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The year that was - AIMS of Bangladesh

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									                                                B     A    N      G   L    A      D     E   S     H
                                 Yearly Economic & Market Roundup 2006
                                                       J a n u a r y       2 5,       2 0 0 7
Undaunted exports and remittances, a resilient capital market and expansion of industrial and
 service sectors continue the growth march despite grave inflation and political disr uptions
The movers                                                        The shakers
 Despite political turmoil, the overall economic feat appeared    Political turmoil ahead of a national parliamentary election
  resilient with 6.7% GDP growth in FY2005-06 against 5.5%          gripped economic, social and cultural activities of the country
  last year, which is likely to reach 7% in FY2006-07.              to a standstill for a long period.
 Bangladesh improves in corruption perception, as it loses        Bangladesh slipped into an image crisis after the first care-
  its position of the most corrupt country to Haiti, despite TI     taker government failed to create a congenial atmosphere
  reasons that this is more to the latter’s failure to improve      for holding a free, fair and credible parliamentary election in
  than Bangladesh’s success in curbing corruption.                  January 2007, which was later canceled after a new regime
 Overall balance of payment stands surplus at the end of the       took office instead.
  year despite gradual slides in the external assistance and       High inflationary pressure led by hike in prices of fuel and
  growing imports.                                                  utility services, syndicated trading of essential goods may
 Foreign exchange reserve sets a new high with $3.88b at           seriously damage projected growths.
  the end of the year, rising from $2.83b in December 2005         Utterly politicized and lack of governance plunged the law
  and $3.22b in 2004.                                               and order situation to a new low during the year, though a
 In a fully floating exchange rate regime, the local currency      desired caretaker government later came to rescue.
  for the first time experienced appreciation amid an overall      Revenue mobilization grew at moderate pace because of
  depreciation of 4.0%.                                             political uncertainty and blanket reduction of import duty
 Remittances from the expatriate Bangladeshis surpassed            that slowed import in the last quarter.
  all previous records with $5.5b, since informal transfer of      Growing expenditure forced the government to borrow
  money have continuously been discouraged along with               more as NBR fails to cope with a high target of revenue
  encouraging the formal channels.                                  collection amid utter political chaos, government already
 Number of migrant workers grew markedly despite there             exceeded its annual target of borrowing in just 6 months.
  were various political and social disruptions across the         Sales of savings instruments shot sharply after increase in
  world and deepening crises at home.                               interest rates, which raised cost of government borrowing.
 Exports continued to rally, and poised to exceed $11.6b,         Extremely low foreign assistance due to bureaucratic red-
  despite frequent disturbance in production and shipment           tapes posed by the political intervention and interministerial
  because of continuous political mayhem.                           incursions on respective jurisdictions have slowed many
 Export earning from Export Processing Zones (EPZs) has            development projects.
  set remarkable growth of 73%.                                    Implementation of annual development program (ADP) has
 Import grew at 16.7% despite a reported slide in the last         grown by 6% in the first quarter of FY2006-07 due to hasty
  quarter due to political uncertainty, and bulk of the growth      disbursement by the last political regime, but later slowed to
  comes from capital machinery, industrial raw materials, etc       almost halt because of reluctance by CTG to finance the
  hinting expansion of production.                                  largely politically influenced projects.
 Trade deficit comes below $500 at the end of the year due        Classified loans with SoEs continue to grow as Bangladesh
  to rise in export and concomitant restraint in import.            Petroleum Corporation, mired in deep trouble due to sudden
                                                                    hikes in oil prices in the international market.
 Overall classified loans in banks slumps to 14.3% at the
  end of third quarter of the year, though it increased in the     Provision shortfall against bad debts in the banking sector
  private banks.                                                    jumped by over 50% during the year, due to the yawning
                                                                    shortage in nationalized commercial banks.
 Disbursement of industrial term loans soared despite rate
  hike, indicating a greater appetite for industrial expansion.    Pace of poverty reduction and social development activities
                                                                    was slow due to delay in release of foreign funds of some
 Teledensity shot to 14.3% with mobile phone connections
                                                                    NGOs.
  exceeding 20m at the end of the year.
                                                                   The rich-poor gap widens more during the year, as inflation
 Capital market shakes up at the end of the year after the
                                                                    spurred by the conspicuous spending of the ill-earning rich
  caretaker government (CTG) assumed office, though index
                                                                    plunges the hard-earning poor to a more marginal situation.
  was at low ebb throughout the year.
                                                                   Bangladesh missed the proposed infrastructure megalink of
 Though decreased in number, IPOs raised more money in             Trans-Asian Railway where 18 Asian nations signed treaty
  the capital market with similar subscription zeal.                to integrate the continent into a single railway network, as it
 Newly formed caretaker government emphasized more or              in principle opted for.
  curbing grafts, inordinate inflation spurred by syndicated       Budgetary incentives forced the black money holders dole
  trading, and widespread lawlessness at various political          out their money into real estate making the sector pricey for
  hierarchies.                                                      other hard income-earners.
                                                                     2


