Multiple factors impede MSMEs’ growth

Bangladesh's highest job creating small and medium enterprises has been showing a grim picture over the last few years as their production shortfall is casting a long shadow over the nation's employment landscape, analysts said on Saturday.

The decline, exacerbated by a confluence of economic pressures and systemic challenges, is hindering job creation and, in some cases, leading to job losses across a sector that is a vital engine of employment in the country, they said.

The Micro, Small and Medium Enterprises (MSMEs) are a cornerstone of Bangladesh's economy, accounting for an estimated 90 per cent of industrial units and 80 per cent of industrial employment.

The MSMEs, contribute 7.17 per cent to the Gross Domestic Product (GDP), and play a crucial role in job creation, poverty reduction, and inclusive growth, especially for women and youth.

However, recent data from the Bangladesh Bureau of Statistics (BBS) indicates a slowdown in factory output growth, with estimates showing a drop to a mere 5.07 per cent for the fiscal year (FY) 2023-24, significantly lower than previous years.

High production costs, erratic energy supply, a surging dollar, and escalating interest rates have forced many MSMEs to operate below capacity or even shut down, threatening to reverse hard-won gains in job creation, insiders said.

An estimated 85-per cent employment of the country is created in the informal sector, which mostly deals with MSMEs.

Economists say lower growth in SMMEs means slim employment generation as these industries are the country's top generator of jobs.

Since MSMEs are the backup industry for larger ones, their production fall will ultimately affect manufacturing at bigger industries too, they add.

The Bangladesh Labour Force Survey-2022 shows an estimated 60-million people, who constitute 84.9 per cent of the total working population here, are engaged with the informal employment.

According to a recent data by the BBS, the year-on-year industrial production growth rate in MSMEs lowered to only 5.07 per cent in FY2024.

The rate was lower than that in the previous two consecutive fiscals of FY2022 and FY2023.

According to the MSMEs industrial production index, the FY2022 growth was 15.39 per cent and that in FY2023 was 9.03 per cent, according to the BBS.

According to the BBS, the country's unemployment rate rose to 4.49 per cent during July-September quarter of the year 2024 from that of 4.07 per cent in the same period a year earlier.

The political turmoil and security concerns took a toll on the production at the SMMEs resulting in an impact on the labour market.

The Bangladesh's unemployed people has been reached to 2.66 million in the third quarter of last year, an increase of 0.17 million from a year earlier.

Of the total unemployed population, jobless men accounted for 1.79 million, up from 1.64 million in the same period the previous year, while the number of unemployed women reached 0.87 million, compared with 0.85 million a year earlier, the BBS statistics showed.

Anam Ahmed, a furniture enterprise owner at capital's Shewrapara area, told the FE that their production has been dropped over the last few years as the demand for home-decors has fallen.

"We could sale nearly 250-300 units of furniture per months even before two years ago. Now it has fallen below 200 units. So, I have cut the productions at my factory," he added.

Two years back, some 30 people were working at my factory which now dropped to only 16, Mr Anam said.

 Under MSMEs, the production of machinery and equipment has dropped drastically as it marked 45.55-per cent negative growth in FY2024, BBS data showed.

Machinery and equipment output maintained positive growth in FY2022 and FY2023.

The production of wood-made goods and corks, printing and reproduction of recorded media, chemicals and chemical products; pharmaceutical products and preparations, computer, electronic and optical products, and transport equipment posted negative growth in FY2024.

Dr Zahid Hussain, a former World Bank economist, said that a gradual fall in demands has affected the production of MSMEs domestically.

The several factors including the political uncertainty, security challenges and economic and financial sector vulnerabilities are the key reasons on the way to the growth at the MSMEs, he added.

"The month-on-month real wage has been declining in the last couple of years. Thus, the purchasing power of people has fallen. So, the demand for MSME products has dropped," the economist added.

Since the demand has dropped over the years, production at smaller and medium industries has ultimately declined, said Dr Hossain.

He urged the government to supply seamless power and gas, formalise smaller manufacturing sectors and subsectors, ensure internal and external markets, and cut the inflationary pressure with intent to boost production at CMSMEs.

Policy Exchange Bangladesh Chairman Dr Masrur Reaz said as the highest number of jobs is created by MSMEs in Bangladesh, their lower growth might affect the employment.

If the trend continues, Bangladesh's employment will shrink further and people will fall behind the poverty line, he said. As these sectors are the backup industry for large manufacturers, their recovery is needed, the economist added.

"Most of the cottage, micro and small industries in Bangladesh are set up on an informal basis. They should be brought under the formal system in a bid to upgrade their capacity to create decent employment," Mr Reaz said.

Anwar Hossain Chowdhury, Managing Director of the SME Foundation told the FE that the Covid, flood in last year, July-August uprising had mainly affected the growth and production in the SMEs.

If the SMEs are affected, the employment generation as well as the country's development would be hindered, he added.

"The government would have to provide more loans and facilities to the SMEs for their recovery and flourish. Besides, the market linkage, supportive role of the big corporate to the SMEs and facilitation of the technological innovation are imperative to develop the sector," Mr Chowdhury said.

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