Bangladesh's hi-tech industry is advancing thanks to stable economic indicators that point to rising per capita income, a growing young consumer market that indicates future demand for tech products and services, and favorable policies that have allowed local and international companies to enter the market.
Since 2016, the developing startup ecosystem has been essential in directing FDIs to areas such as FinTech, Logistics, and Mobility. While ongoing government measures to strengthen capacities to maintain investment point to a bright future, one of the major growth drivers for the hi-tech industry is the oversupply of low-cost labor.
Removing the barriers through creating a policy sandbox and gradually moving upwards the value chain in hi-tech manufacturing through developing local talents can be some of the immediate to mid-term strategies. In the coming decade, building on the "Digital Bangladesh" brand and leveraging strong partnerships will open newer avenues for Bangladesh in the global hi-tech market.
According to different report conducted by the local research firm light castle partners, World Bank, hi-tech park authority, ICT division are propelling Bangladesh's hi-tech industry forward: Vitals for Tech Products and Services in a Strong Economy: The majority of Bangladesh's population is young and tech-savvy, with 62 percent of the population under the age of 35.
By 2025, the Middle Class will have grown by 10 percent every year to 34 million people. 98 percent of the population has access to a cell phone, and more than 62 percent has access to the internet, totaling 102 million people with 94 million mobile internet users.
Along with stable economic growth, Bangladesh's investment to GDP ratio increased to 32 percent (US $ 96 billion) in FY 2018-19, up from 26 percent ($ 26 billion) in 2009-10. FDI into the country, on the other hand, was only 3 percent in CY 2019.
Local and Global Initiatives: Technological infrastructure and network enhancement services, national laptop assembly and mobile manufacturing factories fromglobal giants like Samsung, Huawei and Xiaomi have propelled the growth of the industry in Bangladesh. Notable initiatives from local pioneers Walton, Aamra and Datasoft include smartphone manufacturing and assembly, development of world class IOT devices.
Low productivity and efficiency posing setbacks for growth: With only 2-4 percent of existing factories being able to improve productivity, services, and compliance, the mid level management is still dependent on foreign talent.
Currently, labor productivity level in Bangladesh is 77 percent of China and 15 percent lower than India
Bangladesh government targets an astounding US $ 5 billion and promises to create employment for around 200,000 people by 2021. The IT and ITES industry of Bangladesh has grown by 40 percent annually since 2010.
This sector, comprising of around 1,200 companies, has been declared as a thrust sector by the Government to meet its goal of being a digital economy by 2021 and a knowledge-based economy by 2041.
The sector's prospect is being driven by a young workforce interested in freelancing and IT, lower cost for human resources, government incentives including IT-based training and increasing establishment of IT Parks.
The industry enjoys numerous incentives such as exemption of income tax, value added tax (VAT) and customs duty and 10percent cash incentive for exporters.
Startup funding in Bangladesh is at an inflection point withan excess of $ 200 million in international investmentsfrom big-name corporate investors and venture capitals, investing in industries like FinTech, Logistics, and Mobilityover the last four years.
Major Hurdles for Growth
Lack of skilled manpower and underdeveloped infrastructure, Lack of skilled middle managers Middle management is still dependent on foreign talent, Low Labor Productivity, Productivity level in Bangladesh is 77percent of China and 15 pp lower than India.
Lack of skilled workers for High Value Products on 2-4percentof existing Factories are able toimprove productivity, services and compliance.
Low Labor Productivity, IT/ITeS are yet to pick up high end services.
Short-term and Long-term Challenges
Bangladesh often fails to keep the promises displaying a lack of coordination owing to bureaucratictangles that discourage investors.
The lack of a dedicated comprehensive FDI policy has been an Achilles' heel for Bangladesh. Moreover,the scope of signing free trade agreements (FTAs) is available that remains unutilized.
Bangladesh Bank often creates hurdles in profit repatriation, one of the preconditions of FDI, which isobstructing FDI inflow. This means foreign investors face difficulties to take back their money ordividends.
Coping with the competition, the corporate tax rate and VAT policies need to be revised to inject thenation with high FDI inflow.
The level of convenience of doing business in a host country plays a crucial role in making investmentdecisions. Bangladesh struggles to gain investors' confidence as it severely lacks in the Ease of DoingBusiness index by the World Bank
Bangladesh's underdeveloped capital market highly contributes to the investment decision of foreigncompanies as it negatively influences investors' confidence.
Drivers for Sectorial Growth
Industry growth factors emanating fromhigh labor supplyhewe labor force: 77 million, employment in apparel sector: 5 million, lower wages compared to competitors, wages in China have raised Bangladeshi factories are well-known for supplying good quality and large order sizes.
Infrastructure development in Hi-Tech Parks
Around 36 Firms allocated spaces in Sheikh Hasina Software Tech Park, 15 Firms operating currently in Janata Tower Software Tech Park, 62,000 Sq. ft. Incubator & training centre being built in KUET Incubator & Training Centre, 62,000 Sq. ft. Incubator & training centre built in Bangabandhu Sheikh Mujib Hi-Tech Park, 50 Startups allocated spaces and co-spaces in Janata Tower Software Tech Park, 2 IoT firms currently operating in Bangabandhu Hi-Tech City, 50,000 Sq. ft. Incubation house being built in CUET, Business & Incubator Centre 60,000 Sq. ft., Laptop assembling factory built in Bangabandhu Hi-Tech City Infrastructure development in Hi-Tech Parks need to keep up for attracting investments.
Skill development initiatives
Overall 25 CXO professionals trained in Hong KongUniversity, 65,000 Professionals trained in the past year, 6,000 Trained under Support to Developmentproject 65 Further CXO professionals trained byHong Kong University trainees, 36,000 Sq. ft. Training house being built in CUET Business & Incubator Centre, 1,000+ Trained under the Mid-Level Training Program, 4,000+ Young professionals trained under theSkill Enhancement Program 17,500 To be trained in Sheikh Kamal Training &Incubation Centre.
New Incentive Packages
Here 10 Year Tax holiday followed by 2-year tax exemption for developers, 3 Year Tax holiday followed by 7-year tax, exemption for IT & ITeS firms 0% Import Duty for capital machinery, 100% VAT exemption for procurement provider, 80% VAT exemption for electricity distributor, 10 Year Tax exemption (50%) to dividend, capital gain & royalty & technical fees 100% Ownership opportunity for foreign investors, 3 YearTax exemption (50%) for foreignemployees.
