Although there are tentative signs
of calm returning to the RMG sector, the riots and protests that followed the
decision of the Wage Board to nearly double minimum wages on July 29, is
potentially extremely troubling.
Our sense is that much will depend
on the willingness of international buyers to pay higher prices.
On the one hand, the weakness in
the developed economies as evidenced by the much weaker-than-expected US Labour
market report for July released on Friday suggests consumer confidence will
remain weak and price sensitivity high. So the prospects for buyers to be
willing to raise prices may be somewhat dampened.
On the other hand, as the analysis
below from both the World Bank and Action Aid makes clear, the amount that
final retail prices in western markets needs to rise to accommodate the recent
wage hike in Bangladesh is relatively small.
So we believe a combination of
higher price hikes, some margin squeeze in the supply chain and higher productivity
can see Bangladesh maintain competitiveness in the sector and the trend of
worker wage increases to be to be sustained and hence reduce the risk of a
future bouts of worker unrest.
Also in this report, Ahsan Mansur
outlines the macroeconomic setting against which the Monetary Policy Statement
(MPS)has been issued by the Bangladesh
Bank. One key macro risk is asset price bubbles in capital markets and land.
Direct investment in the stock
market by financial institutions has increased more than 8 fold since 2006 to
about TK 45 billion in 2009. The level of investment must have increased
further in 2010. About TK 40 billion of that was attributable to commercial
banks, primarily private commercial banks. Commercial banks earned about TK
11.5 billion from stock market investment in 2009.
This investment behavior is not only
speculative; it is also not in the interest of depositors. Thus BB has an
important role to play; not only from allocation point of view but also on
prudential ground.
Some policy recommendations
include: Increase the risk weights associated with provisioning for lending to
stock market to induce banks to reduce their exposure to the market; Taxation
of capital gains from land will help redirect investment away from land by
making income from capital appreciation subject to similar tax treatment as applicable
to income from other sources.
AT Capital Bi-Weekly --07 July 2010
Welcome to the 64th issue of the AT Capital Bi-weekly
While
the ongoing energy crisis remains one of the biggest constraints on growth,
labour unrest, primarily in the Ready Made Garments (RMG) sector, has emerged
as a growing risk to the economy. We assess what is an equitable outturn for
the new min wage level to be increased to from the Tk 1662/month ($ 24) set in
2006.
Headline CPI has risen by 26%, with food
inflation by 31% since the min wage was last set. Clearly workers also need to
share in the economic upside of their collective efforts along with the owners
of factories. On that basis, the reported government recommendation of Tk 3000
does not seem unreasonable
Bangladesh had the lowest labour costs at
22 cents per hour of any RMG producing country by a wide margin. Cambodia,
Pakistan and Vietnam were 1/3 or so higher while India and China were more than
double.
It is important to recognize that what
Bangladesh is facing in terms of worker unrest for higher wages is a regional
and arguably global phenomenon of a rebalancing between labour and business
owners/corporate.
We discuss the implications of the recent
Foxconn wage settlement for both China and global inflation.
When the Honorable Finance Minister (HFM)
announced additional taxation on the capital markets in his budget, there was
widespread opposition from many operators in the financial sector with a number
highlighting the risk of a collapse in the stockmarket once the measures went
into effect. However, the DSE has hit new all highs despite the taxation and
potential negative impact.
In this issue we have a special focus
article by Sadiq Ahmed assessing the recent Budget. We also have articles from
two academics on Government Strategies to promote investment and export
promotion as well as managing India’s International Capital Flows. The latter
is obviously an important issue for Bangladesh’s policymakers.
AT Capital Bi-Weekly --13 June 2010
Welcome to the 63rd issue of the AT Capital Bi-weekly
We discuss the National Budget announced on 10 June 2010, in
‘Cheers, Fears and No Surprises' :
All in all, there are few surprises in Budget 2011.
Notable moves are the increased share of social spending and - quite expectedly
- on physical infrastructure.
First, it gives the notion of growth fragility a short
shrift. Even the announced estimate of FY2010 GDP growth of 5.54% has been
pushed aside, to project an enviable recount of 6.0% growth. Riding on a
predicted recovery of the global economy in the coming year, and sustained
strong domestic demand, growth projection for FY2010-11 has been made at an
optimistic 6.7%.
Second, NBR's revenue performance for the outgoing year
gives reason for good cheer. To achieve 16.5% revenue growth was no mean feat
given what was considered a highly ambitious revenue target for FY2010.
Third, there are mixed signals about the investment
strategy to move the economy on to a higher growth trajectory. The failure to
get private public partnership (PPP) concept off the ground has been
acknowledged and alternative approaches to getting the private sector involved
in partnership with government in the new Bangladesh Infrastructure Finance
Fund (BIFF).
Fourth, a pleasantly surprising element was the high
performance in Annual Development Programme (ADP) implementation that has been
indicated in the Budget at a Glance.
We explain why we are optimistic about GoB revenue outlook
in the current year, in ‘A Positive Turnaround At The National Board Of Revenue
?'
NBR generally has a track record of missing the revenue
targets set in the budget. The revenue shortfall in FY09 was sizable (TK 20
billion) because of import slowdown associated with the global economic crisis.
Against this background, the NBR target entailing a 16.2% revenue growth
appeared ambitious.
The cumulative increase in revenue through March 2010 was
18.3%, in line with the growth target set in the budget. If the buoyancy in NBR
tax revenue continues through the final quarter of FY10, there is a possibility
that the revenue target may even be exceeded. Much of the revenue growth has
been from domestic based taxes like the domestic value added tax (VAT) and
income tax.
What economic factors may be contributing to this surge in
domestic-based taxes? Domestic household demand growth however has remained
strong due to salary increases at the public and private sector levels, the
continued inflow of workers' remittances (16 % growth through March), and the
impact of the wealth effect arising from ballooning asset prices.
Raising tax-to-GDP ratio from the current dismal level of
9-10% to 13-14% to GDP under the Sixth Five Year Plan (SFYP) will be a
monumental task. Fundamental reforms in the administration and designing of the
VAT and income tax systems will be keys in achieving the medium-term revenue
objective.
AT Capital Bi-Weekly --20 May 2010
Welcome to the 62nd issue of the AT Capital Bi-weekly
The $1 trillion “shock and awe” package announced by European authorities in
response to the meltdown in Greece initially had the desired affect of
stabilizing sentiment. However, the speed at which the beneficial impact of the
package has faded and unraveled, as evidenced by the new cyclical lows in the
EUR, is a cause of major concern for global investors.
In
this issue, we discuss what is driving the dynamics of global markets in their
unwillingness to take sustained comfort from the bailout. One concern is that
the fiscal tightening Greece must meet to benefit from the bailout package is
simply politically unsustainable domestically.
We
also assess the likely implications for asset classes and economies and
conclude that the prospects for further EUR weakness against the USD remain
high; risk aversion and widening credit spreads and risk premia are also
likely; global growth prospects also look increasingly negative.
