The populous South Asian nation had seen appetite for the devices increase in recent years, with purchases driven by first-time buyers as well as those wanting to upgrade models.
But demand and manufacturing are falling due to myriad issues including inflation, a weak local currency, dwindling foreign currency reserves, more taxes, higher phone costs, and a profusion of illegal handsets.
Handset assembly in Bangladesh developed as manufacturers, including other global names such as Nokia, Oppo and Realme, set up production to escape high import tariffs. While some phones have been exported, most are sold domestically in a nation with a population approaching 170 million people – the world’s eighth largest. Most manufacturing is done through ventures with local companies.
But local industry insiders say production in Bangladesh of both feature phones and smartphones dropped 43% in the second half of last year compared with the same period in 2021. Globally, handset shipments fell 11.3% in 2022 on year, according to the International Data Corporation (IDC) Tracker.
“We have never seen shipments in the holiday quarter come in lower than the previous quarter,” Nabila Popal, research director with IDC’s Worldwide Tracker team, said in a report on the global market. She added that “weakened demand and high inventory caused vendors to cut back drastically on shipments”.
In Bangladesh, most phone shops at a previously bustling shopping mall in Dhaka now have few visitors, with one salesman telling Nikkei Asia that “Idle time accounts for a big portion of working hours.”
Data from the Bangladesh Telecommunication Regulatory Commission illustrates last year’s deteriorating production. In January 2022, a record 4.145 million handsets were produced locally, but the figure slumped to 1.753 million in December. Imported ones declined from 211,033 in the first quarter to just 3,186 in the fourth.
Mohammed Mesbah Uddin, chief marketing officer at local company Fair Group, which produces handsets for Samsung, said a 22% weakening of the taka, Bangladesh’s currency, since March of last year and the imposition of a 5% trade value-added tax in July 2022 over each phase of the marketing process raised average handset prices 25% to 30%.
Uddin added that inflation means consumers cannot save money to buy new phones, forcing them to keep using the ones they have or buy used devices. He also said handset producers estimate the number of illegal devices has increased by around 32% from 2021 after prices went up, also dampening production.
In Bangladesh, import duties on handsets make them significantly more expensive than locally made ones, encouraging smuggling.
“Due to these three combined reasons handset prices have gone beyond the purchase capacity of consumers, thus selling of locally produced handsets has fallen,” he told Nikkei.
Delayed purchases are also being seen globally.
“We continue to witness consumer demand dwindle as refresh rates climb past 40 months in most major markets,” Anthony Scarsella, research director for IDC’s Worldwide Quarterly Mobile Phone Tracker, said in a report, referring to replacing old phones with new ones.
Uddin said his company had produced 10,000 Samsung handsets daily but the figure has fallen to around 6,000. Production is suspended two days a week from one previously, he added. This translates into a drop of around 40%, with sales down by about 32% from 2021 levels. The company manufactures both feature phones as well as smartphones.
Chinese smartphone maker Xiaomi also appears to have had to lower production in recent months.
Ziauddin Chowdhury, country manager for Xiaomi Bangladesh, said falling demand for smartphones and the country’s foreign currency problems are causing procurement headaches. The fourth quarter “is an offseason for the smartphone industry,” he noted. “Therefore, you need to adjust your supply chain plan based on the current market scenario.”
Bangladesh’s forex reserves have tumbled to about US$32 billion currently compared with US$48 billion in August 2021 in the aftermath of inflation exacerbated by the war in Ukraine that began a year ago this month. That forced authorities to slash overall imports, according to Bangladesh’s central bank. Only imports of essential commodities are allowed, with luxury items prohibited.
Underscoring the financial pressures on the country, Bangladesh early this month received US$476.2 million from the International Monetary Fund – the first tranche of US$4.7 billion in loans to help shore up its balance of payments, which have been negative for months.
Handset producers are pessimistic that sales will rise in coming months as inflation, which remained close to 9% in December, appears set to continue, as does the fighting in Ukraine. Further, the Islamic holy month of Ramadan begins in late March and the Eid festival in April, both of which put spending pressure on consumers.
Vivo Bangladesh, the local arm of Chinese smartphone maker Vivo, is among manufacturers affected.
“Vivo also had to adjust production by 40%,” said Imam Uddin, senior manager for finance and logistics at Vivo Bangladesh. “Also, we had to curtail manpower significantly.”
Uddin said handset makers have been facing severe challenges in opening letters of credit to import raw materials needed for production owing to the currency restrictions. “Due to price hikes in many stages we could not launch new handset models for several months, especially the high-end products,” Uddin said.
Nikkei contacted Nokia, Oppo and Realme, as well as local manufacturer Symphony, but did not receive any responses by publication time.