bangladesh the digital deltadocshare01.docshare.tips/files/26900/269006090.pdfbangladesh was sheba...

Nestled between India and Myanmar in South Asia, Bangladesh – a country filled with hopes and dreams of 160 mn people (8th largest) and spanning 147,540 sq. kilometers – surfaces

as one of the most prominent, lucrative investment frontiers in the world. Despite its fair share of myriad challenges, the country has shown remarkable resilience to register a steady

economic growth of > 6% in the last decade, an accomplishment to take pride in. This significant growth has resulted in a massive change in the composition of the country’s workforce

today, as is evidenced by the rise of consumerism

Developed By –

LightCastle Partners (Decisions Simplified)

Frontier Market Series: LAW (LightCastle Analytics Wing) Publications

Bangladesh – The Digital Delta

Page | 1 - Investment Advisory Services

Acronyms ARPU Average Rate Per User B2B Business to Business B2C Business to Consumer BDT Bangladeshi Taka Bn Billion BTRC Bangladesh Telecommunication Regulatory Commission C2C Consumer to Consumer F Forecast FY Fiscal Year GDP Gross Domestic Product ISP Internet Service Provider MFS Mobile Financial Services Mn Million MW Mega Watt USD United States Dollar


Table of Contents

Emerging Bangladesh – A Part of Your Global Growth Strategy ................................................................................. 3

The Technology Landscape – Opportunities for Economic Leapfrog .......................................................................... 6

The Rise of Digital Society ............................................................................................................................................. 8

The e-Commerce Business Frontier driving Growth .................................................................................................... 9

ITES Sector – The Gateway to the Middle Income Status .......................................................................................... 12

Investing in Bangladesh – Government Policy Support ............................................................................................. 15


Emerging Bangladesh – A Part of Your Global Growth Strategy

The Economy has been experiencing steady growth over the last decade and prospects are

looking better for the coming one, with a booming RMG sector, flourishing remittance flow,

record high foreign currency reserve and international investors’ interest in FDIs. Geographic

proximity to emerging Asian powerhouses - India and China - will further add impetus to the

country’s drive towards middle income status.

Strong Performance Relative to Emerging Economies Bangladesh economy has performed well over the last decade with GDP growing by 6-7%, while many of its competitors have faltered and lost their ways (Growth has been over the median of ‘Ba’ rated countries and BRIC). The growth is considered impressive taking into account frequent instances of natural calamities and political unrest which have at times hindered economic activity. Inflation has remained stable over 2013 at 7% (Source: Bangladesh Bank) despite frequent supply chain disruption due to political unrest. Reining of inflation is attributed to declining growth of non-food inflation e.g. Rent, which have contributed to lower inflationary pressure. Bangladesh Bank has also adopted a tight monetary policy which has further led to lower inflation.

Moody affirms Bangladesh’s rating at Ba3 with Stable Outlook

Bangladesh has performed well compared to other comparable countries and sovereign ratings by both Moody’s and S&P are testament to the economy’s resilience. The ratings are driven by a healthy

economic outlook, progress on policy reform and limited vulnerability to fiscal and external funding stress. Local currency country risk ceiling is affirmed at Baa3, Long term foreign currency bond B2 and Bank Deposit ceiling at B1.

Bangladesh Economic Vitals are on Growth Trajectory Exports have been growing based on the blossoming RMG sector, which has clocked USD 24.49 billion over 2014. Remittance revenues has grown to the tune of USD 14.2 Billion, albeit at a slower pace. However, import growth has declined at a relatively higher rate which contributed to positive current account balance. Bangladesh is experiencing record high forex reserve position, currently standing at USD 21.8 billion. The current reserve can comfortably cover 7 months of country’s import and the Forex reserve is expected to grow with steadily improving RMG export and growth in remittance earnings. Manpower export is also set to improve as the Malaysian labor market reopens and the Government undertakes measures to train and send more semi-skilled and skilled workers abroad.

Influx in Infrastructure Development Government has been investing heavily in infrastructure developments, especially in the field of power generation. Government has tackled the demand-supply gap by directly involving the private sector. Entrepreneurs have established quick rental power generation plants which have been regularly supplying to the national grid, contributing to lower electricity shortage. Additionally, government has reached an agreement with India to import electricity, starting with 500 MW per day. The existing installed capacity is 10,213 MW.

