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THE EVOLUTION OF ICT SECTOR IN BANGLADESH

In the last 3 years Bangladesh has seen a tremendous growth in the information technology (ICT) sector. It has a market of 160 million+ people, where consumer spending is around USD 130 billion+ growing at 6% annually. After Telco’s launched 3G services in 2013, internet penetration in Bangladesh grew by 22% by the end of 2014. Of the 66.8 million active Internet subscribers (BTRC Sept 2016), nearly 96% are on mobile and 10 million use smartphones. With growing Internet connectivity, availability of cheaper smartphones, and rapid rise in social networking (23 million + Facebook users), we have seen increased emergence of digital savvy consumers. 
Here are 3 main reasons for growth in ICT sector

1. Gov’t policy and awareness

In last 3 years the Government of Bangladesh has played a major role in promoting the ICT sector as the next growth engine for Bangladesh. Their election manifesto of Digital Bangladesh was campaigned by Sajib Wazed Joy, Advisor to Prime Minister for Information and Technology and State Minister of ICT Zunaid Ahmed Palak, M.P. A major role was played by a2i, the key driver from the Prime Minister’s Office in deploying the rapid expansion of technologies in delivering public services to citizens. Some of the key milestones of a2i have been the following:

• 8.5 mil students learning from multimedia content developed by 100,000 teachers

• 105 Digital Talking text books for all visually disabled students

• 103 innovations incubated through Service Innovation Fund

• $28.15 mil earnings for Digital Center Entrepreneurs

The ICT ministry played a phenomenal role in creating awareness and programs to transform ideas into reality through programs like Digital World, ICT Expo, National Hackathon, Connecting Startup Bangladesh etc.

 

Recent policy by the govt. has been very helpful in creating attractiveness of the ICT sector. Here are several key incentives:

a. 100% foreign ownership of companies allowed

b. Small-cap exchange to be implemented to allow easier raising/ listing on capital markets

c. Software park which facilitated high speed Internet connection trade facility similar to Export Processing Zones (EPZ)

After 3 years, we now have a mix of community tech space, co-working space and accelerators. As an emerging economy we have fundamental gaps in infrastructure that impact digital entrepreneurship, connectivity and technology development. These hubs are providing that enabling infrastructure, and providing skills training in the IT sector. As a mandate government will try to bring ICT program throughout the country, but the impact will be less if certain areas of the country does not have surrounding ecosystem mature enough to support viable startup, and accelerator activities. For example, Dhaka has enough critical mass of all the right things – access to funding, universities, international tech companies, media, entrepreneurs, etc., which allows the place to build a successful tech hub.

Building a thriving ecosystem requires close collaboration between the public and private sectors. As we move along this path, we predict that we will develop a closer working relationship between the public and private sector

2. BASIS policy and advocacy

The software association of Bangladesh, popularly known as BASIS brought focus on startup activities in Bangladesh. Shameem Ashan ex-president of BASIS demonstrated tremendous leadership. They initiated well known program like BASIS Soft Expo, BASIS Student Forum, BASIS e-commerce alliance etc. to create awareness about startups and facility the growth of this sector. BASIS also helped shaped policy frame work for the ICT sector and few of the policies are outlined below:

a. 7 year tax holiday for registered IT companies

b. Private equity and venture capital policy frame work implemented as of July 2015

c. Vat for e-commerce reduced to NIL

3. Private sector movement at the heart

a. Startups – There has been significant increase of new startup and founders joining the space which was not seen in the past. It is not limited to first time entrepreneur only, but people with professional work experience taking risk to join the startup life. A recent study by Light Castle Partners (LCP) identified top 3 sectors where startups are currently working now: e-commerce, tech and impact businesses.

b. Telcos- Have played one of the major stakeholder as they built the Infrastructure investment in 3G that practically jump started the internet enabled businesses in Bangladesh. Local private device suppliers played the second biggest role in bringing the smart phone prices down locally manufacturing them. Last year 3 major telcos either started an accelerator program or sponsored one to promote digital business in Bangladesh such as Grameenphone Accelerator which provided access to deal flow.

c. Investment – We have few local angel investors who provides seed funding, however their numbers are very limited with a deal size below US$50,000. However there are larger financial institutions that have invested across various range. Few of the venture capital and private equity companies who are currently working in Bangladesh are : Fenox Ventures, IPE capital, BD Venture Limited, Aviskar, DEFTA Partners, Innotech Corporation, Bangladesh Venture Capital, Razor Capital, 500 startups, Segnel Ventures, IMJ Ventures, Mind Initiative, Brummer & Partners, Princestreet, Osiris Group VIPB, IFC etc. A recent study by Light Castle Partners (LCP) identified preferred sectors by investors are MFS (83%), Health Tech (67%) and C2C Commerce (50%). Few of the local startup that recently got fund are listed below to our best knowledge- , GObd, PayWell, Priyo.com, Solaric, SureCash, Styleline, Direct Fresh, AjkerDeal, Eshosikhi, Pathao, Bagdoom, Sheba, BPCL, Brian Station, Studio 71, Smart Compare, Light Castle Partners, Magnito Digital, Doctorola .

d. Ecosystem Builders – The startup ecosystem originally started in 2013 with main advocates being Startup Dhaka also know as SD Asia, Team Engine, Hub Dhaka, EMK Center, Better Stories, Preneur Lab etc. Most these companies are involved in mentoring, coaching and accelerator program which help startup develop their business to next stage.