The year that was                                                        The year also saw an improved image of the country with Dr
The year 2006 was a crucial juncture of time for Bangladesh              Yunus’ receiving of the prestigious Nobel Peace Prize. The
that steps into a new realm of sociopolitical and economic               global attention to local politics and economy also grew with
sphere. First, it was the concluding year of the stint for the           this achievement. If the new caretaker government can hold
ruling coalition, and the national parliamentary election was            the national election as desired, i.e. free and fair, the image
supposed to be held in January 2007. But the first caretaker             would further be improved, which would attract more foreign
government failed to create any impetus for the opposition               direct investment to and prelude exports from Bangladesh.
political parties in particular and the general citizenry as a           Global scenario in 2006
whole that the government was neutral and independent in                 As the year 2006 had been turbulent, vibrant and somewhat
action to deliver a free, fair and credible election. Though later       catastrophic for many, the world economy, which had been
in January 2007 a second caretaker government took office to             growing rapidly for the past 4 years, is expected to advance at
its rescue, but the year had concluded with utter political              slower pace in 2007, as some leading developed economies,
chaos, confrontation and uncertainty. Second, despite there              including USA, began to slide during the last half of the year.
was political turbulence throughout the year, some social and            International Monetary Fund (IMF) estimated that the global
economic activities were visibly nonchalant towards it.                  economy has grown 5.1% in 2006, higher than 4.9% in 2005,
Exports, remittances, currency and the capital market defied             making the past four years the fastest-growing period since
any political doomsaying, while people became increasingly               1970s. The robust growth was mainly attributed to vigorous
louder against corruptions in the political and bureaucratic             expansion of developed economies in the first half of the year,
echelons, black money, political degeneration and flexing of             particularly in the first quarter, and the sustained fast growth
muscles in making quick fortunes. Third, with gradual rise in            of China, India and other such major developing economies.
the country’s strategic importance in business, geopolitics and
natural resources, Bangladesh attracted attention from the               Last September, IMF predicted a 4.9% growth for the global
venture investors of US, Europe, East Asia, and Middle East              economy in 2007, but later hinted that the projection could be
countries. In socioeconomic sphere, winning of Nobel Peace               revised downward. World Bank (WB) has also shared IMF’s
Prize by Dr Muhammad Yunus and his dream-child Grameen                   prediction, arguing that the global economy had arrived at a
Bank added to it a great deal. Empowerment of women,                     point of inflexion in 2006. Among the 3 largest economies only
immunization of children and poverty alleviation are few other           the euro-zone economy has maintained a relatively strong
sectors where Bangladesh achieved dazzling performance.                  trend of growth, while US and Japanese economies slowed
                                                                         down noticeably since the second quarter of 2006. Thwarted
These factors had mixed impact on the country’s economic,                by a drastic plunge in investment in the housing industry, US
political and social sectors throughout the year. As political           economic growth slid to 2.6% in the second quarter and
confrontation became the order of the day with the leading               dropped further to 2% in the third, from a hefty 5.6% in the
political parties’ egocentric movements, production of goods             first. The Japanese economy, which is currently wrecked by
and services had been the first victim. This coupled with a              the weak individual consumption, has grown 2.7% in the first
price hike of petroleum fuels in the international market and            quarter last year, but slowed to 1.1% and 0.8% in the second
hidden cost of business spurred inflation that gobbled not only          and third quarters. Compared to same period in 2005, the
the incremental income arisen out of the growth, but also                euro-zone economy grew 2.2%, 2.8% and 2.7%, respectively.
reduced it to a level below previous mark.
                                                                         Both the developed and developing economies are likely to
Besides, there was increasing number of corruption cases                 experience a slowdown in 2007. According to the prediction of
revealing in the media that drew flak from almost all walks of           Organization of Economic Cooperation & Development (OECD)
life. People close to the ruling parties as well as bureaucracy          last November, average growth rate of its member economies
across the country became the prime predators on national                would decline to 2.5% in 2007 from 3.2% last year. Among
resources. These raised hackles among the general public,                them, US would decelerate to 2.4% from 3.3% in 2006, Japan
who began to voice against further degeneration. Increasing              to 2% from 2.8%, and the euro-area to 2.2% from 2.6%.
awareness among the civil society on corruption and abuses               World Bank (WB) predicted that the developing countries
of national resources soon has graduated to an organized                 would slow down to 6.4% in growth in 2007 from 7.0% last
movement with the renowned citizens at the forefront. Their              year. As per WB, China’s economy would slide a bit in 2007,
apt demand to cleanse the politics of corruption and use of              as its government takes further measures in terms of macro-
muscles, reform the electoral process, exclude the ill gotten            economic regulation and control, while that of India would
money-holders and uphold a democratic, secular and tolerant              grow 7.7%, slightly lower than 8.7% in 2006.
image of the country in fact forced the new CTG to make
some real and visible drives.                                            Economists hinge prospects of the world economy in 2007
                                                                         mainly on US and the prices of oil. They predicted that if the
During the year, media emerged as a sovereign forth column               US economy cooled further, the global economy would slow
of the state. Despite founded by the people close to the ruling          down. Oil prices could be affected by unpredictable factors
circle, most electronic media along with the print ones served           like Iranian nuclear crisis, climate changes and deteriorating
interest of the general people. Media now enjoys enormous                situation in Iraq. Nonetheless, global economy is likely to
freedom that would help the country get rid of its perennial             boom in 2007, since USA, Japan and the euro zone are all
curses. That is why the new caretaker government excluded                expected to sustain moderate growth, while the developing
media from the bans in its state of emergency imposed in the             economies would remain vibrant. World Bank projected that
second week of January 2007.                                             with the increase of crude oil production and low demand at
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                                                                    3


high prices, oil prices could continue to decline in 2007 and           as the most corrupt one for the past 5 consecutive years. CPI
2008 that would spur consumption and curb inflation, thus               annually ranks countries in terms of the degree of the political
reducing pressure for monetary authorities to adopt rigorous            and institutional corruption. Haiti, a Caribbean state, replaced
policies. Optimistic economists believe that the developing             Bangladesh’s position as the most corrupt country in the TI’s
economies in Asia, which are playing an increasing role in              CPI of 2006, while Guinea in Africa and Iraq and Myanmar in
driving world growth, would to some extent offset the impact            Asia are jointly placed as second. Bangladesh is accompanied
of slow US growth on the global economy. Asia contributed               by African countries of Chad, Democratic Republic of Congo
21% to the world economic growth since 2001, higher than                and Sudan with 2 points out of 10, while Haiti bottomed with
19% made by US.                                                         1.8 points and Guinea, Iraq and Myanmar bagged 1.9 points
GDP to grow over 7%                                                     each. Finland, Iceland and New Zealand were on the top of
                                                                        the list with 9.6 points. Bangladesh was bottom in the CPI
As hope boosted by some positive signs of political stability           index with 0.4 point in 2001, 1.2 points in 2002, 1.3 points in
Bangladesh is now poised to achieve a 7.0% growth in the                2003, 1.5 points in 2004 and 1.7 points in 2005.
fiscal year to conclude at June 2007, maintained a cautious
                                                                        Instead of confirming a decrease in corruption, TI has rather
Bangladesh Bank governor. In the last fiscal year, growth was
                                                                        attributed Bangladesh’s apparent improvement in position to
6.7%. Among the GDP basket agriculture is expected to grow
                                                                        the poorer performance by some other countries, as there
at a paltry rate, while industry at a moderate and service
                                                                        was no real drop in corruption levels. TI Bangladesh chapter
sector at a boisterous rate. Though the estimates are not
                                                                        explained that points have increased for Bangladesh due to
available, it is learnt that the prime credit goes to the private
                                                                        enhancement in the number of institutions from where data
sector that has grown by 18.8% year on year as of November
                                                                        and information are gathered. Earlier in 2001 TI gathered data
2006. The central bank expectation is likely to come true as
                                                                        from 3 organizations, but this year it took data from 6
all indicators are there that the election, which was supposed
                                                                        organizations. The report has been based on perception of
to be held at January end 2007, may not be held before June
                                                                        businessmen, politicians, bureaucrats and corruption analysts
2007, since the proposed introduction of voter identity cards
                                                                        as surveyed by various organizations.
would not be finished within a period shorter than 6 months.
Under a caretaker government (CTG), economic activities are             Among 163 countries surveyed, 71 countries scored below 3.
expected to take place faster than that of a political regime,          In South Asia, Bhutan has scored the highest with 6 points,
which is usually marked by confrontation, strikes and chaos.            securing 32nd position in TI index, while India was placed in
                                                                        70th position with 3.3 points, Sri Lanka in 84 th with 3.1 points
Bangladesh dropped in competitiveness                                   and Pakistan in 142nd with 2.2 points.
Despite better growth and other positive economic indicators,           ADP spending spree
Bangladesh slipped by another position down in the Global
Competitiveness Index 2006, released by World Economic                  Some 886 projects were included in Annual Development
Forum, ranking 99th among 125 countries. Last year it stood             Program (ADP) of FY2006-07, nearly half being unapproved
98th among 117 countries. Poor performance in infrastructure            ones with no allocation against. The government disbursed
and institutions pushed the position to lower level.                    Tk42.93b or 25% of the proposed ADP of Tk260.0b during the
                                                                        first quarter of FY2006-07, up by 6% over the last quarter.
Bangladesh ranked 121st in institutions and 117th in infra-
                                                                        Though seemingly normal in total share of size, usually no
structure, but in macroeconomy it ranked 47th. Other than
                                                                        more than 10% is disbursed in the first quarter due to usual
Bangladesh, every country in South Asia gained in position.
                                                                        delay in planning and approving of projects and schemes. The
As Nepal is included for the first time in the report and ranked
                                                                        spending spree by the last regime at the fag end of its tenure
110th, Bangladesh placed 3rd among 4 South Asian countries.
                                                                        has mostly been aimed at funding image-boosting schemes,
India ranked 43rd this year, up from 45th last year, while Sri
                                                                        as dubbed by the finance and planning ministry.
Lanka moved to 79th position from 80th and Pakistan up to 91st
position from 94th last year. Bangladesh fared only better than         Poverty nonchalant, as rich-poor gap yawns
some poorer African and Asian states like Nigeria, Cambodia,            The country's struggle against poverty gathers momentum, as
Cameroon, Nepal and Zambia, while Angola is ranked the                  all development spending has for the past few years been
lowest position at 125th.                                               routed to the poverty alleviation. But the enormity of poverty
Though overall rank was 99, in basic requirement Bangladesh             leaves little room for any perceived change within the short
stood at 96th, in efficiency enhancers at 108th and in innovation       period. Recently a study carried out by Bangladesh Institute of
factors 104th position. It also shows that Switzerland, Finland         Development Studies (BIDS) in cooperation with Chronic
and Sweden are top 3 economies, while Denmark, Singapore,               Poverty Research Center (CPRC) of UK revealed that about
USA, Japan, Germany, Netherlands and UK follow to fill the list         19% of the rural households cannot afford 3 meals a day,
of top 10. USA shows the most pronounced drop, falling from             while around 10% subsist on 2 meals or less for a number of
1st to 6th. Over 11,000 business leaders had been polled in a           months every year. While Bangladesh has come out of the
record 125 economies worldwide this year.                               shadow of famine, problems of starvation still persist, and
Corruption perception improved                                          24% of the total population currently lives in extreme income
                                                                        poverty.
Bangladesh has been ranked the third most corrupt country in
                                                                        The study revealed that around 31% of the rural population
a recent corruption perception index (CPI) by the Berlin-based
                                                                        suffered indignity of chronic poverty, i.e. low consumption,
Transparency International (TI), finally jettisoning its position
                                                                        hunger, malnutrition, lack of access to basic health services,
             ASSET & INVESTMENT MANAGEMENT SERVICES OF BANGLADESH LIMITED
                            Chandrashila SuvastuTower (5th floor), 69/1 Panthopath, Dhaka 1205, Bangladesh
     Tel : (+88-02) 862 1821-3; Fax : (+88-02) 862 1109; e-mail : aims@aims-bangladesh.com; web: http://www.aims-bangladesh.com
                                                                     4