8.4%7.0% 6.6% 6.5% 6.4%

5.5% 5.4% 5.1%3.9% 3.8%

3.1%

Ch

ina

Nig

eria

Ban

glad

esh

Ind

ia

Ind

on

esia

Ph

illip

ines

Vie

tnam

Egyp

t

Bra

zil

Ko

rea

Pak

ista

n

SOURCE: IMF

Average GDP Growth (%): 2013-18


Government has been working to improve efficiency of the Chittagong Port which has the potential of doubling its capacity. There also are long term plans of establishing a deep sea port in Sonadia and both Chinese and Indian investors have expressed interest in developing the sea port. Establishment of seaport will significantly reduce export lead times.

Expanding Consumer Market providing Growth Opportunities Spending power of Bangladesh is steadily enhancing and by 2021, Bangladesh is projected to become a middle income nation of 175m people.

With an emerging economy consumer spending, disposable income and personal savings are also experiencing positive momentum. Bangladesh is a mammoth sized consumer market consisting of almost 160 million consumers. This huge consumer base is being driven by catalytic factors like age and gender distribution (60% of the population being between 15-64 years of age), increasing urban population (growing at a rate of over 4%/year), expanding labor force (increasing purchasing power of the masses), increasing literacy rate (primary education enrollment of 95%+), rising middle class, growing white collar culture and globalization (youth influenced and linked with the globe via IT and social media).

Strategic Location at the Heart of Asia Beneficial location at the crux of “Chindia”. Close proximity of India and China leads to strong trade relations. Additionally, Bangladesh leverages on the exceptional growth environment in the region and commutable distance to key Asian cities – traction from the 975 million new Asian middle class market.

Economy Offering Long-term Growth Opportunities Bangladesh is developing as a key export hub in the heart of Asia. With Indian and Chinese consumer spending projected to grow by USD 2.6 trillion+ and USD 4.2 trillion+ in the coming decade – this powerhouses will become key markets for Bangladesh. Additionally, Bangladesh is one of the few locations that possess the capacity, access and cost-base to capture the manufacturing shift out of China. Bangladesh has competitive wage rates compared to other emerging markets like India and Vietnam. RMG continues its success story mostly to EU. With product diversification and new markets in Asia the volume may well exceed USD 40 billion by 2020. Additionally, Bangladesh has one of the lowest Public Debt to GDP ratios compared to other frontier markets – even India and Vietnam.

A Host of Emerging Sectors Bangladesh has started moving into diverse, higher value sectors. Light Engineering, Pharmaceuticals, Leather and IT services are exhibiting high potential. Non RMG exports stand at USD 5 billion now and expected to exceed USD 11 billion by 2025.

374 520

818

1,284

2002 2007 2012 2018

SOURCE: IMF

GDP/Capita (USD)

Italy, 127%

USA, 105%

UK, 91%

India, 60%

Vietnam, 57%

Bangladesh, 37%

SOURCE: INDEX MUNDI AND CIA FACTBOOK

Public Debt to GDP

539 305

161 105 101

63 59

32

ShrimpLeather ShoesLeather Goods

BicyclesITES

Consumer ElectronicsPharma

Ceramics

SOURCE: EPB

Export - Emerging Sectors in mn (FY 2012-13)


Next Investment Hub in Asia Bangladesh provides an opportunity space for foreign investors who can bring in technology and market access whilst the country provides a favorable cost base, trade terms and capacity for set-up of production facilities. Till date, Bangladesh is already producing motorbikes, consumer electronics (TVs, Refrigerators and Mobile devices) and even ships.

FDI yet to reach its full Potential

Bangladesh has been experiencing increasing FDI over the last decade. FY 2013 inward FDI was USD 1.7 billion (highest in the manufacturing sector – USD 713 million).

Additionally, FDI is currently 1.2% of GDP which is low compared to the frontier market average.

Potential Gap of USD 2 billion +

Capital Market provides Long Positions and Risk Diversification for Investors Bangladesh capital markets have very low and even negative correlation with developed, emerging and other frontier equity markets. Therefore, an exposure to Bangladesh significantly improves risk adjusted returns.

The market has returned 247% since Jan 2007 (17.4% p.a.). For long term investors looking to participate in the Bangladesh growth story – now is a good time to start investing.

