Cement connects. When Bangladesh's cement industry evolved from the early 1990s, it was part and parcel of a construction boom, in turn reflecting a surging real estate sector. Invigorating some of these backward linkages were obvious forward linkages: every finished building needs bathroom fittings, thus necessitating ceramic wares; furniture, thereby carpentry or draperies; appliances, and hence electronic stores; and so forth. In short, a sudden spurt of industrial linkages not only owed much to the (RMG) spark of the 1980s, but it also thrust the country into the global economic map: real estate and construction are not exportable items, at least not yet, but their dependence upon cement, made largely of imported components, opens a gateway for foreign firms to enter these markets. Other emerging countries can observe the magic of a "leading" industry let loose in full sway in Bangladesh's case.
Real estate was thrust into the limelight against the 5-6 per cent annual urbanisation rate from the early 1980s, converting, for example, Greater Dhaka's 3.5 million population into a 15+ million body today, and expanding the area from 129 square kilometers to 270. As Mansur Ahamad observed at the Japan-Bangla Business Center ("A report on real estate sector of Bangladesh") in 2015, the five real estate developers available when the 1980s dawned multiplied several times to over a thousand today. They were responsible for constructing over 5,000 RMG factories (some with the flaws evident in the Rana Plaza collapse being inherent), but broader still, more than 1.25 million residential and commercial structures since then (figures from the article titled 'Wake-up call' for Bangladesh's building industry by Integrated Regional Informational Network, or IRIN). In short, from the 100 apartments built in 1983 to the 13,309 in 2010, Dhaka, the largest concentration of construction activities in the country, witnessed a price-spiral: of land-value (one katha=720 sqaure feet) from 75 per cent in Gandaria until 2000, then 400 per cent after that to 2010 (this was the lowest growth rate) to 733 per cent in Baridhara until 2000, then 200 per cent from 2000 to 2010 (the highest growth rate, though between 2000 and 2010, Gulshan's price growth rate spiral of 1,036 per cent overtook that); and the square-foot apartment price-hike with the lowest original value being 12 per cent in Dhanmandi until 2000, then 483 per cent until 2010 (the lowest), and the highest until 2000 was in Malibagh (41 per cent), but surpassed by Baridhara after 2000 (830 per cent; Malibagh's fell to be 211 per cent; while until 2000, Baridhara value spiral was only 16 per cent).
Dhaka's explosive real estate market might be traced back through the emergence of what a REHAB (Real Estate and Housing Association of Bangladesh) report calls an "apartment culture" to Central Road specifically in the early 1980s. It was to spread to the east, west, and north, with greater gusto in the 1990s than in this century (but nonetheless still growing), gulping every piece of perfect and imperfect land, legitimately or illegitimately. No wonder the construction sector has easily commanded at least 8.0 per cent of the gross domestic product (GDP) throughout this century. In fact, with double-digit annual growth rates, construction is expanding faster than the country's growth rate (which is typically between 6.0 and 7.0 per cent annually). With over 10,000 contractors and at least 30 foreign firms, the industry involves 3.5 million workers, but is hugely hurt with each day of a strike (hartal), when losses mount to over Tk 360 million (36 crore).
House rent tripled ever since; "undocumented money" entered and was legitimised by instant investment impact; foreign remittances followed suit, more through proper channels; and tax revenues (especially advance income tax) expanded, as construction's downstream industries of construction boomed. That was not all. Even lesser business transactions boomed as spin-offs: from carpeting and clothing to furniture and food, not to mention by-lanes, stores, and communications vehicles. In the five years since 2006, the IRIN report indicated total tax contributions from real estate multiplied almost five times to Tk 6.569 billion (656.9 crore), and property-transfer taxes also climbed just as rapidly.