illiteracy and other deprivations. Some 25m to 30m citizens              has collected only Tk158.23b in the July-December period,
are chronically poor. Despite the country does not provide an            the first half of the FY2006-07, against a targeted 205.27b,
easy context for poverty reduction, the recent growths, overall          and with a shortfall of Tk47.04b. Despite VAT and tax were up
improvement in services and resilience and innovation of the             to the mark, collection of duties was too poor to reach at a
poorest however augur well. It noted that Bangladesh was                 comfortable vicinity to the target. Terming the revenue target
well on its way to achieve most of the millennium development            ambitious and the drawn-out political unrest that hampered
goals (MDG) save reduction in poverty, maternal mortality rate,          business activities as a major reason for the poor revenue
and in under-5 mortality rate, an a key social indicator, adult          generation NBR refixed its annual collection target of customs
illiteracy.                                                              duty at Tk176.0b from Tk186.0b set earlier.
Though Bangladesh has achieved an average annual GDP                     Tax breaks to various corporations and big business cost the
growth of 5.4% over the last decade, people had not been                 government a large amount every year. Major areas of such
able to reap much benefits from such growths, since disparity            tax exemption include tax holiday, tax deduction, tax at the
in incomes between the richest and poorest section widened               concessionary rates, accelerated depreciation, deferrals and
alarmingly, found a study by Center for Law Research and                 tax credit. Currently tax exemption is given to corporate sector
Support. In FY1995-96, the top 5% of the poorest people                  under 22 categories. Last year the government lost Tk3.5b in
shared only 0.88% of GDP, while the top 5% of the richest                foregone revenue, a study by NBR revealed.
shared 23.62%. In 2000 the top 5% of the poorest people                  Inflation gnawed on growth
went down to 0.67% of GDP, while the top 5% of the richest
increased to 30.66%. Though no figure has been revealed for              Inflation was one of the most menacing factors in Bangladesh
2006, the picture is not expected to change positively, as the           economy during the past 5 years, as the last political regime
year was worse than 2005 for the poor.                                   failed to check syndicated trading of essential goods, which
                                                                         were allegedly perpetrated by the people with close relation to
Government borrowing shot high                                           the ruling clique. This spurred inflation to over 8% a year. The
Government borrowing from domestic sources, mainly banks                 first CTG also failed to dismantle such syndicates as it was
and savings instruments, marked a significant rise during the            busier with meddling political feuds between the rival alliances
year. Its severity peaked at the end of the year when it hit a           than curbing black marketing or inflation.
decade-high of Tk63.65b. Of these, Tk38.52b was borrowed                 Point-to-point inflation calculation carried out by Bangladesh
from scheduled banks, particularly nationalized commercial               Bureau of Statistics (BBS) shows that at the end of November
banks (NCBs), and the remaining Tk25.12b from Bangladesh                 it was 6.37%. Inflation was measured at 6.7% in the rural and
Bank. Decline in the foreign aid and government earning from             5.53% in the urban area. It came down from 7.39% and
revenue collection has apparently caused such an upsurge in              7.13% respectively in October 2006. It is noted that deficiency
borrowing. It also resulted from a stark inconsistency between           in food production, dependence on the imported goods like
earning and expenditure of the last political regime that                fertilizer and consumer goods, etc are some of the reasons
resorted to significant raise in expenditure at the fag end of its       why rural people faced more inflationary bite. Inflation has not
tenure.                                                                  only reduced purchase capacity of the poor that plunged them
During July-September of 2006, government borrowing from                 to a new marginality, but also made growths in many sectors
banks went up by 197%, reaching at Tk23.13b, as against                  evaporate outright.
Tk7.77b in the last corresponding period. Apart from this,               Export keeps growing faster despite political odds
borrowing from savings instruments has reached Tk12.09b,
recording a 137% increase against Tk5.10b in the previous                Despite there was an ongoing political crisis since the very
year. In July-October period the borrowing further increased             beginning of the year, export continued its roaring march as
with the last political regime’s departure. Just before quitting         usual. During the first 11 months of 2006 exports totaled at
power, the regime hurriedly focused much on implementing                 $10,622m against all odds at home and abroad. Earning was
internal resource-funded projects instead of donors-funded               $2,63m more than $8,359m in same period last year. If the
projects in order to duck away donor pressure to abide by                trend continues, total exports would cross $11,600m in 2006.
their conditions for providing assistance. The first CTG, within         Readymade garments and knitwear maintain strong growth as
just one week after assuming power, borrowed Tk6.5b from                 usual and commanded over three-fourths of total export
banks, raising the total bank loan taken by the government to            revenues. While earnings from frozen food, home textiles,
Tk49.31b, of which Tk26.89b was from commercial banks,                   footwear, raw jute, jute goods, leather, bicycle and textile
and the remaining Tk22.43b from Bangladesh Bank. Shortfall               fabrics showed growth, vegetables, tobacco and tea marked a
in revenue earning and absence of any initiative for reducing            decline over the same period last year.
expenditure are two major reasons for such a huge amount of              The export felt the initial bites of political confrontation sharp
bank loans.                                                              at the end of third quarter of the year, when the opposition
Revenue collection dipped                                                allies began to call hartals and sit-in programs that hit the port
                                                                         operation hard. Many garments exports had reportedly been
Revenue collection by the National Board of Revenue (NBR)
                                                                         cancelled thanks to failure to comply with the deadline. Till the
remains much lower than targeted in the last annual budget
                                                                         second week of January 2007, transport of exportable goods
made in June 2006, because of lowered tax rates on many
                                                                         faced various disruptions. Although by the second week of
import goods, lower imports (than expected) due to political
                                                                         January 2007 port operations sprang back to life, it was one
crises and failure to launch the desired collection efforts. NBR
                                                                         of the most disturbing factors for exporters that forced them to
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     Tel : (+88-02) 862 1821-3; Fax : (+88-02) 862 1109; e-mail : aims@aims-bangladesh.com; web: http://www.aims-bangladesh.com
                                                                     5