0.28

0.80 0.74 0.79 0.77 0.96 0.91

0.78

1.19

1.73

FY 2

003-

04

FY 2

004-

05

FY 2

005-

06

FY 2

006-

07

FY 2

007-

08

FY 2

008-

09

FY 2

009-

10

FY 2

010-

11

FY 2

011-

12

FY 2

012-

13

SOURCE: BANGLADESH BANK

FDI (USD bn)

1.17%

2.90%

SOURCE: CIA FACTBOOK

FDI to GDP Ratio

-

5

10

15

20

25

30

35

40

45

50

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

3-Jan-07 3-Jan-09 3-Jan-11 3-Jan-13

Market C

ap (U

SD b

n)

DSE

X/D

GEN

SOURCE: DSE

Dhaka Stock Exchange Performance (Jan'07 to Oct'14)

DSEX Market Cap. (USD bn)

Bangladesh

Frontier Market


The Technology Landscape –

Opportunities for Economic

Leapfrog

As an emerging economy Bangladesh has embraced technology at a rapid pace. The penetration of the telecom sector, mobile commerce and advent of internet based businesses validates the growth story that is going to unfold in the e-space of Bangladesh.

The Telecommunication Sector Growth Story Telecommunication sector has been growing at a rapid pace with penetration increasing every year. The first telecommunication service provider in Bangladesh was Sheba Telecom during the early 90s, after which Grameenphone (parent: Telenor) established their company in Bangladesh in 1997 and started providing more affordable mobile services. Currently, there are six mobile operators in Bangladesh with Grameenphone (GP) as the market leader with 42% market share (BTRC July’ 14). Currently total number of mobile subscription equates to 117.577 million. Bangladesh telecommunication sector has a fairly competitive market with falling prices. The number of subscribers have been growing every year but the market shares of the operators have remained relatively same.

Internet – 2G Population Coverage As of now GP has reported that 2G coverage was 99.17% by population and 89.50% by area and that all 64 of the country’s district headquarter cities are covered by its 3G network.

Bangladesh has the highest penetration among the comparable bases.

Key Indicators of the Telecom Sector

2011 2012 2013 2014F

Connections (million)

85.7 97.6 114.3 125.1

% active 100% 100% 100% 100%

% prepaid 97% 97% 97% 97%

SIMs per subscriber

1.65 1.70 1.81 1.86

Unique subscribers (million)

51.7 57.2 62.9 67.1

Penetration, connections

56% 63% 73% 78%

Penetration, unique subscribers

34% 37% 40% 42%

Connections growth (annual)

25% 14% 17% 9%

Unique subscriber growth (annual)

16% 11% 10% 7%

ARPU, by connection ($)

2.40 $2.27 2.01 -

ARPU, by subscriber ($)

3.85 $3.81 3.55 -

Recurring revenue ($, million)

2,221 2,493 2,556 -

Recurring revenue growth (annual)

18% 12% 3% -

Source: GSMA

Despite being ranked as a low income country 50% of the population of Bangladesh are subscribed to mobile services and in terms of network coverage it has outpaced all its peers.

0

20

40

60

80

100

120

140

Jul 14Jan 14Jul 13Jan 13Jul 12Jan 12

Source: BTRC

Growth of Subscribers (in Mn)

GP Banglalink Robi Airtel Citycell Teletalk

85% 85% 87% 89% 91%97% 99%

Tan

zan

ia

Zim

bab

we

Cam

bo

dia

Afg

han

ista

n

Ken

ya

Rw

and

a

Ban

glad

esh

Source: GSMA

2G Coverage Reach


The telecommunication industry is reaching maturity which means there will be less reliance on growth from new subscribers over the next 4–5 years. This has led mobile network operators to look for innovative value- added services (VAS) through internet. Services (mostly related to agriculture, education and employment) that add value to and improve the living standard of the consumer are more likely to support these goals