While
much of the news around the Greek crisis has been negative, the collapse in
commodity prices in the past month, with the exception of Gold, has been
dramatic (more than 10%) and augurs well for moderating underlying inflation at
a time when the need for fiscal tightening means rates will have to be kept
globally for an extended period of time
Finally
we discuss implications of the Greek crisis for the Bangladesh economy and
markets. The biggest likely impact is the negative affect on exporters to
Europe given the close linkage between the BDT and USD and implicit currency
appreciation of the Taka versus the EUR.
We
also look at implications of weaker
global growth and declining trade volumes and assess the sectoral implications
for Bangladeshi equities.
AT Capital Bi-Weekly --27 April 2010
Welcome to the 61st issue of the AT Capital Bi-weekly
We
discuss ‘Is the Government’s energy generation plan financeable?’
On Sunday, April 25, the Power Development Board (PDB) unveiled an
aggressive plan to add 5,700 MW of power generation capacity,by signing
contracts for more than 10 projects by 31 May to deliver 1,000 MW, with a
further 12 contracts signed by year end to deliver an additional 4,700 MW.
How will these ambitious projects be financed? We discuss the public
sector, multilaterals, local and international commercial banks and the
stock market as sources of funds.
We discuss the constraints in domestic capacity for debt financing, as well as
subdued international project financing available in the aftermath of the
global financial crisis.
We discuss ‘Bangladesh’s
savings and investment in ‘Confounding the Pundits?’
Bangladesh has a surplus in the current account, which is a remarkable result
for a country that is still very poor (40% poverty rate) and has low income
(around $700 per capita). What explains this dichotomy?
The opportunity provided by hospitable macroeconomic environment in terms of a surplus in the nation's current accoutn is not being used well to push for a higher growth rate.
To find out why the surplus savings is not going into productive investments and is instead creating an asset market bubble.One needs to look at the incentive structrue.Policy framework for investment, the financial sector, and at the public finances where resources are most needed for investment.
We discuss 'The Presidential Summit and Bangladesi Entrepreneurship'
There are various strands of entrepreneurship in Bangladesh.Including the microfinance revolution, social impact entrepereneurs, family businesses and Bangladeshi diaspora entrepreneurs.
What are the constraints that entrepreneurs face and reforms can be made to unleash the next phase of entrepreneurship and innovation here?Two notable factors are lack of risk capital and lack of supportive business services.
President Obama's Global Summit on Entrepreneurship in Washington DC on 26/27 can hopefully enable us to learn from the success stories and lessons from a wide range of other countries.
AT Capital Bi-Weekly -- 12 April 2010
Welcome to the 60th issue of the AT Capital Bi-weekly
The
energy crisis has been intensifying, but perhaps the extent to which this is
becoming an escalating concern is a blessing in disguise in that it will force
a more pragmatic approach to the tendering process from both government and
international financing agencies.
Standard
and Poor’s published the first-ever Sovereign Credit Rating of Bangladesh,
assigning it a BB- rating with a stable outlook on both its foreign and local
currency bond ratings.
Furthermore
on the 12 April 2010, Bangladesh was assigned its first sovereign rating by
Moody’s Investors Service of Ba3, the same as the Philippines and Vietnam.
There
has been a steady and pronounced global shift in investor concerns away from
the stability of emerging market debt to developed markets – sovereign stress
is now largely a developed market phenomenon.
We
discuss Creating Good Jobs
Official
data and statistics on the labour market and job creation are scarce and
inadequate. Compiling a reasonably consistent time series of a few key labour
market variables, we see that the employment picture looks rather dismal.
From
our findings, we see that 22% of the employed labour force is engaged in the
formal sector, and the responsiveness of employment to growth in manufacturing
is rather low.
We
discuss the lower productivity growth of agriculture and the need to create more
jobs in manufacturing and organised services, which have higher average
productivity growth.
Gorodnichenko
and Schnitzer discuss Financial Constraints and Innovation: Why Poor
Countries Don’t Catch Up
This
column argues that the innovative and productive activities of domestic firms
in emerging markets are inhibited by financial frictions.
Financial
frictions affect investment, research and development spending, and a firm’s
ability to export.
Financial
reforms will be most effective if they target the vulnerable small and young
domestic firms and those in the service sector.
Policy
should also be directed towards establishing a framework for deep credit
markets and a strong banking sector willing to provide access to external
financing for a broad range of firms.
AT Capital Bi-Weekly -- 23 March 2010
Welcome to the 59th issue of the AT Capital Bi-weekly
We discuss Overcoming
Supply/Demand Imbalances in the Bangladesh Stock Market: Corporate Finance
Perspectives
On a number of fronts, developments in recent years in
Bangladesh’s Capital Markets give grounds for optimism. However, there
have been growing concerns that the stock market is becoming a “bubble.”
In this article we focus primarily on how to increase the supply of
equities.
We discuss the evolution of corporate financing needs and strategy
as well as the growth of capital markets in developing economies.
According to the “pecking order” theory of financing, the capital
structure will be driven by a firm’s desire to finance new investments
first internally, then with low-risk debt, and finally with equity only as
a last resort.
There are a number of measures and issues worth considering in
motivating more companies to come to market:
·
Fairer IPO pricing
with the adoption of the bookbuilding method
·
Regulations and
Tax incentives for Increased Free Float
·
Development of a
Mechanism whereby Companies can raise the capital they
need and meet Free Float
requirements
·
Accounting
Irregularities as a Constraint on Listing
·
Increased Listing
of State Owned Enterprises
·
Private Equity
Investment
Do not shoot the messenger - Listen to the message
We discuss the recent surge in rice prices and the misplaced
reaction in Bangladesh of putting the blame on the functioning of the
markets and on the business community. While this may be politically
expedient, such an approach may lead to the adoption of wrong policies,
further undermining price stability and consumer interests.
In most cases market prices are reflections of existing or
emerging imbalances in supply and demand locally or globally, and the
market is simply the messenger of that news, good or bad.
We raise several questions relating to specific issues in the rice market, as well as general inflationary pressures in the economy, in understanding the possible reasons behind the price hike and the sustainability of current policies
AT Capital Bi-Weekly -- 08 March 2010
Welcome to the 58th issue of the AT Capital Bi-weekly
A Guest arcile by Chief Economist Khan.H.Zahid Ph.D of Riyad Capital discusses why 'The world needs a new paradigm of growth'
Two
key tenets of current economic thought should go, or, at the least, should not
be emulated by the emerging world:
Dependence
on the consumer, particularly, the American consumer, as the engine of global
growth, and
An
almost unquestioned assumption that the world’s richest countries should grow
without any end or without limits.
The
article favors a return to a managed and enlightened form of capitalism. “Capitalism
with a Face” - growth with some limits, income and wealth inequality with
some limits, regulations with some limits, and freedom of the markets with some
enlightened limits.
