At Capital Weekly 11 January 2009

11 January 2009 AT CAPITAL RESEARCH
AT Capital Weekly Update

Key themes in this issue are:

Global Overview:
• The fallout from the USD 1bn+ fraud at Satyam, India’s Enron, continues to reverberate around not
only within the stockmarket but corporate India more broadly. Our sense is that the impact on
confidence will be more prolonged as foreign investors continue to question the reliability of
accounts.
Weekly News Update

• Another possible impact could be on the trend of outsourcing to India, since India's IT firms handle
sensitive financial information for some of the world's largest enterprises.

• For months, Wal‐Mart shone like a beacon in the storm lashing retailers, offering hope to the

industry and investors alike that there must be at least one business model that could withstand

the recession: international discounters. Last Thursday, we learned otherwise. Mighty Wal‐Mart's

sales fell at the height of the traditional holiday spending spree.

• US Nonfarm payroll employment declined sharply in December, and the unemployment rate rose

from 6.8 to 7.2 %. Payroll employment fell by 524,000 over the month. The total number of

unemployed lost in 2008 was the highest since 1945, right after the end of World War 2.

• China's exports and imports both fell for the second consecutive month in December, with an
accelerated contraction in trade offering a bleak outlook for the world's third‐largest economy.

Bangladesh Overview:
• With an overwhelming mandate from the people, new AL PM Sheikh Hasina has surprised the
nation with a bold series of selections for her Cabinet that was certainly in keeping with her
electoral platform, namely one of change. We outline some of her key Cabinet Appointments.

• The Awami League‐led grand alliance government is starting off on a favorable base as food prices
and overall inflation in the country have started to come down since November 2008 due to
EDITORS

dramatic declines in global commodity prices in the backdrop of the global economic crisis.
• The new government is already being proactive in attaining its goal of reducing prices of essentials.
Ifty Islam
Asian Tiger Capital Partners
During a meeting held last week, the council of Ministers decided to cut diesel prices and raise the
Managing Partner
ifty.islam@at‐capital.com level of subsidy for fertilizers with the objective of boosting Boro crop production.

Syeed Khan • We discuss some short‐term and longer‐term policy measures the new AL Government should

Partner follow in order to bring Food prices down in a sustained manner. In particular we focus on
syeed.khan@at‐capital.com increasing Agri‐sector R & D as well as increasing distributional efficiencies.

Jisha Sarwar
Senior Research Associate Satyam crisis risks rapid reversal of Indian FDI miracle
jisha.sarwar@at‐capital.com

Asian Tiger

Capital Partners

UTC Building, Level 16
8 Panthapath, Dhaka‐1215
Bangladesh
Tel: 8155144, 8110345
Fax: 9118582

www.at‐capital.com


Contents Page

Global Markets Overview 3
Satyam scandal set to be a drag on Indian markets/EM investment sentiment 3
US December unemployment rate jumps to 7.2%; Walmart sales disappoint 3
Chinese and global trade slowdown worsening 4

Bangladesh Overview

6
AL’s pledge to reduce prices of essentials 6
Increasing inflation in the developing world, caused by increasing food prices 7
Impact of high food prices 7
Ensuring Sustainability of Price Reductions 8
Short‐term measures 9
Long‐term measures 9
Sub‐sectors of agriculture where research could be useful 9
Appendix 1 10
Appendix 2 11

Stock Market Weekly 12
Stock Market News 13

Economics 15
Economics News 16

Sector News 18
Agriculture/ Aviation 18
Banking/ Infrastructure & energy 19
Pharmaceuticals/Real Estate/ Telecoms 20
Textiles/ Tourism 21

_______________________________________________________________________________________
AT Capital Weekly Update 2


Ifty Islam, Managing Partner
ifty.islam@at‐capital.com

concerned about these developments, especially if the SEC were
Global Markets Overview to continue to pursue its program of mutual recognition and if the
US Public Company Accounting Oversight Board( PCAOB) mirrored
Satyam scandal set to be a drag on Indian markets/EM that policy by relying upon foreign auditing oversight authorities
investment sentiment to conduct inspections of auditing firms based abroad.”

When terrorists attacked Mumbai last November, the media This will undoubtedly have implications for the Indian Outsourcing
called it "India's 9/11." That tragedy has been succeeded by Industry to generate the same degree of trust from its overseas
another that has been dubbed "India's Enron."The fallout from corporate clients. As Knowledge at Wharton notes, the Satyam
the USD 1bn+ fraud at Satyam continues to reverberate around debacle will have an enormous impact on India's business scene
not only within the stockmarket but corporate India more broadly. over the coming months. The possible disappearance of a top IT
Our sense is that the impact on confidence will be more services and outsourcing giant will reshape India's IT landscape.
prolonged as foreign investors continue to question the reliability
of accounts in EM countries more broadly, especially those that Satyam could possibly be sold ‐‐ in fact, it had engaged Merrill
through impressive self‐promotion have benefited from a Lynch to explore "strategic options," but the investment bank has
significant influx of capital. The near 50% decline in the Sensex in withdrawn following the disclosure about the fraud. It is widely
2008 reflected primarily the withdrawal of international capital believed that rivals such as HCL, Wipro and TCS could cherry pick
rather than the speed of economic slowdown. But this is likely to the best clients and employees, effectively hollowing out Satyam.
get worse in 2009.
Another possible impact could be on the trend of outsourcing to
Satyam’s CEO now admits that some reported assets at the India, since India's IT firms handle sensitive financial information
company simply did not exist, including considerable amounts of for some of the world's largest enterprises. The most significant
cash. Cash was reported to exceed USD 1bn but apparently stands questions, however, will be asked about corporate governance in
at just USD 78mn! Ordinarily, the audit work required to verify the India, and whether other companies could follow Satyam's Raju in
existence of cash is among the easiest of all auditing exercises. revealing skeletons in their own closets.
One wonders how auditors could have failed to identify such false
assertions. US December unemployment rate jumps to 7.2%; Walmart sales
disappoint
It is likewise the case that the integrity of systems of internal
controls governing cash are among the easiest to establish, Stockmarkets ended the week under the twin negative influence
maintain and audit. Satyam’s auditors gave opinions attesting to of the Satyam scandal we highlighted above along with weak
the veracity not only of management’s assertions about cash December US labour market data. Nonfarm payroll employment
balances but also about the effectiveness of the company’s declined sharply in December, and the unemployment rate rose
internal controls. So one also wonders how auditors could have from 6.8 to 7.2 %. Payroll employment fell by 524,000 over the
given a clean bill of health to a system of internal control that month and by 1.9 million over the last 4 months of 2008. In
enabled reporting large amounts of fictitious cash. December, job losses were large and widespread across most
major industry sectors and the total number of unemployed lost
From a systemic regulatory standpoint, what is particularly in 2008 was the highest since 1945, right after the end of World
troubling is that Satyam, whose shares trade on the New York War 2.
Stock Exchange (in the form of American Depository Receipts, or
ADRs). In addition that billion‐dollar fraud that went undetected
by the firm’s outside auditors, an India affiliate of
PriceWaterhouseCoopers (PWC).

The Satyam fraud presents serious questions about systemic
regulatory efficacy, particularly concerning auditing and audit firm
oversight. Pending additional information from the newly‐
revealed fraud, of course, a couple of preliminary issues may
prove to be lessons of the Satyam fraud. First, if foreign
companies list securities in the United States, their financial
statements need to be audited by a firm whose activities are
subject to regulatory oversight in the United States.

