Bangladesh…The most preferredinvestment destinationin South Asia

LightEngineeringSector of Bangladesh

Jiban Bima Tower (19th Floor)10, Dilkusha Commercial AreaDhaka-1100, Bangladesh.

Phone : +880-2-957 7271Fax : +880-2-956 2312E-mail : service@boi.gov.bd Web : www.boi.gov.bd

Board of InvestmentPrime Minister’s Office

Why Bangladesh• Bangladesh offers the most liberal FDI regime in South

Asia. There is no limit on equity participation and repatriation of profits and income.

• Tax holidays and accelerated depreciation is also allowed.

• Businesses exporting at least 80% of goods or services qualify for duty free import of machineries and spares and bonded warehouse facility.

• Cash incentives for selected products.• Equal treatment for local and foreign investors.• Foreign investment is protected from expropriation and

nationalisation by the ‘Foreign Private Investment (Promotion & Protection) Act 1980’.

• Complete duty and quota free access to EU, Japan, Canada, Australia and most other developed countries.

• Investors can repatriate dividend and capital at exit.• Young and energetic work force, nearly 60% of the total

population is economically active and almost a million graduates enter the workforce annually.

• Bangladesh is a signatory to ICSID, UNCITRAL, OPIC, MIGA, WAIPA, WIPO an WTO.

Board of InvestmentPrime Minister's Office

www.boi.gov.bd

Export of Light Engineering Products in Million US Dollar

Year1971

-72

1974

-75

2003

-04

2010

-11

2013

-14

400

350

300

250

200

150

100

50

0

US$ in Millions

45.824

129.91

220

309.55

366.63

Bangladesh ...YourDream Investment

Destination

Export Scenario of Light Engineering SectorAfter satisfying local need the sector is also exporting several products to international market. Increasing trend in the graph shows promising future of the sector in international spectrum. LE products from Bangladesh mainly go to EU and USA. Exporters receive 10 percent cash incentive from the government on export value. Moreover, in the European market, Bangladeshi LE products enjoy zero duty under GSP facility.

Key recommendations for the development of LESFollowing recommendations would strengthen our domestic LES industry

• Establish light engineering industrial zone in key areas where the cluster already exists.

• Establish metal and quality testing facilities at each cluster.

• Establish technical colleges for skilled manpower.

• Establish good relationship and agreement on export facility with US, Europe and Middle East.

• Ensure access to finance and low interest fund for capacity building and expansion.

• Ensure low cost import of raw materials through duty waivers.

• Availability of data about the industry must be ensured to make strategic decision, research and development.

A glimpse on Light Engineering Sector of Bangladesh:• Light Engineering Sector (LES) has emerged as the foundation of development providing platform for industrial

growth, enhancement of trade and economic prosperity. The light engineering industries have potency to play a significant role in technological and economical development along with a vast scope of employment generation.

• Light Engineering Sector is classified as a sub-sector of Small & Medium Enterprises (SMEs). An estimate shows that there are about 40,000 light engineering industries in the country. According to the estimate around 0.6 mn semi-skilled, skilled and technically educated people and innovative entrepreneurs are actively engaged with the sector.

• In Bangladesh, over 90% of light engineering industries are serving the local needs of the people. There are strong backward and forward linkages between the light engineering industries and other sectors (such as agriculture, automobile, and transportation) of Bangladesh.

• There are about 1200 light engineering industries presently enlisted in Bangladesh Small & Cottage Industries Corporation (BSCIC) who are supplying various products (such as spare parts, equipment, capital machinery) under sub contacting scheme.

The light engineering industries of Bangladesh is currently producing more than 10,000 types of quality machinery, spares and accessories.• The consumer of light engineering products and services are both the public and private sector. Major public sector

consumers are - Sugar and Food Industries Corporation, Bangladesh chemical Industries Corporation, Bangladesh Railway, BRTA, BRTC, BIWTA, BIWTC, Port Authority, WASA, T & T, PDB, Public Health Engineering, Civil Aviation, Bangladesh Biman. The private sector is also a major consumer of the light engineering products.

• A number of potential export quality light engineering products are going to foreign market on direct and subcontracting means. These are spare parts of Paper & Cement mills, Bicycle, Fancy light fitting, Construction equipment, Battery, Voltage stabilizer, Iron chain, Cast iron articles, Carbon rod, Automobile spares, Electronics items, and Stainless steel wares.

• The infrastructure facilities (such as electricity, gas, transportation, and telecommunication) and labor cost are comparatively lower than other countries and hence the sector shows high potential for growth and development.

Industry Profit MarginAverage gross margin of the industry varies from 12% to 15% where Average net margin ranges from 6% to 8%. On the right is product wise profit margin segregation of some items of the industry.

Light Engineering Sector of Bangladesh

Ligh

t Eng

inee

ringWhat is Light Engineering Sector?

