THE FUTURE OF DIGITAL IN BANGLADESH | 1 Digital Readiness Assessment
2 | THE FUTURE OF DIGITAL IN BANGLADESH THE FUTURE OF DIGITAL IN BANGLADESH
DIGITAL READINESS ASSESSMENT
A report by BRAC Institute of Governance and Development (BIGD) in partnership with the Digital Pathways at Oxford
THE FUTURE OF DIGITAL IN BANGLADESH | 3 Digital Readiness Assessment
Digital Readiness Assessment: The Future of Digital in Bangladesh
Publishing Year: 2021
Currently, in Bangladesh, we have been experiencing that the different pockets of production are being revolutionized by new technology – we are anticipating progress, but certainly not overnight. The challenges being there, we believe that the overall impact of new technologies will be determined by how they are adopted, the extent to which they are adopted profitably, and how indirect impacts filter through the rest of the economy. Partnering with the University of Oxford’s Digital Pathways Initiative, BRAC Institute of Governance and Development (BIGD) intends to chart a pathway for Bangladesh to decide holistic strategies to accelerate its inclusive growth in the digital age through this project. This work involves assessing the country’s current digital readiness, deciding priorities through dialogue with high-level stakeholders, and finally crafting a strategy primer. This report is the first major deliverable of the project.
Research Team
Dr. Zulkarin Jahangir, Research Fellow, BIGD, BRAC University Abdullah Hasan Safir, Senior Research Associate, BIGD, BRAC University Shamael Ahmed, Research Associate, BIGD, BRAC University
Illustrated by Md. Abdur Razzaque BRAC Institute of Governance and Development BRAC University
4 | THE FUTURE OF DIGITAL IN BANGLADESH LIST OF ACRONYMS
AI Artificial Intelligence A2i Access to Information BASIS Bangladesh Association of Software and Information Services BIDA Bangladesh Investment Development Authority BIN Business Identification Number BEZA Bangladesh Economic Zones Authority BMET Bureau of Manpower, Employment, and Training BPO Business Process Outsourcing BSEC Bangladesh Securities and Exchange Commission BTCL Bangladesh Telecommunications Company Limited BTEB Bangladesh Technical Education Board BTRC Bangladesh Telecommunication Regulatory Commission BUET Bangladesh University of Engineering and Technology e-CAB e-Commerce Association of Bangladesh (e-CAB) ECNEC Executive Committee of the National Economic Council ERG Economic Research Group ERP Enterprise Resource Planning e-TIN e-Tax Identification Number FAO Food and Agriculture Organization FDI Foreign Direct Investment 4IR Fourth Industrial Revolution HEQEP Higher Education Quality Enhancement Project ICT Information and Communication Technology Center IFC International Finance Corporation ILO International Labor Organization IoT Internet of Things IP Intellectual Property ISP Internet service provider IT Information Technology ITES Information Technology enabled Services LEDP Learning and Earning Development Project LICT Leveraging ICT for Growth, Employment, and Governance MFI Micro Finance Institutions MFS Mobile Financial Services MoF Ministry of Finance M/SME Micro/Small and Medium Enterprise NAPE National Academy for Primary Education NBFI Non-Banking Financial Institutions NID National Identity NFAP National Frequency Allocation Plan NSDA National Skill Development Authority NTVQF National Training and Vocational Qualification Framework PO Producers’ Organisation PPP Public-Private Partnership SBCL Startup Bangladesh Company Ltd SFSA Syngenta Foundation for Sustainable Agriculture STEM Science, Technology, Engineering, and Mathematics STEP Skills and Training Enhancement Project TVET Technical and Vocational Education and Training UDC Union Digital Center UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme VAT Value Added Tax
THE FUTURE OF DIGITAL IN BANGLADESH | 5 Digital Readiness Assessment GLOSSARY
Business Process Outsourcing (BPO) The contracting of specific business processes to a third-party service provider
E-commerce Commercial transactions conducted electronically on the internet
Freelancing Working independently or using professional associations or websites to get work
IT/ITES Industry The Information Technology (IT)/ The Information Technolo- gy-Enabled Services (ITES) industry provides services that are delivered over telecom or data network to a range of external business areas
Mobile Financial Services (MFS) A service provided by a bank or other financial institution that allows its customers to conduct financial transactions re- motely using a mobile device such as a smartphone or tablet
Offshore Services The practice of partially basing a company’s processes or services overseas to take advantage of lower costs
Startup A startup is a company in the first stage of its operations, often being financed by its entrepreneurial founders during the initial starting period
6 | THE FUTURE OF DIGITAL IN BANGLADESH ABOUT THIS REPORT
The contribution of this report is two-fold. Next, the opportunity assessment report First, it offers a systematic discussion of identifies three economic opportunities the current state of digital readiness in that Bangladesh has the potential to take Bangladesh. Second, the report explores advantage of in the next 10 years. They some opportunities that are critical for the include: a) Scaling up BPO and IT/Software country in shaping its digital future. industry in Bangladesh, b) Connecting the informal sector to the formal one in Today’s accurate assessments are the Bangladesh through the help of digital blueprint for tomorrow. The digital readiness technologies, and c) Expanding the start- assessment report, therefore, analyses the up scene in Bangladesh. For this section, readiness conditions across the four pillars we initially developed an opportunity matrix of the digital economy in Bangladesh— tool considering GDP contribution of the infrastructure, human capital, finance, and sectors, government and development policies. It diagnoses the current state of partners’ priority, adequate investment those conditions, identifying some potential flow, forecasted long-term rising, and value challenges within the underlying context addition in general development strategy. of readiness. According to the toolkit We had a further series of formal and developed by the Pathways Commission, informal consultations with the relevant Oxford, these four interconnected pillars government, private sector, and civil help us better understand the challenges society stakeholders to finally identify the of technology adoption for inclusive growth opportunities that would be realistic. in the digital age. The assessment report, These two assessments tell a story of therefore, creates a baseline of knowledge hope: what is working well, what the of Bangladesh’s current capacity in terms existing challenges are, and how the vision of these pillars to leverage the economic of Digital Bangladesh ties into its goal for opportunities in the future. improvement.
THE FUTURE OF DIGITAL IN BANGLADESH | 7 Digital Readiness Assessment
CONTENTS
The Readiness Assessment 1
Infrastructure Readiness 2 Inclusiveness Dimension 4 Appropriate Dimension 7 Readiness Diagram 9 Cross-cutting issues 10
Human Capital Readiness 12 Inclusiveness Dimension 13 Appropriate Dimension 16 Readiness Diagram 20 Cross-cutting issues 21
Finance Readiness 23 Inclusiveness Dimension 24 Appropriate Dimension 27 Readiness Diagram 30 Cross-cutting issues 31
Enabling Policies for Digital Economy 32
Opportunity Assessment 34 Opportunity 1: Scaling up BPO and IT/Software industry in Bangladesh 35 Opportunity 2 Connecting the informal sector to the formal one in Bangladesh through the help of digital technologies 38 Opportunity 3: Expanding to the start-up scene in Bangladesh 42
References 44
8 | THE FUTURE OF DIGITAL IN BANGLADESH THE READINESS ASSESSMENT
This report analyses the current state of play of on-track status for each condition to draw the the pillars of the digital economy that include diagram. infrastructure, human capital, finance, and policies through an opportunity-oriented lens. There is a separate discussion around some cross-cutting issues such as good governance, We find out some readiness conditions for monitoring mechanisms, synergy among the the first three pillars, and group them under stakeholders, innovation situation, and risk two broad dimensions: a) Inclusiveness and reduction strategies, depending on the pillars’ b) Appropriateness. The readiness conditions requirements. We identify that these additional for each of the three pillars grouped under readiness issues of the pillars intersect with the these two dimensions have been assessed conditions discussed under the previous two with up-to-date data and compared with the dimensions, and are important to maintain a relevant regional and international standards. constantly upward direction of development Considering the implications, if the current over time, in an integrated way. state of any condition is found satisfactory, we assign a green light with a well on track status Finally, we discuss some relevant ICT policies for it. If we find a moderate gap, but with visible and regulations such as competition and IP efforts to improve the condition, we say it needs law, taxation, and information security issues improvement and assign an amber light. If we in a separate chapter, and explain how they find a significant gap and low or no effort to contribute to creating an enabling environment improve, we conclude with a red traffic light and within the nexus of overall digital readiness. the least ready status for that specific condition. There are numerous ICT related policies in Bangladesh, however, we consider only those For both the dimensions, considering the well by which the readiness conditions of our other on track status as a benchmark, we eventually three pillars can essentially be benefitted. form a radar diagram to visualise the state of readiness of the pillars. It helps to identify where Therefore, the assessment framework in this we need to put in more effort to be digital-ready. report is as follows: We assign a score of 1, 2, and 3 respectively for the least ready, needs improvement, and well
Digital Readiness Assessment
Readiness Dimensions Key issues for discussion
Infrastructure Human capital Finance Ubiquitous access Access to foundational Inclusiveness to electricity, mobile Digital financial education and digital phones, internet and inclusion literacy digital services
The demand and Data quality, speed Proper financial Appropriateness supply side mismatch
Cross-cutting readiness conditions readiness Cross-cutting and affordability resource allocations of skills mechanism, synergy among the stakeholders, innovation situation and risk reduction strategies innovation situation and risk reduction Depending on the pillar: Good governance, monitoring
Enabling Policies (Competition and IP law, taxation, and infomation security)
THE FUTURE OF DIGITAL IN BANGLADESH | 1 Digital Readiness Assessment INFRASTRUCTURE READINESS
Electricity and digital devices have coverage, c) access to internet already become essential to our connections, and d) access to digital daily lives and are gradually turning services and e-Governance. into important tools for the delivery of services in Bangladesh. The Next, we discuss the dimension of most popular component of digital appropriateness, because technology infrastructure nowadays is a reliable should have in-built relevance, and fit-for-purpose mobile and be economically viable, and bring internet connection. However, the advantages and positive benefits digital divide, in terms of access to to the community and individuals. and use of infrastructure has been Under this dimension, issues related creating, as well as intensifying social, to a) data quality and speed, and b) economic, gender, and regional affordability will be considered. inequalities in Bangladesh.1 Even if people are included in the To build a digital future based on digital nexus with appropriate shared prosperity and universal technologies, the sustainability of access to digital infrastructure is the overall structure will still be a critical. We, therefore, consider the challenge without ensuring data notions of equity, and ubiquitous protection and security, synergy access to the infrastructure among the government and across various geographies other actors in the market who and demographics under the provide access, and finally, without inclusiveness dimension for this pillar. innovations in overall infrastructure Four necessary readiness conditions design. At the end of this chapter, we under this dimension are: a) access to will briefly discuss these cross-cutting energy, b) mobile network issues.
INCLUSIVENESS APPROPRIATENESS Ubiquitous access data quality, speed, electricity, mobile phone, affordability internet, and digital serviceds
INFRASTRUCTURE READINESS
CROSS-CUTTING ISSUES Data protection, partnership for infrastructure development and innovation attitude
1 BIGD, Findings of Digital Literacy Survey, 2020
2 | THE FUTURE OF DIGITAL IN BANGLADESH KEY FACTS AND FIGURES
1. Bangladesh is well on track in 5. Poor internet quality results in terms of access to electricity poor service provision and often hampers businesses 2. Current mobile network coverage is 97%, but 4G users 6. Students face challenges due to are only 4% the problem of high internet price
3. A significant gender gap exists 7. In terms of innovations in ICT in terms of access to the infrastructure, Bangladesh stands internet at the 90th position among 141 countries 4. Union Digital Centres have been providing assisted digital access to people
THE FUTURE OF DIGITAL IN BANGLADESH | 3 Digital Readiness Assessment INCLUSIVENESS DIMENSION
A. ACCESS TO ELECTRICITY total energy production will be renewable by 2015 and 10% by 2020. The According to the Global competitive Index government is facilitating both public and 2018, Bangladesh ranked 68th among private sector investments in renewable 141 countries in terms of electricity supply energy projects to substitute indigenous quality.2 During that period, 85.2% of non-renewable energy supplies and scale the overall population of Bangladesh up contributions of existing renewable had access to electricity. For the rural energy based electricity productions. population, access was 78.3%.3 Problems Bangladesh is well on track in terms of the in Bangladesh’s electric power sector development of electrical infrastructure, still include high system losses, delays which is the basic necessity for the further in completion of new plants, low plant development of digital networks. However, efficiency, erratic power supply, electricity while things are on track, it is important to theft, blackouts, and shortages of funds for note that access requirements for those power plant maintenance. The country’s in rural areas should be prioritised while generation plants had been unable to meet designing interventions. system demand over the past decades.