Special Focus:
In light of the recent Bangladesh Development Forum, we discuss the National Strategy for Accelerated Poverty Reduction (NSAPR) part II and foreign Aid
The goals of the NSAPR Part II are all
reasonable and laudable; we discuss the key elements to ensure their
effectiveness.
For foreign aid to have the most
impact, a much sharper focus on knowledge partnerships with donors will be
very useful.
A gap in the NSAPR and DBF debate has
been on the need to concentrate resources on supporting the development of
the private sector.
We discuss Making Dhaka Livable
Dhaka’s severe traffic congestion is
simply a reflection of the deeper problem of poor city management. We
discuss the main constraints stemming from the city government’s legal
framework, management structure, agency coordination, and financial
autonomy.
A sound strategy for reforming city
management calls for a two-pronged approach:
Redefining public-private
roles with a view to strengthening this partnership for better services
and
Establishing an accountable
city government
AT Capital Bi-Weekly -- 24 February 2010
Welcome to the 57th issue of the AT Capital Bi-weekly
We discuss the Bangladeshi Stock Market: A Ticking Bom
The bulls in the
Dhaka Stock Exchange (DSE) are surging ahead. The index, which was at 2941 in
August 2009, has crossed 5800 points in February 2010, growing by 98 % since
August. The index has increased by 28.5% since the beginning of the year.
Generally strong
stock market performance is associated with strong economic fundamentals, and
one should be pleased with the outcome. However, a sudden influx of funds and a
surge in retail investors are pushing the DSE index forward without regard to
economic fundamentals.
The unfolding
scenario is virtually a reenactment of the first part
(constituting/representing the bull run) of the 1996 stock market episode.
Assessing the
existence and size of exuberant demand is a difficult task. However, as we notice
record levels of market turnover and new records for the DSE general index week
after week, we really wonder whether "irrational exuberance" is also
dominating Bangladesh stock market.
We discuss Bangaldesh Development strategies, Governance and Human Development
The government of
Bangladesh's development vision and associated objectives and targets are all
laudable. If accomplished, Bangladesh can well celebrate achieving a path
towards take off and self sustained rapid growth over the longer term.
The targets are
realistic and achievable within the stated time frame, provided there is a well
thought out strategy to realize the development objectives and goals, the
formulation of right policies and institutions that underpin the strategy, and
a clear time-specific implementation plan. All three are enormous challenges
and require coordinated and continuous efforts.
Where donors can
add most value is in bringing best international knowledge of the right kind
that will help Bangladesh design and implement better projects and programs on
a national scale.
AT Capital Bi-Weekly -- 08 February 2010
Welcome to the 56th issue of the AT Capital Bi-weekly
Bangladesh's large and growing trade deficit with India is often used by critics as an indication of India's dominance in its relationship with Bangladesh, and by implication, serves as a rationale for why it is a bad idea to engage in more cooperation with India.Should our trade gap with India matter?
We discuss "PPP in Bangladesh: Prospects and Challenges"
The commitment to establishing Public Partnership (PPP) was perahps the most ambitious and networthy economic initiative taken by the new Awami League Government in its first year in office.However, not only was the September 09 deadline not met, but we are still waiting for the operational details to be unveilled.
In order to establish a well-functioning PPP framwork, the following major tasks must be addressed: putting in place the proper regulatory framework either by revisign the current private sector Investment Guideline (PSIG) of 2004 or enacting a new PPP Law; establishing the PPP cell with proper institutional framework,manpower support, and resource base; and putting in place an appropriate tax incentive regime and viability gap funding mechanisms to attract private sector investment in the infrastructure sector.
It will be key to secure some ealry PPP successes and show that the system is workable.We believe it is important to pick 3-4 medium sized projects across energy, roads, broader infrastructure and even healthcare and focus on them.
We discuss Bangladesh's "Monetary Policy Dilemma"
Bangladesh economy is currently passing through an interesting episode on the macroeconoic front.On the one hand, the soft patch that the economy is experiencing is largely due to the slower export demand and lower private sector investment resulting from the ongoing global economic crisis.On the other hand, the balance of payments (BOP) position of Bangladesh has never been so strong in its history with record high current account surplus and foreign exchange reserves.
We discuss the sources of slower domestic demand and their impact, the factors contributing to monetary expansion and the extent of the problem, the authorities' policy responses so far and what would be the appropirate policy mix under the current circumstances.
AT Capital Bi-Weekly -- 25 January 2010
Welcome to the 55th issue of the AT Capital Bi-weekly
We discuss “Poverty Reduction
in South Asia’s North East Sub-Region through More and Better Cooperation”:
South Asia has
attracted global attention because it has experienced rapid GDP growth over the
past 29 years, averaging nearly 6 percent per annum. There are two faces of
South Asia. The first South Asia is dynamic, growing rapidly, highly urbanized,
and benefiting from global integration. The second South Asia is largely
agricultural, land locked, full of poverty, conflict, and lagging.
The range of
possible areas of regional cooperation in the North-East Sub-Region is large,
but the immediate priority areas are: (a) trade and investment facilitation to
promote more trade and investment between Bangladesh, India, Nepal and Bhutan;
(b) opening of land-river routes for regional transport connectivity; (c)
energy trade between Bhutan, Nepal, Bangladesh and India involving hydro-power,
gas and inter-grid connectivity; (d) water use and flood management projects
involving Bangladesh, Nepal and India.
We discuss “Infrastructure
Financing Challenges and Capital Markets Development”
On a number of
fronts, developments in recent years in Bangladesh’s Capital Markets give
grounds for optimism. Market capitalization has risen to $27 bn (30% of GDP)
versus $3.2 bn and 6% just 5 years ago.
There is a
widespread consensus that the primary constraint on achieving 8% + growth is
infrastructure bottlenecks in power and transport. We need an effective
financial system and intermediation process to channel these funds into areas
such as infrastructure financing. Insurance companies with long term
liabilities should be pushed to invest in long term infrastructure assets, and
a funded pension fund industry are critical to increase an institutional
investor base in the capital markets. The development of debt markets are also
key to provide longer term financing.
We discuss “That elusive growth rate”
If Bangladesh is
to emulate the same growth trajectory as the previous three decades, one could
expect the Bangladesh economy to clock average GDP growth of 7% for the decade.
That will not be enough to take the economy on to its desired middle income
status even by the close of the decade. The challenge is to reach a higher
growth trajectory of 8.0% for the ensuing decade by coming out of the
incremental bind of 1.1% experienced over the past three decades in a row.
Experts believe Bangladesh can achieve this.
However, there is
one catch: growth accounting. One major area of concern for researchers and
analysts is the credibility of statistics of national output and its rate of
growth. The task has been resting on the shoulders of a not-so-well-heeled
entity of Government - the Bangladesh Bureau of Statistics (BBS). We must break
new grounds on creating an environment for national statistics to be credible
all the way.
