Business Confidence Index: a Reflection of Business Sentiment in Bangladesh

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WORKING PAPER # 06/2007

BUSINESS CONFIDENCE INDEX: A REFLECTION OF BUSINESS SENTIMENT IN BANGLADESH

Selim Raihan and A K Iftekharul Haque

December 2007

SHAMUNNAY
2/E/1-B Mymensingh Road, Shahbag, Dhaka 1000, BANGLADESH
Phone: +088-02-8610332, 8622320, 8650015, Fax: +088-02-8622320 E-mail: shamunnay@sdnbd.org, shamunnay@gmail.com Website: http://www.shamunnaybd.org

Business Confidence Index: A Reflection of Business Sentiment in Bangladesh Selim Raihan1 and A K Iftekharul Haque2

Introduction There is a growing popularity of short term economic indicators in many countries to monitor the economic trends and provide the economic analysis with the early signals of the turning points in the economic activity. Both the government and the private sector decision makers benefit from these indicators to plan their strategies. Recently it is widely heard in Bangladesh that there is a lack of confidence among the businessmen which ultimately may slowdown crucial economic activities. Some governmental initiatives have also been seen to stimulate the momentum of business. Considering these aspects we decided to construct a ‘Business Confidence Index’ on the basis of a business sentiment survey conducted recently among the business enterprises in Dhaka. This article provides the results of this interesting exercise. This business confidence survey was carried out during the second half of November 2007. In future as well, we will be conducting this survey on quarterly basis. What is a Business Confidence Index? It has already been mentioned earlier that the Business Confidence index (BCI) is a short term early alarming system to forecast the trend of the economy. BCI is based on a survey to determine the attitudes and expectations of business executives and entrepreneurs. The survey covers expectations of employment, investment, company-specific financial performance, business cost, sales (including export) orders and inflation. The advantage of using BCI is that, it is a forecast that is available before the quantitative data, covering the same types of economic activity, are released and they are considered as complementary to the official statistics1. Though in the past no such attempt has been undertaken, Business Confidence Index is very popular in many countries including the East Asian Countries, OECD member countries, Canada and USA. Some industry specific business confidence indexes are also prepared in India. After the outbreak of East Asian crisis many of the East Asian countries started to develop Business Confidence Index or Business 1

Dr. Selim Raihan is an Assistant Professor, Department of Economics, University of Dhaka and Visiting Fellow at Shumunnay. 2 Research Associate at Shumunnay.

Sentiment Index. In some of the countries usually Central bank (for Example, Bank of Thailand) took the initiative to bring out these kinds of indexes. Other than the business confidence index some countries also publishes Consumer Confidence Index (CCI), Private Consumption Index (PCI), Private invest Index (PII) etc. In many countries BCI were found to be correlated or consistent with other indexes mentioned here. Generally Business Confidence Index is Prepared on Quarterly basis. However in some countries it comes in every month. Methodology Survey A survey was conducted for a total of 150 firms in Dhaka city comprising small, medium and large business enterprises to construct the BCI. The survey has been designed to communicate with the senior managers or owners of the business enterprises. The survey covered firms from the following sectors: Ready made garments (RMG), pharmaceuticals, food-product manufacturers, real estates, Information and communications technology, financial sector, importers of basic commodities, retailers, wholesalers, restaurants and hotels. The composition of the sample is given in table 1. Table 1: Sample of Business Confidence Survey

Sectors RMG Pharmaceuticals Food processors...
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