request the CTG to declare a state of emergency, which now               that consumption of edible oil has been soared by the rural
has been imposed on the country indeed. The following table              population in recent times, since their buying capacity has
shows the month-wise export for the past 5 years (figures in             improved, which also prompted its import in greater volume.
m$):                                                                     In 2006 the local oil millers imported some 1.27m tons of
 Period          2002      2003      2004      2005      2006            crude edible oil, which is about 17% more than 1.09m tons in
 January          539       569       730       663       856            2005. They also imported about 0.88m tons of crude palm oil,
 February         497       482       463       650       822            0.32m tons of crude soybean oil and 0.05m tons of mustard
                                                                         oil seeds. Besides, food processing industries, now booming
 March            418       514       628       699       891
                                                                         in urban areas, raised demand for food ingredients greatly.
 April            428       533       629       643       846
                                                                         Total spending on edible oil imports in 2006 is nearly $800m.
 May              531       618       717       823      1,045
                                                                         Annual average per capita consumption of edible oil in the
 June             576       676       836       870      1,116
                                                                         rural area is now about 4.5 kg compared to 3.5 kg a couple of
 July             612       678       868       904      1,143           years back, and 8 kg in urban areas. But it is still far below the
 August           609       637       827       849      1,158           prescribed health standard of 9 kg, as well as compared to
 September        506       584       673       720       958            other countries like India (12 kg), Pakistan (16 kg) and USA
 October          460       516       604       873       871            (45 kg).
 November         440       558       528       665       916
                                                                         The table below shows the calendar year-wise actual export
 December         530       626       744       904       NA
                                                                         and import for the past 5 years: (figures in m$)
 Total           6,147     6,990     8,248     9,264    10,622
                                                                             Year       Export        Growth        Import       Growth
Import grew amid caution
                                                                             2002        6,066         0.55%         8,555        5.87%
The cost of import has grown up by 11.6% during the first 3                  2003        6,990        15.24%         9,374        9.57%
quarters of the year 2006 over the same period last year, due                2004        8,302        18.77%        10,839       15.63%
mainly to increased oil prices and higher imports of essential
                                                                             2005        9,264        11.59%        13,872       18.58%
goods. Spending on import of petroleum fuels has increased
substantially during the period, while import of sugar, pulse,               2006       10,622 a     25.88%   b    12,118  c     16.68%d
onion, spices and edible oil grew more than 40% on average.
                                                                         a   up to November 2006    b   growth based on corresponding period
                                                                         c   up to September 2006   d   growth based on corresponding period
Import costs of industrial inputs like capital machinery, other
machinery, raw cotton and scrap vessels rose at a moderate               FDI: More repatriated than invested
pace. Other major imports included rice, wheat, fresh and dry
                                                                         The country received foreign direct investment (FDI) worth
fruits, dairy food, edible oil, drugs, oil and seeds, raw cotton
                                                                         $400m in the last 6 months of the year, while target for the
and synthetic fiber, yarn and textile fabrics and accessories
                                                                         period was $500m. FDI inflows recorded a sharp decline in
for garments. Although surge in import remained halted for
                                                                         the last quarter, but with noted improvements in the political
the last couple of months, it reportedly shot again after the
                                                                         situation, and if the CTG approves large investment proposals
new CTG had taken office in January 2007.
                                                                         lying pending, target for the first half of 2007 would easily be
The following table shows month-wise import for the past 5               achieved.
years (figures in m$):
                                                                         Foreign investors have taken out more money than they have
Period         2002       2003       2004      2005          2006        pumped into Bangladesh in the last 5 years mainly through
January          634       743        857      1,076         1,165       profit repatriation and repayment of loans with foreign banks.
February         532       681        782      1,201         1,209       Out of several hundred foreign investors in the country, a few
March            988      1,147       983      1,280         1,338       mobile phone companies dominate the said outflow of capital,
April            650       770        937      1,197         1,411       followed by oil and gas companies and foreign banks. Since
May              686       796      1,035      1,099         1,387       2001 investors who made total foreign direct investment (FDI)
June             879      1,297     1,316      1,162         1,378       of $2,185m have eventually repatriated $2,744m. FDI records
July             638       826        967      1,122         1,351       for 1996 to 2005 show the investors remitted $3,626m or 81%
August           599       850        994      1,194         1,302       of their investment of $4,457m. Data shows that between the
September        727       850      1,009      1,055         1,577       period of 1996 and 2000, the country enjoyed a higher rate of
October          735       828      1,068      1,122          NA         FDI inflow with a lower outflow of profit and loan repayment.
November         723       747      1,055      1,158          NA         Investors in telecommunications sector claim 36% of the total
December         797       991      1,040      1,207          NA         FDI, textiles 18% and chemical industries 7%, oil companies
                                                                         18%, banks 10%, while power companies claim the rest 2%,
Total          8,588 10,527 12,043 13,872 12,118
                                                                         as reveals the Board of Investment (BoI).
Import of consumer goods soared during the past couple of
                                                                         The main outflow of money is taking place in service sector,
years after import of essential goods was usurped allegedly
                                                                         i.e. telecommunications and energy that do not export any
by a handful of politico-business syndicates close to the ruling
                                                                         goods or employ any large manpower. Cutting as a double-
circle. Especially, imports of edible oil, sugar, lentil, rice and
                                                                         edged sword, the sectors even are not willing to get their
onions fell completely to the avarice of these syndicates. But
                                                                         companies listed with the local stock exchanges, which could
there were some other reasons as well. For example, import
                                                                         retain a certain part of the profits home. The situation in fact
of edible oil grew radically after there had been exorbitant
                                                                         has been created by the licensing and regulatory authorities
price hikes in the domestic market, but it was also revealed
             ASSET & INVESTMENT MANAGEMENT SERVICES OF BANGLADESH LIMITED
                            Chandrashila SuvastuTower (5th floor), 69/1 Panthopath, Dhaka 1205, Bangladesh
     Tel : (+88-02) 862 1821-3; Fax : (+88-02) 862 1109; e-mail : aims@aims-bangladesh.com; web: http://www.aims-bangladesh.com
                                                                    6