However, there has been substantial B. MOBILE NETWORK COVERAGE progress in electricity generation in recent times. Currently, the utility electricity sector In terms of coverage and mobile phone in Bangladesh has one national grid with penetration, Bangladesh is in a good an installed Generation Capacity (MW) state from a readiness standpoint and of 20,383 MW. Including Captive Power increasingly bringing more people under & Renewable Energy, the total installed mobile network coverage, with the help of capacity stands at 23,548 MW as per four mobile companies: Grameenphone, June 2020. At present 97% of the people Banglalink, Robi, and Teletalk. Among have access to electricity and per capita these, the last one is government-owned. generation is 510 kWh (including captive According to the Global System for Mobile and renewable energy).4 The Government Communication assessment, Bangladesh of Bangladesh is also looking for various is the ninth largest mobile market5. The options for source diversification of total number of mobile phone subscribers electricity supply, preferably renewable is 161.3 million, with a 5.8 million rise from energy resources. Although under the 2019 to 20206. The country currently has a existing generation scenario of Bangladesh, cellular signal coverage of 97% of the area renewable energy has a very small share and 99% of the population.7 of the total generation, efforts towards improvement are visible. The Renewable A report by the United Nations Conference Energy Policy 2009 envisioned that 5% of on Trade and Development listed out the gains of the country’s digital connectivity thoroughly8. It was noted that nationwide 2 Global Competitive Index, World Economic Forum, 2018 3 World Bank, 2018 4 Bangladesh Power Development Board BPDB, 2020 5 GSMA 2017 6 BTRC, June, 2020 7 Hernandez 2019 8UNCTAD, 2019
4 | THE FUTURE OF DIGITAL IN BANGLADESH coverage of 2G network was 100%, 3G The infrastructure should cope with network rose from 90% to 93% from the upsurge of demand for internet 2017 to 2018, 4G ranged from 65% to consumption. Bangladesh Submarine nearly 80%, depending on the operators, while 5G services were in the process of Cable Company Ltd (BSCCL) allows the being tested as a growth mechanism for end-users to enjoy broadband services. the medium-term. This is to mention that The basic job of BSCCL is to provide among smartphone users, only 4% owned bandwidth to the relevant telecom 4G capable devices. In terms of mobile companies, as well as to corporate users network coverage, therefore, Bangladesh is who need international private leased well on track. circuits (IPLC) and IP Transit to IIG and ISP. The bandwidth is distributed on a first come first serve basis without any discriminations. C. ACCESS TO INTERNET Currently, two submarine cables are landing CONNECTIONS in Bangladesh: SEA-ME-WE 4 (SMW4) and SEA-ME-WE 5 (SMW5), at Cox’s As for internet connection, Bangladesh Bazar cable landing station and Kuakata still has room for improvement. According cable landing station respectively. Both to a GSMA report in 2018, Bangladesh, SMW4 and SMW5 are built and owned by along with Pakistan has had the lowest Bangladesh Submarine Cable Company level of mobile internet penetration in the (BSCCL). However, Bangladesh is looking Asia Pacific region. In 2017, even with for a third submarine connection.12 In the 3G coverage of 90% of the population, last few years, the demand for internet the country had only one in five people bandwidth skyrocketed, and with the subscribed to mobile internet services. first submarine cable’s lifespan of 20 Among neighbouring countries, Nepal and years nearing, the need for a third was Myanmar had even higher mobile internet raised. The Telecom and ICT Ministries penetration, although their GDP per capita have expressed their interest in getting is lower than Bangladesh. Then again, higher bandwidth and are sharing plans Bangladesh’s ICT adoption appeared to on exporting bandwidths to neighbouring be in the lower tier, with an overall rank of landlocked countries as well. 108th among 141 countries on the Global Competitiveness Report 2019.9 This index A significant gender gap exists in terms mainly consists of mobile and broadband of access to the internet in the country. A internet subscriptions and internet users in recent study by BIGD says a male individual the country. However, progress has slowly has 18% more access to the internet been made. The most recent data says the than a female.13 The lack of broadband total number of internet subscribers has internet bandwidth across geographies is reached 103.5 million at the end of June also working as a systemic infrastructural 202010. This rise is due to the increase in challenge. In terms of access to the the country’s GDP per capita, low median internet, therefore, a moderate gap exists age and expansion of the telecom sector, in the infrastructure. However, as there and various initiatives from the government, are visible efforts from the government to such as the a2i project, government offices improve this condition, we assign needs with internet access, reduced bandwidth improvement status for this component. price, etc.11
9World Economic Forum, 2019 10BTRC, July, 2020 11Access to Information, A2i 12The Daily Star, 2019 13BIGD Digital Literacy Survey, 2019
THE FUTURE OF DIGITAL IN BANGLADESH | 5 Digital Readiness Assessment
D. E-GOVERNANCE AND ACCESS districts which include 491 upazilas, 12 TO DIGITAL SERVICES metropolitan cities, and 326 municipalities. At the bottom of all administrative work, Leveraging ICT for Growth, Employment, there are 4,553 Union Councils. The and Governance (LICT) project works Bangladesh Government has been trying to improve Bangladesh’s position in to strengthen the local government of the e-Government Development Index, districts and sub-districts with access published every two years by the UN to many public services. Due to the low Department of Economic and Social Internet penetration rate, it took much time Affairs.14 Bangladesh wanted to increase and effort for the majority of citizens across its position on the index by five notches the country to benefit from these services, from 150 in 2012 to 145 in 2019, but it has and sometimes, the quality of services was secured 115th position in 2018—ahead questionable. Citizens had to travel a long of the targeted time. Bangladesh’s annual distance to reach government offices in revenue from information technology rural areas.15 To tackle this problem, the and IT Enabled Services (ITES) increased government has built a Union Digital Centre by $280 million in the last seven years, (UDC) per union council to provide citizens following the implementation of LICT with better access to the public services. project, creating 47,000 jobs in IT and ITES Currently, there are 4,550 Union Digital sectors, which was only 12,000 in 2013. Centres across the country. Bangladesh has also received very high scores in the e-participation index (16th Bangladesh, therefore, is well on track among 193 countries), according to the UN in terms of access to e-Governance E-government Survey 2018. Nonetheless, infrastructure. Bangladesh primarily uses government websites to provide information. The use of online services to encourage citizens’ READINESS SPECTRUM deliberation on public policies and engagement in decision-making processes The discussion implies that Bangladesh is is not active yet. The government has performing well, regarding ensuring access already adopted the e-Nothi initiative to for people to the digital infrastructure. We ensure transparency and accountability for assign a green traffic light for Bangladesh’s internal processes and is going to set up access to electricity, mobile network electronic dashboards with administrative connection and e-Governance, and access alerts across all ministries, directorates, to digital services, as all these components districts, upazilas and union parishads, to are well on track. However, providing more monitor the speed and quality of service people with access to internet connections delivery. is critical for the country to thrive in a digital economy. We conclude by assigning an Bangladesh is divided into eight major amber light for this particular readiness regions called divisions. There are 64 condition.
Readiness conditions Access to Mobile network Access to internet e-Governance and electricity coverage connections access to digital services
Readiness spectrum Well on track Well on track Needs improvement Well on track
Traffic light
14 Access to Information, A2i 15 Access to Information, A2i
6 | THE FUTURE OF DIGITAL IN BANGLADESH APPROPRIATENESS DIMENSION
A. INTERNET QUALITY AND SPEED connection among 179 countries in the world. According to The State of Mobile Signal Experience report by the open signal in In terms of internet quality and speed, 2019, Bangladesh lies at the bottom of therefore, Bangladesh is least ready, 88 countries in the world. It has 5.7 Mbps compared to global standards. Immediate download speed and 1.7 Mbps upload effort in increasing data speed would be speed, 80.4-millisecond latency experience, a major required condition for the country 65.8% 4G availability, and scores 40.5 to maximise opportunities through service out of 100 in terms of video experience. provision and business communication in a For a country branding itself as ‘Digital digital economy. Bangladesh’, being ranked among the bottom 10 in the world in terms of digital experiences shows the lack of efforts for B. AFFORDABILITY OF MOBILE improving internet quality and speed. The DEVICES AND INTERNET weakness in the internet quality also raises valid questions about the quality of digital The mismatch of access and people’s services reaching the people and improving affordability hampers the efficiency of the the business communication atmosphere entire digital infrastructure. The type of for the industries. devices people use is an important factor because not all functionalities work on The recent pandemic in 2020 saw a surge basic phones. Studies show that among in internet usage across the country. To 74% of mobile owners (aged 15 - 65 years), be precise, Bangladesh Submarine Cable only 18% own a smartphone. Cost acts Company (BSCCL) reported that the as a strong barrier for the marginalised bandwidth consumption rose to 10%, populations. Eighty-nine per cent of people where the country consumes about 1600 with above-average income, while 73% of Gbps bandwidth currently; which was 970 those with below-average income owned Gbps a year ago, and 300 Gbps in 2016.16 mobile phones.18. Then again, compared The evident rise in demand created a to countries like India, the taxes on the difficult situation for users. Slow internet has use of mobile service in the country have a negatively impacted online businesses in 22% high share of tariff costs.19 However, recent times.17 to address this issue, the government has already decided to observe the marketplace Open Signal also measures different quality dynamics before making any policy reforms indices for different mobile companies to avoid leaving any inordinate burdens on in Bangladesh. For example, among the the telecommunication firms. mobile internet providers, Grameenphone scores highest in 4G coverage as per July Internet price works as another challenge 2020 data. According to the speed test in the infrastructure. To the population with global index, June 2020, Bangladesh ranks low income (bottom 20% of the income 134th in terms of mobile internet quality and distribution), the average consumption 104th in terms of fixed broadband of 1 GB data costs 11% of their monthly
16 O’Grady, 2020 17Rahman, 2020 18 Kevin Hernandez, 2019 19 The Daily Star, 2018
THE FUTURE OF DIGITAL IN BANGLADESH | 7 Digital Readiness Assessment earnings.20 In the context of the current The discussion indicates that this situation of a global pandemic, students component is least ready, with a significant have faced challenges due to high gap in efforts to make mobile phones, internet price and poor connection. The especially the smart ones, and internet data from a survey held by the University connections affordable for people of all Grants Commission (UGC) found that economic classes. 87% of public university students have smartphones but no internet connection, or cannot afford to buy mobile data. The report exhibited in-depth statistics of the READINESS SPECTRUM leading tech-based university, Bangladesh Bangladesh needs to significantly University of Engineering and Technology improve its efforts to address the lack of (BUET). Out of 5000 regular students, 1000 appropriateness in its digital infrastructure, were facing connection problems, 250 specifically, in terms of improving data owned no devices, and 1,125 were unable quality and affordability. We, therefore, to afford internet packages.21 assign red traffic lights for both the conditions under this dimension. The A high level of taxation on mobile phones infrastructure will start to work efficiently and the internet directly impacts the total if these secondary barriers, even beyond cost of mobile ownership of the consumers the challenges of ensuring access, are and subsequently creates a barrier to digital removed. inclusion. According to the National Board of Revenue (NBR), mobile phones and SIM cards were the third biggest sources of VAT, generating BDT 4,800 crore in the fiscal year of 2017-18. The government looks to chase a bigger revenue target, riding on this essential services sector by imposing higher taxes in the next fiscal year too. The existing 10% supplementary duty on phone calls, data use, texting, and other services may rise to 15% in the fiscal year of 2020-21.