Challenges

Every ecosystem will have challenges and it is important to be aware of them that could hamper growth.

Trust

The Trust with the consumers are the most important factor for growth in the ecosystem. If consumers do not feel comfortable conducting commerce online, it will slow the growth. This is why it is important to establish Consumer protection program and policies that cover refund, fraudulent activity and consumer data. There needs to be reporting mechanisms and actions taken so that consumer feels protected. There will be huge amounts of data being generated and there is needs to stricter data protection laws in place where penalties in place so that one cannot easily give consumer data to anyone.

Bureaucracy Procedures

We need to create companies in 1 day and also make it easy to close down companies. Startups now face tough task of incorporation, getting trade license, VAT registration, bank account due to the number of steps. It is also very tough for a startup to rent a commercial property in order to get Trade license and other necessary paperwork’s to open the company.

Competition

We do believe that everyone needs to operate with the same rules. In the startup world, it is best to let the customers choose the winner. This will enable to strive and carry the industry to drive better results and improve standards of the businesses to keep up. Consumers will also adopt technology startups at a faster rate through experience better quality. Though the word of caution is for international companies who spend outside of the country due to mother brand having global spending contracts. A local company face restrictions especially when sending money abroad for advertisements where as foreign companies can spend from their foreign company accounts which is faster and easier to deploy.

Recommendations

We are proposing few suggestions that we earlier shared with stake holders as we believe it may help accelerate the growth of the eco-system.

Tax Incentives

Raising capital is not easy, from the seed round to different fund raising rounds until exit or IPO. The market hasn’t matured to attract mainstream international investors, as deal flow is still limited and growing. Although alternative vehicle policies are being created to attract mainstream investors, we need to grow our local angel investor scene with policy incentives by giving tax credits. We propose Tax incentives to encourage investors to risk their money in startups. Since access to startup funding is an issue, tax incentive to encourage people with considerable risk appetite can be a good alternative for the local market. This will help to fund more early/seed stages startups to increase deal flow for the entire ecosystem.

Matching Govt Grant For Fund Raised by Startups

Singapore government has launched initiative like Business Angels Scheme (BAS), which matches any investment up to SG$2 million (US$1.32 million) that a startup raises from a business angel investor through its investment arm SPRING SEEDS Capital Pte Ltd. Bangladesh government has similar grant for technology companies called Innovation Fund, which is really not promoted among the community. This fund could be easily be used to match with fund raised by local startups to provide financial backing that the startups require so desperately.

Regional Connectivity

India, Singapore, Vietnam, Malaysia, Thailand, Indonesia and Philippines have a growing startup community. Privately a lot of local startups are connecting regionally, but from government level we need to connect as well. These markets have policy frameworks that we can use and best practices that we can implement. We need to bridge the stakeholders from the regional startup community for idea sharing to better support the eco-system. The government can also provide subsidies to participate in the regional tech events to the startups.

Bridge The Academia With Entrepreneurship

The Many entrepreneurs in Bangladesh have started by necessity or taken risk with a leap of faith to earn more. Though many have gone through a formal education system, there is a vast amount who haven’t been able to for various reason and access to quality education.

Knowledge is the key to any economy moving towards an advance society. Therefore vocational training to provide basic knowledge to startup entrepreneurs is a necessity to build solid companies based on fundamentals.

Mindset of young founders needs to change when they are learning at schools and universities. Government education policy needs to align with their vision of digital ecosystem so that there is a pipeline for talents in the private sector. It’s a long term process but in the short term there has to be a way to make the education system more relevant for the ICT sector. One way the government can encourage students to get more relevant job experience in early stages is by subsidising paid internship programs in Tech companies. This way both students and tech companies benefit from developing talent that is more prepared for the future.

Contribution From Most Important Stakeholders

The Telcos, Payment providers, logistics, Service companies and Government (ICT Ministry) should support local startups in next 5 years to get decent valuation. The 5 parties are integral parts in the making the machine move in the right direction. The telcos need to make the data service cheaper, payment providers need to make online payment secured and seamless, logistics services need to be reliable and designed to support cash on delivery system, which is a dominant payment solution in South East Asia, service companies need to start solving real problems that is affecting the bottom of the pyramid, and ICT ministry needs to work with all the parties so that real change can happen.

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