The burgeoning domestic market and the prospect of significant cost reductions for companies sourcing components and finished goods for international markets makes Bangladesh a compelling choice for investors.
Having become a major player in the global apparels industry, Bangladesh is now seeing the emergence of a new promising sector which can further enhance the country’s export diversity – the Light Engineering Sector (LES). This newly emerging sector has witnessed exponential growth and contributed about 1.5% to our export earnings during the financial year end June 2016. Statistics of the Export Promotion Bureau (EPB), Bangladesh show more reasons to boast. The export figure from engineering products stood at $510.08 million in FY 2015-16, making it a booster sector in our industrial policy. Additionally, time series data of the last five year shows that cumulative figures for engineering products in FY 2011-12 stood at $375.49 million. The export map had earlier shown bicycles as the leading item, whereas, now we have engineering equipment from the likes of Globatt and Duranto achieving global recognitions.
The Light Engineering Sector (LES) that draws the least attention of the policymakers has emerged as a potential cost cutting sector by producing at least 50 percent substitutes of imported items in the country. This important sub-sector is now providing critical support to industrial, agricultural and construction sectors by manufacturing a wide range of spare parts, castings, moulds and dices, oil and gas pipeline fittings and light machinery, as well as repairing those. Sector players claim that electrical goods like switch, socket, light shed, channel, cables and electrical fans, generator, which are manufactured by the LES are now meeting 48% to 52% of the country’s demands, which was earlier met through import. Export growth was estimated at 30%. The light engineering sector as ‘the mother of all sectors,’ because it provides backup support to cement, paper, jute, textile, sugar, food processing, railway, shipping, garments capital machineries by repairing and maintaining those. A recent study conducted by International Finance Corporation (IFC) in partnership with UK Department for International Development and Norwegian government shows that LES has in its employment 6,00,000 people involved in 50,000 micro enterprises and 10,000 Small and Medium Enterprises. Another study conducted by Bangladesh University of Engineering and Technology however, estimates that LES comprises of around 40,000 enterprises employing around 8,00,000 people.
The light engineering industry in Bangladesh continues to grow each year. This labor-intensive sector produces a diverse range of items, including import substitute machinery spares, plant machineries, small tools, toys, consumer items and paper products for the domestic market. Most of these enterprises are located in and around Dhaka metropolis. Entrepreneurs from China, Japan and Korea have taken advantage of Bangladesh’s cheap and easily trainable labor and its infrastructure facilities to manufacture products for the export market.
LIGHT engineering industries form an important sector of the national economy in terms of the number of units, employment and annual turnover. According to Bangladesh Engineering Industry Owners Association (BEIOA), a total of 40,000 such units are producing capital machinery, spare parts of imported machines – new or reconditioned. Their total economic value is claimed to be Tk 20,000 crore a year. The sector reportedly provides employment to some 20 lakh people. According to a recent report, export of light engineering equipment fetched US$220 million and US$189 million in 2007-08 and 2008-09 respectively. But potential of the sector cannot be fully utilised for lack of capital and support survices. In spite of having a large number of experienced technical hands, the sector cannot make innovations as they use age-old machinery. Banks and financial institutions are reportedly less interested to invest in the sector.
Bangladesh depends on foreign countries for costly capital machinery. Local light engineering industries can meet a part of the demand at cheaper prices if the industries are given financial support to produce modern machinery. These industries are already doing a significant part of maintenance works of the existing industries supplying spare parts fabricated locally and thus saving huge foreign exchange. Light engineering industries along with other SMEs are considered engines of industrialisation. They absorb more workforces and can help achieve the goal of poverty reduction.
Bangladesh has hardly any heavy industry. The country with about 30 million unemployed people needs labour intensive industries. Light engineering industries are specially suitable for their high labour intensity, innovativeness and low capital investment. Stakeholders in the sector want the authorities to create a special fund to provide loans at low interest rates. The SME Foundation may extend financial support to them. Policy support for the development of this vital sector would give rich dividends, say experts.
The import substitution sector provides critical support to industrial, agricultural and construction sectors by manufacturing a variety of spare parts. Players from this sector now claim that electrical goods like switches, sockets, light sheds, channels, cables and electrical fans and generators, which are manufactured by the LES are now meeting 48% to 52% of the country’s demand, which previously was met through imports. The LES is also called the “mother of all sectors”, because it provides back up support to cement, paper, jute, textile, sugar, food processing, railway, shipping, garments capital machineries by repairing and maintaining those.
Out of the major LES hubs in Bangladesh, the one in Rangpur–Dinajpur concentrates on producing spare parts for automobiles, railways, mills, factories and maintenance work. On the other hand, Bogra and Natore’s hub focuses more on foundry, agro-machinery, factory spares, LPC, cylinders and maintenance work. Sylhet’s hubs are focus on spare parts for mills and factories. The Dhaka-Gazipur-Narayangonj hubs rely on producing capital machinery, bicycles, construction equipment and spare parts. Khulna-Barisal hubs are concentrating on spare parts of mills, factories and industries; and the Chittagong hubs focus on ship breaking activities, spare parts for automobiles and maintenance work.
A study by Japan International Cooperation Agencies (JICA) has shown that there are a total of 40,000 small-scale light engineering enterprises in Bangladesh producing around 10,000 different types of items for construction, agriculture and other industries. Another study, conducted by the International Finance Corporation (IFC) in partnership with the UK’s Department for International Development (DFID) and the Norwegian government, shows that this sector employs around 600,000 people who are involved in 50,000 micro enterprises, and 10,000 small and medium enterprises. The study conducted by the Bangladesh University of Engineering and Technology (BUET), however, estimates that the sector comprises of around 40,000 enterprises, employing some 800,000 people. These figures are different because of the methodological variations in the studies. However, given this information, it is quite ironic how the LES draws such little attention from policy makers. This is especially alarming as it has emerged as a potential cost cutting sector by producing at least 50% the items which can be applied as import substitutes.
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