themselves, who ignored the public interest while inviting and          The flow of remittance soared by nearly 150% in the last 5
signing investment agreements with the foreign companies.               years, while overseas manpower employment has doubled. In
The following table shows inflow-outflow situation for 5 years:         2006 some 0.40m people left the country for joining jobs
 Year      FDI inflow         FDI outflow           % outflow           overseas, compared to 0.20m in 2001 and 0.252m in 2005.
                            Profit     Loan         of inflow           United Arab Emirates alone hired the single highest number
 2001        $355m         $175m      $188m         102.25%             of 130,204 people, while Saudi Arabia employed 109,513 in
 2002        $328m         $195m      $243m         133.54%             2006 alone. compared to 61,978 and 80,425 in 2005. Other
                                                                        countries that hired Bangladeshi workers include Kuwait with
 2003        $350m         $355m      $229m         166.86%
                                                                        35,775, Malaysia 20,469, Bahrain 16,355, Oman 8,082, and
 2004        $460m         $338m      $372m         154.35%
                                                                        Qatar 7,691 workers.
 2005        $692m         $418m      $208m          90.46%
                                                                        During the CTG era, the number of workers migrating abroad
Within January-May 2006 period, investors repatriated $180m             marked a sharp rise, as it was about 46,474 in November and
in profit. Economists suggest that if the country fails to raise        49,012 in December alone. At present over 50% of around
overall FDI inflow, especially in the manufacturing sector, it          5.0m migrant workers and professionals are in the Middle
might soon face a dire impact on the balance of payment.                East region, who send about 70% of the total remittances.
During the year the Export Processing Zone (EPZ) attracted a            Bangladesh earned over $41.4b as remittances in the past 3
substantial amounts of FDI. Bangladesh Export Processing                decades, since overseas employment market was opened for
Zone Authority (BEPZA) has approved proposals of some 48                the local skilled and semiskilled workers in 1976. The number
companies to invest $375.2m that would create some 45,118               of Bangladeshis absorbed in overseas jobs now stands at
employments. Last year investments in EPZs were $192.3m                 4.55m, of which 0.062m are women. Of them only 0.973m
with nearly 43,000 employments. Of these 48 companies 19                migrant workers have been covered by the official database
were 100% foreign-owned, 10 joint ventures and the rest 19              launched in 2004. However, unofficial sources suggest that
local. EPZ’s aggressive campaign among the domestic and                 the size of Bangladeshi diaspora was over 7.0m thanks to the
foreign investors about the unique facilities for investment in         safe presence of a large number of undocumented workers in
EPZ areas helped boost the overall investment figure in 2006.           many countries with blessings of the employers.
Meanwhile a new EPZ, Karnaphuli Export Processing Zone
(KEPZ), is going to be launched soon with 222.42 acres of               Forex reserve inched up
land. It is projected to receive an investment of Tk3.60b and           Bangladesh Bank’s foreign exchange reserves reached an all-
an annual export target of Tk2.5b. It will create employment            time high last year thanks to a rise in remittance inflows and
opportunities for nearly 50,000 people. The new EPZ is to be            export earnings. The gross foreign exchange reserve at the
set up on the land earlier had received from Chittagong Steel           end of December stood at $3,877m, equivalent to imports in
Mills, an SoE that was closed in 1999 as a losing concern.              2.9 months, up from $3,533m at the end of November 2006,
Remittances continue to amaze                                           compared to last year’s $2,826m. The table below for growth
                                                                        of the reserve for the past few years shows that the reserve
During the year 2006 remittances from migrant Bangladeshi               does not exhibit any consistent performance, though exports
workers performed remarkably in the context of an equally               and imports grew at a steady rate:
turbulent global and domestic scenario. A belligerent middle-
east situation further aggravated by the oil price instability, a          Year        Foreign Exchange Reserve               Growth
more hawkish northern America toward the immigrants and                    2000                $1,602.1m                       5.17%
impatient Europe played down attempts to send more workers                 2001                $1,305.5m                     (18.51%)
to these regions, but the remittances have kept its upward                 2002                $1,722.2m                      31.92%
pace unbridled with East Asia coming forward. In 2006 over                 2003                $2,624.1m                      52.37%
$5,485m was remitted by the expatriate workers, registering a
                                                                           2004                $3,222.6m                      22.81%
29.06% growth over the last year’s $4,250m. The table shows
month-wise inflow of remittances for 5 years (figures in m$):              2005                $2,825.8m                     (12.31%)
                                                                           2006                $3,877.0m                      39.89%
Period         2002      2003       2004      2005      2006
January        252.3     275.6      357.1     316.3     396.0           Though Bangladesh already crossed the $4.0b mark right in
February       213.8     234.6      256.3     329.1     424.0           January 2007, it is still pretty small compared to other regional
March          230.3     275.7      311.4     400.3     476.7           economies. While China holding the world's highest foreign
April          227.5     284.3      283.3     367.9     410.4           exchange reserve, surpassing the trillion-dollar threshold, and
May            230.5     255.7      278.1     311.8     487.2           India amassing a mighty $170b in 2006,and even Pakistan
June           232.2     274.8      307.7     345.8     429.1           with hefty $14b, the $4.0b is pretty tiny. But it is still safe for
July           250.1     258.8      286.7     342.5     412.8           Bangladesh, as it is enough to cover for 3 months of foreign
                                                                        obligations. At present the reserve is able to cover for over 3
August         235.0     227.7      271.7     377.4     471.2
                                                                        months of imports, based on the average monthly import of
September      243.3     248.3      275.4     351.5     448.4
                                                                        $1.3b for the past 4 months. This also fulfills a condition of the
October        243.4     308.2      297.0     374.2     377.3
                                                                        IMF for disbursement of installments of credit for the poverty
November       259.6     245.4      267.3     316.3     596.0           reduction growth facility (PRGF) that the government must
December       229.9     289.7      379.2     417.0     556.0           maintain a reserve over $3.0b. The reserve is likely to grow
Total          2,848     3,179      3,571     4,250     5,485           much in 2007.
             ASSET & INVESTMENT MANAGEMENT SERVICES OF BANGLADESH LIMITED
                            Chandrashila SuvastuTower (5th floor), 69/1 Panthopath, Dhaka 1205, Bangladesh
     Tel : (+88-02) 862 1821-3; Fax : (+88-02) 862 1109; e-mail : aims@aims-bangladesh.com; web: http://www.aims-bangladesh.com
                                                                    7