Internet Accessibility and the advent of 3G With an estimated internet user-base of close to 40 million, the number of people using the internet has rapidly proliferated in just three years. The local internet industry was obviously preparing to move into the next stage of its development. An estimated 96% of Bangladesh's Internet users got their access using mobile services in 2014 (BTRC). The first 3G license in the country was awarded to Teletalk, the state-owned operator launched a pilot 3G offering in late 2012. The four operators – GrameenPhone (GP), Banglalink, Robi Axiata and Bharti Airtel – later acquired 3G spectrum through an auction, setting the scene for further developments in the market place. The 3G network is now currently about to reach all 64 district HQs though GP’s coverage infrastructure. This will ensure a country-wide fast internet coverage boosting the extent of communication to a higher level. Broadband Internet and e-commerce in Bangladesh is slowly progressing. In 2009 there were 50,000 fixed broadband Internet subscribers. BSCCL (Bangladesh Submarine Cable Company Limited) which is a party on behalf of Bangladesh in the SEA-ME-WE-4 (South East Asia-Middle East-Western Europe-4) submarine cable. BSCCL has become a member of the SMW-5 Consortium to join in the newly planned Submarine Cable named SEA-ME-WE-5 which will provide more capacity and redundancy for Bangladesh. They will soon start operations as IIG (International Internet Gateway) which should help the people to get broadband Internet with cheaper rate and better quality of service. The submarine cable network is expected to be the main telecommunications

infrastructure for “Digital Bangladesh” by the year 2021. WIMAX technology has already come into action with three companies already operating including Banglalion Communications and Augere Wireless Broadband.

The existing consumer base is only going to grow with incremental discretionary income. By utilizing the electronic and mobile channels there are immense opportunities for technology enabled economic growth.

Mobile Internet

96%

ISP + PSTN3%

WiMAX1%

Mediums used to access Internet

Mobile Internet ISP + PSTN WiMAX


The Rise of Digital Society

Widespread internet and mobile penetration has catalyzed the growth of social media. Facebook is now extensively used in both rural and urban areas. The accessibility has also given rise to a whole new wave of businesses based solely out of a social media platforms.

Youth leading the Social Media consistent with Bangladesh’s Demographic Dividend Majority of the users are youth between the age group of 18-24 years old followed by 25-34 years old. Among these 78% of the users are male and 22% are female.

Increasing Brands in Social Media and Emergence of Digital Businesses With such a strong presence of consumers in social media, major brands in Bangladesh now use social media as a strong marketing platform. Big Bangladeshi brands present on Facebook now count the number of ‘likes’ as a return on investment. Among the top five brands present in Bangladesh, the third most popular brand is “Ekhanei.com”, an e-commerce based marketplace business.

Such strong online brand presence created a climate for the formation and growth of new businesses solely dedicated to managing the social media and online activities of these brands. Companies like Magnito Digital, a full service digital marketing agency, G&R Ad network, the first online Bangladeshi Advertising network, NewsCred, the world’s largest leading content marketing platform, are prime examples of the tech and digital startup boom in Bangladesh.

Government in Social Media Social media and the internet has become such an efficient portal to reach the general public that the government of Bangladesh took an initiative to create better connectivity between the ministries by opening up a Facebook group “Public Service Innovation Bangladesh”. In the group government officials actively contribute and hold open dialogue to solve current social impact issues. This is an unprecedented technological leap on the government’s part as it has made administrative decision making processes a lot faster and efficient.

The Police Department in Social Media As a personal initiative, an assistant superintendent of Bangladesh Police, opened up a Facebook page for his Uttara branch, where citizens could voice their concerns and ask for help from the police directly. This simple step was highly instrumental in revolutionizing the way police services are delivered to the common people and stood as a testament to the significance of a rising digital space in Bangladesh.

5%

12%

53%

24%

4%

1%

1%

13-15

16-17

18-24

25-34

35-44

45-54

55-64

Source: SocialBakers

Age Distribution of Social Media Usage

2.67 2.39

1.98 1.95 1.94

GP Airtel Ekhanei.com Robi Axiata Banglalink

Top Brands in Social Media (in terms of Fan Following - in Mn)


The e-Commerce Business

Frontier driving Growth

Driven by increasing discretionary income,

technology adoptive consumers, literacy rate,

effects of globalization, middle income societal

enhance and rapid urbanization e-commerce in

Bangladesh is growing rapidly. Local businesses

are jumping on to the bandwagon to reap the

benefits.

The Journey of the e-Space Business Model The earliest e-commerce sites present in Bangladesh were back in the 90’s and were primarily gift sites targeted towards Non-Residential Bangladeshis living abroad. Right now, in addition to exclusive e-space firms existing businesses are also rehashing their business models and are offering more customized and online services to meet the ever increasing customer demand.