Readiness conditions Internet quality and speed Affordability of mobile devices and internet
Readiness spectrum Least ready Least Ready
Traffic light
20 Kevin Hernandez, 2019 21 The Business Standard, 2020
8 | THE FUTURE OF DIGITAL IN BANGLADESH READINESS DIAGRAM
1 respectively for needs improvement Bangladesh is doing well in providing and least ready status to visualise our people with access to electricity, mobile assessment through a radar diagram networks, and e-Governance infrastructure. Following this scoring framework, access The Internet is not easily accessible to to electricity, mobile network coverage, people of lower-income groups and the and access to digital services and gender gap is also present. However, even e-Governance receive a full score. Access after access is ensured, internet quality, to internet connections receives 2 out of speed and affordability work as barriers 3, however, both the readiness conditions against seamless digital experiences for under the appropriateness dimension people. These two readiness conditions are (internet quality and affordability) receive 1 the least ready among the six discussed for out of 3. the infrastructure pillar. The readiness of the infrastructure for the Considering well on track as a benchmark digital economy in Bangladesh might be for each readiness condition, we assign a presented in this way: full score of 3 for this status, and, 2 and
INFRASTRUCTURE READINESS
Access to electricity
Affordability of Mobile network mobile devices coverage and inernet
Internet Access Quality and to internet Speed connections
Access to digital services and e-Governance
Fully ready Current electricity
THE FUTURE OF DIGITAL IN BANGLADESH | 9 Digital Readiness Assessment
CROSS-CUTTING ISSUES
DATA PROTECTION, SYNERGY AMONG THE STAKEHOLDERS, AND INNOVATION IN INFRASTRUCTURE DEVELOPMENT
Inclusiveness and appropriateness are sectors. Bangladesh’s security threat necessary for Bangladesh to enter the index, however, stood at 7.6 points in digital economy, but some important 2019, while the current world average, areas need attention for the overall based on 176 countries is 5.52 index infrastructure readiness. Data protection points. Over the years, the country and cyber security, synergy among the did make improvements in decreasing stakeholders who provide access, and the threats. Bangladesh still ranks 73 overall innovation in the infrastructure among 100 nations in the global cyber are some of those important factors security index measured by the UK- that intersect with the previous two based National Cyber Security Index dimensions. (NCSI). The index was measured based on the countries’ preparations to Unprotected data and insecure prevent cyber threats and readiness to cyberspaces are major threats to the manage cyber-crimes, incidents, and digital infrastructure in Bangladesh. major crises. Nonetheless, Bangladesh Establishing clear command and is ranked higher in comparison to a control for all cyber security incidents few South Asian countries, like Sri is necessary for the government to Lanka, Indonesia, Nepal and Bhutan. enable more trusted transactions online, According to Bangladesh Government’s as that can cripple extensive online e-Government Computer Incident activities both in the public and private Response Team (BGD e-Gov CIRT),
10 | THE FUTURE OF DIGITAL IN BANGLADESH 69.55% unique users are at the highest The efficiency of the digital services risk of local virus infection, and 80% of and the level of awareness among users are the victims of spam attacks. the rural population for utilising them Financial institutions are a prime target depend on access to internet services, of attacks too. Bangladesh Bank also affordability of devices, and the level faced a major crisis of hackers stealing of digital literacy of the people.24 There USD 81 million in 2016, which portrays are gaps regarding policy support, the weak cyber security scenario of the financing, and capacity building to country. kick-off and prototype innovations to address these critical issues, as well The presence of public and private as nurture the UDC model to make it sector actors in digital infrastructure financially sustainable in the long run. development will reduce cost, and For example, in Estonia, government enable the ICT sector to be more and private companies formed a competitive, eventually making it more partnership to provide broadband sustainable. Bangladesh had USD connection in the sparsely populated 6,785 million investments from the and remote areas of the country, while private sector from the period of 1990- in Egypt PPP projects are being carried 2019 in overall infrastructure.22 Among out to create smart villages.25 them, the electricity sector had the largest investment share. The electricity We consider innovation to be one of sector had 54 projects reaching the major elements of the sustainability financial closure with USD 5,136 of infrastructure. According to the million, while the ICT sector stands Global Innovation Index 2019, in the 2nd position with six projects Bangladesh stands at the 90th position and USD 130 million investments. among 141 countries in terms of These projects include energy innovation in ICT infrastructure. This infrastructures, fibre-optic cables index considers ICT infrastructure as (land-based/submarine cables), mobile a composite category that measures towers, base stations, and other hard innovation in the government’s online assets. They have the government’s services, e-participation, gross capital involvement as a contracting authority formation, GDP/unit of energy use, as the full or part-owner of the assets, and environmental performances. and thereby ensure public stake before This helps place innovation firmly private sectors’ profit incentive. The on the map for countries, for low government’s ‘Procurement Guidelines and middle-income economies in for Public Private Partnership (PPP particular. Even among the lower- Projects) 2018’ also focused chiefly middle-income countries, Bangladesh on financial incentives to uphold the lies below expectations for the level of interests of the private investors in development for overall innovation (116 the infrastructure sector.23 The Union among 141 countries). Bangladesh, Digital Centres (UDC) in Bangladesh therefore, needs to make a significant are another entrepreneurship-based effort in an integrated way to address unique PPP model that has been these cross-cutting issues for overall successfully taking centralised services infrastructural readiness. to the local level and reducing citizens’ cost of access services.
22 World Bank, 2020 23 Ibid, 2020 24 Digital Literacy Survey, 2019 25 infoDev & ITU, 2012
THE FUTURE OF DIGITAL IN BANGLADESH | 11 Digital Readiness Assessment HUMAN CAPITAL READINESS
People’s capacity to make the best use of and massive changes in traditional the technical arrangements to engage in work. Industry 4.0 will need newer economic and social practices can make skills and attitudes; consequently, the digital transformation meaningful. comprehensive planning is required to Starting from the basic integration of respond to the challenges and impact technology into societies, a well-performing of the Fourth Industrial Revolution (4IR) digital economy will require re-sketching the on human capital development. In the human skill spectrum for addressing the appropriateness dimension, we discuss upcoming challenges, and then effective re- the government’s effort in addressing skilling and re-deploying of the workforce. skills mismatch, promoting STEM and vocational training, and integrating research We frame our discussion of human capital and entrepreneurship in the tertiary level readiness in this chapter around the education. inclusion aspects first. We highlight the current state of foundational education and Human capital development for the digital digital literacy in Bangladesh. We discuss economy is inherently a complex challenge. the challenges in increasing the ability Bringing innovative ways of delivering of people to access, adapt, and create education and undertaking strategies to values by using technologies under this reduce the threat of automation are some inclusiveness dimension. of the conditions that are connected in an integrated way with the inclusiveness and Next, we focus on the provision of appropriateness dimensions of this pillar. appropriate knowledge and skills for At the end of the chapter, we, therefore, the future of the youth. Bangladesh will shed light on these important cross-cutting eventually see a rise in new professions readiness issues.
INCLUSIVENESS APPROPRIATENESS Foundational Education, Skills match, STEM education, digital literacy for all vocational training, research and entrepreneurship
HUMAN CAPITAL READINESS
CROSS-CUTTING ISSUES Innovative ways of delivering education, reducing the threat of automation
12 | THE FUTURE OF DIGITAL IN BANGLADESH KEY FACTS AND FIGURES 6. Vocational training based 1. The enrolment rate in primary education providers need to education is satisfactory, but the standardise curriculum and rate of retention to the tertiary ensure institutional coordination level is lower 7. Universities in Bangladesh 2. Students perform poorly in major substantially lack R&D lab subjects like Maths and English facilities and funding 3. Digital literacy works as a barrier 8. Updating curriculum based on against access to digital services required skills in the market has and information become imperative 4. Skills of graduates in Bangladesh 9. Distant learning platforms are on are not sufficient for the job the surge, government patronage market has accelerated the penetration 5. The country’s STEM enrolment of these platforms rate of higher education stands at 21% of overall graduates
INCLUSIVENESS DIMENSION
A. FOUNDATIONAL EDUCATION poor literacy and numeracy skills among FOR ALL students—only 25 to 44 % of the students in Grades 5 through 8 excel in English and The literacy rate of youths aged 15 and maths, and performance on these subjects above in Bangladesh is 73.9%.26 To meet is especially low among poor students. the target of ensuring 100% literacy, To popularise mathematics for school and set by The National Education Policy college-going students and prepare them 2010, Bangladesh has been progressing for International Mathematical Olympiad gradually. The dedication has been (IMO), Bangladesh Mathematical Olympiad evident from the 90% net enrolment rate Committee, with support from Dutch in elementary-level education.27 However, Bangla Bank & Prothom Alo arranges the completion rate of primary education is regional and national Math Olympiads and 82.6%, but at the upper secondary level, it extends its cooperation to arrange Local significantly decreases to 29.4%.28 Math Olympiads, Parallel Math Schools and Math Clubs across the country. However, Performance of primary and secondary level the total number of males who participated students in Bangladesh is not satisfactory in the IMO is 32, in contrast to the four in major subjects like Mathematics and females who participated in the competition English. National learning assessments over 14 years. conducted by the Government of Bangladesh show A 2018 report on ‘Identifying the Reading Ability of Class Four Students of English
26 Bangladesh Bureau of Statistics, 2018 27 UNESCO, 2017 28 Bangladesh Bureau of Statistics, 2019
THE FUTURE OF DIGITAL IN BANGLADESH | 13 Digital Readiness Assessment in Government Primary Schools in properly use the phone menu, and 84% are Bangladesh’ found that less than 40% unable to use the internet.32 According to a of students of all divisions could read recent study that methodically evaluates the textbook sentences intelligibly.29 Education level of overall digital literacy in rural areas First, a Switzerland-based international of Bangladesh, 50% households scored organization, has found that among 100 0.25 or below, while the perfect score of countries, Bangladesh ranked 71st (India 1.0 indicates the presence of elementary and Nepal secured 34th and 66th positions digital literacy only.33 The research also finds respectively) in the 2019 ‘EF English that digital skills increase in the households Proficiency Index’. In general, students with higher income, giving them an have weak reading skills, and curriculum, advantage of access to digital services with teaching approaches, and examination sufficient abilities to allow them to control systems at all levels focus more on rote and learn the ever-evolving technologies learning than on competencies, critical and digital systems.34 Hence, even with thinking, and analytical skills.30 Girls the internet providing the same information consistently underperform compared to to all, access to all remains only in theory boys, in terms of both passing rates and and differences are created due to lack of the share of top students in the Secondary capacity and abilities.35 School Certificate (SSC) examination.31 Another source of digital inequality is In terms of primary and secondary level gender. Evidence shows that twice as many education in Bangladesh, we, therefore, households agreed that a male member, as assign needs improvement status. This opposed to a female, as the most digitally foundational schooling is necessary for all able person in their home, in a recent to secure further higher education and gain survey.36 This is partly explained by access. more complex digital functional skills. 61% of women own a mobile phone, compared to 86% of men in the country and only 16% of women use mobile B. DIGITAL LITERACY IN SOCIETY internet against 33% of men.37
The rise in mobile phone usage in The government is strategically focusing Bangladesh has helped to boost various on digital inclusion by the uptake of mobile digital service platforms. However, a huge money and other digital payment platforms. portion of the population of Bangladesh is Currently, 15 local banks approved by the still unaware of the usage of phones, the Bangladesh Bank are running the operation internet, and digital services. Digital literacy of mobile financial services through National across the population is not satisfactory Payment Switch Bangladesh (NPSB).38 at all. 30% of the population cannot make However, 41% of the population has no and receive phone calls on a mobile idea about mobile money and how it can phone, 51% cannot send and receive text be used.39 The Mobile Financial Service messages, 37% do not know how to agents have made distinctive contributions in the ecosystem, by facilitating access to people through direct communication, 29 National Academy for Primary Education 30 World Bank, 2016 31 ADB, 2019 32 Hernandez, 2019 33 Digital Literacy Survey, BIGD, 2019 34 Digital Literacy Survey, BIGD, 2019 35 McKinsey Global Institute, 2015 36 Digital Literacy Survey, BIGD, 2019 37 Mobile Gender Gap Report, GSMA, 2020 38 Bangladesh Bank, September 2020 39 Hernandez, 2019
14 | THE FUTURE OF DIGITAL IN BANGLADESH while operating in the field to manage cash READINESS SPECTRUM deposits and withdrawals. 60% of MFS account holders cannot operate accounts Bangladesh needs to accelerate its without the help of agents due to their lack endeavour to include its people into the of digital literacy.40 digital realm with minimum skills at the very least, as it is one of the basic requirements Language Literacy also acts as a huge to thrive in a digital economy with inclusive barrier to information accessibility. Since growth. In terms of ensuring foundational there is a lack of Bangla content in the education for all, we assign an amber traffic digital spaces, a good amount of the light. However, to advance digital literacy, population can’t properly use their devices significant improvement is needed, and we, to retrieve important information. In addition therefore, assign a red traffic light to this to literacy, awareness is required too, as not component. knowing how to use the internet was the reason behind 67% of the population being offline.41
The discussion indicates that there is a significant gap in efforts to ensure equitable digital literacy in society, which is an essential condition to enter into the digital economy. We may assign the least ready status for this component.
Readiness conditions Foundational education for all Digital literacy in society
Readiness spectrum Needs improvement Least ready
Traffic light
40 Digital Inclusion Series, Episode 3, BIGD, 2020 41 Hernandez, 2019
THE FUTURE OF DIGITAL IN BANGLADESH | 15 Digital Readiness Assessment APPROPRIATENESS DIMENSION
A. ADDRESSING SKILL MISMATCH such, to make up for what was lacking in university education.45 Almost 65% of the population of Bangladesh is under the age of 25, These outcomes show that the academic which creates a scope of leveraging the programmes in the universities do little demographic dividend in the upcoming to improve the job-demanded skills, by digital age.42 However, these vast young understanding the skill gap among the human resources lack the knowledge graduates. There is an absence of a and skills necessary to thrive in the quality assurance framework for higher competitive and globalised market. The education in Bangladesh, with poor rate of educated unemployment (4.37% internal and external systems for reviewing in 2019) in the country is increasing every academic programmes. Among the public year.43 There are narratives that the uses of higher education institutions, the National technology will substitute some activities University-affiliated colleges generally have humans currently perform—particularly an unsatisfactory quality of instruction and displacing the labour in traditional jobs. poor facilities. A recent study of the aspects While some of these jobs will be lost in the of educational standards (i.e., faculty future, and many others created, almost all credentials, academic calendars, campus will change— the only way to thrive in an facilities, research facilities, and the cost ever-changing technology-driven world is of education) also concluded that private prepare accordingly. Unfortunately, quality higher education in Bangladesh had not yet assurance is a problem in tertiary-level achieved the desired level of quality.46 education in Bangladesh. We assign the least ready status for this readiness condition. The growing IT In a World Bank study on tertiary education industries and development efforts of the sector review, both the employers and government towards digitisation will be graduates agreed that the skills of tertiary ineffective if this prominent skill gap among graduates are not sufficient. People the young population exists. with postgraduate degrees have 1.06% unemployment rates in Vietnam and 14.2% in India, but the unemployment B. PROMOTING STEM EDUCATION rate among the university graduates in IN TERTIARY LEVEL Bangladesh is almost 39%.44 Graduates who are employed also lack the necessary The country’s STEM (Science, Technology, educational competencies in the workforce. Engineering, and Mathematics) enrolment As per a study cited in ADB’s brief on Skills rate for higher education stands at 21%, Development, it was noted that 67% of while it is 40% in India and 28% in Sri university graduates showed interest in Lanka.47 In the year 2016-17, Bangladesh receiving further training on computer skills, had around 543,000 tertiary graduates, critical thinking, analytical skills, and among which only 16,000 graduated with IT-related degrees.48 The key complaint of the IT industry in Bangladesh is the lack of
42 World Economic Forum, 2019 43 Bangladesh Bureau of Statistics, 2019 44 Bangladesh Institute of Development Studies (BIDS), 2019 45 World Bank, 2019 46 ADB, 2015 47 World Bank, 2019 48 ‘Skills gap in the IT sector: Utilizing the power of youth’, ICT Division, 2019
16 | THE FUTURE OF DIGITAL IN BANGLADESH educational competencies in the workforce, C. STRENGTHENING VOCATIONAL as 62% of the youth of Bangladesh are TRAINING BASED EDUCATION undereducated for the work they do.49 AND SKILL DEVELOPMENT However, to enhance the quality of this PROGRAMMES skilled workforce for the IT industry, the government had trained 65,000 entry and The Government of Bangladesh has been 50 mid-level IT/ ITES talents till 2018. Around working towards improving Technical and 25% of female students enrol for Computer Vocational Education and Training (TVET), Science (CS) or Information Communication delivered by various institutions belonging Technology (ICT) related subjects at the to 23 ministries; however, the share of the tertiary level in Bangladesh. Yet, only 13% population with formal TVET qualifications 51 of them continue as ICT professionals. in Bangladesh is very small.
