From luxury sport utility vehicles (SUVs) to small compact sedans, to meet the country’s demands for automobiles, Bangladesh has always been dependent on imported vehicles. Being one of the most densely populated cities in the world and with high potential to be enlisted as a smart city, the capital Dhaka naturally projected surging demands for motorized vehicles.
With increasing government procurement and growing middle-class society, the automotive parts market was compounding at an annual growth rate of 10 to 12 percent in 2019. The rising purchasing power of people enables them to afford passenger cars and avoid low quality public transport. Moreover, the emergence of ride-sharing platforms including Uber, Pathao and others are also contributing to the increasing demand. This calls for actions to develop an automotive manufacturing industry within the country which will reduce import-reliance and strengthen the local industry by generating employment for many.
Projection of Automotive Market in Bangladesh
Even ten years ago, the automobile market in Bangladesh was below BDT 500 crore (USD 58 million), however, in 2019 the market size was projected to be around BDT 1400 crore (USD 164 million). The import-dependent market brings a wide range of brands of vehicles from countries including Japan, India, South Korea, China, Germany, France, Malaysia, the UK and the USA. Among them, Japan and India are the major sources for importing vehicles. Bangladesh has been witnessing a sharp rise in the number of registered motorized vehicles in recent years indicating increasing demand for automobiles.
Among the different types of motorized vehicles, motorcycles cover the lion share, almost 80 percent of the total amount, followed by private passenger cars covering 5 percent. The number of motorcycles increased swiftly owing to its cost-effectiveness backed by high traffic congestion in the cities.
Most of the automotive parts including engine, alternator, radiator, brake pads, tire, suspension, body components, etc. are also imported from Thailand, China, Taiwan, Indonesia, Dubai and India. Almost 200 auto parts traders operate in the country with a few local manufacturers among which Pragoti Industries Ltd is the largest. The locally manufactured parts fail to ensure high quality in comparison to the imported ones. Hence, traders have to rely on imported parts.
Car Market Dominated by Japanese Brands
Reconditioned cars have been predominantly ruling over the car market while 95 percent of the cars are imported from Japan. The reconditioned car market in Bangladesh is typically considered as new cars in the local market which covers 50 percent of the total car market. While 5 percent of the cars are brand new, the rest 45 percent are used cars referring to the presence of a healthy second-hand car market.
While multiple car assemblers and distributors have emerged in the country, Toyota and Hino vehicles are distributed by Navana Ltd. Besides, Rangs Ltd, Uttara Motors Ltd and Nitol-Niloy Group remain the sole distributors of Mitsubishi Motors, Suzuki vehicles and Tata vehicles respectively.
Among the private passenger cars, the Japanese brand Toyota has been dominating the market since the 1990s. Other popular brands include Honda, Nissan, Suzuki, BMW, and so on. According to the vehicle advertisement data of Bikroy.com in 2018, Toyota shares 80% of the market popularity.
The most selling cars in Bangladesh include different models of Toyota including Corolla, Noah, Allion and so on. The model Toyota Corolla is undoubtedly the most popular due to its high cost-effectiveness. Toyota Noah is the most popular choice as a family car while Mitsubishi Pajero leads among the SUVs.
|Rank||Model||Price range (BDT)|
|1||Toyota Corolla||10 to 13+ Lakhs|
|2||Toyota Noah||20 to 25+ Lakhs|
|3||Mitsubishi Pajero||70 to 90+ Lakhs|
|4||Toyota Allion||20 to 25+ Lakhs|
Wave of Change in Car Market Due to Revised Taxation Policies
According to the Bangladesh Reconditioned Vehicles Importers and Dealers Association (BARVIDA), the number of automobiles sold per day increased to 63 in 2018 from 29 in 2012. Demand for used hybrid cars was also on surge given the new taxation policies in place in 2018. Supplementary duty on hybrid cars with higher engine capacity has been decreased by the National Board of Revenue, leading the prices to decline.
|Car CC (Hybrid Car)||Previous Supplementary Duty||Revised Supplementary Duty|
Until 2018, the sales of reconditioned vehicles were projecting an increasing demand trend. However, the market took a turn in 2019 when import of reconditioned cars fell by 31 percent due to policy reforms. The revenue from imported reconditioned cars significantly plunged from BDT 2649.95 crore in FY 2017-18 to BDT 1456.11 crore in FY 2018-19.
Decrease in imports was primarily caused by the reduction in maximum depreciation facility on 5-year-old reconditioned cars to 35 percent from a previous 45 percent. This has led to narrowing the price gap between reconditioned and brand new vehicles and consequently, increasing the affordability of consumers to switch to brand new cars. Nonetheless, the COVID-19 pandemic will surely add more shifts to this already changing scenario.