As one leading US regulatory lawyer, Lawrence Cunningham, of
concurringoipinions.com has noted “ The problem may grow more
serious, however, as the four largest US auditing firms appears
increasingly interested in outsourcing much of their auditing work
to foreign affiliates, including to firms in India. Investors should be
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Also of concern was the disappointing earnings results from the As Marketwatch.com noted: “Wal‐Mart didn't save the holiday
crucial holiday season from Walmart. For months, Wal‐Mart season and it certainly can't save the global economy. While
shone like a beacon in the storm lashing retailers, offering hope to consumer spending drives growth, it can also drive dangerous
the industry and investors alike that there must be at least one trade imbalances and unacceptable credit risk.
business model that could withstand the recession: international
discounters. Last Thursday, we learned otherwise. Mighty Wal‐ So when the world's biggest retailer warns things are looking
Mart's sales fell at the height of the traditional holiday spending rough, it merely offers fresh evidence of the depth and breadth of
spree. For the five weeks ended Jan. 2, the world's biggest retailer a recession unlikely to ease its grip any time soon.
reported net sales 0.1% less than a year ago, forcing it to cut its
fourth‐quarter earnings outlook. Investors who clung to Wal‐Mart It also reminds us that we're all in this together ‐‐ China,
as the world plunged into recession had seen enough. After Bentonville, Ark., and Wall Street ‐‐ and that climbing out of this
famously surviving 2008 as one of only two stocks in the Dow 30 hole requires an international effort, whether we like it or not.”
to post a gain (the other was hamburger giant McDonald's). That
tells us a few things about the holiday season and what it means Chinese and global trade slowdown worsening
for 2009. It tells us that all the tales of Wal‐Mart parking lots
clogged with BMWs forgot to mention that cars with rusted out The WSJ reported that China's exports and imports both fell for
fenders were nowhere to be seen. the second consecutive month in December, with an
accelerated contraction in trade offering a bleak outlook for the
While throngs of middle class Americans discovered the virtues of world's third‐largest economy.
living within their means, much of Wal‐Mart's traditional clientele
was at home rigging up space heaters. Or rigging up space heaters The weak trade data, especially that of imports, showed China
at the in‐laws, where they now live. That's what happens when isn't just suffering from a global economic slowdown but also
unemployment and foreclosures approach levels not seen in from a deterioration in local demand, further throwing into
decades. doubt expectations that increasing domestic Chinese spending
can compensate for the slowdown in the US, Europe and Japan.
The downturn is not only felt at home. Wal‐Mart's discount
empire spans the globe now. So those slumping December sales, China's exports in December fell 2.8% from a year earlier to
down 10% at the retailer's overseas stores, give us a glimpse of $111.16 billion, while imports in the month fell 21.3% to $72.18
the weakened power of the consumer far beyond our own billion; China's trade surplus in December totaled $38.98 billion,
borders. the person said. That was down from a record $40.09 billion in
November.

While the falling value of imports in December partly reflects
declining international commodity prices, it also indicates a sharp
deceleration of economic growth in the fourth quarter and poor
growth momentum in the first quarter.

Another WSJ report underlines the extent of the Chinese
slowdown. In Sichuan and other interior provinces, municipal
officials are desperately searching for ways to provide jobs for
millions of out‐of‐work migrant laborers whose families no longer
need them for farming.

American retailers, after suffering a dismal holiday shopping
season, are delaying payment for Chinese goods 90 or even 120
days after shipping, in contrast to the usual 30 to 45 days, forcing
their suppliers to try to borrow more money to cover the
difference. Some Chinese suppliers who cannot raise the money
— many already operate on thin margins — are going out of
business.

At the same time, retailers are demanding that exporters show
that they have strong balance sheets and will not go bankrupt
before completing orders. Exporters, worried the retailers will fail
before paying for their purchases, are reluctant to let goods be
loaded on ships. And banks, for the same reason, have cut back on
guaranteeing retailers’ payments to exporters.

_______________________________________________________________________________________


Victor K. Fung, the chairman of the Li & Fung Group, the giant
supply chain management company that connects factories in
China with retailers in the United States and Europe, estimates
that 10,000 of the 60,000 factories in China owned by Hong Kong
interests have closed or will close in the coming months. Other
business leaders say the toll may be even higher and that factory
closings are an even bigger problem among mainland Chinese
businesses because these tend to be smaller and more poorly
capitalized than those owned by Hong Kong businesses.

Evidence from Taiwanese and Korea trade data underlines the
speed of the Chinese slowdown. Taiwan’s December exports are
down over 40% y/y — largely because of a huge fall in exports of
electronic components to China. The fall topped expectations. It
adds to the mounting evidence that the current global
deceleration is quite sharp and quite deep.

Taiwan’s imports are also down by around 45%. Thank the big fall
in commodity prices. Taiwan managed to post a trade surplus in
December even with the enormous fall in its exports. Korea’s
exports were also down in December — though the 17.4% y/y fall
in December wasn’t quite as large at the 19% fall in November.
Imports though fell by more — over 21%. And Korea also posted a
(small) trade surplus.
_______________________________________________________________________________________


“Measures will be taken to reduce the unbearable burden of price
Bangladesh Overview hike and keep it in tune with the purchasing power of the people.
After giving the highest priority to the production of domestic
AL announces surprise Cabinet commodities, arrangements will be made for timely import to
ensure food security. A multi‐prong drive will be made to control
“She promised to surprise us with her choice of the cabinet, and prices along with monitoring the market. Hoarding and
she did. Though the media was able to get some predictions right profiteering syndicates will be eliminated. Extortion will be
but generally speaking she outwitted us all. Not only in choosing stopped. An institution for commodity price control and consumer
the individuals but equally in giving them portfolios, Prime protection will be set up. Above all, price reduction and stability
Minister (PM) Sheikh Hasina showed a boldness and a spirit of will be achieved by bringing equilibrium between demand and
moving away from the trodden path that is rare in our politics. supply of commodities.”
However, in her 'thinking out of the box' she has also taken some
very serious risks that can make or break her government's Indeed, inflation has been a major concern in the country
prospect for success.” (Mahfuz Anam, Editor, Daily Star, Jan 10, throughout 2007 and 2008. Inflation, driven mainly by high prices
2009) of food items, impedes economic growth and overall poverty
reduction measures in the country. A recent survey conducted by
With an overwhelming mandate from the people, new AL PM IFC BICF (Bangladesh Investment Climate Fund) on concerns on
Sheikh Hasina has surprised the nation with a bold series of the economy and consents for business reforms, shows that high
selections for her Cabinet that was certainly in keeping with her prices is a leading concern for both opinion leaders (83%) and the
electoral platform, namely one of change. general population (84%), followed by jobs and unemployment,
corruption, electricity, etc. During the same survey, when asked
The selection of Mr MA Muhit as Finance Minister, will give some about the two most important areas that need reform, 56% of the
re‐assurance to financial investors that one of the key ministries general population and 31% of opinion leaders included
of government is in the hands of one of Bangladesh’s policy agriculture as one of the most important areas that need reform
veterans. Although it has been almost 20 years since Mr Muhit (Figure 1).
was last at the helm of the finance ministry, having someone with
stature and tenure within the Awami League was important given Figure 1: Most Important Reforms (Survey conducted in Sept. 08)
the likely pivotal role of the Finance Ministry. Planning Minister
Retd Vice Marshall AK Khandaker is also well respected within the
party and new Commerce Minister Retd. Col Faruq Khan also has
extensive ties within the business community and also likely
valuable perspectives on the energy sector. (we list the full list o
ministers in the new cabinet in the appendix)

But expectations for the new government will also be high given
the scale of the mandate and they need to deliver in two key
areas very quickly. Firstly in energy given the AL manifesto
commitment to deliver 5000MW by 2011 and 7000MW by 2013,
they need to take decisions fast. The fact that Sheikh Hasina
retains the energy portfolio personally underlines its importance.
But there will be a great deal of focus on which key advisors she
appointments to help her to take decisive action on coal policy,
gas exploration and rental power plants. We discussed some of
the energy issues in last week’s ATC weekly as well as in the Daily Source: IFC BICF

Star Column Jan 8 that can be found in the link below
In fact, keeping prices of essentials down was also emphasized as
http://www.thedailystar.net/newDesign/news‐details.php?nid=70432 a priority during the care taker government’s regime. In the
proposed budget for the fiscal year 2008‐09, the Finance Adviser
We also plan to publish a 60 page report on the energy sector identified “maintaining price level of essentials within a tolerable
later this month. limit” as one of the eight priorities. A number of measures, both
market‐based and non‐market‐based, were proposed to keep
In the balance of this article, we discuss the other key manifesto prices of essential commodities at a tolerable limit. These
commitment of the AL, namely reducing the price of essential measures ranged from fiscal measures (e.g. continuation of zero
goods. or reduced import tariff on certain commodities) to direct market
interventions (e.g. continuing open market sales (OMS) outlets of
AL’s pledge to reduce prices of essentials daily essentials). To mitigate the negative impact of high price on
the food security of the poor segment of the society, the budget
One of the major electoral promises made by the ruling Awami proposed to broaden allocation and coverage of the ‘safety net’
League party was to bring down essential commodity prices to a program. Furthermore, an allocation in terms of food worth BDT
tolerable level. The first point on the priority list of AL’s manifesto 1,5780mn was proposed under the Food for Work Program, which
states: is expected to generate other 144mn man‐days of employment.
_______________________________________________________________________________________