However, the government is concerned In 2013, only 1.8 % secondary school about this issue and has already made students enrolled in skills development computer education compulsory for programmes in Bangladesh, which is very secondary and higher secondary/equivalent low compared to the global average of 11% levels, to encourage information technology in 2010.52 The Grade 8 entry requirement ICT based education at the tertiary level. In blocks disadvantaged students (only 60% Bangladesh’s 7th Five Year Plan in FY2016- of students complete Grade 5, including FY2020 the government’s ICT development those from disadvantaged groups), as do goals included providing one multimedia lengthy training programs (two-four years) classroom to all primary schools and three and the absence of short-term or flexible multimedia classrooms to all secondary training that does not interfere with work.53 schools with appropriate ICT labs. To Out of one million enrolled students in ensure at least 30% participation of girls 6,865 public TVET institutes, about 25% in the ICT industry of Bangladesh, The of students were girls, and out of the Leveraging ICT for Growth, Employment total of 51,000 teachers, only 20% were and Governance (LICT) and the ‘She female.54 Like general secondary education, Power’ projects trained 20,000 women this vocational education struggles with altogether till 2019 to increase their continuity problems. Only about 2.85% of freelancing skills, IT service provision and students enrol in secondary-level vocational call centre operations. These trainings programmes.55 Private providers account might help generate income but are not for about 95% of all TVET institutions and comparable to formal university degrees. about three-fourths of all enrolments, but Therefore, Bangladesh still needs ensuring proper coordination among these improvement in terms of proper institutions and maintaining equal standards implementation of the plans regarding the of the curriculum are difficult. TVET absorbs promotion of STEM education for its youth. about 2.6% of the education budget in Bangladesh, including allocations for the Bureau of Manpower, Employment and Training (BMET) and monthly payment orders (MPOs) for 1,600 accredited private training institutions.56 In 2020,
49 ADB Brief, 2016 50 Betting on the Future – The Bangladesh IT-ITeS Industry is poised for Growth, Everest Group Research, 2017 51 Bangladesh Open Source Network (BdOSN), 2017 52 UNESCO, 2013 53 ADB, 2015 54 Skills21 Study: Situation Analysis of Bangladesh TVET Sector, 2019 55 ADB, 2015 56 ADB, 2015
THE FUTURE OF DIGITAL IN BANGLADESH | 17 Digital Readiness Assessment the Executive Committee of the National In terms of vocational training based Economic Council (ECNEC) approved a education and skill development budget to establish 329 TVET programmes programmes, therefore, Bangladesh needs at the upazilla level, with the intention to improvement. reach disadvantaged people in the rural areas.57 Despite growing investments in TVET, there exist serious skill mismatches D. EMPHASISING ON RESEARCH with the current industry. In the context AND ENTREPRENEURSHIP AT of the Fourth Industrial Revolution, it THE TERTIARY LEVEL would be a more complex challenge as the workplace will be transformed from Global Competitive Index 2018 of the task-based characteristics to human- World Economic Forum ranks Bangladesh centred characteristics. Because of the as 82nd among 141 countries, in terms of convergence of man and machine, it will research and development. Government reduce the subject distance between expenditure on tertiary education was humanities and social science, as well reported 0.5% of GDP in Bangladesh in as science and technology. Currently, 2016, of which an insignificant portion interdisciplinary teaching, research and is spent on promoting research.58 The innovation are almost absent in TVET in University Grants Commission (UGC) Bangladesh. observes the number of quality research— especially in fundamental or innovative Beyond the formal TVET education, fields—has decreased tremendously at there are currently some innovations the university level. While there are 53 regarding methods and targeting of the skill public, 90 private, and two international development programmes, in both public registered universities in the country, only and private spheres. For example, Access around 6,000 articles were published by to Information (a2i) has some programmes Bangladesh-based researchers in global such as Skills Development through journals with impact factor, according to Apprenticeship, Skills Development through a recent count.59 In comparison, Indian Stipend, Imam Portal, Skills for Employment researchers published more than 175,000 Programme on RMG, and Skills for Qawmi and Pakistani researchers published more Madrasha Youth. A private initiative named than 22,000 articles among peers. Yearly Sudokkho aims to ensure increased income patent applications in Bangladesh are also for 65,000 poor people, which includes low; resident Bangladeshis submitted only women and disadvantaged populations, 69 patent applications in 2018, whereas for after successful completion of training Indians, the figure was 6,289.60 Bangladesh through its partnerships with privately does not have a national strategy for owned training service providers (PTPs), research, and the role of universities in and industry-based training (IBT) initiatives. undertaking basic and applied research is In addition to vocational skills training, affected by many constraints, such as the there are a few private organisations that lack of funding, low or lack of motivation are working specifically on digital skills as for research, in terms of financial incentives well. One of them is an organisation named and recognition, and meagre logistical ‘Coders Trust’, which is working to provide support.61 According to UGC’s latest report, women with the necessary skills to enter 12 public and 11 private universities in the freelancing market. Bangladesh did not spend any money on research in 2019.62
57 Why technical education is imperative’, The Financial Express, 2020 58 World Bank, 2016 59 Dhaka Tribune, 2020 60 WIPO 61 ADB, 2015 62 The Independent, 2020
18 | THE FUTURE OF DIGITAL IN BANGLADESH The universities in Bangladesh also do We assign the least ready status for this not focus on developing entrepreneurial readiness condition, as more emphasis is talent; therefore, an absence of student needed on research and entrepreneurship guidance, in terms of a risk-taking mindset, promotion in tertiary level education in is existent in society. There is a risk that Bangladesh. start-up culture here may shift towards being more of a trend rather than sticking to its problem-solving and innovation READINESS SPECTRUM goals. This is to mention, Bangladesh ranks 114th among 141 countries, based Bangladesh needs significant improvement on the entrepreneurial culture practised in addressing the lack of appropriateness, here, according to the Global competitive while enhancing the skills of its human Index 2018. Industry-academia linkage capital, specifically, addressing the issues is imminent to set up the right kind of related to skill mismatch, and promoting infrastructure to nurture innovation and research and entrepreneurial mind-sets entrepreneurship at school/college/ among students at the tertiary level. We university levels. Such synergy, resources, assign red traffic lights for each of these and experience sharing are currently almost conditions. However, vocational training absent. Without turning research and based education and tertiary level STEM entrepreneurship into a culture, it will be education receive amber traffic lights, as difficult for Bangladesh to thrive in the both the conditions need improvement from digital age, as the country currently ranks our analysis. 116th out of 126 economies in the Global Innovation Index.63
Readiness condi- Addressing Promoting Strengthening Voca- Emphasising on tions skill mismatch STEM education in tional training based research and tertiary level education entrepreneurship in tertiary level
Readiness spec- Least ready Needs improvement Needs improvement Least ready trum
Traffic light
63 Global Innovation Index, 2019
THE FUTURE OF DIGITAL IN BANGLADESH | 19 Digital Readiness Assessment READINESS DIAGRAM
entrepreneurship in tertiary level education Bangladesh must make a substantial effort are essential conditions to thrive in the to increase people’s basic digital literacy. digital age, yet they are carrying red lights. Improvement is also needed for ensuring foundational education for all of its people. Following the same scoring framework However, these are only the basic tools as the infrastructure pillar, we assign a to prepare for the digital economy, and score of 1 for the readiness conditions more barriers need to be addressed. The with the least ready status that include government and its partners need to put digital literacy, skills match, and research more effort into providing vocational training and entrepreneurship promotion aspects. to produce a semi-skilled workforce, as Ensuring foundational education, promoting the industry 4.0 will require much more STEM education and vocational training than what we refer to as high-level skills. based education in tertiary level—all three Emphasis on STEM education, research, of these conditions need improvement, and entrepreneurship development should and, therefore, each receives a score of 2 also be an immediate concern at this out of 3. moment. Addressing skill mismatch and emphasising on research and
HUMAN CAPITAL READINESS
Foundational Education for all
Emphasising on research Digital Literacy and entreprenurship in in Society tertiary level
Strengthening vocational Addressing Skill training based education Mismatch and skills development programmes
Promoting STEM Education in Tertiary level
Fully ready Current State
20 | THE FUTURE OF DIGITAL IN BANGLADESH CROSS-CUTTING ISSUES
FOSTERING INNOVATION IN LEARNING METHODS AND DECIDING STRATEGIES FOR REDUCING THE THREAT OF AUTOMATION IN THE DIGITAL AGE
To ensure quality outcomes from the education through a digital platform may existing education system, it is important reduce the gap among learners, learning to find innovative ways of teaching and materials, and tutors, but there are learning, including the promotion of questions regarding tangible outcomes e-learning platforms. At the same time, to of these learning platforms. There is no reduce risk of automation, it is necessary to certified course offered from the recognised find out what the new skills in demand are, universities or other educational institutions assess which professions are under threat and no standard guidelines are in place and to which degree, and finally identify regarding quality control, approval and what steps should be taken thereby. acceptance of certification provided from these platforms. Most educational institutions in Bangladesh lack a standard formal system for While technological innovations can supervising and monitoring classroom advance specific sectors and industries, teaching and do not invest in innovative new technologies can be deeply disruptive methods of instruction to improve in various contexts. Automation has the academic standards. They provide real possibility to take over the jobs of low education using mainly traditional methods, skilled workers, create major skill gaps in such as lectures and the evaluation of mid and upper management levels, and students through written examinations, give rise to challenges regarding access to instead of modern methods like case finance for capital investment in technology, analyses, presentations, group work, and training for improved skill sets.64 Due to simulations, business games, term paper the nature of low-wage jobs and workers writing, and formative assessments. The with low educational attainment, garment, use of digital technologies in education and textile and footwear production can reduce barriers and make learning are, however, major sub-sectors in more accessible, but there are challenges Bangladesh facing threats of automation. of poor infrastructure and affordability. There is a lack of deeper sector-based Sporadically, some online distance learning understanding and internal assessments platforms have slowly started gaining which will enable the government, training popularity in Bangladesh, benefitting the providers and enterprises to prepare for students, teachers, and professionals. automation impacts. Though the adoption For example, 10 Minutes School is the of technology in the RMG sector is still largest online educational platform, which slow, the impact is already visible in claims to help 1.5 million students in Bangladesh. The number of female workers Bangladesh to access digital learning in readymade garments (RMG) sector has through their website, app, and social declined by 10.68% in four years, though media. MuktoPaath is a government the number of factories and workers are initiative, which provides a similar e-learning on the rise.65 Lack of modern skills and platform in Bangla for professional and skills proper knowledge of technology have development, over multiple sectors at the been identified as two of the main reasons lowest affordable costs. Providing behind this.