Currency depreciates at moderate rate                                   (32.32% of their outstanding loans) in September, as against
The year 2006 saw a relatively lower level of year-on-year              Tk38.89b (32.70%) in June. Default loans rose by Tk20m in
depreciation of local currency compared to that of previous             foreign commercial banks (FCBs) during the above period,
years. Against about 9% in 2005, taka depreciated by over               reaching Tk0.65b in September.
4% in 2006. Though the movement in USD-BDT rates was                    A handful of defaulters
traditionally unidirectional, taka has always been depreciating         Amount of loans defaulted by 561 loanees, who are among
against US dollar, but the market saw massive movements in              the top 20 defaulters of some 30 private commercial banks
both the directions in 2006, appreciating and depreciating in           (PCBs), now stands at Tk24.21b, making 56% of the PCBs'
turns. By the first quarter of 2006, BDT depreciated by over            total classified loans. Up to June 2006, outstanding loans by
6% against US dollar, but by May it appreciated by 3.6%. The            the banks reached at Tk716.47b, of which Tk42.85b were
USD-BDT rates remained relatively quite in mid-year. The                classified. Though PCBs have sued some 244 defaulters for
rate was Tk66.25 on January 01, and Tk68.10                             realizing Tk12.72b, almost all cases remained pending in
Banks fare better                                                       courts for long due mainly to usual slow procedures. Top
                                                                        defaulters account for 70% to 90% of PCBs' total classified
Banks in the country have performed reportedly better in 2006           loans. As the process of loan recovery through filing cases is
than in the previous years, as indicated by their half yearly           quite lengthy, banks are unwilling to sue the defaulters,
reports. Their balance sheets now show less bad debts, as               preferring recovery of the bad loans through negotiation. It is
they are allowed to write off. Their classified loans also have         alleged that some of the loan defaulters often escape the rule
waned, and business expanded. To their commendation, the                of laws, as they belong to the influential coterie in the society
last political government withstood severe pressure from the            and politics.
party circle and did not grant licenses to any new bank or
insurance company in 2006.                                              BB data shows that up to September 2006 some Tk109.81b
                                                                        has been written off by the banks, as against Tk106.51b in
A large amount of bad debt written off                                  June 2006. Thus banking sector has separated bad debts
Bad debts worth around Tk110.0b in the country’s banking                around Tk3.30b in 3 months. Of them NCBs have separated
sector have been written off from the banks’ regular books of           bad debts worth Tk36.63b since January 2003. The 5 SCBs
accounts till the end of September 2006. Estimates available            wrote off some Tk29.29b during the said period, while PCBs
with Bangladesh Bank (BB) revealed that state-owned banks               wrote off Tk42.37b, and with a very low amount of non-
wrote more than half of the bad debts off. BB had introduced            performing loans, FCBs have written off around Tk1.53b.
the writing-off system in January 2003 that allowed banks to            Provision shortfall widens
separate loans classified as ‘bad’ or ‘loss’ for 5 years or more
keeping 100% provisions for the written-off amount. These               The shortfall in provision against bad debts in the banking
written-off amounts will be deleted from balance sheet of a             sector has jumped by 65% in the third quarter of the year,
bank and keep it in a separate book. Banks have also been               mainly due to huge shortage in NCBs. BB statistics showed
empowered to file case with the court to recover bad loans.             the total provision shortfall stood at Tk53.12b at September
Though writing-off is an international system, experts observe          end from Tk34.43b in June end 2006. The 48 banks have
that sometimes it gives misleading information about real               kept some Tk54.99b as actual provision for their bad debt
condition of a bank’s loan portfolio, since significant amount of       portfolio against a required amount of Tk108.11b. Combined
bad debts separated are actually not recovered.                         shortfall of 4 NCBs stood at Tk43.62b at September 2006,
                                                                        which was Tk10.13b at June 2006. Soanli Bank suffered a
Default loans decline, but not in PCBs                                  shortfall worth Tk29.16b in the first quarter, while it enjoyed a
Total default loan in the banking system stood at Tk206.86b in          surplus of Tk126.8m in June 2006. Combined provision
September 2006, down from Tk234.65b in June 2006. Of the                shortfall in the private commercial banks (PCBs) increased
total loans disbursed, share of classified loans was 14.3% in           significantly to Tk5.22b at September from Tk4.26b only a
September, reduced from 16.6% in June 2006. It is, however,             quarter back. However, out of 30 PCBs, 26 have surplus
higher than that of December 2005, Tk175.09b. In October it             provision. Oriental Bank has the highest amount of shortfall
further declined, as Bangladesh Petroleum Corporation has               worth Tk6.07b, while Social Investment, First Security and
rescheduled its huge amount of loans. However, it is reported           Bangladesh Commerce Bank suffered marginal shortfalls.
that the default loans have risen a little at the end of the year       The total provision shortfall in the 5 development financial
because of the recipients’ failure to repay installments due to         institutions (DFIs) declined slightly to Tk5.0b in September
political chaos. But the amount is still below the level of 2005.       from Tk5.01b in June. Among the 5 DFIs Bangladesh Krishi
Defaulted loan volume of 4 nationalized commercial banks                Bank has huge shortfall of provision, while provision surplus
(NCBs) marked a 20% drop, reaching Tk30.77b at the period               of foreign banks increased to Tk0.73b from Tk0.72b during
end. The total default loan in Sonali Bank slid to Tk56.46b in          the period.
September from Tk97.01b in June 2006, but in Rupali Bank it             Default with SoEs grows on
grew from Tk8.67b to Tk18.06b. Classified loans in the private          The total outstanding and classified loans of some 38 state-
commercial banks (PCBs) have also risen by Tk3.15b during               owned enterprises (SOEs) with the nationalized commercial
the period, but declined in development financial institutions          banks (NCBs) and a special bank stood at Tk192.62b until
(DFIs) by Tk0.18b. Default loan in PCBs reached at Tk46.01b             October 2006. Of this, outstanding loans worth Tk175.13b
(6.13% of outstanding loans) in September from Tk42.86b                 and classified loans at Tk17.52b are owed by the SOEs to
(5.98%) in June. Classified loans with DFIs were Tk38.71b
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                            Chandrashila SuvastuTower (5th floor), 69/1 Panthopath, Dhaka 1205, Bangladesh
     Tel : (+88-02) 862 1821-3; Fax : (+88-02) 862 1109; e-mail : aims@aims-bangladesh.com; web: http://www.aims-bangladesh.com
                                                                  8


Sonali, Janata, Agrani, Rupali and Basic Bank. Bangladesh             Bangladesh missed the much-awaited opportunity for linking
Petroleum Corporation has the highest outstanding amount              its rail network with the proposed Trans-Asian Railway (TAR),
worth Tk100.55b, but has no classified loan. Bangladesh Jute          because of lack of a policy decision by the first CTG at the
Mills Corporation has outstanding loans of Tk30.34b, where            end of the year. The proposed TAR network aims to promote
classified loans are Tk10.56b. Power Development Board has            trade and balanced development in the largest and fastest-
outstanding loans worth Tk13.65b with two NCBs. Due to dire           growing continent. The 81,000km network, first mooted by UN
political disturbance at the fag end of the last regime a large       back in 1960 would link the capitals, ports and industrial hubs
number of loans has fallen classified as some SOEs failed to          across 28 Asian countries all the way to Europe. The railway
decide repayments. While some SOEs could not simply repay             network will ease international trade and create the conditions
because of fund shortage.                                             for shared prosperity, as 12 of world's 30 landlocked countries
Domestic credits grow at banks                                        are in Asia. Bangladesh has failed to respond to the proposed
                                                                      network because all proposed alternative routes were through
Domestic credit grew by 6.31% during the first 4 months of
                                                                      India that virtually provides India a de facto transit, a facility
the current fiscal due to rise in credit to public and private
                                                                      that the immediate past government was unwilling to grant.
sectors. Total outstanding credit shot to Tk1,890b in October
2006 from Tk1,777b in June 2006. Of the total borrowing of            Capital market regains vibrancy
Tk112b during the period, the government net borrowing was            The capital market has been out of warmth almost entire year
Tk47.6b, while private sector borrowed Tk60.24b and other             as apparently there were no visible incentives in the market
public borrowings totaled Tk4.34b. Taking into account the            and banks tried to mobilize funds through enhanced interest
loans from non-bank and external sources for financing the            rates. The simmering political climate also exerted negative
budget deficit, the total government borrowing stood at               impact on the market, which is manifest in the fact that trading
Tk63.8b, against Tk46.6b in October 2005. Total domestic              on DSE took place only for 230 days in 2006, compared to
outstanding debt expanded by 17.5% to Tk754b at October               258 days in 2005.
end of 2006, which was Tk642b in 2005.
                                                                      Despite the long bearish mood prevailed since the last half of
Overdue industrial term loans at the end of September 2006
                                                                      2005, the market began to change in the last quarter of the
stood at Tk40.02b, against Tk39.74b in June 2006. Overdue
                                                                      year when the CTG took office on October 29, 2006. As seen
as share of outstanding industrial term loans improved, as it
                                                                      earlier, investors feel more comfortable with the nonpartisan
decreased to 14.2% of the total outstanding in September
                                                                      CTG, as it allows a relatively congenial atmosphere for trading
from 18.13% in June 2006.
                                                                      securities. But unlike the other two CTG eras, the market did
Telecom sector improves, others stumble                               not move as desired unless a new CTG took office in January
Bangladesh has achieved a resounding record in growth of              2007.
mobile phone connections during the year. Number of mobile            The stock market took several undulating rides since the very
phone and fixed phone subscribers crossed 20.0m in October            beginning of the year. As the relatively higher interest rates on
2006. As per the Bangladesh Telecommunications Regulatory             government and bank savings instruments has become more
Commission (BTRC) data, mobile and land phone operators               intriguing, most individual investors started diverting fund to
so far provided over 20.3m connections at the end of the              such high yielding instruments at the beginning of the year.
month. Bangladesh has currently 6 mobile phone operators,             Besides, with the induction of more primary shares, investors
of which Warid Telecom is yet to launch its operation. There          kept selling shares to finance them. And the annual budget
are 19 land phone operators, though only 5 including state-           that was laid down in early June has little or no mention of the
owned Bangladesh Telegraph & Telephone Board (BTTB) are               stock market, but had an indirect disincentive. Undeclared
in operation. Mobile phone subscribers rose to nearly 19.14m
                                        Source: AIMS Res earch
                                                                      money holders, who had long been using the capital market
in October from 17.66m in September 2006. The land phone              as a vehicle for laundering their ill-earned incomes, apparently
operators added only 1,000 new customers in October to                shifted their investments from the capital market to the real
reach around 1.134m at the month end. GrameenPhone, the               estate sector to reap low tax benefits for their unaccounted
largest cell phone operator, reached 10.0m, while the second          money.
largest operator AKTel reached 4.56m, Banglalink 3.25m and              1780
                                                                                                          DGEN (0.00, 0.00, 1,762.43, +5.89929)
                                                                                                                                                                              1780