E-commerce models currently Prevalent in the Market Majority of e-commerce business in Bangladesh falls under C2C (consumer to consumer) transaction business model where a consumer sells products to another consumer. Companies like Bikroy.com, Clickbd.com, and Olx.com are the top players. A growing number of B2C (business to consumer) e-commerce sites also operate, mostly existing businesses adding an online shop front. However there are also social media exclusive firms as well.

B2B (business to business) transaction based businesses in Bangladesh are the least prevalent form of e-commerce business in Bangladesh. Mostly companies operating in the RMG sector utilize B2B online transaction to do business with foreign firms.

Positive Growth Prospects With the central bank step to allow the implementation of e-payment gateways in 2009, e-commerce businesses have proliferated rapidly. Though many B2C businesses operates under the hybrid model incorporating “cash on delivery” mechanisms. Within five years between 2007 and 2012 the e-commerce and online auction area grew by 10.4% and is expected to grow by 8.8% annually through 2017. The number of businesses operating in the e-commerce sector are expected to grow exponentially to 61K+ over the next five years (source: IBIS World).

Young Target Demographics – providing Market Stability and growing in Wallet Size The current consumer demographic of E-commerce in Bangladesh is primarily made up of youth with female consumers making up the majority (55%). The most prevalent age group is 26-30 years old consisting of 50% of the consumer group.

Source: Pi Strategy Majority of the consumers are either young professionals (44%) or university students (33%). More than 90% of them live in Dhaka and one-third of them has a monthly income of BDT 30K+. Fashion wear and consumer care products are the top selling categories in the market.

167

18 26 368

E-commerce Classified Web Hosting InternetBanking

Online CourierServices

Source: Computer Jagat E-commerce directory

E-space Businesses in Bangladesh (in No.)

18-25 years, 35%

26-30 years, 50%

30+ years, 15%

Age Group


Source: Pi Strategy (Others include consumer electronics, gadgets, household care products, medicine)

For e-commerce right now there is a positive correlation between lower priced products and high sales. This is attributed to the fact that currently Bangladeshi consumes are more prone to value buy via e-commerce sites. For high value items the trend is still to have a physical “Feel” of the product before purchasing. This has been one of the primary reasons why e-commerce sites have concentrated on competitively priced products. However with companies are establishing strong security protocols and easier transaction facilities with the help from banks and trusted logistic companies – consumers are becoming more conducive to online transactions. This has increased festival based shopping and enhanced basket size. Currently, the yearly transactions are averaging BDT 2,000 mn (USD 25 mn) per annum but this is growing around 30%/month recently (source: The Daily Star).

Diversified set of e-commerce models driving growth in the Market Online Retail Stores - These are the most widespread form of e-commerce sites present in Bangladesh and the most popular ones with transaction taking place in a B2C and C2C basis. Well renowned websites include Ekhanei.com, Akhoni.com, Kaymu.com and Bikroy.com. Food Delivery Stores - Foodpanda.com, a concern of Rocket Internet from Germany, and Hungrynaki.com are two major players in the food delivery services in Bangladesh.

As the country and culture has evolved so has the taste buds of its inhabitants. This led to the boom in the restaurant business and services like home food delivery. Grocery Stores - Chaldal.com serves as the most renowned online grocery store in Bangladesh where consumers can order groceries online and it’ll be delivered to them. Chaldal recently received seed funding from 500 Startups, a VC firm based out of California. Recently, Meenabazar, a concern of Gemcon group and one of the biggest retail supermarket chain in Bangladesh also opened up their own online grocery order and delivery service. E-ticket - During the major holidays in the country, like Ramadan and Eid, most people living in cities travel to their villages to celebrate Eid. They have to wait in long queues for hours on end to buy tickets for bus, train and steamers. To evade this hassle faced by everyone, Bangladesh Railway introduced the e-ticketing system where tickets could be bought online. Around 25% of the tickets in 2013 were bought online. This year BusBd.com also introduced online tickets for buses and they sold thousands of bus tickets online. Online Car market - Carmudi.com serves as an online marketplace for people who want to buy used or new vehicles and connects them with individual vehicle owners or vehicle dealers that want to sell new or used vehicles. They are the first company to provide this service and the most renowned one. Online Real-Estate market - Lamudi.com is the first website in Bangladesh solely dedicated to the real estate market where consumers can find the best real estate offers within the country. Both Lamudi.com and Carmudi.com are a concern of Rocket Internet Group, an e-commerce focused venture capitalist firm and startup incubator from Germany.