The budget also proposed measures to stimulate agricultural and non‐economic factors contributed to the recent price increase
production. These are related to subsidy for agriculture and in Bangladesh (Dawe 2008 and UNESCAP 2008).
reduction in duties on import of agricultural inputs and
machineries. As a result, overall inflation in Bangladesh rose dramatically in
recent years. The Bangladesh economy experienced a moderate
Increasing inflation in the developing world, caused by rate of inflation, 5.2 % on average in the first half of 1990s, mainly
increasing food prices contributed by higher prices in non‐food items. However, in the
second half of the 1990s, average inflation increased to 5.6 %
In recent years inflation has not only been rising in Bangladesh, driven by higher food prices, though food inflation started to
but also in the rest of the developing world, mainly due to rising decline after FY98, the year of the devastating flood, along with
food prices in the international market. Needless to say, rising similar movement of overall inflation. Since then, Bangladesh
food prices has been intensifying food insecurity in the developing experienced a low rate of inflation, at an average rate of less than
countries. 2.5 % during FY01‐FY02; when a relatively low price of food at that
time played the key role in overall price developments. However,
There was a 181% increase in global wheat prices over the 36 in the following two years, the inflation rate jumped to 5.1 %,
months leading up to February 2008, and an 83% increase in followed by an average of 7.0 % during FY05‐FY07. In July 2008,
overall global food prices over the same period (World Bank overall inflation in Bangladesh rose to 10.82 % (point‐to‐point‐
2008). Moreover, the price of rice in the international market rose basis) with a dominant role of food inflation (13.92 %).
by 165% between April 2007 and April 2008 (ADB 2008).
One general characteristic of the recent inflation is that food
The primary reasons for rising food prices in the international inflation is higher than non‐food inflation, and the gap has been
market include factors such as higher food demand in emerging increasing for a while. Though the role of food inflation in overall
economies such as China and India that have led to reductions in inflation was insignificant during FY01‐FY03, food inflation started
food exports from these countries; rising oil prices and, more to soar since FY04 which, in turn, led to rising overall inflation.
importantly, increased demand for bio‐fuel raw materials such as However, it is important to note that inflation is heavily weighted
wheat, soybean, maize, and palm oil which reduced the area of by food; although energy prices are volatile, it does not really
cropland for using food production for human consumption. have a significant impact on overall inflation as the local energy
(diesel and petroleum) prices are not set by the market, but rather
Figure 2 fixed by the government through a pricing mechanism.

Figure 3: Trends in inflation rate in Bangladesh

Inflation Rate (Point to Point) (1995-96=100)
2008

CPI ClassificationFY 05 FY 06 FY 07 FY 08 Sep Oct Nov
General 6.48 7.17 7.22 9.93 10.19 7.26 6.12
7.91 7.76 8.12 12.28 12.07 8.08 6.68
Food
Non-Food 4.33 6.40 5.90 6.32 7.19 5.95 5.25

Source: BBS

A Bangladesh Bank report on inflation in Bangladesh states, “Data
analysis reveals that inflation in Bangladesh is dominated by food
inflation and, in particular, prices of rice, wheat, and edible oil
significantly affect overall food inflation. Interestingly, among all
food items, import payments for these three items are highest.
Source: FAO Though the import‐consumption ratio of rice is very low, it is
significantly higher for wheat and edible oil. However, since these
In recent years, Bangladesh has experienced persistent price are relatively high‐weighted food items, even low import ratios of
increases, especially of food items, corresponding with increasing these commodities play a greater role in overall inflation in the
food prices globally. A significant increase in the price of rice was country. Thus it is important for Bangladesh to maintain stable
seen in the domestic market from November 2006 to March 2007. prices of these three food items at the import stage to mitigate
However, since January 2008, the rise in prices has been steeper. their adverse effect on the domestic prices.”
From April 2007 to April 2008, the price of rice increased by 61 %,
while the price of wheat increased by 56 % (ADB 2008). This was Impact of high food prices
mainly due to the two floods and cyclone Sidr which caused a
short term supply shock. In addition, adverse price developments Increased food prices is one of the primary reason for food
in the international market, low prices of food commodities at the insecurity in Bangladesh. In a country where 49% of the
production stage leading to reduced production incentives, rising population live below the poverty line, and 42% of the total
global prices of oil since 2005 causing problems in transportation population survives on less than a dollar a day, the extreme poor
of food grains, movements in the exchange rate, political and simply do not have enough money for food, let alone enough to
market uncertainty, strong domestic demand (resulting from eat nutritiously. Other adverse effects of high food prices include
economic growth and flow of remittances) and other economic reduced household income of the households in real terms and
_______________________________________________________________________________________

thus increase in poverty incidence, higher effective inflation for According to a study on inflation conducted by the Bangladesh
the poor households than average inflation due to higher share of Bank, “[In 2007 and 2008] The effect of higher international prices
total expenditure devoted to food by the poor households. Hence, of three major food products (rice, wheat, and edible oil) on their
the welfare of the poor consumers and farmers in Bangladesh and domestic prices was partly neutralized by an exchange rate policy
other developing countries are more vulnerable to food price that maintained a relatively stable value of BDT/ USD. This
hikes. suggests an active role of exchange rate policies in mitigating the
pass‐through problem at the import stage. Second, commodity
Poverty is the major factor effecting food security in Bangladesh. specific trade policies such as reduction of tariffs and taxes on
Despite the impressive increases in food grain, around half of food items have contributed to ensuring more stable domestic
Bangladeshis remain below the established food based poverty prices in Bangladesh relative to world prices and keeping the pass‐
line. And, as many as one third are living in extreme poverty and through elasticity at less than unity. Third, reducing import tariff
severely undernourished. Recent food price increases, regular on food commodities certainly is favorable to the domestic
natural disasters, and strains on the global economic market have consumers and may help to ease domestic prices. However, this
caused additional destabilization. should be weighed against its adverse effect on domestic revenue
earnings at the import stage. This could be substantial in specific
Ensuring Sustainability of Price Reductions cases, especially when the tariff is reduced on the large volume of
imports. If it happens, then the tax authority should review the
The Awami League‐led grand alliance government is starting off a existing tax measures to help recover the revenue loss.”
favourable base as food prices and overall inflation in the country
have started to come down since November 2008 due to dramatic Along with exchange rate and trade policies aimed at reducing
declines in global commodity prices in the backdrop of the global price volatility, the new government also needs to maintain a
economic crisis. In November, inflation on a point‐to‐point basis good Boro rice and Aman rice production, and should ensure that
th
came down to 6.12%. In January 6 this year the food stock stood the food gets to the poor people through different government
at 1.26mn metric tons, while in Bangladesh's present context a channels. Agronomic practices should also be changed to lower
stock of 0.8mn to 1mn metric tons is considered a safe reserve; In consumptive need of water and thus lower irrigation and
July‐Nov 2008 the food stock in the country increased by 82% production costs. The importance of giving highest priority to
from the same period in 2007. However, there is reason for increasing domestic production of important food commodities
concern as rice prices are expected to rise again – according to the such as rice cannot be overemphasized, as the key to food
International Rice Research Institute (IRRI) rice prices are likely to security is availability of affordable food. Figure 4 shows that in
rise sharply for the second year in 2009. Although a drop in oil and the short run even small decreases in supply can cause large
fertilizer costs has significantly lowered the price of rice ‐ a staple increases in price. To maintain a stable food supply at reasonable
for almost 700 million of Asia's poorest – rice prices could increase prices, the government can directly buy or stock food
again this year as farmers struggle to secure loans amid the credit commodities from the producers at reasonable prices and
crunch. According to Samarendu Mohanty, head of social sciences distribute through effective channels. Moreover, it is likely to
at the rice institute, he ongoing credit crisis makes it hard to serve a dual purpose ‐ first, it can ensure an increased flow of
secure loans for purchasing seeds and fertilizer, and farmers may supply from domestic sources; secondly, it can encourage the
plant less or switch to less expensive staples. At the same time, he agricultural producers to continue with their efforts to increasing
added, the economic downturn may increase demand for rice in agricultural production in a sustained manner.
developing nations as falling income forces poor people to switch
back to less expensive staples. Therefore, production uncertainty Figure 4: In Bangladesh the demand for staple food items (such
due to tight credit and declining rice prices combined with strong as rice and wheat) and the short run supply of these food items
demand growth points to another rise in rice prices in the coming are highly inelastic. In the short run, small increases in demand
months. or small decreases in supply can cause large increases in price.
Elastic Supply Inelastic Supply
The new government is already being proactive in attaining its P P
S
goal of reducing prices of essentials. During a meeting held last
week, the council of Ministers decided to cut diesel prices and
S
raise the level of subsidy for fertilizers with the objective of •
boosting Boro crop production. The government needs to make •