AT Capital Bi-Weekly -- 10 January 2010
Welcome to the 54th issue of the AT Capital Bi-weekly
We discuss, "Taking Bangladesh to a Higher Growth Path':
Bangladesh and India both had per capita income of about 210 current US Dollars.Today, India's per capita income is about USD 1070, which is nearly double that of about USD 600 in Bangladesh.
If Bangladesh could raise this to 8 percent (the rate prevailing in India over the past 6 years in 2003 US dollars), per capita income would exceed USD 1,000, thereby placing Bangladesh in teh group of lower middle income company.
The stepping up of the growth effort to achieve an additional 4 percent growth in per capita income over will require a bold new vision and requires exploring new and additional sources of growth.
We discuss, 'Looking Beyond the Great Recession State of the Bangladesh Economy 2009':
Events of the past two decades show that Bangladesh has evolved of the "traditional society" and has met the "preconditions for take-off" in the Rostovian formulation (W.W. Rotsow 1960, Stages of Economic Growth). The structural transformation has been taking place as the size of agriculture shrank to 20% GDP with industry rising to 30%
The Bangladesh Economy came out of the Great Recession with export growth of 10% and GRP growth of 5.9% with macroeconomic stability intact.
The economy withstood multiple internal and external shocks in the past couple of years and yet came out with strong internal and external balances. Fiscal deficit and public debt were withing sustainable range while the balance of payments have never looked stronger with the current account in surplus for the past three years running, leading to accumulation of foreign exchange reserves which hit an all-time record of $10 billion in November 2009.
These positive external developments brought new challenges to Bangladesh's monetary management such as inflation, which was well contained by mid-year 2009, showed signs of resurgence as the year came to a close.
Higher growth of 8-10% requires removing the binding constraint of power and to take advantage of financial innovation that will be needed to finance the $50 billion infrastructure and other capital investments over the next five years, and while capital account convertibility can wait, capital account transactions have to be opened up to facilitate inflow and outflow of capital transactions.
AT Capital Bi-Weekly -- 10 December 2009
Welcome to the 53rd issue of the AT Capital Bi-weekly
The Copenhagen summit that started this week has seen a flurry of renewed focus.Bangladesh's delegation has made a strong push for increased funding for least developed Countries (LDCs) and especially ones that are the most Vulnerable Countries (MVC).
The State Minister for environment, Hasan Mahmud, has called for the country to receive 15% of total adaptation funding on basis of Bangladesh having 150 mn of the 1 bn people most severely affected. While the thought of up to $ 15 bn of funding appears justified, we must develop the capacity to spend any large scale additional climate change funding.
Despite the overwhelming potential, Bangladesh has achieved very little in comparison to India and China who have registered for more than 300 projects under the CDM mechanism.Bangladesh has only two projects. Bangladesh policymakers and the private sector need to work together to develop of series of specific investment opportunities along with effective marketing of these projects to global/regional cleantech fund.
It has been reported that ADP utilization in the past four months hit a four year record.However good that may sound, ADP utilization of the past nine years ranged from a low of 66% in FY08 to a high of 92% in FY01, averaging 78%.In FY07, only 65% of the 260 billion Taka ADP or Taka 172 billion was actually spent.
If the tradition of "incremental budgeting", increments based on planned rather than actual ADP spending continues, the yawning gap between planned and actual ADP will persist to the point of becoming irrational. It is time to make a break with the past and plan a size of ADP next year that is "incremental" but related to actual ADP utilization.
Special Focus I: Tufael Chowdhury discusses 'Bringing mobility to Bangladesh's enterprises'
As mobile subscriber growth in Bangladesh continues to scale new peaks, the industry needs to find ways in which to sustain revenue growth and keep it profitable. One option is to offer more sophisticated consumer services, such as picture messaging and other value added services. Another option is to offer a wider range of service targeted at business users, enabling them to have more connectivity and mobility while they work, whether they are on the move, at home or in the office.
Special Focus II: We reproduce an article 'Kick-starting the green innovation machine' from Vox
Mitigating climate change while maintaining economic growth will require a wide portfolio of technologies. This article says that too little has been done to turn on the "green innovation machine."It argues governments in developed economies should price carbon, subsidize research, and facilitate technology transfer to developing countries.
AT Capital Bi-Weekly -- 17 November 2009
Welcome to the 52nd issue of the AT Capital Bi-weekly
The major event this week was the first day of trading for the Grameenphone (GP) Ipo.While the issue closed on the first day at a 2.5x premium, which, while on the face of it is impressive, this was less than the a number of recent issues, most notably the Marico Bangladesh IPO.
Looking ahead, we think that GP fundamentals as well as market dynamics will continue to support firmer trade and an increase in its premium to its asking price.
New global investors are likely to be motivated by the GP IPO to enter the BD market attracted by a large liquid issue, transparent and credible financial, good corporate governance and a long financial track record from one of the globally more attractive sectors, namely telecoms.
Looking at the prospects for the overall market, the 20% jump in the DSE was clearly a technical factor driven by the inclusion of the GP Issue.But the relative resilience of the other issues in the marketplace is encouraging and DSE 5000 from the current level of 4169 seems a a realizable target by mid -2010.
US president Obama's trip to Asia in the past week has refocused global attention on not only US relations with the region but also the changing geopolitical and economic dynamics of the new world order. As Asia emerges from the global economic crisis faster than the rest of the world, it is increasingly clear that the world's centre of gravity is shifting from the Atlantic to the Pacific.
However, a number of major challenges remain despite the clear evidence that both the US and Europe are staggering out of the global crisis with significantly weakened bankings systems and impaired public sector and household balance sheets.The U.S. could now be in the early stages of a multiyear consumption retrenchment, making the problems of an unbalanced, export-dependent Asian economy even more acute.
Despite the growing promise of a multi-polar world with Asian powers playing a greater role in addressing global challenges and sharing leadership with a weary US, that world does not yet exist. America may be recognising its limits, but no new system has emerged to take up the slack. If Asian states are to play this role,they must do far more to address their own regional challenges and to promote a positive, universal set of norms
AT Capital Bi-Weekly -- 04 November 2009
Welcome to the 51st issue of the AT Capital Bi-weekly
The DSE hit a 3 year high, with trading volumes also seeing a new record of almost $174mn on October 14. We believe the fundamentals for the markets remain strong. We discuss 4 reasons to stay bullish on the DSE.
The question is where to from where? The market looks somewhat overbought and one might see a technical pullback in the near-term.But we continue to see this as buying opportunity and remain long-term bulls on the market.
Some positive market supportive factors include: 1) The potential foreign appetite highlighted above; 2) The demand/supply imbalance with the greater institutionalization of the domestic market.; 3) With the global economy recovering, we expect Bangladesh's GDP to rise back above 6% by FY 2010; while Bangladesh Bank has taken steps to overcome the liquidity overhang from the banks, at least some proportion of it will still likely support asset price inflation in stocks and real estate markets.
