end-of-life cycles, they turn into hazardous piles in developing markets.

While the local production of lithium batteries is welcome to bring about positive technological changes in our storage power industry, we must be careful of the scale at which it will be produced, the ability of the local workforce to adopt the new technology, and the size of the segments of the domestic market it will be targeting. Lithium cell production requires a high level of sophistication and a high production capacity to be viable. However, for lithium batteries to be accepted for applications where lead-acid batteries are used, just replacing the lead-acid batteries or conventional batteries will not work, as the entire eco-system needs to be changed, including chargers and others. If launched successfully, a major shift is expected to come in storage applications, which include backup systems, easy-bikes, motive power, and emerging hybrid or electric vehicles. On a commercial aspect, it is yet to be understood whether our consumers are ready to spend more on a higher-technology battery (unless the application demands it), where a more economic battery technology has been proven to work over decades, having lower risk and a recyclable value of almost 30% of the cost of new ones.

Akhlaqur Rahman Sachee: Production and recycling of lead-acid batteries can have serious environmental and health impacts if not performed in regulated manners. Would you kindly share with us the practices Rahimafrooz and other prominent players in the industry follow during the production and recycling of lead-acid batteries to minimise the environmental and health impacts?

Faraaz A. Rahim: Production and recycling of lead acid batteries, if done in the correct manner, may not lead to any environmental hazards, and it is still the most environmentally sustainable battery technology with above 97% recyclability.

Rahimafrooz and some other regulated players follow standard procedures to ensure that the production and recycling of lead are not harmful to the environment. Rahimafrooz operates with ISO 9000, 14000, 45000, 17025, and 17020 certifications, including IMDG UN certification for handling dangerous goods. It is part of the culture and process at Rahimafrooz, where the company started using IOT devices to measure the water and air in its factories to continuously monitor and ensure that the parameters are within the permissible limits. 

As of today, there are approximately 6,000 to 7,000 metric tonnes of lead being recycled locally per month, where only eight players are operating in a regulated manner and more than 450 players are operating in an unregulated manner, particularly in the smelting operations. This poses a serious threat to the environment.

Allowing these unregulated players space in the market curtails the scope for regulated players to operate, as they are able to get undue advantages from the cost and tax savings that regulated players have to incur. Rahimafrooz and other regulated players, through the Accumulators Battery Manufacturers & Exporters Association of Bangladesh, are actively pursuing the government to regulate this market for safety and sustainability.

Akhlaqur Rahman Sachee: Bangladesh exported approximately USD 29 million worth of lead-acid batteries during FY2022-23 to more than 25 countries, including multiple countries in the Middle East, Australia, Malaysia, India, Korea, and so on. Will you kindly share with us the factors that have made importing lead-acid batteries from Bangladesh lucrative for these countries?

Faraaz A. Rahim: Unfortunately, in Bangladesh, more than 95% of these national battery export figures over the last few decades came from a single company, which is Rahimafrooz. This shows that it is logistically and policy-wise very difficult and unattractive to export batteries from Bangladesh, where most raw materials have to be imported. Other battery-exporting countries like India, China, Korea, Turkey, and so on have their own domestic supplies of raw materials, port facilities (direct vessels to many ports), dangerous goods handling capabilities, free-trade or preferential-trade agreements, etc., making their industries much more robust, competitive, and sustainable. The policies towards exports and engineered products are also more rewarding and beneficial in those countries, allowing for higher economies of scale and lower break-even points for the factories.

In the initial days, Bangladeshi batteries had to be sold at heavy discounts for market acceptance. This gradually changed over time, and now Bangladesh is considered to be one of the more reliable and high-quality battery manufacturers in almost all the markets it exports to. This, along with lower production lead times (due to smaller scales), the relationship built over time, and the willingness to customise (which is also costlier than standard products), allow Bangladeshi batteries to gain share in multiple markets.

Akhlaqur Rahman Sachee: Around 50% of the raw materials required to produce lead-acid batteries are imported from Thailand, Malaysia, Singapore, South Korea, China, India, and other countries. Would you kindly explain the impact of the ongoing greenback crisis on the battery manufacturing industry and how it is addressing this challenge?

Faraaz A. Rahim: In the case of exports, the earnings from dollar appreciation mostly cover the dollar required for imports, so the challenge is mitigated to some extent. However, for domestic battery production, this resulted in a severe loss in several areas. For instance, in forex, the official rate is BDT 110.50 per dollar, but the effective LC opening rate ranges between BDT 116 and BDT 122 per dollar. On the other hand, as imports have become more expensive, purchasing the raw materials locally has sometimes become inevitable. Local materials, particularly lead, since the majority of the market is unregulated, now cost about 20% to 30% more than imported materials. Also, the working capital requirements have gone up significantly, and finance costs have moved upward sharply from a 0% to 10% LC opening margin to a 100% to 110% margin. On a more severe note, even after arranging USD at high exchange rates, some countries and banks stopped accepting LCs from a few Bangladeshi banks because their previous LC commitments were not honoured.

Akhlaqur Rahman Sachee: Chinese companies operating in Bangladesh meet nearly 65% of the demand for lead-acid batteries. Would you kindly share with us why the local manufacturers are lagging behind and what policy support is required for the local manufacturers to thrive?

Faraaz A. Rahim: Around 90% of the aforementioned 65% market consists of easy bikes and e-rickshaws. This has been possible for Chinese companies primarily because of unregulated operations, no environmental licence, no labour regulation, no VAT or tax obligation, no BSTI certification, illegal Chinese workers, etc., which allow those companies to gain major competitive advantages in terms of costs over the local manufacturers. The association has raised this issue many times with various government authorities, ministries, and the Chinese Embassy, but it gets overlooked every time.

Policy support is required to create a level-playing field. For that, we must ensure that no manufacturer can operate their factories without association membership or adequate regulatory compliance. In addition to that, standardised certifications need to be introduced for the easy-bikes and the batteries while ensuring regular BSTI and other magistrate-driven investigations in the market so that it becomes difficult and troublesome for the dealers and retailers to stock and display batteries that are supplied from unregistered or unregulated factories.

Alongside, it has become crucial to reduce material import VAT and domestic battery sales VAT to 5% from 15%. This will bring all the players under the NBR framework. VAT levels can be gradually regularised over a few years. Eventually, the government’s revenues will increase because now it is not able to collect taxes from a major portion of sales from the aforementioned 65% battery market.