•
sure that the cost of production of rice is below the market price • •
•
of rice, in order to maintain the farmers’ interest in rice • •
cultivation. The price of rice has started to fall across the country
Demand Increases Demand Increases
owing to a decline in global commodity and food prices, and a
high level of domestic food stock. Although this is a welcome Q Q
development, it is still a concern at the farmers’ level, as the
market price of rice has gone down below its cost of production In the short term measures the government needs to undertake
because of higher costs of inputs, including fertilizers. Therefore, for ensuring a steady supply of rice at affordable prices should
the government needs to roughly determine the minimum level of include the adoption of hybrid rice, use of quality seeds, reducing
the price of rice, and then calculate the amount of subsidy needed yield gaps through better crop management, and an efficient
for inputs. operation of input markets. In the long term, R&D investments
should be increased so that more productive and cost efficient
rice varieties can be produced.
_______________________________________________________________________________________


Short‐term measures between public research institutions and the private
sector would yield mutual benefits.
In Bangladesh, traditional varieties still cover about half of the rice
area in the Aman season, while High Yielding Varieties (HYV) • The high‐value rice industry, where closer coordination
dominates in the Boro season. High value rice accounts for only between plant breeders and those involved in trade,
about 5% of the total annual rice production of Bangladesh. The especially the rice milling industry, is needed to develop
most serious constraints to increased production and sales of improved varieties of traditional fine rice with such
high‐value rice involve problems with post harvest processing and characteristics as palatability, aroma, higher milling out‐
milling, threshing, drying etc. large‐scale exports of long‐grained turn, and lower cost of production.
rice (such as basmati) from Bangladesh are feasible, in principle, if
the post harvest problems that particularly plague long‐grained
rice can be overcome. Some short term policies that the
government needs to take should include:

Formulation, distribution, and enforcement of grades and
standards:

• A national committee may be formed in collaboration with
BSTI as the lead organization, to research and establish
grades for fine and high value rice.

• The committee should include members from BRRI, BD rice
exporters association, the ministry of agriculture, and other
institutions related to rice trade.

• BRRI should continue to develop improved varieties of
traditional fine rice and concentrate on developing a slender,
long grained high yielding variety suited to local conditions in
production, postharvest management, and processing.

Long‐term measures

Between 1997/98 and 2004/05, expenditure for agricultural
research as a share of total agricultural GDP ranged from 0.2% to
0.34%. This level of expenditure is considerably lower than it is in
other developing countries as a whole, which averaged 0.62% of
agricultural GDP, and significantly lower than expenditure on
agricultural research in developed countries, which averaged 2.8%
of agricultural GDP. Research for high‐value agro commodities like
horticultural crops, fisheries and livestock should be given greater
attention in the long run.

Sub‐sectors of agriculture where research could be useful:
• Fruits and vegetables processing, where research is
needed to assist with processing techniques, equipment
application and manufacture, and new product
development.

• Aquaculture, where research is needed to reduce
genetic degradation in carp stocks. The DOF and BFRI
have extensive facilities; the universities (including BAU)
and BFRI have strengths in genetics and technical know‐
how; and the private sector would bring an element of
commercial drive to the program and possibly partial
financing.

• The poultry industry, where there is demand for more
research on production methods and technologies,
nutrition, processing and bio‐security. A partnership

_______________________________________________________________________________________


Appendix 1: Cabinet Members

Name Ministry
Sheikh Hasina Establishment, energy and power, religious affairs, housing and public
works, women affairs and defence ministries
Abul Maal Abdul Muhit Finance
Motia Chowdhury Agriculture
Abdul Latif Siddiqui Textile and Jute industry
Barrister Shafiq Ahmed Law, justice and parliamentary affairs
AK Khandaker Planning
Raziuddin Razu Post and Telecommunication
Advocate Sahara Khatun Home
Syed Ashraful Islam Local government and rural development
Khandker Musharraf Hossain Labour and employment, Expatriates' welfare and Overseas
employment
Rezaul Karim Hira Land
Abul Kalam Azad Information and Cultural affairs
Enamul Haq Mostafa Shahid Social welfare
Dilip Barua Industries
Ramesh Chandra Sen Water Resources
GM Quader Civil aviation and Tourism
Faruq Khan Commerce
Syed Abul Hossain Communication
Dr Abdur Razzaq Food and Disaster management
Dr Afsarul Amin Shipping and Inland water transport
Dr AFM Ruhul Haq Health and Family welfare
Dr Dipu Moni Foreign affairs
Nurul Islam Nahid ‐ Education and primary and mass education
Abdul Latif Biswash ‐ Fisheries and livestock

_______________________________________________________________________________________


Appendix 2:
Foodgrain Production and Requirement

(Figures in Thousand metric tons)
Total domestic
Imoprt as a % of
Year Food grain Domestic Production Import/Donation production as a % of
total food grain
total food grain
Requirement Rice Wheat Maize Total (Rice+Wheat)
1989-90 18029.60 17710.00 890.00 3.30 18603.30 1533.00 8% 92%
1990-91 18377.28 17785.00 1004.00 3.00 18792.00 1577.00 8% 92%
1991-92 18708.40 18255.00 1065.00 3.00 19323.00 1564.00 7% 93%
1992-93 19039.52 18341.00 1176.00 7.00 19524.00 1183.00 6% 94%
1993-94 19370.65 18041.60 1131.00 15.00 19187.60 966.00 5% 95%
1994-95 19701.77 16832.70 1245.00 29.10 18106.80 2566.00 12% 88%
1995-96 20215.01 17687.00 1369.00 32.00 19088.00 2427.00 11% 89%
1996-97 20579.24 18880.00 1454.00 40.70 20374.70 967.00 5% 95%
1997-98 20943.48 18861.71 1802.80 65.30 20729.81 1951.00 9% 91%
1998-99 21208.37 19904.58 1908.40 84.50 21897.48 5491.00 20% 80%
1999-00 21489.83 23067.00 1840.00 120.70 25027.70 2104.00 8% 92%
2000-01 21771.28 25085.00 1673.00 149.20 26907.20 1554.00 5% 95%
2001-02 22094.13 24300.00 1606.00 172.40 26078.40 1799.00 6% 94%
2002-03 22350.75 25189.85 1596.70 117.30 26903.85 3221.00 11% 89%
2003-04 22549.42 26189.40 1253.30 241.00 27683.70 2799.00 9% 91%
2004-05 22855.71 25156.00 976.00 356.00 26488.00 3375.00 11% 89%
2005-06 23029.55 26530.00 735.00 522.00 27787.00 2562.00 8% 92%
Source : Bangladesh Bureau of Statistics (BBS), Department of Agricultural Extension (DAE) and Ministry of Food (MOF)
Note: (i) Foodgrain Requirement is calculated @ 16 Ounce (453.66 gm) per day per head from 1971-72 to 2020
(ii) Net Total Production is calculated by deducting 11.58 % of total Production for seed, feed & wastage
as per study on 'Seed, Feed and Post Harvest losses' Ministry of Food (MOF)
(iii) Population as per Bangladesh Bureau of Statistics (BBS) estimation
(iv) Projected Production of Rice, Wheat, Maize as per Department of Agricultural Extension (DAE) estimation
(v) Figures for 2005-06 as per Bangladesh Bureau of Statistics (BBS) estimation
_______________________________________________________________________________________


Stock Market Weekly

DSE performance: 52 weeks Market news

• DSE body okays listing of BSRM

• Institute of capital market by March

DSE performance: 30 days Regional stock market performance (last week)

Market summary Valuation snapshot

DSE General
Index performance Index
DSE 20 Sector P/E
Opening of this week Aug‐08 Sep‐08 Oct‐08 Nov‐08
2807.61 2,316.5 Banks 19.08 18.24 15.62 15.62
Closing of this week 2760.67 2,271.2 Cement 10.96 10.34 10.32 8.91
Change within a week (%) ‐1.7% ‐2.0% Ceramic 49.92 43.93 41.76 32.17

Change within a week (Point) ‐46.9 ‐45.3 Engineering 39.11 41.36 40.8 31.94
Food & Allied 17.85 19.44 17.09 14.77
Fuel & Power 17.81 20.2 19.14 16.29
Capitalization and turnover This Week Last Week % Change
Insurance 23.17 24.77 23.12 17.69
Number of Trading Days 4 3 Investment 45.08 55.48 28.93 21.42
Market Capitalization (USD bn) 14.85 15.30 ‐2.92% IT 41.44 45.64 47.89 33.96
Total Turnover (USD mn) 232 168 37.8% Jute 16.16 16.16 14.18 14.18
Daily Avg. Turnover (USD mn) 57.99 56.11 3.4% Miscellaneous 25.46 33.95 32.2 23.32
Total Volume (mn) 83 67 23.9% Paper & Printing 8.36 8.08 9.97 7.32
Daily Avg. Volume (mn) 21 22 ‐7.1% Pharmaceuticals 23.97 28.45 30.25 26.26