Clothing & Beauty,

34%

Books, 12%Travel

Tickets, 11%

Mobile Money, 8%

Food Delivery,

6%

Others , 29%

Category Wise Breakdown


Mobile Financial Services (MFS) making Extensive Headway M-banking is a rapidly growing market segment in Bangladesh. New regulatory guidelines, strategy shifts among the key M-banking providers, increased awareness among the public, have all contributed to extensive growth. Bangladesh reached the 10 million registered customers mark in early Nov 2013, and by end of Sep 2014, that number had experienced a 107 % growth, with 20.7 million registered users served by about 478,000 agents transacting around USD 1 bn per month (source: Bangladesh Bank).

Till date, Bangladesh Bank has approved 28 banks to operate as mobile financial service providers in the country. Of which 19 banks have been able to officially launch the service so far. In the current market only three players have widespread presence. The top three players are BRAC Bank’s bKash, DBBL Mobile Banking and Islami Bank’s mCash.

Source: Bangladesh Bank

The telecom operators are developing products to provide VAS in the segment. GP has already floated Mobicash which provides gateways to the various mobile wallets available in the market. According to pi Strategy survey, nearly 48% of the M-banking users reside in urban areas while 32% in rural and 20% in semi-urban areas. However rural

users are more likely to receive money, rather than send money. Bangladesh has a large population in a small geography. It is also home to one of the most deeply penetrated microfinance markets. Indeed, Bangladesh’s overall access to accounts for adults of nearly 40% is higher than South Asia’s average of 33% and the global low‐income country average of 27%. Nevertheless, most banks, mobile operators and microfinance institutions agree that mobile financial services are likely to focus initially on domestic person-to-person transfers. Young people continue to contribute to M-banking growth. Most people will continue to use a variety of different modes of funds transfer (Pure OTC, Partial OTC, Pure Wallet, and non-mobile). Moreover, issues like instant transfer and trust will continue to be key influencing factors in the wider adoption of M-banking. The Independent has ranked Bangladesh as 7 among the list of the top mobile financial service provider in the world. Bangladesh Bank also recently introduced the National Payment Switch Bangladesh (NPSB) which would further proliferate MFS.


0.89 0.82 0.98 1.01 1.03 1.07 1.37

0.93 1.25

Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14


Mobile Financial Services - Monthly Vol in USD bn

Apr 13, 21

Dec 13, 50

Apr 14 (E), 83

MFS Revenue/Month (in BDT mn)

Cash in Transactio

n, 43%Cash out

Transaction, 37%

Peer to Peer , 17%

Utility Payment,

2%

Others, 1%Salary

Disbursement, 1%

Inward Remittanc

e, 0%

MFS Service Breakdown


ITES Sector – The Gateway to the

Middle Income Status

Bangladesh IT sector has historically remained outside the limelight due to neighboring India’s spectacular IT success. The lack of adequate infrastructure and inadequate training facilities compounded the slow progress of the IT sector.

However, over the last decade, there has been a proliferation of IT ventures earning foreign currency reserves for the nation.

Development measures from government has improved overall infrastructure resulting in reliable and cheaper internet connectivity while ensuring training facilities for budding IT professionals.

Market is growing with more Product Depth Currently there are over 800 IT and ITES companies registered in Bangladesh with an estimated total industry turnover of around USD 200 million. Nearly 76 percent of these companies are involved with customized application development and maintenance.

Whereas most Bangladeshi market players initially offered their services and products predominantly on the domestic market, Bangladeshi software solutions and ITES are nowadays exported to other regions like Europe and Northern America.

Thriving Domestic ITES Market Recently, many large-scale automation projects have been implemented in sectors like banking, telecom, pharmaceutics, RMG and Textile sectors increasing the domestic demand for software and ITES solutions. Manufacturing sectors including garment, textile and pharmaceuticals have created sustainable demand for IT solutions like ERP, HR and Payroll management systems, and production and financial management software. As a result, the domestic IT service industry has grown by 20 to 30 percent per annum over the last few years (source: BASIS).