We also discuss and highlight some of the key forecasts from the recent World Bank Bangladesh Economic Update.We believe that the prospects for FY2010 are likely to be growth in excess of 6% and think the World Bank may be too conservative on US and European Economies which are recovering faster than expected and remittances should be strong as should agro-production.
The news on remittances remains encouraging. Remittance growth stood at 21.23 percent in the first four months of the current fiscal year, despite bleak forecasts by the World Bank.The July to October period measured remittance inflow at $3.61 billion,which $2.98 billion in the same period last year. As we are bullish on oil prices and 63% of remittance flow comes from the Middle East,we believe remittances growth will pick up over the next 12 month.
However the size in oil prices will increase substantially the fiscal burden on the Bangladesh Government with the substantial subsidies they pay on petrol and diesel prices at a retail level.The recent tenders for rental power plants, which are for Heavy Furnace Oil, will also be at high tariffs given the prospects for oil prices, which will have additional fiscal burden implications.
Two special reports 1) US-Bangladesh Trade issues and 2) The prospects and costs of Renewable versus Conventional Energy
AT Capital Bi-Weekly -- 19 October 2009
Welcome to the 50th issue of the AT Capital Bi-weekly
The DSE hit a 3 year high, with trading volumes also seeing a new record of almost $174mn on October 14. We believe the fundamentals for the markets remain strong. We discuss 4 reasons to stay bullish on the DSE.
Bangladesh continues to lag other EM stock markets, most notably India: We expect the relatively attractive valuations of Bangladesh versus other EM markets to stand out in the coming months, as well as a significant pickup in international capital inflows.
Strong Ivestors appetite for Grameenphone IPO: The IPO was oversubsribed by 3.5 times with investors, including non-resident Bangaldeshis (NRBs), applying for shares worth Tk 1,725 crore of the Tk 486 crore available.
Global Economic Growth Rebounding: signs of a pickup in the global economy continue to come in. For the US, the Oct 15 Philly Fed report is evidence of a strengtening economy.However, it appears that growth in Asia is outperforming the US and especially Europe.
US dollar weakness should help Bangladesh Exporters: Givn that the Bangladeshi Taka trades in a relatively tight range against the USD at Tk 68-69, the 14 month lows of the USD versus the EUR have seen substantial BDT depreciation against the EUR and yen, and to a lesser extent the GBP. With around 54% of Bangladesh's exports go to the EU region versus around 30% NAFTA, this is a welcome boost
Goldman Sachs recently put out a report in which they aggressively recommen overweighting US companies that have high sales exposure to Brazil, Russia, India and China (BRIC) economies, as they have been outperforming teh market and are expected to continue do so.
Last Friday, U.S crude oil futures finished above $78,the highest level in a year, surging more than 9% during the past week.However,taking a closer look, it is evident that the current crude oil market is almost entirely detached from fundamentals.
We also discuss whether the US is cheap or expensive on fundamentals. We review various exchange rate indices and the US trade deficit.
Special Focus:
A strategy to Enhance Private Sector Infrastructure Financing
Global Recession and L-U-V-W Recovery.
AT Capital Bi-Weekly -- 05 October 2009
Welcome to the 49th issue of the AT Capital Bi-weekly
In this issue we begin focusing on the GP IPO both in terms of the prospects for the issue itself, but also the implicatios for the development of Bangladesh's captial markets.
In terms of the prospects for how the issue will perform as soon as it starts trading, it is fairly clear that the issue will trade at a substantial premium to its issue price.However, two key questions that remain are (1) how much of a premium; (2) will the premium be sustained or eroded by profit-taking by speculative bidders.
In the case of GP, we believe there are several reasons why, despite the fact that GP issue is more than 10 times the size of the TK 30 crore ($ 4.2 mn) Marico issue, it is likely to remain at a substantial premium.
One factor is that the Pre-IPO subscribers of the GP issue are locked in for 1 year so cannot take profits on their shares.
The much publicizedTk 30,000 crore excess liquidity in the banking system.
Another is that foreign investors are excluded from the initial subscription for the shares. They are likely to be active buyers in the secondary market. As we highlight elsewhere in the overview, international investors will undoubtedly attach a premium to the transparency and liquidity of the GP issue.
There is also likely to be demand from a number of frontier market funds that have largely shunned Bangladesh with issues due to lack of liquidity and other issues with the DSE.
The fact that the DSE has lagged other EMs, especially the BRICs (Brazil,Russia, India, China) since the low point in March of this year, leaves Bangladesh as a relatively cheap market for international money managers.
We also summarize some of the longer-term fundamentals for GP and the Bangladesh Telecoms Market.
In our Global Markets Overview, we discuss the recent G20 meeting in Pittsburgh.
Finally, in our Special Focus article this week we summarize a recent report from The Economist Magazine on the outlook for Telecoms in Emerging Markets. We believe this is especially relevant for investors assessing the longer-term prospects for GP.
AT Capital Bi-Weekly -- 06 September 2009
Welcome to the 48th issue of the AT Capital Bi-weekly
In this issue we provide an update on the prospects for the energy sector, the major bottleneck in the economy and a critical priority for the Awami League Government.
The first stage of the much-anticipated strategy to alleviate the power crisis was unveiled on August 30.It was reported that the government will invite bids by Sep 10 for the installation of 17 diesel and furnace oil-run plants to generate 1330 megawatts of electricity on a fast-track basis.
While we welcome the government taking the initiative to fast-track solutions to the crisis, an over-reliance on rental power solutions will ultimately prove to be costly.We would recommend greater consideration and encouragement of imported coal solutions which are likely to ocme in substantially less expensive.
There are significant opportunities in replacing the old government owned power plants in Bangladesh.The country has three power plant units which are more than 40 years old, five units which are 35 to 39 years old, there units 30-34 years old, seven units 25-29 years old and 11 units which are 20 and 24 years old.
The National Coal policy needs to be finalized and published as soon as possible.It is clear to anyone with expertise in the energy sector that Bangladesh's only long-term energy policy must revolve around rapid and efficient extraction of domestic coal reserves.Five good qualities, low sulphur coal deposits, with proven reserves of more than 2.5bn MT and probable of around 3.3bn MT, have been discovered in Bangladesh.
In the Special Focus report this week we discuss the increasingly important role FDI is playing in infrastructure development in many EM and Least developed Countries (LDCs). This is most notably the case in our largest neighourm India. This is not surprsing given the massive capital requirments in infrastructure.
Bangladesh needs to formulate a more clearly defined strategy for attractive large scale foreign investment in the infrastructure sector.This in turns requires close collaboration between the proposed PPP cell and the BOI.