Service & Real Estate 20.57 22.87 23.55 18.74
This Last
Weighted avg. P/E Ratio* Issues Tannery 19.05 19.89 18.44 14.87
Week Week
Textiles 15.74 15.45 14.55 12.43
155 196
This Week 17.83 Advanced
Source: Dhaka Stock Exchange
Last Week 18.1 Declined 102 39
% Change ‐1.5% Unchanged 4 8
*Weighted on Market Cap. Not Traded 34 52
_______________________________________________________________________________________

Stock Market News

DSE body okays listing of BSRM
The Financial Express, Wednesday January 7, 2008

The Dhaka Stock Exchange (DSE) listing sub‐committee has
recommended listing BSRM Steels Limited, the country's largest
steel company. The BSRM floated two million ordinary shares at a
face value of BDT 100 (USD 1.45) each to raise BDT 200mn (USD
2.9mn) from the markets. The after‐IPO (initial public offering)
paid up capital of the company is BDT 1.45bn (21.06mn).

The fund raised from the initial public offering will be used for
financing working capital (partial) of the company. Subscription
for ordinary shares allotment of BSRM started on November 9th,
2008 and closed on November 13th, 2008 for resident
Bangladeshis and on November 22, 2008 for non‐resident
Bangladeshis.

http://www.thefinancialexpress‐
bd.com/search_index.php?page=detail_news&news_id=55308

Institute of capital market by March
The Daily Star, Wednesday, January 7, 2009

An educational institute concentrating on capital market studies
will open from March this year; the institution will provide
training pertaining to the country's stock market. There is a
significant shortage people who have a good knowledge about the
country’s capital market. The institution named 'Bangladesh
Institute of Capital Market' (BICM) will initially offer short‐term
training courses on capital markets to anyone who is interested,
including people already working in the industry. Long term plans
include the introduction of PhD and MPhil courses.

http://www.thedailystar.net/story.php?nid=70355
_______________________________________________________________________________________


DGEN Performance YTD DGEN Performance LTM

Turnover leaders Best performers* Worst performers*
(All figures in mn) BDT USD
Beximco Pharma 1370 19.9

Maksons Spinning Mills
% Change % Change
1291
Summit Power
Titas Gas 1195
18.8
17.4
Limited
Fine Foods Limited
28.8%
26.4%
Wata Chemicals
Meghna Life Insurance
‐16.7%
‐10.4%
Shinepukur Ceramics Limited
BEXIMCO
1154
759
16.8
11.0
Orion Infusion
Bd. Welding Electrodes
24.5%
24.4%
Monno Stafllers
Prime Islami Life
‐10.2%
‐10.0%
ACI Formulation Limited 525 7.6
Beximco Synthetics 23.2%
National Housing Finance
and Investment Limited ‐9.1%
Grameen One: Scheme2 515 7.5
Aims 1st M.F. 446 6.5 1st Lease International 22.3% Northern Jute ‐8.8%
Uttara Bank 302 4.4 Shaympur Sugar 21.2% Pragati Life Insurance ‐7.9%
NBL 286 4.2 Delta Spinners 20.8% MIDAS Financing Ltd. ‐7.8%
Source: Dhaka Stock Exchange Standard Ceramic 19.7% Reliance Insurance ‐7.8%
Legacy Footwear 19.4% Sandhani Life Insurance ‐7.8%
Market cap. by sector* *By closing price

Banks 51.0%
Fuel & Power 13.8% Correlation with other indices*

Pharmaceuticals 11.6% S&P500 Sensex NIKKEI225 KSE100 SSECI FTSE100 Hangseng DSE
Insurance 5.5% S&P500 1
Cement
Miscellaneous
5.1%
3.0%
Sensex 0.609533 1
Engineering 2.4% NIKKEI225 0.479296 0.57751 1
Foods 2.1% KSE100 0.137983 0.245628 0.136849 1

Textile 1.9% SSECI 0.315464 0.411735 0.245613 0.09449 1
Service & Real Estate 1.2%
FTSE100 0.843726 0.610483 0.494904 0.238387 0.431538 1
Tannery 1.2%
Hangseng 0.704434 0.677905 0.526227 0.110829 0.509843 0.786434 1
Ceramics 0.7%
IT 0.5% DSE 0.161589 0.193995 0.103366 ‐0.05588 0.035032 0.131261 0.143725 1
Paper & Printing 0.1% * Based on the last 86 months’ USD returns
Source: AT Capital Research
Jute 0.03%
Total 100%
*As of November 30, 2008

Research Team

Ifty Islam
Syeed Khan
Managing Partner
Partner
ifty.islam@at‐capital.com
syeed.khan@at‐capital.com

Mohammad Emran Hasan
Senior Associate
emran.hasan@at‐capital.com
_______________________________________________________________________________________

Economics

Selected macroeconomic indicators Market news

06‐Jan‐08 30‐Dec‐08 06‐Jan‐09
Forex reserves (USD mn) 5062.22 5787.80 5349.17
USD‐BDT average rate 68.5800 68.9349 68.9500 • Import expenses up by 19.3% in first six months
of FY 09
Call money rate 6.57 13.39 9.42

• BDT maintains impressive stability
Dec‐07 Dec‐08 2007‐08
Remittances (USD mn) 635.34 765.79 7,914.78 • Remittance sets benchmark. USD10b expected
Annual %age change 14.46 20.53 32.39 this year
P
Oct‐07 Oct‐08 2007‐08
Imports (USD mn) 1,649.90 2,090.40 21,629.00
Annual %age change 27.18 26.70 26.07
Latest treasury yields
P
Oct ‐07 Oct ‐08 2007‐08
Exports (USD mn) 941.48 867.69 14,110.80
Weighted
Annual %age change 8.12 ‐7.84 15.87 Auction date Tenor & security type
average yield
P Dec-08 91-day T-bill 7.91%

Sep‐07 Sep‐08 2007‐08
Current A/C Balance (USD mn) 20.00 46.00 672.00 Dec-08 182-day T-bill 8.16%
Dec-08 364-day T-bill 8.58%
P
Nov‐07 Nov‐08 2007‐08 Dec-08 5-year T-bond 10.60%
Tax revenue (USD mn) 506.24 551.57 6,868.43 Dec-08 10-year T-bond 11.72%
Annual %age change 26.59 8.96 27.06 Source: Bangladesh Bank
Source: Selected indicators by Bangladesh Bank, 17 December 2008
Import expenses up by 19.3% in first six months of
Latest Bangladesh Inflation Rates FY09
Sep‐08 Oct‐08 Nov‐08

General 210.14 209.31 207.14
Inflation 10.19 7.26 6.12
Food 227.66 226.88 223.98
Inflation 12.07 8.08 6.68
Non‐food 187.10 186.13 184.95
Inflation 7.19 5.95 5.25
Source: Bangladesh Bank
Jisha Sarwar
Senior Research Associate
Jisha.sarwar@at‐capital.com
_______________________________________________________________________________________

Economic News market stable. Call rates hovered between 7% and 15% in 2008
compared to 6.5% and 9.5% in 2007.
Import expenses up by 19.3% in first six months of FY 09
The Financial Express, Sunday January 11th, 2009 The central bank used Repo tools allowing banks to borrow taka
against government approved securities, and also bought back
Fuel oils and commodities worth USD 10.8bn were imported government bills and bonds that were sold earlier. The continuous
during the first six months of FY 09. The value of imports was liquidity support allowed banks to manage funding and help credit
19.3% higher compared to the first six months of FY 08. During the growth in the economy.
first six months of FY 08 and FY 07, the value of imports was USD
9.1bn and USD 7.7bn, respectively. Disclosing its observations on secondary market the roundup said
the central bank's initiatives to activate a deep secondary market
However, the number of LCs opened dropped by 30% in for government bills and bonds started to see results in 2008 with
December 2008 from a year ago. According to the Bangladesh significant rise in secondary trading led by primary dealer (PD)
bank chief economist MK Mujeri, “The lower import payment has banks and some other non‐PD banks. There is now a widespread
eased pressure on the country’s balance of payments.” understanding of bond trading dynamics and settlement
processes among the banks.
In FY 08 record high prices of commodity items such as fuel, edible
oil, rice, wheat, and baby food, pushed up average monthly http://www.thefinancialexpress‐bd.info/2009/01/07/55315.html
import payments to around USD 2bn. However, prices of fuel oils
and other commodities started to decline significantly in recent Remittance sets benchmark. USD10b expected this year
months due to the global economic crisis. The Daily Star, Monday January 5th, 2009

According to Mr. Mujeri, lower import payments have helped in Remittance inflows set a new record in 2008 crossing an 8bn‐
easing inflationary pressures – inflation in October and November dollar mark, owing to an increase in the number of people going
stood at 7.3% and 6.1%, respectively. abroad for employment.

http://www.thefinancialexpress‐bd.info/2009/01/11/55621.html According to Bangladesh Bank (BB) statistics, in 2008 remittance
inflow into the country grew by 25.4% to USD 8.2bn, up from USD
BDT maintains impressive stability 6.55bn in 2007. The average monthly remittance earnings during

The Financial Express, Wednesday January 7th, 2009 the past 11 months was more than USD 700mn.