What COVID-19 Means for the Automotive Market
Similar to most of the economic sectors, the automobile sector too faced the adverse impact of COVID-19. The sector claimed to incur losses of BDT 300 crore (USD 35 million) as more than 4000 units of vehicles remained unsold in the showrooms amidst the pandemic. Moreover, around 8,000 imported vehicles were stuck at Chittagong and Mongla ports due to tax issues. The BARVIDA appealed to the government to waive taxes on the release of these vehicles and sought BDT 500 crore bailout package to lower the financial distress of the sector.
As economies are reopening gradually, industries will start functioning again but the automotive sector might struggle to completely recover in the short-term. After the pandemic, consumers are likely to become less interested in spending on four-wheelers as the general tendency would be spending less. However, a spike in motorbike sales can be anticipated given the skyrocketing demands for delivery and ride-sharing. Even before the pandemic, motorbike sales were on rapid increase as ride-sharing platforms emerged to reduce traffic congestion.
More people are likely to use motorbikes as an income opportunity through working in ride-sharing and delivery platforms. Furthermore, the mindset to use bikes for personal use as an alternative to public transit can also give momentum to the sales of two-wheelers. Seemingly, the automotive sector will eventually revive from the shock in the not too distant future.
Oiling the Wheels for Establishing Local Automotive Industry
The well-organized shipbuilding industry in Bangladesh specifies that the country holds the potential to develop heavy industries and it surely needs to explore its opportunities to build an official automotive industry. To do so, a myriad of steps should be pursued by the local players in collaboration with foreign investors and the public sector.
Formulating Policy Framework
The high taxation policies on car imports should drive local automobile manufacturing but further policy support is imperative to develop a profitable automobile industry. The ‘Automobile Development Policy 2020’ which is currently in progress, can further facilitate the local manufacturing companies with required support to attract local and foreign direct investments.
Leveraging Light Engineering
Better access to financing for the local manufacturers should be ensured by the Central Bank. Besides, the scope of research and development should be enhanced to encourage innovation. The thriving light engineering industry should be provided with necessary support to enhance its production capacity and ensure high quality products to operate as strong local automotive parts suppliers.
Attracting Foreign Investors
Local manufacturers should develop strategic alliances with foreign companies which will also lessen the pressure of importing parts. Japan has been considering Bangladesh a prominent market for making investments which can be a golden opportunity for Bangladesh. Moreover, Indian companies are also shifting their manufacturing plants and given geographical proximity, Bangladesh is a probable choice. To take advantage, special economic zones can be used for promotional purposes to attract foreign investors.
Diversifying Export Basket
Bangladesh Auto Industries Ltd (BAIL), a local automobile company has been keen to produce electric vehicles in the country with an initial investment of USD 200 million of which 80 percent will be sourced locally. The plant is proposed to be built on a hundred-acre of land at the Mirsarai economic zone in Chattogram. By producing high-end electric vehicles, Bangladesh can capitalize on the duty-free access in Chinese and Indian markets expanding its export basket.
When all is said and done, the country needs to correctly utilize the components existing on the plate and make it whole with essential policies to establish a well-fashioned local automobile manufacturing industry and provide livelihoods for many.
Ishrat Jahan Holy, Content Writer at LightCastle Partners, has prepared the write-up. For further clarifications, contact here: [email protected]
The LightCastle team has been analyzing the macro and industry level picture and possible impacts wrought about by the Covid-19 crisis. Over the following days, we’ll be covering the major sectors shedding light on the possible short and long term ramifications of the global pandemic. Read all the articles in the series.
- 1. Smart City in the City- Opportunity Space for Bangladesh – DATABD.co
- 2. IDLC Monthly Business Review: Ascent to Development – IDLC
- 3. BANGLADESH AUTOMOBILE INDUSTRY – Emerging Credit Rating Ltd
- 4. Car Market in Bangladesh Based on 2018 Statistics – Bikroy.com
- 5. Car sales triple in five years – Dhaka tribune
- 6. Used hybrid cars getting popular – The Daily Star
- 7. Reconditioned car imports drop by 31pc – The Business Standard
- 8. BARVIDA seeks Tk500cr bailout package – Dhaka Tribune
- 9. Local firm to set up $200m plant to make electric vehicle – The Daily Star
Looking to invest in Bangladesh?
We provide end-to-end strategy and entry support services to international investorsGet in Touch