64 Access to Information, a2i, 2019 65 Bangladesh Bureau of Statistics (BBS), 2018
THE FUTURE OF DIGITAL IN BANGLADESH | 21 Digital Readiness Assessment
Each year, more than two million young regulatory body that can work towards people enter the workforce in Bangladesh ensuring skill development and recognition and on an average, 0.6 million workers for expatriate workers during the pre- go abroad for employment.66 Remittances departure and post-return periods.71 Many from these migrant workers were 6.1% unregulated private training providers offer of the gross domestic product in 2019.67 short courses on Information Technology 56% of Bangladeshi migrant workers were (IT) and foreign languages, in addition to classified as either unskilled or semi-skilled pre-departure training for migrant workers; in 2016. The share of skilled workers however, most of the private operators are among expatriates has been consistently not affiliated with BTEB.72 low over the past decade, despite the various efforts to raise skill attainment Bangladesh, thus, needs to make of Bangladeshi migrant workers.68 It is a concerted effort to address these important to mention that Bangladesh TVET cross-cutting issues of human capital qualification is not recognised outside the readiness, as well as inclusiveness and country, and, therefore, migrant workers appropriateness dimensions of this pillar. can hardly benefit from them. It has been predicted that 14% of jobs across the OECD face a high likelihood of automation, and another 32% are likely to experience significant changes over the next 10 to 20 years.69 The demand for unskilled migrant workers will therefore decrease and the demand for skilled manpower will rise. To date, no survey on changing foreign demand for the digital age has been conducted by Bangladesh Technical Education Board (BTEB).70 There is no
66 LFS-BBS and BMET 67 MDPI 68 World Bank, 2018 69 The Organisation for Economic Co-operation and Development (OECD) 70 ILO, 2015 71 ILO, 2015 72 ILO, 2015
22 | THE FUTURE OF DIGITAL IN BANGLADESH FINANCE READINESS
Financing is one of the most important pillars in a digital economy, which enables Under the appropriateness dimension, we seamless infrastructure and human highlight that there should be mechanisms capital development. In this chapter, to support emerging digital businesses we measure the current state of finance through adequate and continuous financial readiness in Bangladesh from two broad resource allocations. Identifying proper readiness dimensions: inclusiveness and funding mechanisms for all levels of appropriateness. In the end, we discuss entrepreneurs for their digital ventures is some cross-cutting issues such as market necessary to thrive in a digital economy. regulations, interoperability, and disruptive technologies in the financial sector that are Then again, technological tools and connected to the other two dimensions. processes in the finance sector should be properly maintained and operationally Under the inclusiveness dimension, we controlled. At the end of the chapter, we consider digital financial inclusion for the discuss these regulatory issues. We shed excluded and underserved populations, light on the interoperability of the market and effective usage of this tool for alleviating actors, and the frontier technology adoption poverty as readiness conditions. An challenges in the financial sector. inclusive financing ecosystem should be suited to peoples’ needs, and designed responsibly, at a cost both affordable to customers and sustainable for the providers.
INCLUSIVENESS APPROPRIATENESS Digital Financial Adequate private sector investment and FDI, proper inclusion funding arrangements for MSMEs and startups
FINANCE READINESS
CROSS-CUTTING ISSUES Market regulators, interoperability, up-to-date financial technologies
THE FUTURE OF DIGITAL IN BANGLADESH | 23 Digital Readiness Assessment
Key facts and figures 5. Availability of adequate funds is 1. Mobile Financial Services (MFS) very important for the SMEs and in Bangladesh is penetrating at startups, the higher rate of interest a very fast rate with 38.6 million is another major hindrance active clients currently 6. The transactions through MFS are 2. Effective usage of MFS may have still out of real-time monitoring a positive impact on the social protection of the poor and on 7. Business models and formalising small businesses interoperability are major partnership challenges in 3. The ICT sector has been securing digital financial transactions in its place in top five clubs of Bangladesh budget allocation consecutively 8. Latest financial technologies 4. A lower level of ease of doing are slowly taking places in business, lack of enabling Bangladesh environment for investment and business competitiveness affect private sector investment and FDI
INCLUSIVENESS DIMENSION
A. PROMOTING DIGITAL FINANCIAL banking service provider has a distinct goal INCLUSION of making digital financial services more accessible and available to poor and rural The Bangladesh Government has been Bangladesh with its inexpensive service. promoting the uptake of mobile money Although the proportion of MFS account and other digital payment platforms as holders in the population was only 3.0% in an effective digital inclusion strategy. 2014, it rose to around 38% in 2019. This From the bottom of the pyramid of the is higher than the South Asian average of demography to the top, MFS has been 33%, and the global lower-middle-income gradually unfolding a narrative that has country average of 27%.74 According to the a huge potential for promoting socio- latest figures, the number of banks currently economic dynamism, mobility, and growth. providing MFS services is 15, registered MFS is an approach to offering financial clients are 88.8 million, while the number of services that combines banking with mobile active accounts is 38.6 million. The average wireless networks, which enable users to value of the daily transactions was over make deposits, withdraw, and to send or BDT 1494.36 crore (USD 176 Million).75 receive funds from a mobile account.73 Apart from cash-in, cash-out, and person- The concept of MFS has brought a huge to-person transactions, the MFS services unbanked segment of the population under are also being used for utility bill payments, its fold, especially in rural Bangladesh, salary disbursements, merchant payments, within nine years, after its launch in 2011. government payments, and inward BKash, Bangladesh’s leading mobile remittances. The majority of the people
73 Bangladesh Bank, 2012 74 Hernandez, 2019 75 Bangladesh Bank, June 2020
24 | THE FUTURE OF DIGITAL IN BANGLADESH among the mobile money users utilise it for and lack of creditworthiness.79 The Fintech only basic purposes, such as transferring, platforms could enable online businesses depositing, and withdrawing money. People to create a merchant account that will living below the poverty line were found help facilitate the payment mechanism. less likely to use it. The reasons were This is currently not possible because they narrowed down to two. Forty-one per cent require a physical store or a ‘signboard’ of the non-mobile money users expressed for proof of business.80 The recent flourish that they do not have enough money to of the e-commerce sector is a combined transact, to begin with, and others were result of improvement in banking, logistics unaware of the service. communications and payment methods. The banking sector is now using the Almost 70% of Bangladesh farmers are internet payment system. As consumers smallholders and unbanked.76 Access to can avail credit, debit card services and finance is often costly, making farming digital wallet, the cash-on-delivery system is an unviable business case in rural areas. now more accessible. At present, there are This is because of the risk associated with approximately 2000 e-commerce sites and financing smallholder farmers. Peer-to- 50,000 Facebook-based outlets delivering Peer lending platforms and crowdfunding almost 30,000 products a day, which platforms can offer low-cost financing takes up just less than 1% of the entire opportunities for farmers. Recently, mobile retail sector in Bangladesh.81 Again, 80% financial services (MFS) have brought a of the online sales are only taking place in huge unbanked segment of the population Dhaka, Chattogram and Gazipur.82 In terms in rural Bangladesh under its fold. However, of payment methods for e-commerce, a recent study shows that 60% of MFS focus on cash on delivery is gradually being account holders cannot operate accounts shifted away to MFS, and will fully rely on without the help of agents due to their the MFS and payment service providers lack of digital literacy.77 The gap between eventually. Currently, only 4% of MFS the abilities to control and learn the ever- account holders use these platforms for evolving technologies and digital systems advanced purposes like online shopping, stands in the way of rural businesses apart from cash-in, cash-out, and person- prospering. to-person transactions.83 Data collected from mobile money services has further Seventy-five per cent of Bangladeshi small potential to provide insight on spending businesses are currently unserved by the and saving habits, establish credit records, formal financial sector.78 Small businesses provide individuals with the ability to access within the informal ecosystem can be loans and other credit-based financial included in the formal financial sector if the services. However, no institutionalised MFS provides them with flexible and suited effort is visible at present, to leverage the services according to their business needs. data generated from the emerging Fintech Although, at times, the actors of MFS are industry. discouraged from getting involved with these businesses due to capital constraints, This readiness condition, therefore, needs high service cost, challenging regulatory improvement to contribute effectively to the environment digital economy.
76 iFarmer, 2020 77 BIGD, 2020 78 Nathan, 2018 79 Nathan, 2018 80 IDLC, 2018 81 IDLC, 2018 82 SANEM, 2020 83 Hernandez, 2019
THE FUTURE OF DIGITAL IN BANGLADESH | 25 Digital Readiness Assessment
B. ACCELERATING SOCIAL SAFETY at around 58%. 85 Increasing evidence NET PROGRAMMES USING MFS confirms that digital financial transactions save time and expenses of social safety While the spread of technology might net programme beneficiaries across the threaten digital divides in a few cases, it country, and ensure transparency of can assist in the growth of social inclusion transactions from the supply side. The issue essentially. The Government of Bangladesh of middlemen using MFS to provide cash has used the latter to its advantage. The support to the people has been resolved; Employment Generation Programme for poor and pregnant women, widows, the Poorest (EGPP) was introduced in and the elderly now get their allowances 2008 to provide short-term employment directly. However, we find extensive agent to poor and vulnerable households during dependency of people in the overall cash the off-seasons of agriculture. It has been transfer ecosystem through MFS.86 Hacking the largest social safety net programme PINs is considered a ‘teething problem’ in in Bangladesh and has experienced this regard that can be overcome by mobile several challenges regarding payment literacy. Digital security awareness is also mismanagement, misappropriation in important, as well as a difficult task in the record keeping, and such. Hence, to current context to address the problem. address the problem, two options were introduced: a card-based solution and a To streamline the overall process, this mobile-based solution. This digitisation readiness condition, therefore, needs not only aided the beneficiaries but also improvement. reduced the operational costs for the government. It also reduced the scope for leakage at the systematic level. Studies READINESS SPECTRUM find that digitising government to people (G2P) payments through MFS could Bangladesh needs to improve the potentially save the government up to USD promotion of digital financial inclusion and 15 million annually and could equally save uses of these platforms for social welfare. millions of hours, costs, and visits for the We assign amber traffic lights for both 84 beneficiaries. these conditions. Digital finan ce cannot accelerate without effectively including all The social welfare ministry has, therefore, the members of a society into it. already implemented the G2P payments on limited scales, and are confident of actualising the project throughout the country by 2021. Only 13% of people were under the coverage of the social safety net programme in 2009, but now it stands
Readiness conditions Promoting digital financial inclusion Accelerating Social Safety net programmes using MFS
Readiness spectrum Needs improvement Needs improvement
Traffic light
84 PRI 85 Ministry of Social Welfare 86 Digital Inclusion Series: Episode 3, BIGD
26 | THE FUTURE OF DIGITAL IN BANGLADESH APPROPRIATENESS DIMENSION
A. PRIORITISING ICT FINANCING IN improvement status for this component, ECONOMIC PLANS considering the appropriateness in the vision of financing. Information and communications technology (ICT) has received appropriate financing significance in theth 7 five-year B. INCREASING PRIVATE SECTOR economic plan of Bangladesh and is AND FOREIGN DIRECT expected to have the same results in INVESTMENT FOR THE IT the upcoming 8th Five Year Plan. There INDUSTRY was a separate chapter focusing on the importance of ICT in the plan. Whereas the For the next five-year plan, the private previous five year plans mainly focused on sector in Bangladesh is supposed to creating R&D environment for harnessing contribute 75% of an overall investment of appropriate technologies to ensure basic BDT 77,418 billion during the plan period, human needs, the 7th Five Year Plan had while the rest will be covered by the public focused more on harnessing science sector.88 Private sector investment is the and technology for improved economic deciding factor for a planned double- performance in accelerating growth, so that digit growth of GDP in Bangladesh, but the country may turn into a middle income it fell behind the public investment for one by the year 2021, in line with the Vision consecutive years, which eventually 2021. affected the overall investment. The reason working here includes a lower level of There is an increasing trend in budget ease of doing business, lack of enabling allocation for the current and forthcoming environment for investment, and business development projects led by the ICT competitiveness. Division, with funding opportunities for start- ups and new entrepreneurs. This particular Bangladesh received USD 16.4 billion in sector has secured its place in the top-five 2019 as Foreign Direct Investment (FDI), club of national budget allocations in FY21, with the majority of investments coming for the second time, with 50 projects and from China, South Korea, India, Egypt, the a 9% share of the Annual Development United Kingdom, the United Arab Emirates, Programme. This is to note that 70.3% of and Malaysia.89 Bangladesh Bank informs this total allocation for the sector accounted that FDI flows rose by 5.36% in the year for a mega infrastructure project named to USD 1.65 billion in July-October 2019, Rooppur Power Plant.87 which helped the country rise eight spots, compared to 2019, in the World Bank’s However, simply planning doesn’t ensure 2020 Doing Business ranking at the 168th full implementation of perceived goals. For position out of 190 economies. Bangladesh example, a major obstacle for the smooth has some advantages like being in a expansion of the IT business sector is VAT strategic geographical position between imposition on digital services. The latest South and Southeast Asia, the domestic budget has imposed 7.5% VAT on Social consumption potential, and the wealth of Media and Virtual Businesses and 5% its natural resources, however, there is still VAT on Information Technology Enabled lack of effort from the government to make Services (ITES). We may assign needs Bangladesh appropriately investment-ready. A business environment here is obstructed
87 CPD 88 CPD 89 UNCTD
THE FUTURE OF DIGITAL IN BANGLADESH | 27 Digital Readiness Assessment by weak infrastructure, burdensome to facilitating MSME credits through bureaucracy, rampant corruption, lack of the refinance window. Among MSME transparency, the slow pace of the judicial enterprises/entrepreneurs in our country, system, and vulnerability to natural disasters small entrepreneurs have more prospects that result in substantial income losses.90 for generating employment, reducing According to USAID, Bangladeshi IT and unemployment, and achieving economic ITES firms generate almost 35% of its growth. Keeping this in view, at least 40% export revenue from US buyers, 15% from of the total disbursement target of SME the UK, followed by some EU countries credit is reserved for small entrepreneurs, such as Denmark and the Netherlands. and the rest will be allocated to medium Many local enterprises also export IT-ITES entrepreneurs. The government thinks this services to UAE, Saudi Arabia, South policy will be helpful to create a friendly Africa, Malaysia, and Singapore. The environment for employment generation government had set an export target of a and higher production. total of USD 5 billion by 2021.91 Although, according to A.T. Kearney’s Global Services However, Bangladesh stands at the Location Index, Bangladesh fell from its 92nd position in terms of venture capital place at 21st in 2017 to 32nd in 2019.92 availability among 141 countries, according The index considers four conditions: to the Global Competitive Index 2018 by financial attractiveness, people skills the World Economic Forum. In the early availability, business environment, and 2000s, a venture capital firm called BD digital resonance. Bangladesh poorly Venture first started working for start-ups. performed in the digital resonance category The situation has now dramatically changed that incorporates metrics in four areas: with the emergence of an ecosystem digital skills, legal adaptability, corporate of start-ups in Bangladesh, but there activity and outputs. are only 17 firms to date registered as alternative investment companies under We may assign the least ready status for the Bangladesh Securities and Exchange this readiness condition, as the government Commission (B-SEC), and only three of still has a huge scope of undertaking them have received licenses to launch a collaborative approach for creating a funds. On the other hand, different actors conducive environment that provides like asset management firms, foreign incentives to the private sector, and foreign investors, angel syndicates like BD Angels, investors in implementing large-scale and corporate investors across the ICT projects. sector are now displaying a growing appetite for equity and quasi-equity based investments.93 C. STRENGTHENING FINANCING The government started its initiative ARRANGEMENTS FOR START- towards supporting start-ups in Bangladesh UPS AND MSMES in 2016, and it is now finally taking shape.