Dr.Syed Abdus Samad, an experienced civil servant and a former principal secretary to the prime minister, has just taken over as the executive chairman of the Board of Investment (BOI).This will be an important area of focus for him along with the broader need to implement the three-year BOI restructuring plan that was submitted in 2008.
AT Capital Bi-Weekly -- 23 August 2009
Welcome to the 47th issue of the AT Capital Bi-Weekly
The failure of the EM decoupling thesis was one of the dominant features of the 2008 Global financial crisis.Stockmarkets in the BRIC countries were among the worst performers last year while almost every major EM market, especially the ASEAN countries and China, saw a dramatic collapse in trade volumes.The vulnerability of ASEAN+China economies' external sectors to the collapse in US consumer demand in the face of the housing meltdown put paid to the notion that rise in intra-regional trade would insulate their economies.
However, what a difference couple of quarters makes. The BRIC's has ssen massive outperformance versus the G7 countries year-to-date.Russia is up 57.24% year to date.India is up 53.51% and china is up 52.99%.This contrasts with YTD gains in the G7 that range from around 15% for Japan to around 5% for the UK with the US in the middle of the pack at +10.4%.
Among the Goldman Sachs' Next 11 (N11) countries, the performance is mixed with idonesia and Vietnam ip +68% and +61% respectively while Bangladesh has lagged offering G7 type returns of 8.6% and Nigeria down awhopping 27%. To some extent this reflects the diversity of the N11.
Growth in BRIC's is likely to outperform the G7 for some period to come.But the scale of outperfomance looks significantly overdone. The de-leveraging headwinds the US will face will keep growth there below trend even when the recovery becomes more firmly established.
The substantial underperformance of Bangladesh relative to BRIC's suggests that, with that economy to set grow at 5.5% recovering to 6.5% by 2010, that Bangladesh stocks are an attractive risk-return trade for EM bargain hunters.The low level of foreign participation in the market, and the subsequent low correlations with other EM markets, increases its attractions further.
In this week's special focus we discuss Bangladesh's FY2009 export performance : Since December 2008, it was a roller-coaster ride.Following a phenomenal start with a 40% growth in the first quarter despite a global environment of doom and gloom, exports eventually lost stream by the end of 2008.
The slide, which began about December, has lasted through June 2009, ending the year with a decline of 3.4% in the last month.Nevertheless, for the entire fiscal year 2008-09, exports posted double digital growth of 10.3 percent.This seemingly stellar performance hides the fact that the last six months of FY2008-09 saw exports eke out miserly 2% growth.
We discuss the strenghts and vulnerabilities of our export basket, as the recessio, as well as for the longer term.
AT Capital Bi-Weekly -- 09 August 2009
Welcome to the 46th issue of the AT Capital Bi-Weekly
While the DSE outperformed Global and EM indices in 2008, %,in 2009, global risk appetite has returned - the SENSEX up 59.7%, the KSE 100 up 36.2%, and the shanghai Composite up 82.30%%.The DSE us up 5.7%
This is not because the Bangladesh economy has lagged the performance of other EM.Rather it reflects the fact that only 1-2% of the DSE is owned by foreign investors.Hence Bangladesh does not have the usual channels by which glogal investor risk and EM enthusiasm can translate into a bullish demand dynamic.
A compelling reason for internaltional investors to buy the DSE is as a hedgefor reversal in the current really in global equitiesThe relative performance of Bangladesh equities to the BRCIs is clearly inversely correlated to the overall direction of the market.
We discuss in summary some of the key supply and demand factors that are likely to drive the DSE over tha balance of this year.On the basis of a pipeline of mutual funds and the excess liquidity in the bankng system, we think the outlook for stocks is overall positive.
With valuation coming down to more reasonable levels since 2008, we believe there are some good fundamental buys in the banks sector.Despite concens over depressed earnings, private commercial banks posted average earnings growth of 59%.
We would expect banks strong in merchant banking, broking and proprietary trading operations to have stronger earningss growth, if they can use excess cash effectively.The volatiliity in the market continues to provide good returns for active traders of the market.Banks with strong networks and strengths in remittance flows will continue to make good earnings from this, as remmitances continue to grow.
US equities rallied in response to a better-than-expected Labor report. Theuly US employment report released Aug 7 saw an additional 247,000 jobs lost in July, but unemployment was little changed.declining 0.1 percantage points to 9.4%.The pain in the real economy is continuing to deepen, but much more slowly than it had been.
Investor appetite for emergin-market assets is building on speculation that countries such as China and Brazil will be amont the first to recover from the worst globar recession since World war II.
However, as we discuss in more detail in this issue, we believe the coming global economic revovery is likely to be constrained by a debt-laden risk-averse US consumer and massive government debt/GDP levels.
AT Capital Bi-Weekly -- 22 July 2009
Welcome to the 45th issue of the AT Capital Bi-Weekly
The Latest Monetary Policy announced on 19 July, 2009 is the first policy statement by thenew Bangladeh Bank (BB) Governor Dr.Atiur Rahman.We welcome the continuation of the relatively new Bangladesh Bank practice of announcing the monetary policy stance at half-yearly intervals.
The growth rate of broad money (M2) has been set at 15.5$, which appears to be consistent with the real GDP growth objective of 5% and inflation target of 6.5%
The growth expectations of 5.9% in FY09 appear balanced insofar as they emphasize that Bangladesh's export performance will still be subject to the range of uncertainty on the prospects for the world Economy.The key to raising Bangladesh's structural growth to 7% or 8+ solving power and infrastructure bottlenecks.
The statement rightly notes that inflation in Bangladesh has been on an upward trajectory, compared with the IMF's WEO forecast of one percent decline in consumer prices in emerging and developing economies.It however does not attempt to provide any explanation for the recent upward trend in inflation in Bangldesh.
The issue of crowding out of private sector credit did not get much attention in the statement despite the deep concern expressed by the business community in the aftermath of the budget announcement.
Global Overview:
World stock as measured by the MSCI All-Country world index had their best quarter in Q2 since the benchmark was first compiled in 1988
EM fund flows hit a record in Q2 as china's "aggressive" fiscal stimulus measures spurred confidence in developing economies.
We summarize a recent report on a Global Carbon Emissions Framework by Harvard's Prof Jeffrey Frankel
Special Focus:
Bangladesh, Sri Lanka and Pakistan are economics poised for a take off with GDP growth rates in the higher ranges of developing economies.Trade volumes have been growing rapidly as well,albeit with a difference.In 1990, total trade of South Asian countries was 12% of regional GDP.In 2008, it rose to 35%.Yet intra-regional trade-goods trade between South Asian countries - as a proportion of regional trade straganted around 2-3%.We discuss the issues with South Asian Trade.
AT Capital Bi-Weekly -- 05 July 2009
Welcome to the 44th issue of the AT Capital Bi-Weekly
The recent strength of equities was given a further boost at the beginning of the week by the Finance Minister’s announcement in parliament that the amendments to the budget would include both the shortening of the black money whitening period to 1 year from three and a cut in tax on banks by 2.5% to 42.5%.