Though monsoon-drenched Bangladesh has been fertile with brickyards from even the Pakistan years, cement has increasingly been an imported product. Its industrial origin can be traced to 1994, but as The Economist noted in June 2013, though the consumption doubled in just this century, the per capita consumption is one of the lowest in the world: less than 100 kilogram (kg), against 150 in India, 1,000 in China (with the global average being 500 kg). Population growth meant enormous housing investments, paradoxically opening external windows. Since Bangladesh does not have the very ingredients of cement (clinker, gypsum, limestone, slag, fly-ash), or enough of them, even production must rely upon imports. Given its growth rate, Bangladesh has become one of the top global importers of, for instance, clinker. From adjacent Meghalaya to Southeast Asian countries and China, our import reach is narrow since proximity matters most, but the foreign effects, because of the numerous linkages articulated, ripple far wider. We must keep that in mind as our ascent from the low middle-income rank towards a developed country status not only occupies a fast-track priority, but also implies surging cement imports.
Proximity has also pushed cement factories to be located near metropolitan areas. Thus, Dhaka, Chittagong, Khulna, and Sylhet have all emerged as focal points, with over 100 companies, yet less than 10 of them dominate the supply market. According to two LightCastle reports (from 2014 and 2016): (a) Shah, Heidelberg, Meghna, Lafarge, and Holcim have become the oligopolists in the cement industry; (b) the previous pattern of local demand outstripping production capacities at the start of this century has been inverted by now; (c) because of the above forces, foreign producers have freely entered the picture; and (d) the emergence of an export market, beginning with next-door India and Myanmar, that the government is now explicitly pushing. Against this growth, that further demand growth rate just referenced must be put into perspective: without balancing both sides of the demand-supply equation, development could be seriously rocked.
Demand, for example, more than doubled over the past decade, from 7.6 million metric tons (mmt) to 17.5 mmt, but conveys a peculiar pattern: demand growth rates fell from 18.5 per cent in 2005 to 4.1 per cent in 2008, only to make a spectacular climb the next two years (when the global economy suffered the crippling Great Recession), of 23.8 per cent and 31.8 per cent, respectively, before collapsing to 10 per cent in 2014 (though the nadir was the 3.5 per cent in 2012). All these while the production capacity showed a steady increasing trend from 11.2 mmt in 2005 to 28 mmt today. Yet, even that steady growth had bumps: a 5.2 per cent growth rate in 2005, sank to 2.4 per cent in 2007, then climbed to 5.3 per cent in 2011 and 4.8 per cent in 2012, but otherwise leapt to 18.4 per cent and 20.2 per cent in 2008 and 2009, before steadying around 13 per cent in 2013 and 10 per cent in 2014. Because it is inevitable, demand has pushed capacity levels to new heights constantly; but side-effects like political disruptions (strikes) before the 2008 election, then 'oborrodhs' after the 2014 election also took their toll.
Lafarage, Surma, Holcim, Cemex, and Heidelberg remain the top four foreign firms. Of them, Cemex (Cementos de Mexico), recently the largest global cement company, decided in March 2016 to sell its franchise to Thailand's Siam City Cement Company (for only $53 million). In 2015, Lafarge and Holcim merged to form a $50 billion company. As one might expect, the largest global producing countries, China, India, and the United States (in that order), also import heavily. Bangladesh has, accordingly, found India a convenient market when domestic demand slips. This worked well over the past ten years, but now that Bangladesh has adopted a number of infrastructural projects on the high-priority list, domestic demands are likely to expand faster, even outstrip capacities (since many of those projects are highways involving both India and Myanmar).
As with previous "small-sector" industries, cement (a) not only invites both backward and forward linkages (for example, the RMG and fashion industries, respectively), but also carries its own, intimately-connected ones (construction and ceramic, respectively); (b) though very much reflecting an internalising industry, since construction and real estate are so local, spawns externalising forces, such as not just the foreign companies and imports needed, but also the household sector within the country; (c) has enormously elevated the need to develop and expand the social overhead capacity as energy needs, traffic networks, as well as safety regulations also expand; and (d) may be silently pushing sectoral economic integration with India, perhaps as a preview of other integrative-deals with other countries.
As evident, Bangladesh is going through all the symptoms of a transformational country. In spite of growing inequalities, growth remains linearly ascending. This is more explicit in the linkage ceramic industry. The next article turns to that.
Dr Imtiaz A Hussain is Professor, International Relations, formerly Universidad Iberoamericana, Mexico City.
inv198@hotmail.com
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Real estate, construction, cement
Imtiaz A. Hussain | Published: June 20, 2016 17:34:57 | Updated: October 24, 2017 14:18:47
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