Governmental projects such as the iDEA Access to finance is vital for SME sector Project and Startup Bangladesh Company development in Bangladesh. The availability Ltd (SBCL), which are programmes of adequate funds is a challenge for these dedicated to providing a boost to fresh, small-scale businesses, then again, in many promising businesses, were guaranteed instances, entrepreneurs raise complaints to receive a fund of BDT 100 crore (USD regarding the high rate of interest of bank 11.8 million), as allocated in the current loans. Bangladesh Bank is committed
90 Investing in Bangladesh, Nordea Trade, https://www.nordeatrade.com/en/explore-new-market/bangladesh/investment 91 LightCastle Analytics Wing, 2020 92 A.T. Kearney’s Global Services Location Index, 2019 93 LightCastle Analysis, 2020
28 | THE FUTURE OF DIGITAL IN BANGLADESH fiscal year.94 Nonetheless, global practice Considering the business dynamism and for the emerging start-ups is raising funds administrative requirements, we assign from foreign sources. Bangladesh based the least ready status for this readiness start-ups have raised USD 27 million in condition. The cumbersome financing 2018, which is extremely disproportionate mechanism is surely an obstacle to ensure with USD 4.2 billion in funds raised in equitable opportunities for tech-based India, considering the existing economic start-ups and SMEs. differences. One of the major reasons discouraging international investors is weaker mechanisms to exit any profit READINESS SPECTRUM out of the country. However, some tech- based start-ups, including ride-hailing/ Although Bangladesh has prioritised ICT transportation, e-commerce, Fintech, in its financial planning, there needs to education, messaging, AR/VR, travel, be more emphasis on ensuring proper energy, agri-tech, and gaming have been implementation. Improving the state of the able to create notable hype worldwide, and private sector and foreign direct investment bring in relatively big global investments. climate, and establishing firm arrangements Twenty-two start-ups raised foreign for financing start-ups and MSMEs will be investments of different sizes in 2018, critical, as this lack of appropriateness in including Pathao with USD 10 million and finance readiness might seriously affect the Shohoz with USD 15 million, pre-series digital growth of the country. We assign an B investments respectively by Gojek and amber traffic light for the first condition, but Golden Gate Ventures. Local investment red traffic lights for the last two. firms, on the other hand, are not yet ready with their risk appetites to fund startups, compared to foreign ones. To further propel innovation, the government should make a significant effort to improve the investment climate to attract more local and foreign investments for startups to create values from their expertise and fresh ideas.95
Readiness conditions Prioritising ICT Increasing Strengthening Financing Financing in economic Private Sector and For- arrangements for Start- plans eign Direct Investment ups and MSMEs
Readiness spectrum Needs improvement Least ready Least ready
Traffic light
94 Daily Star, 2020 95 LightCastle Analysis, 2020
THE FUTURE OF DIGITAL IN BANGLADESH | 29 Digital Readiness Assessment
READINESS DIAGRAM
Following our scoring framework, we assign for start-ups and MSMEs with least ready a score of 2 out of 3 for prioritising ICT status receives a score of 1 out of 3. financing in economic plans, promoting digital financial inclusion, and usage In a radar diagram, the readiness of finance of MFS in social protection. However, in Bangladesh can be presented in this increasing private investments and FDI, and way: strengthening financing arrangements
FINANCE READINESS
Promoting Digital Financial Inclusion
Strengthening Accelerating Financing Social Safety net Arrangements for using MFS Startups and MSMES
Prioritising ICT Increasing Private Financing in Economic and Foreign Direct Plans Investment
30 | THE FUTURE OF DIGITAL IN BANGLADESH CROSS-CUTTING ISSUES
MARKET REGULATIONS, INTEROPERABILITY AND DISRUPTIVE TECHNOLOGIES IN THE FINANCIAL SECTOR
Sustainable financing for the digital the MFS is implemented. Interoperability economy in Bangladesh will further will significantly increase P2P transactions, depend on proper market monitoring and which will automatically reduce the regulations, to ensure a level playing field cash in and cash out operations. The for the public and private actors, proactive market actors may not be keen to share synergy among the market actors within their solutions with others or make their the financial ecosystem, and finally on services accessible to customers who effectively importing new technologies and are not registered as their mobile money making them profitable to scale up. subscribers. While interoperability sounds like a rather straightforward implementation Regulation of digital transactions has for MFS operators, it is not, as there are become a concerning governance issue technical, commercial, and regulatory in the financial sector of Bangladesh. The aspects that need to be covered by the banks already running MFS operations government. have been allowed to hold on to their existing licenses or form subsidiaries for Financial technologies (Fintech) can bring the purpose. On the other hand, the new disruptive innovations, offering a smooth, applicants will have to form subsidiaries smart, and prompt solution to all types without any alternative. They are permitted of financial activities to both banked to take equity partners from other banks and unbanked groups in Bangladesh. and non-bank financial institutions, NGOs, Crypto currency and digital cash, block investment and Fintech companies. Mobile chain technology, including Etherium, a network operators (MNOs) have been kept distributed ledger technology (DLT) that out of the list of permitted partners, but maintains records on a computerised have been allowed to become distributors network are some of the latest and popular or super-agents, along with NGOs and Fintech innovations. Big data and more the postal department. Another pressing accurate analytics and decentralisation of issue regarding MFS is money laundering financial access will create opportunities accusation as they work as a haven for for businesses, clients, and consumers to money laundering often because the interact with each other in unprecedented transactions through MFS are still out of ways. Taking into consideration that most real-time monitoring.96 of the people of Bangladesh are living under the low-income category, and the Business models and interoperability are threats of climate change, inclusive and major partnership challenges for digital environmentally responsible financing financial transactions in Bangladesh. The through the utilisation of Fintech has to ecosystem lacks synergy as the operators be given top priority. These cross-cutting work as ‘walled gardens’, meaning that issues should be carefully handled to transactions can only be performed secure financing and make transactions between users of the same system. The smooth in the digital space. essence of mobile payment or mobile wallet is to create a cashless society and that will be possible if the interoperability among
96 Business Model on Mobile Financial Service of Bkash Limited in Bangladesh, 2011
THE FUTURE OF DIGITAL IN BANGLADESH | 31 Digital Readiness Assessment ENABLING POLICIES FOR DIGITAL ECONOMY
The journey ahead for digital Bangladesh across all areas and adapted accordingly, in its rapid development process can be particularly in the digital technology space. obstructed by the lack of useful and up- Therefore, both disproportionate and to-date policies. Even if policies are in balanced markets are prevalent, based place, there are implementation difficulties on varied institutional capacities of the at times. Well-formulated competition law regulators to address the implementation may work as an enabler for assuring a difficulties of the law. For example, two MFS fair market, while a reasonable taxation (Bkash and Rocket) has over 97% market system can incentivise the market actors to shares in Bangladesh, while the rest of accelerate business growth within the realm the 13 out of 15 MFS licensees enjoy only of digital product and service ecosystem. 3% combined. On the other hand, among The innovations that are constantly being mobile operators, Grameenphone holds the created in the market need to be protected highest share of 46%, followed by Robi with through strict patent and copyright laws. 28%, Banglalink with 23%, and Teletalk Finally, the legal framework in Bangladesh with a 3% share.97 The telecommunication should be well equipped with proper sector of the country has benefited from regulations to address the tremendous this fair market environment with good challenges offered by unprotected data in prices, which is considered to be one of the upcoming digital age. In this chapter, the reasons behind the increasing mobile we precisely highlight the importance of penetration every year. These examples these four policy aspects that are inherently can be helpful for the government to tied with the other three pillars discussed understand the need to make competition earlier and are essentially instrumental assessments for policies and practices to leverage the opportunities of a digital specially designed for a digital economy, to economy we identify in the following improve production and pricing efficiency in chapter. the future.
COMPETITION LAW MAKING TAXATION TOWARDS A FAIR MARKET EFFECTIVE
A fairly weak competitive market Policies should be tailored accordingly to encourages hoarding, black marketing of support the massive informal economy commodities, and other unfair practices. and emerging new digital businesses, Difficulties of the consumers to avail considering the huge opportunities quality goods and services at fair prices laid in these major economic drivers in and market inefficiency influenced Bangladesh for a digital economy. Since the formulation of competition law in the informal sector in the country is highly Bangladesh, first proposed in 1996. The dependent on daily-wagers or contractual Bangladesh Parliament approved the earners, the sudden digital shift might much-awaited Competition Act after 16 lead to a serious shock to the workforce. years, in June 2012. The act was expected The government must pay significant to prevent, control, and eradicate collusion, attention to find a way to digitally connect monopoly, and oligopoly, abuse of the informal sector to the formal one for dominant positions in the market. However, sustainable socio-economic development. the implementation and execution of this Making the taxation system digital with a law have still been a major challenge. The unique identification number and gradually competition law is not applied sufficiently including the whole income generating
97 GSMA 2017
32 | THE FUTURE OF DIGITAL IN BANGLADESH population into this system will increase and Designs Act, the inventor of a design is the government’s tax revenue, as well as not able to claim any right for his creation.101 reduce tax payees’ harassment. At the The new draft of this law in 2006 grants 20 same time, the government should be years of patent protection to the patentee, generous, in terms of imposing a tax on creating an intellectual property rights the growing digital industries to allow them friendly environment, especially in the adequate time to be formalised. Otherwise, digital sphere. Nonetheless, this is still a formalisation may adversely affect the big challenge for Bangladesh, due to the digitalisation agenda and the employment lack of coordination among the patent and rates in the sector. Providing an attractive copyrights office and in-depth expertise on business environment for investors is digital aspects. equally important to create a symbiotic start-up ecosystem. Lucrative tax incentives can promote investment for early-stage SECURING PRIVACY IN THE businesses, and help offset the risks of DIGITAL SPACE investments. Currently, there are thousands of informal IT training centres and numerous With the rise of data-driven disruptive computer shops in Bangladesh, that need technologies like Artificial Intelligence, to be taken under proper taxation and the Internet of Things, and Big Data, an regulatory framework, with the vision of unprecedented amount of data has been bottom to top proliferation of the IT industry. created and stored every day. Up-to-date legal framework is needed to safeguard individual privacy by eradicating the misuse SAFEGUARDING of personal information by other individuals INTELLECTUAL PROPERTY and organisations. Digital signatures, electronic records, and the control of Bangladesh being a signatory of the Trade- certifying authorities are under protection Related Aspects of Intellectual Property by the ICT Act, 2006, but data privacy Rights (TRIPS) agreement of the World issues have not been covered by this law. Trade Organization (WTO), has adopted Personal data has been defined as ‘identity various IP policies and initiatives, however, information’ in the Digital Security Act, there is still scope for improvement.98 The 2018, and is protected with the right of an Copyrights Act, 2000 does not provide any individual’s explicit consent or authorisation strong safeguarding mechanism against from collecting, selling, storing/preserving, online copyrights piracy, p-2-p broadcast supplying, or for any other purpose. Identity of copyrights substances, copyrights in a information includes names, pictures, database, and restrictions in deep linking, addresses, e-signatures, dates of birth, although an amendment in 2005 increased national identity cards, birth and death the punishment and fine for the violation of registration numbers, fingerprints, passport the copyright in computer programmes.99 numbers, bank account numbers, driving In addition to this, the Information and licenses, e-TIN numbers, credit or debit Communication Technology law formulated card numbers, etc. However, the lack of in 2006 provides guidelines to prevent digital literacy and awareness regarding software piracy.100 The Trademarks Act, privacy leave the majority of the population 2009 addresses the intentional violation under threat of data theft and surveillance of the right of a trademark-holder by in the digital space. Standalone policies offering multiple remedies, penalties, and cannot solve these complex issues of compensations. Under the current Patents privacy, a significant 360-degree effort is necessary in this regard.
