MAHMUDUL HASAN

Handset production in Bangladesh increased by 17.17 percent year-on-year in 2024, but local assemblers faced significant challenges due to sluggish sales and the rapid expansion of the grey market.

The local plants produced 2.73 crore units in 2024, up from 2.33 crore in 2023.

However, the production volume has dropped compared to the preceding years as it had reached an all-time high of 3.16 crore in 2022 and 2.95 crore in 2021.

The latest increase in production did little to raise hopes for local assemblers as an increase in taxes, alongside the rise in the exchange rate of the US dollar against the taka, upended capacity expansion and profits.

Bangladesh’s journey in handset manufacturing began in 2017, when the government offered substantial tax benefits to encourage local production.

This policy spurred a meteoric rise in output, from only 40,000 handsets produced by Walton in 2017 to an impressive 3.16 crore units in 2022.

Global brands like Samsung, Oppo, Vivo, and Tecno established manufacturing plants in the country to capitalise on the growing market.

However, the sector experienced a sharp downturn in 2023, with production declining by 26.35 percent year-on-year.

This downturn was driven by several factors, including the high currency exchange rate, an increase in taxes, and a decrease in consumer purchasing power.

Consumers significantly tightened their spending owing to inflation remaining persistently high for the past two years.

The price of handsets has increased by about 40 percent in some cases due to the US dollar price hike.

Despite modest growth of 7 percent to 8 percent in overall sales, the sector struggled under the weight of these challenges, said Rizwanul Haque, vice-president of the Mobile Phone Industry Owners’ Association of Bangladesh.

According to him, local assemblers now face a complex tax structure, including VAT of up to 7.5 percent at the factory level, customs duties of 8 percent to 10 percent on components, and an additional 5 percent VAT at each stage of sale.

In contrast, neighbouring countries like India benefit from lower tax rates, making their products more competitive.

The dominance of distributors and retailers further squeezed local producers’ profitability.

Meanwhile, the grey market, offering cheaper, often smuggled phones, continues to expand unchecked, undermining legitimate sales, Haque said.

According to the association, the grey market now accounts for 35 percent of the total handset demand in Bangladesh.

Bangladesh’s potential to become a regional manufacturing hub faces significant hurdles. Countries like India and Pakistan are advancing in component manufacturing, with policies favouring relocation and investment from China, added Haque.

Local assemblers add only about 20 percent value as critical components like chips, displays, cameras, RAM, and batteries are imported.

To compete, Bangladesh must address its high tax regime, strengthen local supply chains, and focus on political stability to attract investment and bring stability to the industry, he said.