There is no specific definition of the sector; however, the generally accepted form of light engineering is an engineering enterprise that reshapes or resizes metal, steel or such raw materials into metal products. The product may be industrial machineries, spare parts, agro machineries or electronic items.Dynamics of Light Engineering Industry:There are generally three types of light engineering industries based on production process and value addition.1. Foundries:This is where Pig iron, Ferroalloys or scrap irons become cast metal. Here, the raw materials are heated until it liquefies, and is then poured into a mould to cool down and solidify. The casted iron comes out as shape of the mould which needs further processing to get finished product. Generally Cupola and Crucible furnaces are used for the melting process in Bangladesh. There are two types of foundry; one type uses iron and is called ferrous type foundries and the other type uses different non ferrous metals like aluminum, brass, lead, etc. Products such as metal casing of pumps, liners for engines, different components of engines, pumps, power tillers parts, tube well, rice hullers, oil expellers, paddy threshers, small spare parts for different engines including automobiles and different types of stop cock.2. Finishing Unit:Finishing units generally comprises of lathe, drill and cutting machines to finish the casted irons from foundry unit. Finishing of separate units of a product as well as assembling of separate parts is done here. These finishing units generally deal with generic products which can be sold to wholesalers and retailers quickly. They keep a close contact with foundry units for supplies.3. Repairing Workshops:Industrial machineries components often require repairing works which are done by the repairing shops. The work involves manufacturing spare parts, repairing old spares and assembling. These repairing workshops orders specific items from foundry units for machineries repairing.

DhakaSpare parts and complete machineries of• Construction equipment• Sapre parts of automobile• Industrial equipment and spare parts• Electrical accessories (fan, switch,

circuit breaker etc)• RMG accessories

North BengalSpare parts and complete machineries of• Processing mills (rice, flour, jute etc.)• Tractor, Power tiller, Engine• Tube well, Water pump• Spare parts of automobile

KhulnaSpare parts and complete machineries of• Processing mills (rice, flour, jute etc.)• Tube well, Water pump• Spare parts of brick manufacturing

machine

SylhetSpare parts and complete machineries of• Processing mills (rice, flour, jute etc.)

ChittagongSpare parts and complete machineries of• Mostly related to ship breaking industry• Construction material• Spare parts of automobile

Tube well & Pump 10% - 12% 5% to 6%.

Industrial Spares 12% - 15% 6% to 8%.

Plastic Products 12% - 15% 6% to 8%.

Bicycle 15% - 18% 8% - 10%

Automobile Spares 9% - 11% 4% - 6%

Electrical Accessories 10% - 12% 5% to 6%.

Product Gross Margin Net Margin

SWOT AnalysisStrength• Availability of trainable labours at competitive cost.• Minimum Duty on import of basic raw material.• LES grows as a cluster at light engineering firms

accumulated areas which is good for vendor development or clustering.

• 10% cash incentive for light engineering product export.

Weaknesses• Production facilities and technology are not

modernized.• Production management skills including TQM are at low

level.• Die-making technology is a bottleneck of LES in

Bangladesh.• Lack of technical institutions like metal testing, R&D,

quality assurance, accredited inspection.• Marketing ability is insufficient for export promotion.

Opportunities• Marketing size is huge in view of import substitution for

industrial machinery and spare parts. • Labor costs are increasing in rival countries in Asia.• Huge export potential as country’s geographical

location in-between India and China.• Government has been emphasizing on the industry’s

growth. • With future industialization, LES has huge opportunity

for growth.

Threats• Absence of cluster development projects including

Common Facility Center.• No basic steel industry in Bangladesh.• Domestic market becomes reluctant to buy domestic

products.• No international quality and testing laboratory.• Little care taken to address environmental hazards and

human safety aspects at unorganized ship breaking yards from where raw materials are procured.

Initiatives of Bangladesh Government to develop LESThe Government of Bangladesh has declared the sector as a most priority sector in its Export Policy 2003 - 2006 and thrust sector in its Industry Policy-2005. The exporters of light engineering products are enjoying 10% cash incentive to boost the export earnings.

Government has also taken the following initiatives to develop the industry:

• Concentration on spare parts of automobiles, railway, mills, factories and industries and maintenance work etc.

• Concentration on capital machinery, bicycle, construction equipment and spare parts of automobiles, industries, factories mills and maintenance work etc.

• Concentration on foundry, agro-machinery and spare parts of mills, factories, industries, LPG cylinder and maintenance work etc.

• Concentration on activities in ship breaking,

• Concentration on spare parts of automobiles, industries, factories mills and maintenance work etc.

• Product Country Map of Light Engineering Industries more concentration on maintenance work, spare parts of mills, factories and industries etc.

• Exemption from customs duty on capital machineries.

• Initiative to setup a modern light engineering part with coordination with Bangladesh Small and Cottage Industries Corporation (BSCIC) and Bangladesh Engineering Industry Owners Association (BEIOA) under PPP (Public-Private Partnership)