The Bangladesh Taka (BDT) remained stable throughout 2008, The central bank is optimistic that over USD10bn in remittances
while globally currencies were extremely volatile due to the global will come into the country in 2009, although there is some
economic crisis, noted the Standard Chartered bank in its concern that the global recession might affect inflow.
'Financial Markets Round‐up 2008’ report.
In 2008 around 875,000 workers went abroad to work, compared
Throughout 2008 the Taka remained fairly steady between 68.5 ‐ to 832,000 in 2007, and 381,000 in 2006.
69.5 per USD. Though import growth outpaced export, record high
remittance inflows eased the pressure causing the rate to move
within a limited range, the roundup noted.

The report further stated that while the Taka remained stable
against the dollar throughout 2008, currencies in neighboring
regions, such as Pakistan and India, lost ground against the
greenback. At the end of the year, the Indian Rupee was 48.8 per
USD, down by 24% since the beginning of the year, while the
Pakistan Rupee declined by 28% to 78.8 per USD over the same
period.

The BDT, however, was extremely volatile against other major
currencies, such as the Euro and the Pound, corresponding with
their volatility against the US currency. The Euro went up to BDT
111 in July and fell to BDT 88 in November, before bouncing back
to BDT 100 at the end of the year. Similarly, the Pound went up to
BDT 141 in March but fell to BDT103 in November.

The report noted that the local money market experienced some
volatility in 2008. The market remained stable in 2007, owing to
surplus liquidity in the system. However, call money rates started According to the World Bank and local think tanks, if the global
to increase from January 2008. Consequently, the Central Bank recession prolongs, labor market growth in prime manpower
injected liquidity into the system, which helped in making the exporting countries can slow down, affecting remittance inflow.
_______________________________________________________________________________________


According to a report titled 'State of the Bangladesh Economy in
the run‐up to the National Election 2008' released by the Centre
for Policy Dialogue (CPD) in December, Saudi Arabia continued to
rank as a major remittance source for Bangladesh.

Remittance inflow from Saudi Arabia grew by 46.3% in Q1 FY09
from a year ago, and accounted for 29.9 % of the quarter’s total
remittance earnings. Remittance inflow from Malaysia also grew
significantly in recent years – in Q1 FY09 USD 53.83mn in
remittances came in from Malaysia, up from only USD 5.89mn in
Q1 FY08. The US is Bangladesh's second largest source of
remittance, contributing to around 17.4 % of total earnings till
now in FY09.

According to the CPD report, the financial crisis is not likely to
affect the Middle Eastern (ME) economies as badly as the Western
economies. Hence, remittance inflow from the Middle East is
unlikely to decline much.


_______________________________________________________________________________________

Sector News

Agriculture http://www.thedailystar.net/story.php?nid=70668

Government needs additional BDT 17bn (USD 248mn) as subsidy Mustard cultivation benefiting farmers of Faridpur
for non‐urea fertilizer marketing The Financial Express, Wednesday, January 7, 2009
The Financial Express, Sunday, January 11, 2009
Mustard cultivation has proven to be very profitable to farmers in
The government needs an additional amount of BDT 17bn (USD the Faridpur district because of its low cost of production.
248mn) this year as subsidy for marketing non‐urea fertilizers at According to farmers, prices of fertilizers and other agricultural
lower‐than‐the‐purchasing prices by importers. The government inputs have shot up, increasing the cost of production of all crops.
spent BDT 7.33bn (USD 106.5mn) for supplying different types of However, mustard requires much less fertilizers than other crops,
non‐urea fertilizers to farmers at subsidized prices in FY 08. keeping its production cost lower. The DAE officials said farmers
Officials and trading sources said the importers are facing huge cultivated mustard seeds on 7500 hectares of land this season, up
financial losses following a drastic fall in the prices of non‐urea from only 1900 hectares during the previous years.
fertilizers in the global market. Nearly 80% of the imported non‐
urea fertilizers remained unsold in the domestic market. http://www.thefinancialexpress‐bd.com/2009/01/07/55302.html

http://www.thefinancialexpress‐bd.com/2009/01/11/55633.html Aviation

Rice prices may surge again this year: Experts GMG to expand routes, expects growth in passengers in future
The Daily Star, Saturday, January 10, 2009 The New Nation, Monday January 5, 2009

Rice prices are likely to rise sharply for the second year in 2009 as The country’s aviation industry remains strong in the face of
the global economic slowdown hits both farmers and consumers, recent abnormally high fuel prices in the global market. Shahab
the International Rice Research Institute warned. The worldwide Sattar, Managing Director of GMG Airlines, stated that the annual
credit crunch will make it hard for farmers to secure cash to growth rate of passengers in Bangladesh is 12 to 14% while the
purchase essentials such as seeds and fertilizer, the Philippines‐ global growth rate stands at around 6%.
based research institute stated in the latest edition of its quarterly
journal "Rice Today". At the same time, the economic downturn GMG airlines recently acquired an MD‐83 aircraft priced at around
may increase demand for rice in developing nations as falling USD 80mn from US‐based General Electric Capital Aviation
income forces poor people to switch to less expensive staples. Service, with a seating capacity for 150 passengers. The new
aircraft will take passengers to Bangkok and Hong Kong from mid
The price of rice ‐‐ a staple food for half the world including nearly January.
700mn poor Asians‐ spiked to USD 1,080 a tonne last April. The
institute warned that price volatility will remain high. The only Two more aircrafts will be added to the existing GMG fleet of six
solution for the government is to boost rice yield growth through by the end of this year as the leading private operator eyes new
higher investment in research, and developing agricultural routes. The airline will go for expansion from the second quarter
infrastructure to allow rice farmers to put new scientific of the current calendar year.
breakthroughs to work.
GMG operates flights in all domestic routes except Rajshahi and
http://www.thedailystar.net/story.php?nid=70643 Syedpur. Their international destinations include Kolkata, Dubai,
and Kathmandu. Currently the airline flies to 18 international
Supply fertilizers at low price for bumper “Boro yield”: Experts destinations each week.
urge government
The Daily Star, Saturday, January 10, 2009 According to the GMG MD, the airline incurred a total loss of
around BDT 50mn (USD 0.73mn) in 2008 when fuel price peaked
Experts said the new government should immediately supply to an all‐time high of USD147 per barrel; in 2007 they made a
fertilizers at low price by providing subsidy so that farmers can profit of BDT 100mn (USD 1.45mn). GMG wants to increase its
produce bumper “Boro” paddy in the next season. They also number or passengers from currently 500,000 to 1mn by the end
suggested forming a citizens' committee in every region to find of this year.
out irregularities in the distribution of fertilizers as well as ways to
stop them. The prices of rice and other essentials cannot be http://nation.ittefaq.com/issues/2009/01/05/news0991.htm
reduced without decreasing the production costs. For this reason,
the government will have to ensure sufficient power supply for
irrigation. According to the experts, it is very difficult to eliminate
syndicates who are responsible for skyrocketing prices of
commodities and the government should form a farmers'
committee and set up a commodity exchange market in every
region.
_______________________________________________________________________________________