But with the latest Relative Strength Index (RSI) of DSE at 89.2, the highest seen in the past 12 months,the market is much overbought, the risks of profit-takinng are considerable. Overall, we would recommend a more defensive short-term or tactical position, even if we believe that the tax changes for banks along with the introduction of mutual funds are structural bullish factors.
The week ended with the news that the SEC had finally approved the long-awaited Grameenphone (GP)IPO.GP, the No. 1 mobile phone operator, received the green light from the stock market regulator to raise BDT 4.86bn through an initial public offering (IPO), the largest of its kind in the history of Bangladesh Capital market.
There may be some potential concerns from the stock market authorities that a fresh demand for USD 68mn of capital from the market might affect the values of other stocks or indeed the overall level of the market.However, given that the GP brand is sufficiently strong domestically and internationally, we are likely to see significant new interest from foreign as well as local investors.
Coming back to the GP issue, valuation techniques are complicated by typically focus on international and local comparisons for Price/Earnings (P/E) ratios. GP does not appear especially expensive to us at their BDT 70 face value that has been proposed.Mobile penetration in Bangladesh will likely increase from around 28% currently as it remain low, certainly relative to the 80mn mobile subscribers in Pakistan with has a population of 160mn versus 150mn in BD.
What investors who might potentially be interested in investing in GP or indeed any other Telecoms companies that come to market is their future earnings growth prospect, the outlook for new 3G (third generation) wireless networks, industry consolidation and cost reduction opportunities.
We still see significant scope for all the mobile companies in Bangladesh including GP to develop a broader range of value-added services such as mobile banking, greater internet access, doctor on call, CellBazaar etc. We summarize some of the drivers in the Telecoms sector inside this issue.
In a special focus section, we also analyze the impack of Protectionism in the Bangladesh context.Suffice it to say that protection makes local industries currently more profitable than they would be without it.But it also makes them inefficient and internationally uncompetitive in the long run. Bangladesh needs to maintain its trend of reducing trade barriers, not increasing them.
In the Global Market section, we review recent trends in the S&P 500 and discuss the worrying picture in the US labor market which perhaps the biggest threat to a conventional V shaped recovery in the global economy.
AT Capital Bi-Weekly -- 23 June 2009
Welcome to the 43rd issue of the AT Capital Bi-Weekly
• As the debate continues on the FY 2009/10 budget unveiled by Finance Minister AMA Muhith on June 11, a number of issues and themes have emerged.
We believe the debate on whether the growth target is ambitious enough is a “red herring” – there should be less of an obsession on point forecasts?
External sector picture shows overall resilience with remittances and RMG strong but selective sectors suffering
Financing remains challenging with some risks of crowding out
Money whitening provision should be heavily amended; and the focus on PPP is welcome but implementation will be challenging
• We think that while the expansionary stance in the budget is appropriate under the current sluggish macroeconomic environment, major challenges lie in implementing the large investment programs envisaged under the Annual Development Plan (ADP) and the new initiative under public private partnership (PPP) arrangement.
• Trade openness appears to have been a casualty in this budget. To see tariffs go up – and protective tariffs at that – comes as something of a surprise, as it signifies not a standstill but a reversal of the past slow but sure momentum in the direction of trade openness.
Special focus:
• One of the standout features of the Budget was the Finance Minister’s emphasis on catalyzing infrastructure investments via Public Private Partnerships (PPP). The Finance Minister made a
commitment in his budget speech stating: “According to our plan we hope that the PPP budget management will be fully operational by September next.” To say this is ambitious is a significant
understatement.
• In this special focus we discuss ‘The Challenges of Operationalizing Public-Private Partnerships (PPP) in Bangladesh.
AT Capital Weekly -- 07 June 2009
Welcome to the 42nd issue of the AT Capital Weekly
• As the debate continues on the FY 2009/10 budget unveiled by Finance Minister AMA Muhith on June 11, a number of issues and themes have emerged.
We believe the debate on whether the growth target is ambitious enough is a “red herring” – there should be less of an obsession on point forecasts?
External sector picture shows overall resilience with remittances and RMG strong but selective sectors suffering
Financing remains challenging with some risks of crowding out
Money whitening provision should be heavily amended; and the focus on PPP is welcome but implementation will be challenging
• We think that while the expansionary stance in the budget is appropriate under the current sluggish macroeconomic environment, major challenges lie in implementing the large investment programs envisaged under the Annual Development Plan (ADP) and the new initiative under public private partnership (PPP) arrangement.
• Trade openness appears to have been a casualty in this budget. To see tariffs go up – and protective tariffs at that – comes as something of a surprise, as it signifies not a standstill but a reversal of the past slow but sure momentum in the direction of trade openness.
Special focus:
• One of the standout features of the Budget was the Finance Minister’s emphasis on catalyzing infrastructure investments via Public Private Partnerships (PPP). The Finance Minister made a
commitment in his budget speech stating: “According to our plan we hope that the PPP budget management will be fully operational by September next.” To say this is ambitious is a significant
understatement.
• In this special focus we discuss ‘The Challenges of Operationalizing Public-Private Partnerships (PPP) in Bangladesh.
AT Capital Weekly -- 31 May 2009
Welcome to the 41st issue of the AT Capital Weekly
• The BRIC (Brazil, Russia, India, China) countries continue to surge higher in 2009, as they have far outpaced stock markets of so-called "developed' countries. Russia is up a whopping 72.1% this year, followed by India at 51.6%, China at 44.6%, and Brazil at 39.7%. The S&P 500 is up 0.22%.
• The DSE has been lagging as the modest amount (1-2%) of the market held by foreign investors, which has meant it has not benefited as much from the rebound in global risk appetite. But Bangladesh remains the most resilient economy in Asia and looks is looking increasingly attractive relative to other EM indices.
• The latest US house price data from the Case-Shiller Index continues to show sharp declines. Even if the latest UK Nationwide House price data shows a tick up of 1.3% in April, the US housing market, given its influence on the US consumer and bank balance sheets, undoubtedly remains the critical variable in calling the timing and shape of the global recovery.
• German exports were down 9.7 % from the fourth quarter and company investment declined 7.9 %, according to the Federal Statistics Office. The Office reported that gross domestic product fell a seasonally adjusted 3.8 % from the previous three months, confirming an initial estimate from May 15. That’s the largest drop since quarterly data were first compiled in 1970.
• The issue of the effectiveness of foreign aid in truly benefiting the development of the recipient countries has heated up in the light of the publication of the book, “Dead Aid: Why Aid is Not Working and How there is a Better Way for Africa “ by former Goldman Sachs economist, Dambisa Moyo.
• We discuss the recent heated debate between the Pro-Aid group lead by Jeffrey Sachs and the Anti-Aid camp of Moyo and Professor Bill Easterley.
