Business Optimism gets A New Name as LightCastle Launches Business Confidence Index 2016

An Accomplishment to take Pride in

Nestled between Chindia (China and India), Bangladesh – a country filled with hope and dreams of 160+ mn homogenous people spanning in 147,570 sqkms – surfaces as one of the most prominent, lucrative investment frontiers in the world. Despite its fair share of myriad challenges, the country has shown remarkable resilience to register a steady economic growth of 6%+ consistently over the last decade – an accomplishment to take pride in. The burgeoning private sector has increasingly played a significant role in this exciting growth. Tertiary (Services) sector has the biggest contribution to GDP growth (54%) followed by Secondary (Industry – 29%) and Primary (Agriculture – 17%) sectors. The government is trying to facilitate this amazing economic revolution by building super infrastructures. While industry like RMG has been oozing as a result of this, industries like Footwear, Frozen Food, Pharmaceuticals, Power Generation, Tourism as well as Real Estate are set and poised for exponential growth.

Business Confidence Index – why do we need it?

This remarkable evolution as a nation has brought into lime light the significance of having a confidence index that plays an important role in investors’ decision making framework for foraying new sectors or expanding existing ones. The Business Confidence Index (BCI) is exactly what this emerging nation needs at this moment to entice the investors – both domestic and foreign.

LightCastle Partners, one of the premium consulting firms of the country, being able to identify this need, launched yesterday, in strategic partnership with nation’s premium daily – The Daily Star, first ever Business Confidence Index (BCI) in Bangladesh at The Daily Star Conference Center, Dhaka. The goal of this inaugural publication is to quantify the business community’s degree of optimism and add value by packaging the findings into a single report and providing a launch pad for further study.

The Methodology

The BCI was calculated by surveying 54 C-Suite level executives covering a wide range of industries. Company representation was carefully calculated to be reflective of their respective industries. The survey was fielded between May 28th and July 1st, 2016 and the Harmonized Expectation Indicator (HEI) method was used to process the primary data.

Key Snapshots from the BCI Report

Macroeconomic Insights

This year, the score was 39, implying low to moderate levels of confidence. Most of the industry leaders have expressed optimism for Information Technology (92%) followed by Healthcare (67%), RMG (63%) and Financial Institutions (56%). More than 58% of the interviewees forecasted an increase in investments due to the prevailing low interest rates while 29% of them think that the scenario will remain unchanged. 41% of the respondents have higher export expectations in the coming year thanks to the recent infrastructures built while 43% think export figures will remain unchanged due to power & gas shortages and inefficiencies in port management. More than 72% of the industry leaders are bullish that they will be able to create more employment for the youth. Industry Specific Insights

Agro Processing: Agro-processing is still a large and growing sector thanks to the technological advancements and there is a “Huge scope for innovation”. Business Services: Due to an increased demand for digital advertising, strategic consulting and data analytics from local firms, business services firms have experienced noteworthy growth in recent times. Cement: Bangladesh’s cement consumption per capita is still among the lowest in South Asia, standing at 107 kg/person (IDLC, 2015). Despite this, huge demand is being forecasted by most major players, causing great overcapacity in the industry. Commodity: Increasing domestic demand coupled with export prospects give this industry a hope for the coming year. Consumer Durables: The rising Middle and Affluent Class (MAC) consumers have been playing a pivotal role behind the extraordinary growth story of the consumer durables industry. Though currently the total MAC population stands at 12 million, it is expanding rapidly at 10.5% annually. Considering Bangladesh maintains this growth pace by 2025, the MAC population is expected to triple to 34 million (BCG-LCP MAC Study, 2015). Consumer Electronics: Riding on increased internet penetration and cheaper phones, TVs, laptops and gadgets from local, Indian and Chinese sources, consumer electronics manufacturers/retailers are tapping into markets all over the country. Electric Power: With over 61 million people expected to be connected in the coming years, electricity generation deems to be a very lucrative industry in Bangladesh with scope for huge investment. Financial Institutions: When it comes to the overall Financial Industry, 56% of the respondents are optimistic of positive growth while when it comes to Investment Banks only, the optimism goes as high as 82%, indicating effectiveness of recent political stability and FinTech integration. FMCG: There is huge untapped potential left in the market, especially in rural areas where last-mile logistics tend to be a big barrier, giving the investors hope in efforts to capture the market share. High End Hotels: The hotel industry experienced huge demand in recent times driven by incoming business travelers and international sports events, which is expected to grow more thanks to the steadily rising economic growth. ITES: Recent success stories in the IT sector coupled with strong support from the government are the main reasons behind strong optimism in the industry. Leather: Bangladesh has the capability to participate in all steps of the value chain from rawhide collection to shipping advantages with access to the Bay of Bengal. Pharmaceuticals: Leaders in this sector did not tilt either way, remaining adamant that pharmaceuticals catering to the local market are going to remain the same in the short run. Investments and sales are expected to rise, but not to the extent that would surpass projections. Real Estate: The Real Estate sector has taken a big hit in the last 5 years, with prices being slashed all over Dhaka in an effort to generate higher demand. Industry leaders are however hopeful in a sense that if the challenges are taken into consideration properly by the government authority, things may turn positive. Steel: Executives in the steel industry unanimously agreed that there will neither be any shocking growth nor do they see any reason for demand to plummet significantly as a significant portion of this demand comes from government infrastructure projects. Ready-made Garments: Relative to the year gone by, RMG businesses have expressed significantly higher optimism for the upcoming year due to the recent political stability and un-interrupted supply chains. Problem Areas

The major problem areas cited by the industry leaders are employee incompetency (96%), absence of standardization of regulatory bodies (73%), inefficient logistics (61%) and financing constraints (53%).

Future Prospects

Industry leaders were asked to identify top 3 industries that, in their opinion, would present the highest growth opportunities in the upcoming decade and they ranked Power and Gas at the top followed by Information Technology and Ready-made Garments.

Way Forward

Industry leaders are not overwhelmingly optimistic regarding the economic performance for the coming year, however, they are not completely cynical as well. They have identified the following steps as a way forward for the coming year so as to boost the economy further and maintain the pace:

Prioritize maintaining the political stability Facilitate domestic and foreign investment in the manufacturing sector by incentivize export once domestic demand is met Increase rewards and recognition in tax payments and Connecting academic research to commercial applications Bangladesh – A New Avenue of Opportunities

Our country is at a crucial junction where we can capitalize on the youthful population and strategic geographical position to become the next Asian Tiger. Therefore, identifying and analyzing patterns in the macro-economy, taking the perspectives of business leaders over multiple periods will equip us with superior information, eventually leading to new avenues of opportunities in Bangladesh.

About LightCastle Partners

At LightCastle, we combine Technology, Data and Analytics to solve “Real Life” problems. Our solutions range from developing/implementing innovative social enterprise models to consulting for the world’s largest business conglomerates in forming market entry strategies to working with the Government of Bangladesh to implement the country’s first “open data” platform. Founded in 2013, LightCastle has collaborated with ~70 clients in 100+ engagements.