Banking Private sector credit down by 2% in October
The Financial Express, Monday January 5th, 2009
SCB gets $10m OD for import bill settlement
The Financial Express, Thursday January 8th, 2009 Private sector credit growth declined to 24.7% in October 08 from
26.6% in September, because of a base year effect and fall in
The central bank provided overdraft (OD) facilities worth USD commodity prices in the global market.
10mn to a state‐owned commercial bank (SCB) on Wednesday for
settlement of oil import payment. Credit flow into the private sector increased by 24.7% to BDT
397.4bn (USD 5.77bn) in October 2008 from BDT 223.99bn (USD
Import of petroleum products rose sharply by 36.3% to USD 3.25bn) in October 2007. The Bangladesh Bank (BB) forecasts
1.03bn during the July‐November period of FY 09 compared to private sector credit growth to increase by 18‐20% in FY 09.
USD 755.7mn during the same period in FY 08.
The use of credit for purchasing consumer goods increased by
On January 5th, the BB offered OD facilities worth USD 12mn to 93.3% in FY 08. During the period, marriage loans went up by
another SCB for settlement of Petrobangla's outstanding gas bills 60.7%, and loans for purchasing apartments increased by 44.1%.
with an international oil company.
http://www.thefinancialexpress‐bd.info/2009/01/05/55176.html
http://www.thefinancialexpress‐
bd.info/search_index.php?page=detail_news&news_id=55410 Infrastructure & Energy

Islamic banking shines, Deposits grow by 21pc in the year to June Diesel price to be cut this month
2008 The New Nation, Sunday January 11, 2009
The Daily Star, Tuesday January 6th, 2009
The government is likely to reduce diesel prices within this month,
Deposits of the Islamic banking industry grew by 21 % in FY 08, according to a senior official from the Energy Ministry. The
compared to 15% growth in deposits of the conventional banking government in its first Cabinet meeting on January 7 decided to
industry, according to Bangladesh Bank data. In FY 08 BDT 608bn reduce the price of diesel in the current Boro irrigation season.
(USD 8.82bn) was deposited in the country’s Islamic banks. In June Following the Cabinet decision, the Energy Division asked the
2008, BDT 347.3bn (USD 5.04bn) was deposited to Islamic banks, Bangladesh Petroleum Corporation (BPC) to readjust the diesel
up from BDT 286.5bn (USD 4.16bn) in June 2007. price in line with the recent trend in the international market.

Out of 48 banks in Bangladesh, six private commercial banks are The caretaker government reduced the price of fuel twice. After
operating as full‐fledged Islamic banks and 21 branches of 10 the latest price adjustment, diesel and kerosene prices came
conventional banks are involved in the Islamic banking business. down to BDT 46 per litre in the local market.
Total investment of Islamic banks increased to 349.1bn (USD
5.06bn) in June 2008, from BDT 265.4bn (USD 3.85bn) in June http://nation.ittefaq.com/issues/2009/01/11/news0339.htm
2007.
New power policy to attract local investors
Bangladesh introduced the Islamic banking system in 1983. The Daily Star, Tuesday January 6, 2008
Popularity of this banking system is spreading worldwide,
especially among Muslims, for its interest‐free nature. According The caretaker government last month approved a policy
to Qatar Islamic Bank (QIB), the Islamic banking system is welcoming greater participation of local private entrepreneurs in
expected to become a USD 4tn global business within the next five the power sector and their wider involvement in selling electricity
years. to consumers. The Policy Guidelines for Enhancement of Private
Participation in the Power Sector, 2008 welcomes foreign private
investors as before. But for the first time, it offers local investors
the same financial incentives offered to foreign investors. These
incentives include exemption of corporate income tax for 15
years, 12 years duty‐free spare parts import worth maximum 10%
of the original value of the plant, freedom for investors to buy
insurance of their choice, tax exemption on royalties, technical
know‐how, tax exemption on interest on foreign loans, capital
gains from transfer of shares, among others. The commercial
power plants will be given preference in developing coalmines and
purchasing coal from existing coalmines as per a provision of the
coal policy. The amended policy is also in favor of developing new
power plants and rehabilitating some of the old and inefficient
ones through public‐private partnerships under Rehabilitate, Own
and Operate (ROO) and Rehabilitate, Operate and Transfer (ROT)
http://www.thedailystar.net/newDesign/news‐details.php?nid=70217 models.

_______________________________________________________________________________________


The policy also says that private commercial power plants will find Real Estate
their own buyers to sell electricity and will be able to negotiate
the applicable tariffs with consumers. The Power Grid Company of Nina ventures into BDT 1500mn project
Bangladesh and other distribution licensees will provide non‐ The Daily Star, Sunday January 11, 2009
discriminatory open access to their transmission and distribution
system for use by any generation licensees. Nina Holdings Ltd, a sister concern of export‐oriented Epyllion
Group that has been engaged in manufacturing and exporting of
http://www.thedailystar.net/story.php?nid=70239 knit fabrics and apparels since 1994, has entered the real estate
market – the company is constructing a 14‐storey commercial
Tamim suggests coal, offshore bidding in six months building in Tejgaon Industrial Area in Dhaka at an estimated cost
The Daily Star, Tuesday January 6, 2008 of around BDT 1500mn (USD 21.7mn). Of the total cost, BDT
472mn (USD 6,85mn) will be financed by five local banks. The real
The outgoing chief adviser's special assistant for power and estate company sealed a syndicated term loan agreement on
energy has suggested the new government to reach a decision on January 4th with Bank Asia, and four other banks ‐ AB Bank, IFIC
coal and offshore bidding within the next six months. Tamim also Bank, Premier Bank and United Commercial Bank.
pointed out that the generation of a few hundred megawatt of
electricity by the outgoing caretaker government (CG) will make it Around 25‐30% space in the commercial building will be dedicated
easier for the new government for at least one year. He disclosed for Epyllion and its subsidiary companies, while the rest of the
that a renewable energy policy will be implemented soon. space will be rented to other corporate or business houses. The
building is being constructed on an area of 21,000 square foot
land, while each floor will have 14,000 square foot space.

Pharmaceuticals
Epyllion has 10 subsidiaries comprising of six garment units, two

textile units and two garment accessory units. The group, which
Pharma sector posts double‐digit growth
The Daily Star, Tuesday, January 6, 2009 exported goods worth USD70mn in FY 08 mainly to the European
and US markets, targets exports this fiscal year also.
Overall sales of Bangladesh’s pharmaceutical sector, comprising of
258 companies, crossed BDT 40bn (USD 584mn) in 2008 for the http://www.thedailystar.net/story.php?nid=70782
first time, registering a record double‐digit growth. According to
Intercontinental Marketing Services (IMS), a global Prices of most construction materials fall in local markets
pharmaceutical market intelligence agency, Bangladesh medicine The Financial Express, Sunday, January 11, 2009
sales reached BDT 37bn (USD 540mn) in 2007 and BDT 35.42bn
(USD 517mn) in 2006. According to Industry insiders, more public Prices of most of the construction materials have declined in the
health awareness, aggressive marketing by local companies and local market recently following lower import costs of raw
increased investments in the sector have contributed to the surge materials and the slow pace of development work in the country.
in sales. The industry welcomed over 50 new factories in the last Prices of mild steel (MS) rod, cement, bricks, sand and stone
three years, out of which about two dozen started marketing with declined significantly in recent days due to lower local demand as
aggressive sales and promotion strategies during 2008. The public development work was minimal in the last two years
market is becoming more and more competitive in terms of both followed by a slowdown in private construction work.
price and quality as many factories have introduced state of art
technologies to capture a greater market share. http://www.thefinancialexpress‐bd.com/2009/01/11/55627.html

Telecoms

NTTN license first step to build Digital Bangladesh by 2021:
The New Nation, Thursday January 8, 2009

The first license of Nationwide Telecommunication Transmission
Network (NTTN) was handed over to Fiber@Home Limited on Jan
7th. According to the BTRC chairman, with the completion of
NTTN, rural people will be connected with telecommunication and
internet network, and internet penetration will increase.

BTRC sources said, Fibre @ Home Limited will set up and run
optical fibre‐based NTTN which will help telecom service providers
to give service up to 'end users'.