Prospect of Outsourcing is Positive

The ITC estimates that around 200 Bangladeshi ICT companies are serving international markets offering outsourcing services and project delivery models. In terms of export destinations, North America (Canada and the US) dominates, whereas European countries like the UK, Denmark, the Netherlands and Germany have emerged over the last few years as major export destinations (source: BASIS). According to the ITC Exporter Directory there are over 10,000 ICT freelancers active in Bangladesh as of 2014, billing an export revenue of nearly USD 200 million.

Big Names are Taking Notice Recently in a global survey, world renowned management consulting firm AT Kearney published a report on the development of the IT sector in Bangladesh. Kearney’s Global Services Location Index (GSLI) gives a comprehensive list for the most lucrative outsourcing location around the world and Bangladesh entered the list for the first time and was ranked 26th among 51 other countries, nestled between Pakistan (25th) and United Kingdom (27th). Bangladesh, Pakistan and United Kingdom hold the

76%

50%

45%

18%

17%

11%

7%

3%

3%

Customized Application

IT Enabled Services

E-commerce

Product Development

Mobile Application

System Integration

R&D Services

IT Infrastructure

Reseller

Source: BASIS

Specialization of IT & ITES Companies68%

33%20% 18% 15% 9% 9% 8% 8% 8%

USA U

K

Can

ada

Au

stra

lia

Den

mar

k

Net

her

lan

ds

Ger

man

y

Ind

ia

Jap

an

UA

ESource: BASIS

Top Export Destinations


same score on the GSLI scale 5.34 out of 8. Bangladesh was also ranked the highest in terms of financial attractiveness among the 51 countries on the list.

Bangladesh’s prospects have been identified by several global ICT companies. For example, the Korean technology firm Samsung has opened a high-end Research and Development (R&D) center in Bangladesh employing over 250 engineers. VizRT, a Norwegian company that creates content production tools for the digital media industry, is building captive centers following acquisitions of ICT production companies in Bangladesh. Other global IT companies like AMD, LG and IBM are currently in the process of setting up either their captive R&D or support centers in Bangladesh. Coders Trust an initiative backed by the development fund Danish International Development Agency (DANIDA), is also providing microfinance for students in Bangladesh to develop their programming skills and take outsourcing jobs from popular freelance marketplaces such as Elance and oDesk. Bangladesh was also ranked as the third best country for contractors on oDesk behind the Philippines and India, within just three years.

Government is Strongly Backing the Sector

Government’s “Digital Bangladesh” initiative has assisted in increasing export revenues in the IT sector from USD 35 million to USD 200 million over the last five years and also helping to set up infrastructure for enhanced connectivity, ICT based citizen service delivery and ICT based Education system, multiple internet connectivity.

Initiatives like Digital World and BASIS Softexpo are playing a positive role in building awareness and promoting IT sector to both domestic and the international market. Internet connectivity has been vastly enhanced over the country.

The Sector Outlook is Optimistic With cooperation and support from both Government & the private sector; the sector is expected to reach export earning of USD 1 billion within the coming decade from the European and the US markets.

Source: BASIS

Booming Startup Community

Bangladesh is witnessing the rise of a vibrant startup ecosystem. Many initiatives from public as well as private sectors are being regularly held with the likes of Digital World 2014, A2I Innovation Fund, GIST Bootcamp, StartupBash, Startup Cup, DCCI Innovation and Entrepreneur expo to promote the startup concept and support budding entrepreneurs. Local ventures like BDJobs.com and NewsCred have raised international funds with many local tech companies like chaldal.com raising seed finance from local and international investor networks. A host of freelancers are now setting up small teams and making their way towards setting up their own IT firms. With the right mentoring and access to market linkages, these local entrepreneurs can be the next generation of leading global startups.

3.31 3.43

0.881.39 1.17

2.28

0.64 0.74

2.17

Pakistan Bangladesh United Kingdom

Source: AT Kearney

Comparative Scores

Financial Attractiveness People Skills & Avialibility

Business Environment

26.1 24.1 32.9 35.4 45.370.8

101.6

200.0

-20%

0%

20%

40%

60%

80%

100 %

120 %

0

50

100

150

200

250

20

06-0

7

20

07-0

8

20

08-0

9

20

09-1

0

20

10-1

1

20

11-1

2

20

12-1

3

20

13-1

4

Yearly IT Export Earnings (USD mn)


Tech Startup Showcases

SEEK International, number one job portal in Australia has acquired 25% of Bdjobs.com, Bangladesh’s leading online job market at USD 4.8 mn in 2014. Bdjobs was launched in 2000 and currently has 90% share of Bangladesh’s online job marketplace.