98 Chowdhury, M. A. A., 2018 99 Islam, 2016 100 Hoque, 2010 101 Chowdhury, M. A. A., 2018
THE FUTURE OF DIGITAL IN BANGLADESH | 33 Digital Readiness Assessment OPPORTUNITY ASSESSMENT
Technological innovations have profound We prioritised areas with existing income potentials to raise productivity and offer generating opportunities and emphasised solutions to many development challenges scaling those opportunities up to the point of Bangladesh. To take advantage of these which maximises their positive impacts on opportunities, it is important to identify our economic growth. and highlight specific pockets that can be practically targeted for realising tangible From our analysis, we see that scaling up benefits from these innovations. the business process outsourcing (BPO), information technology (IT)/software This opportunity assessment aims to industry will be an important opportunity indicate the types of economic and social for the economic growth of Bangladesh opportunities that Bangladesh may be in the digital age. Another opportunity for able to tap into and scale up as a result Bangladesh lies in using digital technologies of the technological innovations and to connect its enormous informal sector developments. to the formal one. We find that emerging digital business models and start-ups To identify the areas of opportunity for also have possibilities for expansion. Bangladesh in the digital age, we initially Focusing on these three channels of built an opportunity matrix tool for a broader the economy may help Bangladesh range of potential areas. For each area, increase export diversification, market the matrix considered: 1) their priorities efficiency, competitiveness, labour force in various development strategies of the diversification, and consequently, increase government and the development partners, GDP substantially. 2) current public and private investment in those areas, 3) their GDP contribution, and To leverage these opportunities in the 4) their predicted long-term value addition digital economy, this report discusses to the economy. some existing challenges; many of the challenges are related to the readiness Simultaneously, we conducted series of conditions that have been discussed earlier formal and informal consultations with the in the readiness assessment. Additionally, relevant government, private sector, and this report explains the importance of civil society stakeholders. We presented accommodating frontier technologies used our project information to them, requested in already established or emerging digital their opinions and views, and recorded and businesses to be compatible with the global transcribed the discussions. We matched market. The report also reminds the policy the findings from this exercise with our makers to ensure inclusiveness in terms of secondary review in the matrix exercise to gender and geography while realising these finally identify the opportunities Bangladesh opportunities. might realistically take up.
34 | THE FUTURE OF DIGITAL IN BANGLADESH OPPORTUNITY 1
SCALING UP BPO AND IT/SOFTWARE INDUSTRY IN BANGLADESH
Starting its journey in 1997, Bangladesh destination, offering significant savings Association of Software and Information over its competitors. The ability to operate Services (BASIS) has more than 1200 at significantly lower costs than India and companies currently registered for software the Philippines is one of the key value development and providing IT services.102 propositions of the IT/ITES industry of Bangladesh started exporting software Bangladesh.105 In addition to lower costs, around two decades ago, starting with Bangladesh also offers a large entry-level BPO. In 2017, more than 250 companies workforce, including a blooming freelancing exported IT products and services to 60 community.106 According to the Oxford countries and earned USD 800 Million, Internet Institute (OII), Bangladesh is the which was 2.2 percent of the total export world’s second-largest supplier of online value of the country.103 Currently, software freelancers, second only to India.107 There development firms hold 47% of the are one million freelancers in India who market share in the technology industry in dominate the technology and software Bangladesh, while the combined share of development market and contribute information technology enabled services USD 400 billion to the national GDP.108 In (ITES) and the BPO sectors is 16%.104 comparison, Bangladesh is the top supplier Adequate supply of skilled and semi-skilled of sales and marketing support service labour is still a challenge for the industry, freelancers who generate only USD 100 including the existing urban-rural disparity million annually.109 and the lack of gender inclusion in the workforce. Financial challenges and certain The growth of the IT industry depends regulatory issues need to be addressed for on the steady supply of trained talents; the growth of the industry, and therefore, however, there is a substantial shortage. the financial services and regulations for The IT industry in Bangladesh is struggling this sector must have dynamic adaptation to find people with adequate competences strategies to cope with the ever-changing because of the low rate of enrolment in global market. science, technology, engineering, and mathematics (STEM) at the tertiary level ADDRESSING SKILLED/ SEMI- education. However, to meet the demand for high-quality skilled workforce in the SKILLED LABOUR SUPPLY IT industry, the government had trained FOR LEVERAGING THE 65,000 entry and mid-level IT/ ITES talents OPPORTUNITY till 2018.110
Among the top 250 global IT/ITES delivery More than half of the population in locations, Bangladesh is the lowest cost Bangladesh is currently under the age
102 LightCastle Partners, 2020 103 ICT Export Report, ICT Ministry, 2017 104 BASIS 105 Betting on the Future – The Bangladesh IT-ITeS Industry is poised for Growth, Everest Group Research, 2017 106 LightCastle Analytics Wing, 2020 107 The iLabour Project – Oxford Internet Institute, 2017 108 Payoneer Blog, 2016 109 Dhaka Tribune, 2017 110 Betting on the Future – The Bangladesh IT-ITeS Industry is poised for Growth, Everest Group Research, 2017
THE FUTURE OF DIGITAL IN BANGLADESH | 35 Digital Readiness Assessment of 25; however, one in every 10 young of Bangladesh. UDCs are working as people here is unemployed.111 Freelancing information hubs for the rural communities, and BPO require a semi-skilled workforce providing them an easy access to various and thus can help ease the existing public information and services.114 A unemployment problem in Bangladesh. unique feature of the UDCs is to deliver At present, there are more than 500,000 services following a public and private regular freelancers in Bangladesh and hybrid model, which allows them to bring most of them only have general education technological solutions to the doorstep and no special training.112 In 2017, only of the people.115 UDCs usually have two two percent of the registered freelancers entrepreneurs, ideally, one male and one received training under the Learning and female, recruited by the local government Earning Development Projects (LEDP) of representatives, dedicated to providing the government.113 There are some private IT-based services to the villagers by using initiatives to train the freelancers at the internet tools in exchange for money. Rural entry-level. However, the absence of long- communities in Bangladesh generally have term, high-level skill training is an obstacle poor access to information and poor ICT for the Bangladeshi freelancers in getting skills; these entrepreneurs are filling this gap highly paid online work. Lack of proficiency and supporting the rural communities to in English is another hindrance in taking this access information and get governmental sector forward as it is a major requirement services offered online. UDC entrepreneurs for communicating with international clients. also provide banking and e-commercial services.116 Within 2017, 10,000 entrepreneurs of UDC were supposed to CONNECTING THE RURAL be trained to increase their capacity for reporting, article writing, outsourcing, and ECONOMY TO THE e-commerce. These trainings are necessary FREELANCING/IT BUSINESSES for ensuring the sustainability of the AND REDUCING GENDER GAP business models and strengthening their role as change-makers by providing ICT A planned geographical expansion of training to the rural citizen. With relatively BPOs, especially in the poverty prone low participation of women in ICT education north and eastern parts of Bangladesh, at the tertiary level in Bangladesh, the can create employment opportunity for a freelancing sector also suffer from gender large section of the youth who are currently disparity. To ensure at least 30 percent unemployed but technically part of the participation of women in the ICT industry workforce. IT education and training to of Bangladesh, The Leveraging ICT for the students in smaller towns and villages Growth, Employment and Governance can reduce the regional digital divide in (LICT) and the ‘She Power’ projects trained the sector. However, only training cannot 20,000 women by 2019 to increase their ensure the inclusion of the rural youth in skills in freelancing, IT service provision, the IT industry unless the infrastructural and call centre operation. Addressing the challenges like device affordability and poor financial challenges and regulatory issues of internet quality are not addressed. the industry At present, there are 4,565 union digital centres (UDCs) in all 64 districts Private investors can avail a 10-year corporate income tax exemption if they invest in the ICT industry in Bangladesh.
111 World Economic Forum, 2019 112 ICT Division, 2020 113 ICT Division, 2020 114 a2i, 2017 115 Rashid, 2019 116 a2i, 2017
36 | THE FUTURE OF DIGITAL IN BANGLADESH Local companies, however, are still lagging STRATEGIES TO ADAPT TO THE to fully leverage the large, young talent pool DYNAMIC GLOBAL MARKET OF and tap into the competitive edge of having a low cost of operations. Leading global IT THE IT INDUSTRY service providers such as Wipro, IBM, TCS, NTT Data, Infosys, and WPP, on the other Diversification away from traditional hand, have gradually been entering into the IT products and services such as app local market because of the wide range of development and maintenance, IT incentives available for foreign investors in helpdesk, and web development towards the ICT industry including 100% equity of a more advanced ITES/BPO services the business. such as big data analytics, internet of things (IoT), 3D imaging, and robotics Cross-border payment system in process automation (RPA) will increase Bangladesh works as a major obstacle the scope of business for Bangladesh to increasing revenue from the BPO in the global offshore services industry. sector. The system is much better in the Technologies such as IoT not only increases neighbouring countries. The payment overall productivity but also enables system here is basically through more intelligent, greener production and international bank transfer which is a time- smarter cities and infrastructure. Frontier consuming, tedious, and costly option. technologies could also be used to Many users despise to go through this improved delivery of essential services process and often use illegal channels.117 such as healthcare and education. Use In the absence of international payment of these technologies is likely to increase gateways like PayPal, freelancers and small exponentially in future. Keeping up with and medium IT/ITES service providers relevant technological advancements will usually deal with a handful of direct clients be a critical success factor for the future of outside the marketplaces such as Fiverr Bangladesh’s technology industry. and Upwork. Consequently, Bangladesh is losing a considerable amount of revenue In its National Strategy of Artificial every year. Intelligence, Bangladesh has already decided seven national priority sectors Certain regulatory issues also discourage which include public service delivery, the growth of the industry. Creating manufacturing, agriculture, smart mobility an intellectual property rights friendly and transportation, skill & education, environment, especially in the digital sphere, finance & trade, and health. Six strategic is still a challenge in Bangladesh due to pillars for implementing this AI strategy in the lack of in-depth legal expertise on Bangladesh consists of i) research and digital aspects and coordination among the development, ii) skilling and reskilling of AI patent and copyrights office. Some of these workforce, iii) data and digital infrastructure, financial and regulatory issues have been iv) ethics, data privacy, security & discussed in the readiness assessment regulations, v) funding and accelerating under finance and policy pillar. AI start-ups, and vi) industrialization for AI technologies. Some emerging start-ups in the country have started realising the possibilities of using AI, IoT, and block- chain technology. However, Bangladesh urgently needs institutional investment and a regulatory framework to build an innovative and self-sustaining ecosystem for leveraging the ever-evolving frontier technologies.