As per the NTTN guideline, a licensee is required to submit a bank
guarantee as security deposit worth BDT 100mn (USD 1.45mn)
http://www.thedailystar.net/story.php?nid=70219 within 15 days of issuance of the licence with a minimum validity
of five years.
_______________________________________________________________________________________


Textiles According to BTMA (Bangladesh Textiles Manufacturers
Association) statistics, a total of 43 new spinning mills were set up
Apparel exporters seek cash incentives in 2008 (January‐December) with 9,44,744 spindles and in 2007 a
The Financial Express, Saturday, January 10, 2009 total of 28 mills were installed with 4,42,848 spindles. At present
the country has a total of 341 spinning mills with an annual
According to apparel exporters, the government should introduce production capacity of 1600 million kg of yarn and the total
financial incentives for export‐oriented industries as export orders investment in this sector is 4bn euros, BTMA statistics said. As per
are declining as a result of the global financial meltdown. They BKMEA data, Bangladesh consumed 789.6mn kg yarn in 2007‐08
said the government should immediately meet with the export fiscal year against 658.5mn kg in FY2006‐07, while the average
earning sectors to formulate ways to make local exports consumption growth of yarn in the country is more than 21% per
competitive. They also added that the government could re‐ year. The BTMA chief said local yarn manufacturers now supply up
introduce export performance benefits which existed during the to 90 % raw materials to the knitwear sub‐sector and 40 % to
80's, or some kind of bailout packages. The country's export woven.
earnings in October 2008 declined by 8% from October 2007.
Exporters said China, a major RMG exporting country, recently http://www.thedailystar.net/story.php?nid=70353
withdrew 17% value added tax and slashed its interest rates for
the sector. This is why China has again become competitive in the Tourism
ongoing financial crisis. India, Vietnam and Pakistan also slashed
different taxes imposed on raw materials and export of goods. Tourism booms on quiet politics
India has devalued its currency by 25.8% over the past few The Daily Star, Sunday January 11, 2009
months to make export goods competitive in the world market.
Pakistan has also devalued its currency by 22.2% over the last few
months while Vietnam has devalued its currency by 10.58% and International Tourists In Bangladesh('000,000)
4
offered different packages to its exporters. Local exporters 3.5
suggested that the government could introduce a bailout package.
3 2.44
2.71 2.65
Recently, the caretaker government suggested raising the cash 2.07 2
incentive to 7.5% for those factories which have backward linkage 2
facilities, although the exporters asked for a 10% cash incentive
for the overall sector. The government in its budget for the 1
current fiscal has kept aside BDT 10.40bn (USD 152mn) for
providing cash subsidies to the country's export oriented
industries. 0
2003 2004 2005 2006 2007 2008(till Oct)
http://www.thefinancialexpress‐bd.com/2009/01/10/55503.html
Source: Bangladesh Parjatan Coorporation

Yarn sales decline
The Daily Star, Wednesday, January 7, 2009 According to statistics from the civil aviation and tourism ministry,
a total of 0.35mn foreign tourists visited Bangladesh until October
Yarn sales in the local market dropped significantly mainly due to 2008, increasing significantly from 0.27mn in 2007, 0.2mn in 2006
a depreciation of the Indian currency against the US dollar by and 021mn in 2005. Apart from business tourists, the flow of
more than 20% and a slump in demand for apparel items in the regular tourists was also higher than the previous years.
international market. The spinning mill owners in Dhaka said that
yarn kept piling up for four months up to December, as buyers A big number of foreign tourists were garments and telecom
now have the cheaper alternative of purchasing yarn from India. investors who came to Bangladesh for business purposes. Better
According to Bangladesh Bank (BB) data, L/Cs (letters of credit) infrastructure including accommodation facilities and a developed
worth USD 205.4mn for importing cotton yarn were settled in Q1 aviation sector that is operating regular flights to major local
FY 08 compared to USD 142.7mn in the same period of 2007. The tourist spots, such as Cox's Bazar, also contributed to the growth
added advantage in yarn business for India is that it is one of the of the industry.
major cotton producing countries, whereas Bangladesh is a net
importer of cotton mainly from Uzbekistan and other CIS http://www.thedailystar.net/newDesign/news‐details.php?nid=70780
(Commonwealth Independent States) countries. As a result, India
can easily dump yarn on the Bangladesh market. Bangladesh can
sell yarn at USD 2.55 per kg produced in their factories, but the
same kind of Indian yarn sells at USD 2.15 per kg. It takes at least
three months for Bangladesh to enjoy any benefit from price
declines, as the country is a net importer of cotton and recently
the prices of raw cotton declined significantly in the international
market.

_______________________________________________________________________________________


AT Capital Team – Dhaka

Ifty Islam Managing Partner (880‐2)‐8155144, ext. 132 ifty.islam@at‐capital.com
Syeed Khan Partner (880‐2)‐8155144, ext. 109 syeed.khan@at‐capital.com
Akther Ahmed Senior Advisor (880‐2)‐8155144, ext. 108 akther.ahmed@at‐capital.com
Masud Khan Senior Advisor (880‐2)‐8155144, ext. 113 masud.khan@at‐capital.com

Jisha Sarwar Senior Research Associate (880‐2)‐8155144, ext. 119 jisha.sarwar@at‐capital.com
Mohammad Emran Hasan Senior Associate (880‐2)‐8155144, ext. 131 emran.hasan@at‐capital.com

Adeeb Shams Research Associate (880‐2)‐8155144, ext. 128 adeeb.shams@at‐capital.com
Ahmad Sajid Research Associate (880‐2)‐8155144, ext. 135 ahmad.sajid@at‐capital.com

Abdullah‐Al‐Farooq Research Analyst (880‐2)‐8155144, ext. 133 abdullah.farooq@at‐capital.com
M. Emrul Hasan Research Analyst (880‐2)‐8155144, ext. 138 emrul.hasan@at‐capital.com
Md. Zahidur Rahman IT Analyst (880‐2)‐8155144, ext. 140 zahidur.rahman@at‐capital.com
Sohana Alam Seraj Office Manager (880‐2)‐8155144, ext. 132 sohana.alamseraj@at‐capital.com

AT Capital Team – North America/Asia

Zarif Munir Senior Advisor zarif.munir@at‐capital.com
Professor Jahangir Sultan, Ph.D. Senior Advisor jahangir.sultan@at‐capital.com
M. Nasim Ali Senior Advisor nasim.ali@at‐capital.com

Iqbal Hussain Senior Advisor iqbal.hussain@doctors.org.uk
Robert Kraybill Senior Advisor robert.kraybill@at‐capital.com

© Copyright 2008. Asian Tiger Capital Partners Limited, Level 16, UTC Tower, Panthapath, Dhaka – 1215, Dhaka, Bangladesh.
All rights reserved. When quoting please cite “AT Capital Research”. The above information does not constitute the provision
of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily
correspond to the opinions of Asian Tigers Capital Partners or its affiliates. Opinions expressed may change without notice.
Opinions expressed may differ from views set out in other documents, including research, published by Asian Tigers Capital
Partners Limited. The above information is provided for informational purposes only and without any obligation, whether
contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the
information given or the assessments made.

_______________________________________________________________________________________

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11 January 2009 AT CAPITAL RESEARCH

boosting Boro crop production. The government needs to make •

Foodgrain Production and Requirement

1990-91 18377.28 17785.00 1004.00 3.00 18792.00 1577.00 8% 92%

1991-92 18708.40 18255.00 1065.00 3.00 19323.00 1564.00 7% 93%

1992-93 19039.52 18341.00 1176.00 7.00 19524.00 1183.00 6% 94%

1993-94 19370.65 18041.60 1131.00 15.00 19187.60 966.00 5% 95%

1994-95 19701.77 16832.70 1245.00 29.10 18106.80 2566.00 12% 88%

1995-96 20215.01 17687.00 1369.00 32.00 19088.00 2427.00 11% 89%

1996-97 20579.24 18880.00 1454.00 40.70 20374.70 967.00 5% 95%

1997-98 20943.48 18861.71 1802.80 65.30 20729.81 1951.00 9% 91%

1998-99 21208.37 19904.58 1908.40 84.50 21897.48 5491.00 20% 80%

1999-00 21489.83 23067.00 1840.00 120.70 25027.70 2104.00 8% 92%

2000-01 21771.28 25085.00 1673.00 149.20 26907.20 1554.00 5% 95%

2001-02 22094.13 24300.00 1606.00 172.40 26078.40 1799.00 6% 94%

2002-03 22350.75 25189.85 1596.70 117.30 26903.85 3221.00 11% 89%

2003-04 22549.42 26189.40 1253.30 241.00 27683.70 2799.00 9% 91%

2004-05 22855.71 25156.00 976.00 356.00 26488.00 3375.00 11% 89%

2005-06 23029.55 26530.00 735.00 522.00 27787.00 2562.00 8% 92%

Engineering 2.4% NIKKEI225 0.479296 0.57751 1

Foods 2.1% KSE100 0.137983 0.245628 0.136849 1

P Dec-08 91-day T-bill 7.91%

Sep‐08 Oct‐08 Nov‐08

Ahmad Sajid Research Associate (880‐2)‐8155144, ext. 135 ahmad.sajid@at‐capital.com

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