CDMA operator CityCell netted 0.97m subscribers. The state-             1760
                                                                        1740
                                                                                                                                                                              1760
                                                                                                                                                                              1740

owned Teletalk reached 0.36m at the end of October. This
                                                                        1720                                                                                                  1720
                                                                        1700                                                                                                  1700
                                                                        1680                                                                                                  1680
has taken teledensity to a new height at 14.3%, i.e. every 7            1660
                                                                        1640
                                                                                                   DSE General Index                                                          1660
                                                                                                                                                                              1640

people in Bangladesh now own a telephone connection.
                                                                        1620                                                                                                  1620
                                                                        1600                                                                                                  1600
                                                                        1580                                                                                                  1580

Bangladesh is now one of the top 10 mobile phone markets in
                                                                        1560                                                                                                  1560
                                                                        1540                                                                                                  1540
                                                                        1520                                                                                                  1520

the Asia-pacific region in terms of adding net subscribers with         1500
                                                                        1480
                                                                                                                                                                              1500
                                                                                                                                                                              1480

over 20.0m, contributing 1% of GDP. Industry people expect
                                                                        1460                                                                                                  1460
                                                                        1440                                                                                                  1440
                                                                        1420                                                                                                  1420
that the number of subscribers would cross 50.0m within the             1400
                                                                        1380
                                                                                                                                                                              1400
                                                                                                                                                                              1380

next 3 years as start-up cost as well as call tariff would be           1360
                                                                        1340
                                                                        1320
                                                                                                                                                                              1360
                                                                                                                                                                              1340
                                                                                                                                                                              1320
constantly going down. The current penetration rate is around           1300
                                                                        1280
                                                                                                                                                                              1300
                                                                                                                                                                              1280

12%, and with a 30 to 35% rate, operators can reach 50.0m in            1260
                                                                  Novem ber    2006   February   April   May    June    July    Augus t   Septem ber   Novem ber   2007
                                                                                                                                                                              1260
                                                                                                                                                                          February

the next 3 years. Economists suggest that the country has a           This kept the market bearish till July. But quite interestingly,
consumption capacity of this quantum.                                 when the deteriorating political situation, which in fact slipped
            ASSET & INVESTMENT MANAGEMENT SERVICES OF BANGLADESH LIMITED
                           Chandrashila SuvastuTower (5th floor), 69/1 Panthopath, Dhaka 1205, Bangladesh
    Tel : (+88-02) 862 1821-3; Fax : (+88-02) 862 1109; e-mail : aims@aims-bangladesh.com; web: http://www.aims-bangladesh.com
                                                                       9


into a crisis at the end of October, began to vibrate the market           and paying dividend to the shareholders. It has also issued
with new hope, individual investors joined to the spree with               show cause and hearing notice to 40 default companies last
rather more buys than panic sales. They took the political                 year for failure of complying with the SEC rules. Meanwhile,
crisis for a temporary pitfall instead of an ominous danger.               holding of AGM by 18 companies await for court verdicts.
Outraged by the prolonged strife, investors not only ignored               SEC also fined 39 directors of a problem bank for breaching
the moods and moves of the political parties, but by investing             securities rules, and caught 9 shareholders of another bank
more created pressure on them so that they refrain from any                allegedly involved in dubious transactions through insider
harsh measure that thwart the bullish mood in the market.                  trading.
Indicators down                                                            Market gets more streamlined
Market capital at Dhaka Stock Exchange (DSE), the prime                    Meanwhile SEC approved Stock Exchange (Direct Listing)
bourse of the country, has reached at Tk305.28b on the last                Regulations, 2006 with a view to facilitating direct listing of
trading day of the year, equivalent to $4,555m, which is only              public limited companies with a minimum paid-up capital of
7.34% of GDP of FY2005-06. During the year DSE General                     Tk50m. Companies that are in commercial operation for at
Index dropped from 1677.35 on the last trading day of 2005 to              least 3 years, do not have any accumulated losses and
1609.51 on the same day in 2006, registering a decline of                  earned profits for a minimum of 2 years out of last 3 would be
4.04%. Index hovered at around 1500s most of the time (46%                 eligible for direct listing with bourses.
of all trading days), followed by at 1300s (27%) and 1600s                 To differentiate the newly listed companies SEC introduced a
(15%) with the lowest on 15 June (1294.04) and the highest                 new category in stock exchanges called ‘N’ following a
on 15 January (1712.49).                                                   proposal placed by the consultative committee of SEC. The
During 2006 some 832.7m shares worth Tk65.06b ($975m)                      trading of a newly listed company under ‘N’ category will be
have been traded in 228 days, compared to 883.3m shares                    only for an initial period and upgradation and degradation of
worth Tk64.84b ($979m) in 258 days in 2005, marking a                      the shares would be adjusted under the existing rules.
5.73% slide in share volume and 0.34% in value. However,                   SEC reportedly plans to introduce a circuit breaker system on
per day trade volume was 2.91m shares worth Tk251m                         trading of Z category shares in the bourses to protect the
($4.0m) in 2006, compared to 3.42m shares worth Tk251m                     investors from price manipulation on a single trading day. At
($3.8m) in 2005. Compared with Index decline, this shows                   present the circuit breaker system controlling individual share
that the decline was more induced by the volume of trade                   prices is effective on trading of A, B, G and N category shares
than the prices of shares.                                                 whereby price of shares are kept cannot cross a certain level,
The following table shows corporate performance of the listed              up or down, on a single trading day. Earlier SEC withdrew the
securities:                                                                circuit breaker system on trading of category Z shares on
 Sector                  EPS         DPS        PER        DYld            March 13, 2004. At present, there are some 95 companies
 Banks & FIs             48.55       22.50      11.14       4.16           under category Z in DSE. Most of them do not hold AGM and
 Investment              17.78       13.32      11.22       6.68           declare dividend regularly. But in recent times the bourses
                                                                           demanded introduction of the system arguing that the market
 Engineering             35.42       16.32       9.53       4.83
                                                                           manipulators sometimes took the absence of any price
 Food & allied           21.11        2.98      18.40       0.77
                                                                           restrictions to their advantage. SEC is also planning to limit
 Fuel & power            27.61        4.12      14.01       1.07
                                                                           the time of settlement of A, B, G and N category shares to 2
 Jute                    24.40         Nil      10.39        Nil           days from existing 3 from the early next year. SEC also
 Textiles                11.99        9.00      11.87       6.47           recommended for providing money-netting facility for buying
 Pharmaceuticals         81.31       34.67       5.54       7.39           shares of A-category against sale proceeds of the Z-category
 Paper & printing        10.12        5.16       7.84       6.51           shares. At present the facility is applicable for A-category
 Service                  4.43        1.89      12.53       3.41           shares only. To support this, trading settlement period of Z
 Cement                  27.57       17.06      16.63       3.72           category shares will be T+3+4 instead of existing T+4+3. The
 Info Tech               16.89       11.82      12.01       5.83           new facility will help improve liquidity in the capital market as
 Leather                 68.08       15.28       6.93       3.24           well as encourage investors to buy good shares rather instead
 Ceramic                  6.63        8.43      14.71       8.65           of the weak ones.
 Insurance               21.52       19.20       7.43      12.01           MFs get 10% quota in IPO
 Miscellaneous           77.73       33.82       7.82       5.56
                                                                           SEC in revision of the initial public offer rules approved 10%
 Total                   49.55       22.42      10.51       4.29
*Stock dividend has been calculated on face value; therefore, actual       quota for mutual funds to promote subscription by institutional
dividends and their yield are much higher                                  investors in IPOs. The new move allowed the mutual funds to
Regulators long on renegades                                               acquire a fair share of IPOs, as demanded for long by the
                                                                           asset management companies. But the state-owned ICB and
The listed companies have shown good performance during
                                                                           BSRS, two fund managers, cashed in the opportunity for their
the year. As SEC has enhanced its monitoring and began to
                                                                           unregistered mutual funds with borrowed money that curbed
punish the wrongdoers, their corporate performance has also
                                                                           profitability of the registered mutual funds of ICBAMCL and
been improved. Yet out of 255 listed companies, some 58
                                                                           AIMS of Bangladesh Ltd. This not only violated SEC rules, but
have failed to hold annual general meetings (AGMs) by
                                                                           also damaged the spirit of quota. Earlier there was a 10%
December 2006, which is 22.75% of the total companies.
                                                                           quota for only nonresident Bangladeshis (NRBs).
SEC has warned 10 listed companies for not holding AGM
             ASSET & INVESTMENT MANAGEMENT SERVICES OF BANGLADESH LIMITED
                            Chandrashila SuvastuTower (5th floor), 69/1 Panthopath, Dhaka 1205, Bangladesh
     Tel : (+88-02) 862 1821-3; Fax : (+88-02) 862 1109; e-mail : aims@aims-bangladesh.com; web: http://www.aims-bangladesh.com
                                                                   10


