Lack of political support and the raw materials crisis discourage domestic and foreign entrepreneurs from investing in the tire industry, the market of which depends on imports of over Tk 5,000 crore.
According to industry insiders, although several companies in the country manufacture tires, about 90% of the annual market demand for more than 25 lakh of tires is met by imports.
Six to seven years ago, two companies from China and India had planned large investments, but then withdrew from setting up factories, they said, adding that some local companies had not started. production despite the creation of new factories.
The entrepreneurs said that setting up a factory capable of producing all types of tires requires a massive investment – Tk 1,500 crore as a minimum – but the domestic demand for tires, especially for heavy transport, is too high. low for these factories to use their full capacity. As such, the government should facilitate the import of raw materials and provide export opportunities.
Referring to the lack of supply of the main raw materials for the production of tires – including carbon, rubber, various chemicals and threads – in the country, they told The Business Standard that the production of tires with raw materials imported raw increases production costs by up to 25%. 30% compared to China and India.
On the other hand, importing finished products is more feasible because there is a 10% import duty, they added.
Mohammad Aslam, General Secretary of the Tire and Tube Merchant Association, said: “The country currently has a demand of over 25 lakh of heavy truck tires per year.
“The demand would be higher if light-duty vehicle tires are included. Every year tires worth Tk 5,000 crore are imported into the country. More than 2,000 traders across the country are involved in this activity. . “
“If tariffs on imported tires are raised to 25% and local producers benefit from tax advantages, there will be more investment in this sector. Dependence on foreign tires will only decrease if local factories start producing, ”he added.
Two big Indian and Chinese investments in limbo
CEAT, the flagship tire company of RPG Enterprises, India, announced a Tk770 crore investment in the Bangladesh tire industry in 2014.
The company also purchased land in Bhaluka near Dhaka in 2018 together with its Bangladeshi partner AK Khan & Company Ltd. However, the company suspended investment due to doubts about the usefulness of its production capacity in the face of the demand for tires in the domestic market. .
KM Majedur Rahman, Managing Director of AK Khan & Company Ltd, said: “The tire industry is quite expensive. A minimum investment of Tk 1,500 crore is required to manufacture all types of tires. The Bangladesh market cannot absorb the output of such a large investment. So we have to export. But the government does not have political support for it. “
“India is quite strong in the production of engine parts, including tires. Chinese and Indian products are available all over the world. Sri Lanka also has many factories. As a result, CEAT is not interested in making such a big investment in Bangladesh, ”he added. .
He added: “After CEAT, several companies started investing in the tire industry in Bangladesh. However, it would not be profitable without tax and VAT exemption. The export market must also be created. CEAT did not withdraw the investment, though. He kept the market in Bangladesh under observation. “
Kunming Iron & Steel Holding Company Ltd, a Chinese company, has also suspended plans to establish a factory in Bangladesh as CEAT after initially announcing an investment. However, the company bought land in the Mirsarai economic zone with its Bangladeshi partner GPH Group.
Following Chinese President Xi Jinping’s visit to Bangladesh in 2016, the company announced a $ 230 million investment in Bangladesh in the engineering sector with 17 local companies. The pneumatic project with the GPH Group was one of the investments.
Kamrul Islam, Chief Financial Officer of GPH Group, said: “The plan was to set up a factory to manufacture all types of tires, including for light and heavy transport. However, the project is currently on hold.
“We had targeted markets in the United States and Europe. At the time, there were tensions between the United States and China. But the situation has changed now. The company moved to Vietnam because the return on investment would be easier there than in Bangladesh. the investment plan in Bangladesh has not yet been canceled, ”he added.
After the government declared a tax exemption in 2015, the Jamuna group set up a factory with a production capacity of 25 lakh tires with an investment of more than Tk 2,000 crore. But the company has not yet gone into production.
Jamuna Tires and Rubber Industries Ltd has completed all works at the Panchagarh factory to produce all types of tires including for large buses, trucks, passenger transport and motorcycles.
According to company officials, tires made by Jamuna will be more affordable than imported tires. About 40% of the production will be exported after satisfying local demand.
Mohammad Alamgir Alam, Director (Marketing, Sales and Operations) of Jamuna Group, said: “We have already completed the recruitment after the machines have been installed. The foreign experts were due to arrive in mid-2020. But everything stopped because of the pandemic. .
“We plan to export tires. For this, the government will have to facilitate the tax exemption for importing raw materials and offer cash incentives.”
Meghna Rubber Industries Limited, a subsidiary of the Meghna Group, is setting up a new factory at a cost of Tk 500 crore to produce tires for bicycles, buses and trucks. Meghna currently manufactures tires for motorcycles, easy bikes, CNG three-wheelers, light trucks and rickshaws. The company also exports bicycle tires and tubes.
Among the existing tire producers in the country, Apex Hussain Group has been present in the sector for more than two decades. The company currently produces automotive tires.
But it is the Gazi Group that still produces the most tires in the country.
Gazi Tires manufactures a wide range of tires for buses, trucks, light commercial vehicles, motorcycles, rickshaws, etc.