• We also discuss in depth the need for more effective use of the foreign aid budget in Bangladesh and a move away from an NGO culture. In the next section, we reproduce some of the arguments we have made previously on how Bangladesh should use its aid budget.
• Bangladesh needs to take greater ownership and participation of its development budget to achieve the maximum impact on economic development. This is a goal that is not only critical to achieving rapid poverty reduction, but one the First World taxpayers funding development agencies would undoubtedly approve of. We are all stakeholders in process and should seek cooperative solutions in getting leverage from Bangladesh’s large aid budget.
AT Capital Weekly -- 10 May 2009
Welcome to the 40th issue of the AT Capital Weekly
• Oil has been moving sharply higher over the last couple of weeks, and it is now up 71.15% over the last 3 months. While the sharp increase has yet to cause panic among policymakers, they should be more concerned. Major net importers of oil, especially those in EM like India and Bangladesh, will see deterioration in fiscal balances at a time when they are under pressure to boost discretionary spending with stimulus packages to counteract the effects of the global crisis.
• However, higher oil prices will reduce the risks of a fall back in remittances from Bangladeshi workers given that the Gulf Cooperation Council (GCC) countries constitute almost 75% of remittance flows. To that extent, one might argue that a major manpower exporter like Bangladesh is somewhat hedged from higher oil prices.
• A recent report from Stratfor offers an interesting geopolitical perspective on the migrant worker debate and further deepening of social tensions and security risks for the United Arab Emirates as well as other GCC states, which are releasing scores of blue-collar immigrant workers.
• Whatever policies the GCC employ to manage their foreign labour forces, the economic crisis is likely only to exacerbate the growing social tensions between Gulf governments and their migrant worker populations.
Global Markets Overview:
• US April Labour data sees smaller decline in payrolls but rise in unemployment: Last month non farm payrolls were down 539,000 compared to a drop of 699,000 in March. The hope is that the slowing pace of job loss is a sign of better times.
• High Yield Spreads continue to contract reflecting economic optimism: High yield credit spreads are down to their lowest levels in over six months. Based on data from the Merrill Lynch High Yield Master Index, junk bonds are currently yielding 1,308 basis points above comparable treasuries. These levels are by no means normal, but they are considerably better than the 2,100 basis point spread investors were dealing with in December.
• Some signs of green shoots in Asian trade: There is evidence that the contraction has ended, at least in Asia. Korea’s April exports, for example, topped its March exports. There is also evidence that China is importing more not less — and evidence that China’s trade surplus is falling.
AT Capital Weekly -- 03 May 2009
Welcome to the 39th issue of the AT Capital Weekly
• The debate on the extent to which the global crisis will affect worker remittances in Bangladesh remains unresolved with bearishness from the World Bank offset by some academics within Bangladesh, as well as the data itself. Q1 remittance data showed fairly robust growth with March 2009 inflows at USD 885mn versus USD 808mn in March 2008. However, the cumulative total for the first three weeks of April at USD 489.52mn suggests a significant softening versus the USD 781.71mn seen in April 2008.
• Some of the previous resistance might be a lagged affect as workers who fear they are about to lose their jobs send an even larger proportion of their earnings home than they might otherwise do. It has also been argued that with a majority of Bangladeshi migrant exports being blue collar jobs in the Middle East, these will prove relatively resilient given the long-term nature of the Gulf building commitments.
• The risks towards remittances remain to the downside though the scale of decline may not be as extreme as some forecasters such as the World Bank fear. But the authorities need to make budgetary provisions in terms of transitional income support and retraining now to prepare for the worst case scenario.
• In a recent article Martin Ravallion and Shaohua Chen of the World Bank’s Development Research Group estimated that the crisis will add 64 million people to the population living under USD 2 a day. It predicts that the global poverty rate will fall from 42% to 39% in 2009, while the pre-crisis trajectory would have brought the poverty rate down to 38%.
• In Bangladesh, there are signs that Safety Net Spending increases will be included in the upcoming budget but we also need to see an expanded allocation from the donor agencies to ensure the poor are protected from the affects of the current crisis.
• The Bureau of Economic Analysis reported on April 29 that U.S real GDP fell at a 6.1% annual rate in the first quarter of 2009. The biggest drag on real GDP was a 9.5% drop (quarterly rate) in non-residential fixed investment.
• In this issue we also discuss the economic and human costs of flu pandemics. Findings that were published in the December 23, 2006 issue of The Lancet show that mortality rates for the 1918-1920 pandemic were disproportionately high in communities where per capita income was lowest. If the same pandemic were to occur today, approximately 96% of deaths would occur in developing countries.
• We also include excerpts from an article titled “The Last Temptation of Risk” by Professor Barry Eichengreen of Berkeley, which offers a thought provoking and insightful analysis of why almost all economists, both on Wall Street and academia, failed to forecast the crisis.
AT Capital Weekly -- 26 April 2009
Welcome to the 38th issue of the AT Capital Weekly
• Energy Crisis bigger threat to the Bangladesh Economy in 2009 than the Global Financial Crisis: ‘The current gap in demand and supply is around 2,000MW. Adding to misery of the power crisis has been acute shortages of water in some parts of Dhaka.
• We need to move to an emergency footing to tackle the energy crisis urgently otherwise there is a growing fear the recent isolated attacks on power stations might extend into a broader law and order breakdown. The energy authorities need to urgently solicit options for generating 1000MW of power in the next 6 months even at a relatively high cost by a combination of imported coal and rental power plants.
• We need to consider a hybrid strategy to meet the gap between expensive short-term power and the existing tariff structure for electricity. Approval of open-pit mining needs to be taken quickly
Global Overview:
• Global Trade Stabilizing? The Baltic Dry Index is up 145% YTD. But we're working off a very low base after the globalization bubble burst last year. The index is still off 84% from its highs in May of 2008
• Dubai Real Estate Shows Tentative Signs of Bottoming: the Dubai Property share price index seems to have leveled in 2009, following consistent falls in 2008.
Special Focus:
• We provide an extract from the recently released IMF World Economic Forecast. It forecasts global GDP to fall by 1.3% in 2009 with Q4 2008 GDP falling more than 6% on an annualized basis.
• Is the US behaving like an errant EM country? We reproduce an article from the Atlantic May 2009 issue. It provides a relevant perspective for LDC countries like Bangladesh that has received lectures from many developed countries and donor agencies about the inadequacies of policymaking.
AT Capital Weekly -- 19 April 2009
Welcome to the 37th issue of the AT Capital Weekly
Key themes in this issue are:
Bangladesh Overview:
• Finance minister AMA Muhith unveiled the government's much-anticipated stimulus package on Sunday, amounting to BDT 34.24bn (USD 0.5bn). This will go to increase subsidies in power and agriculture and raise the rate of cash incentives for recession-hit exporters in the remaining few months of FY 2008-09.
• We believe that the measures announced have the right balance between fiscal prudence a