Number of IPOs shrank, but fattened in size                             government criticized mobile companies for their reluctance to
Some 7 companies have floated primary shares during the                 enlist in the capital market despite making enormous profits
year raising around Tk1.77b through initial public offerings            from the country’s burgeoning mobile phone market, which
(IPOs). Besides two state-owned power companies also got                has seen more than 100% growth in the last 3 years.
listed under direct listing regulations. Companies that issued          Delisting back again
IPOs in 2006 are Jamuna Bank, S Alam Cold Rolled Steels,                DSE has delisted Eagle Box & Carton Manufacturing Co Ltd
LankaBangla Finance, Bangladesh Industrial Finance, IPDC                and Rabeya Flour Mills Ltd, and with these, so far delisted
of Bangladesh, Brac Bank and Prime Islami Life Insurance.               some 36 companies since 1994. Most of these companies
Against nearly Tk1,981m offered these issues were hugely                were meted out with the ignominious ouster after they failed to
oversubscribed, as some Tk14,534m were doled out by the                 run their operations properly, depriving the shareholders of
zealous investors, making over 7 times of over-subscription.            their minimum rights. However, a few of them voluntarily
Of the IPOs some 13 issues were listed during the year, with            opted for delisting. Of these, 15 were delisted in 2004, 14 in
a hefty Tk10,964m inducted into the market, of which 2 state-           1996, and 2 each in 1994 and 2001. As per the existing law,
owned companies worth Tk4,914m got directly listed. In 2005             investment was refunded to the shareholders in most cases.
the market absorbed 17 new issues with Tk1,468m offer,
                                                                        Dematerialization blaze fades
against which some Tk15,318m was subscribed. The issues
inducted some Tk3,207m capital to the market. The following             The paper scripts continued to be dematerialized with the
table shows the IPO scenario for 2006:                                  Central Depository Bangladesh Ltd (CDBL), but only at a
                                                                        slower pace. Starting on January 24, 2004 with the shares of
  Issue                  Offered     Subscribed Oversubs-
                                                                        Square Pharmaceuticals Ltd some 105 securities have been
                          mTk            mTk      cribed by
                                                                        listed with CDBL at the end of December 2006, of which only
  Jamuna Bank            514.80        3,900.47   7.6 times
                                                                        17 have been listed in 2006 including 11 new issues. The
  S Alam Steel           120.00         425.85    3.5 times
                                                                        share of market capitalization of the companies is over 82%.
  LankaBangla             90.00        1,375.12  15.3 times
                                                                        A total of 897,548 depository or beneficiary owner (BO)
  BIFC                   110.96        1,570.68  14.2 times             accounts were opened for electronic trading settlement up to
  IPDC                   250.20        1,973.93   7.9 times             December 31, 2006 against 667,817 on December 31, 2005,
  Brac Bank              850.00        3,871.07   4.6 times             marking a growth in opening BO accounts 34.4% in a year.
  Prime Islami Life       45.00        1,417.05  31.5 times             However, during the period over 50,000 BO accounts were
  Total                1,980.86       14,534.17   7.3 times             also closed.
Of the above, 5 got listed both on DSE and CSE. The rest two            New rules and regulations
companies, BRAC Bank and Prime Islami Life Insurance, will
be listed in January 2007. It was noted that almost all IPOs             SEC has amended the Direct Listing Regulation 2006, as
were oversubscribed, proving immense investor confidence                  proposed by DSE, that fixed minimum paid-up capital at
on the market. Shahjalal Islami Bank Ltd got permission from              Tk100m and commercial operation to be at least 5 years.
SEC to float primary shares worth Tk935.8m, the largest IPO              SEC has amended the SEC (Merchant Banker & Portfolio
in the banking sector. Subscription of the bank will start on             Manager) Regulations, 1996 that allow the bankers to do
January 14, 2007 and close on January 18, 2007.                           portfolio management with their own funds.
SoEs get listed, finally                                                [Sources used include daily newspapers; Monthly Reviews by DSE, Quarterly
                                                                        Reports by SEC, Monthly Economic Indicators, Annual Reports as well as
The capital market stakeholders had long been struggling to             Scheduled Banks Statistics of Bangladesh Bank, and in-house research
persuade the government to offload the profit-making state-             reports, etc.]
owned enterprises (SoEs). During the year, two such SoEs
have been listed with the stock exchanges. Dhaka Electric                                          Yawer Sayeed, Managing Director & CEO
Supply Co (DESCO) made its debut on DSE on June 18, as                                                   Wasiq al Aazd, Head of Operations
the government earlier decided to offload its 25% stakes in                                       Laila Mahmuda Shilpi, Manager, Research
the capital market. Some 10% of the offloaded shares will go                                    Shahida Akhtar, Executive Officer, Research
to the employees of the company as per the government                                 Subrata Bhakta, Executive Officer, Fund Management
approval. DESCO is the first company to be listed with the                                                                    Our Mission:
bourses under direct listing rules. Earlier, Square Textiles Ltd             To be a household name in Bangladesh and be recognized as a
had been directly listed under a special arrangement in 2002.                           reliable companion in the pursuit of wealth creation.
Though DESCO received lukewarm response from investors                                                                             Our Goal:
in the block market trading, it was later traded in considerable                To take the extra mile to meet the customer’s needs through
volume when the block was made free. The second SoE,                     continuous innovation of suitable financial products and offering the
Power Grid Co. Bangladesh, was directly listed on October                                                                       best services.
09, 2006. At present both issues are being traded in good                                                                          Our Values:
volume.                                                                 To strive for achieving and maintaining the highest ethical and moral
Despite there were incessant pressure on the government to                              standards to earn the trust of our clients and patrons.
devise ways to force the telecommunications companies to
                                                                                                      Published by AIMS of Bangladesh Limited
get listed and offload a substantial part of their shares, none                                                              in association with
of the existing 6 companies came forward. Earlier, the                                              Aims Information & Marketing Services
             ASSET & INVESTMENT MANAGEMENT SERVICES OF BANGLADESH LIMITED
                            Chandrashila SuvastuTower (5th floor), 69/1 Panthopath, Dhaka 1205, Bangladesh
     Tel : (+88-02) 862 1821-3; Fax : (+88-02) 862 1109; e-mail : aims@aims-bangladesh.com; web: http://www.aims-bangladesh.com

								
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