117 sThe Business Standard, 2020
THE FUTURE OF DIGITAL IN BANGLADESH | 37 Digital Readiness Assessment OPPORTUNITY 2
CONNECTING THE INFORMAL SECTOR TO THE FORMAL ONE IN BANGLADESH THROUGH THE HELP OF DIGITAL TECHNOLOGIES
Many developing countries experience an certificate. When businesses get a BIN, increase in the share of the informal sector they are included in the formal legal during their economic expansion.118 The framework and become eligible to carry out informal economy of Bangladesh currently activities such as import-export, open of accounts for 43% of the GDP and almost letters of credit, obtain bank loans, 88% of the total employment.119 Though informal sector is a key player in generating and participate in tenders, and supply jobs and absorbing surplus labour, it goods and services122. Without a BIN, takes place outside the formal regulatory employees of the informal economy, structure. Regulations have their own therefore, do not get legal protection and, costs; thus the choice to operate outside consequently, bear the risks of exposure to the regulatory structure often depend on different forms of abuse and exploitation. individual cost-benefit calculations of the At the same time, the government of producer.120 Jobs in the informal sector are Bangladesh is missing out on a huge insecure and lack basic social and legal amount of tax from the informal sector protections or other employment benefits. even though tax is the biggest source This massive informal sector in Bangladesh, of revenue for Bangladesh.123 A reform therefore, can benefit from scaling up process in Vietnam has helped the informal e-businesses and female digital inclusion businesses to formalise, and consequently with enabling policies and regulations. access better equipment, increase their scale of operation, and operate in a more competitive environment, adding an annual ADDRESSING THE value of 20% on an average in revenue.124 The process of formalization and taxation CHALLENGES OF BUSINESS might discourage informal businesses IDENTIFICATION, TAXATION, AND from joining the formal sector. Digitisation ACCESS TO CREDIT can help simplify the formalization process to increase its appeal among In Bangladesh, 99.8% of all enterprises informal businesses. However, premature (7.81 million) are small and micro (including formalisation can adversely affect informal cottage) enterprises, most of which belong businesses and cause financial burden on to the informal economy.121 Most informal them. businesses in the country cannot avail a business identification number (BIN). To India is gradually increasing the use of have a BIN, a business is required to have a the Aadhaar card—a biometric unique value-added tax (VAT) registration identifier—for providing many citizen services. Aadhaar number helps the citizen cut down on the documentation needs in
118 Rada, 2010 119 Financial Express, 2019 120 Employment Impact Assessments: Integrating the informal sector into social accounting matrices and computable general equilibrium models 121 BBS Economic Census, 2013 122 National Board of Revenue, Bangladesh 123 Daily Star, 2020 124 World Development, 2016
38 | THE FUTURE OF DIGITAL IN BANGLADESH tax return and makes the process cost- local investors; but this also limits funding effective and efficient. There is no need to opportunities in this sector. collect multiple identity proofs or run around for various documents for opening a bank Seventy-nine percent of e-commerce account; the Aadhaar Card is sufficient sales take place on social media platforms as a proof of identity and address. The in India and therefore Facebook has card even permits the holder access to launched the ‘Facebook Marketplace’ facilities such as credit and insurance more in India in 2019, allowing people to buy easily, since the government already has and sell in their community.128 Likewise, all the necessary data.125 Similar practical the F-commerce market in Bangladesh is measures can be taken in Bangladesh to also expanding; with more than 300,000 enable the informal business owners to businesses operating through Facebook, it access credit through their smart NID card. is currently generating approximately BDT 312 crore. This sector is mostly informal as only 100 of these enterprises are EXPANDING THE E-COMMERCE associated with e-Commerce Association 129 SCENARIO IN THE COUNTRY of Bangladesh (e-CAB). These businesses can gain much benefit Bangladesh is ranked 46th in the global from the usage of systematic data analytics, ranking of e-commerce revenues according which will allow digital professionals, to a study by the German online portal marketers, and business owners to gain Statista. Bangladesh e-commerce industry deeper insights and identify trends from stood at $1,649 million in 2019, rising to the digital media and internet to make $2,077 million this year (with 166% growth) informed business decisions. Data analytics and will touch to $3,077 million in 2023.126 i.e. an integrated view of customer-related information through the internet, social Funding is a major challenge for scaling media, mobile, and e-commerce usage in up e-commerce business as majority are Bangladesh can provide local organisations not registered. Banks, for instance, are with the insight to refine the process of subsidizing marketing and promotional product development, improve customer costs for credit/debit cards with the leading retention, or mine through the data to find apparel brands or restaurants; however, new business opportunities. they are not warming up to e-commerce start-ups for the lack of collaterals. Banks It is easy for anyone to start a business are also not adequately prepared to on Facebook, but coming up with finance e-commerce ventures, neither original ideas and creating unique are local venture capital firms. In the value for customers is not that easy. e-commerce sectors, it takes a long time, Besides, fraudulent activities and lack of usually over five years, to realize return on professionalism often cause the customers capital, but in reality, investors prioritize to lose trust on e-businesses. To prevent short-term investments.127 The National fraudulence and protect customer rights, Digital Commerce policy 2018 does not the National Digital Commerce policy allow foreign investors to hold a stake of 2018 also mandated that the e-commerce over 49% in any e-commerce venture in entities clearly communicate the details Bangladesh to protect and boost the of the products they sell online, including information on product quality and
125 UDYAM REGISTRATION PORTAL, Ministry of Micro, Small and Medium Enterprises, India 126 Dhaka Chamber of Commerce and Industry (DCCI), 2020 127 IDLC, 2018 128 IDLC, 2018 129 IDLC, 2018
THE FUTURE OF DIGITAL IN BANGLADESH | 39 Digital Readiness Assessment return policy. Trade license and easy have also started 57 virtual call centres in authentication of businesses through the eight high-poverty districts of the country. NID can make online purchases safer for They assist in forming an ecosystem with the consumers. available technologies for the farmers by linking them with input suppliers and off takers. Volunteers managed the database STRENGTHENING THE of purchases and sales of agricultural inputs and services. The POs worked closely INFORMAL SECTOR AND with the local authorities for transportation SUPPLY CHAIN IN RURAL services and used of MFS like bKash, AREAS USING DIGITAL Nagad and Rocket for payment. The POs TECHNOLOGIES also used Facebook and Messenger to share transaction records or information 133 Thirty-seven percent of the rural households and Zoom for virtual meetings. This was in Bangladesh are non-farm.130 18% of the an innovative model created solely based rural labour force are involved in elementary on addressing the problem of transmission occupations, 14% in craft making and of the coronavirus. Similar systems and models can be built trading, and 13.5% in service and sales with the use of digital technology to assist 131 works. With the penetration of mobile rural farming communities. By using phone networks, tiny mobile recharge smartphone and mobile applications, shops in the village areas have created farmers can create a network of farmers, new type of professions. Mobile financial traders, buyers, and consumers and service (MFS) providers are using this establish communication with each existing network of small retailers and stakeholders in the production and creating a vast agent distribution network, distribution channel, including the which is geographically dispersed across consumers directly. This will facilitate the country, to serve the customers. A knowledge and information sharing, start-up named Priyoshop has decided to increase marker awareness in both urban partner with the small retailers, especially and rural areas and facilitate informed in rural areas, and turn their shops into hub purchase and selling decisions. This can of digital commerce because these smaller address asymmetric information problems players, located in the neighbourhoods, such farmers selling produce at a lower can effectively connect brands with rural price than they should, often incurring loss, consumers. However, e-commerce because they do not have information currently constitute less than one percent of about the retail price. Therefore, information the retail sector in Bangladesh. and communication systems can help During the pandemic, an exemplary model bridge the gap between the farmers and was created to assist the farmers. A consumers, ensuring that both get a fair volunteer-led virtual call centre was formed price. Recently, LightCastle and Syngenta to help connect rural farmers with suppliers Foundation for Sustainable Agriculture and buyers. A rickshaw van was assigned (SFSA) jointly introduced a novel mobile- to transport the goods and payments were light Enterprise Resource Planning (ERP) for made through mobile transfers.132 Producer farmers that combines four components: organizations (POs), supervised by the a mobile application, a web dashboard, a Food and Agriculture Organization (FAO), monitoring & evaluation (M&E) tool, and a notification centre. Findings from the data so far indicate that yields of farmers using
130 BBS, 2019 131 Labour Force Survey, 2016-2017 132 World Bank, 2020 133 World Bank, 2020
40 | THE FUTURE OF DIGITAL IN BANGLADESH the ERP increased by 25% on average The e-commerce market is growing fast, compared to the non-user farmers (increase especially in rural areas; in 2017, it grew of 13%). Smallholders’ income increased by by 127 percent in urban areas and by 167 34% and post-harvest losses declined by percent in rural areas.139 However, there is 3-8%.134 a remarkable gap between urban and rural women in e-commerce because they have limited access to internet and business EMPOWERING WOMEN IN THE networks, including clients, suppliers, and creditors. Urban women have a higher DIGITAL BUSINESSES capacity to run a business individually compared to rural women. The online Ninety-five percent of the female workers commerce can address women’s needs in Bangladesh are working in the informal for income generation on the supplier sector.135 Study shows that half of the side and safety and convenience on the women entrepreneurs who are registered, buyer side. Linking mobile money wallets are registered as pseudo-proprietors to e-commerce platforms has potentials and have their licenses secured by male to nudge a large segment of rural women entrepreneurs.136 Often, after the demise shoppers and entrepreneurs into the world of a male entrepreneur, his wife takes the of digital payments. This could get them on responsibility of running the enterprise but the first rung of the financial inclusion ladder does not have its ownership.137 Considering — an account to be used for payments — the social conditions of women in while building the foundation from which Bangladesh, the e-commerce world seems other use cases, such as digital credit, to be well-suited to female entrepreneurs could emerge.140 in our country because it gives them the flexibility to balance their personal and professional life without affecting security issues. Currently, 50% of Facebook stores are run by women entrepreneurs.138 There is no monitoring, policy, or legal framework specially designed for these online women entrepreneurs. It is an unorganized sector without training and specific guidelines. If these issues are addressed, more women will be motivated to start online businesses.
134 LightCastle Partners, 2020 135 Labor Force Survey, 2016 136 Financial Express, 2020 137 IBID, 2020 138 Dhaka Tribune, 2020 139 E-CAB, 2019 140 CGAP, 2019
THE FUTURE OF DIGITAL IN BANGLADESH | 41 Digital Readiness Assessment OPPORTUNITY 3 EXPANDING THE START-UP SCENE IN BANGLADESH
Bangladesh aims to grow its start- ecosystem, the business environment up sector by seven times through the of the country should be transformed. accomplishment of four essential objectives Challenges of ensuring availability of funds by 2025. The objectives are to a) support have been discussed in the readiness technology-based innovation, b) create assessment under finance pillar. Beyond new employment opportunities, c) provide those issues, acceleration or incubator training to the entrepreneurs, and d) programs, effective policies, and develop technical skills of the youth. The sustainability of the ecosystem are some of goal is to have five Unicorns—one billion- the critical factors to expand the start-up dollar companies—in Bangladesh by 2025. scene in Bangladesh. With a valuation of 1.45 billion dollars at present, the country’s start-ups have the potential of reaching a combined 10-billion- SUPPORTING THE START- 141 dollar valuation within this period. UPS WITH INCUBATION AND The ridesharing start-ups in Bangladesh MENTORSHIP OPPORTUNITIES has been experiencing a boom, currently with 7.5 million rides per month and a To support the local start-up ecosystem valuation of BDT 2,200 crore, which with mentoring and co-working spaces, accounts 23% of the entire transportation the government of Bangladesh is gradually sector.142 While traffic congestion eats setting up 28+ Hi-Tech Parks. Some private up 3.2 million working hours per day in sector institutions also took incubation Dhaka, according to the World Bank, initiatives. Of these, Grameenphone app-based ridesharing services offer the Accelerator is a notable initiative, powered commuters ease of finding a transport, by Seedstars, it is one of the largest tech doorstep pick-up, and app-based fare accelerator programs that has supported estimation. The success of these start-ups start-ups like Sheba.XYZ (online service lies in service innovation: motorbike-based marketplace), CMED Health (healthtech), ridesharing services have become more Repto (online learning platform), and so popular here instead of car-based ones on. In association with the ICT Ministry, like in the western cities. It contributed Banglalink incubator has been facilitating more than 40% growth of yearly motorbike innovative ventures since 2016.144 The sales as well as created income generating emergence of local and international opportunities for at least 200,000 low- or accelerators and incubators has facilitated middle-income youth in urban areas.143 the development of 1000+ active start-ups till date. While we see initial signs of growth of start-ups in Bangladesh, at this stage, However, the number and scope of the there is a clear gap with the regional peers initiatives are inadequate compared to with similar digital ecosystems in terms of the need of the start-ups, most of which creating an enabling environment for the need intensive mentoring for growth. start-ups to scale up. To support the Startups are likely to receive mentorship either through the personal network or
141 The Financial Express, 2020 142 The Business Standard, 2020 143 Reuters, 2020 144 LightCastle, 2020
42 | THE FUTURE OF DIGITAL IN BANGLADESH through the network of the incubator.145 in the market such as lobbying, using While many active and successful mentors speed money, and poor payment terms, are sporadically helping the start-ups, the because these practices increase the ecosystem needs more collective and financial costs of the venture, often to organised efforts to make mentorship extent of closing it down. accessible to as many start-ups as possible. Policy reforms on allowing provident funds, gratuity funds, and insurance companies to invest in alternative investment instruments ENABLING POLICIES AND like venture capital funds was highlighted while discussing vision 2025 for start- SUSTAINABILITY OF THE START- ups in Bangladesh.147 To enable fund of UPS funds by bank and non-banking financial institution (NBFI) were also suggested in the Providing an attractive business document. environment for investors by enabling policies is important to create an effective The core sustainability issue for the start-up ecosystem. Lucrative tax incentives start-ups in the country is their survival can promote investment for early-stage rate; majority of the business models fail businesses and help offset the before completing three years since their inception.148 The main reason is that many start-ups who require more investment risks of investments. The Government of in their graduation phases fail to secure Bangladesh already has multiple incentives funding. Again, the start-up ecosystem in for promoting foreign investments: tax is Bangladesh is still predominantly centred exempted for up to 15 years for foreign on two of the largest cities, Dhaka and investors, no import duties are charged Chattogram. To scale and sustain in an for export-oriented sectors, and retained inclusive way, it needs to grow and expand earnings are treated as new investments.146 throughout the country.
At the same time, the government should allow digital industries adequate time to be formalised. Otherwise, formalisation and imposing taxes may adversely affect the digitalisation agenda and the employment rate in the sector. Also, regulatory reform should be in place to prevent malpractices
145 KM Saqiful Alam, The Daily Star, 2020 146 LightCastle, 2020 147 ICT Division, 2019 148 KM Saqiful Alam, The Daily Star, 2020
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