Accenture in 2013 bought 51% stake in GPIT, an IT wing of the country's top mobile operator GP, at USD 10 mn. This signifies growing attraction and confidence on Bangladesh’s growing ITES market.

NewsCred, which provides licensed content to publishers and brands for their websites and content marketing campaigns, raised a USD 25 million (Series C) round of financing this year, led by InterWest Partners. The investor folio includes names like AOL Ventures, Mayfied Fund, IA Ventures, Greycroft Partners, IA Ventures, FLOODGATE, FirstMark Capital and Lerer Hippeau Ventures. NewsCred has grown fivefold just last year and boasts clientele like P&G, Bank of America, GE, Toyota, Yahoo and Sprint.

Robust Pipeline (including Talent Base) Success cases have propelled the emergence of Startup Culture in Bangladesh. Local Angel Investment Networks are also providing active support. Additionally, business friendly ICT related laws and policies like tax breaks from the government have catalyzed growth.

The optimism driver surrounding the IT sector, is the country's large youth demographic, who happen to be very receptive to the latest technology. 60% of the country's total population of 160 million are below the age of 35 and they are very pro-IT and are easily trainable. Every year more than 5,000 IT graduates are coming out. Furthermore, the expatriate Bangladeshis are doing exceptional and are moving up in the decision-making ladder of big tech-companies such as Google, Microsoft and Facebook. The government is also committed to nurturing this sector and has granted tax exemptions for the next five years; 300 acres of land in Kaliakoir is also being used to develop an industrial park while BASIS is working with the government to formulate the best policies for the sector.


Investing in Bangladesh –

Government Policy Support

Since economic liberalization of the Bangladesh economy in the early 90s, successive Governments have pursued a pro-investment policy with a view to increasing Foreign Direct Investment (FDIs). Special economic zones have been setup across the country and major foreign investors have been provided with subsidized lands, tax holidays, profit repatriation and priority in utility connections.

Bangladesh – Emerging Investment Hub Recently, attractiveness of Bangladesh as an investment destination has increased manifold, especially due to the country’s preferential trade status in major international markets, inexpensive labor and proximity to China and India. Increasing labor costs in China has further precipitated a shift of investment to neighboring regions. Given the backdrop, Bangladesh government is keen to attract investment not only to positively tilt the balance of payment position, but to further rejuvenate the economy through employment generation and GDP growth.

Investment Friendly Policy Framework A host of policies have been adopted to incentivize foreign investment. Tax Holidays: Foreign investors will receive tax holiday ranging from 5 to 7 years based on geographic location. For instance, for industrial enterprises located in Dhaka and Chittagong, tax holiday is for five years. While it is seven years for locations in Khulna, Sylhet, Barisal and Rajshahi divisions. Accelerated depreciation facility: Industrial units financed by foreign investors will enjoy an accelerated depreciation allowance post tax holiday period. Such allowance is available at 100 per cent cost of the machinery or plant if the industrial undertaking is set up in the areas falling within Dhaka, Chittagong and Khulna. If the industrial undertaking is set up elsewhere in the country, accelerated depreciation is allowed at the rate of 80 per cent in the first year and 20 per cent in the second year.

Concessionary duty on imported capital machinery: No import duty will be charged for imported machinery for industrial units which are 100% export oriented in nature. For the rest, 5% import duty will be charged for initial installation or BMRE/BMR of the existing industries. Full repatriation of Capital: Full repatriation of capital invested from foreign sources will be allowed. Similarly, profits and dividend accruing to foreign investment may be transferred in full. If foreign investors reinvest their dividends and or retained earnings, those will be treated as new investments. Legal protection: The policy framework for foreign investments in Bangladesh is based on 'The Foreign Private Investment (Promotion & Protection) Act. 1980, which ensures legal protection to foreign investment in Bangladesh against nationalization and expropriation. It also guarantees non-discriminatory treatment between foreign and local investment, and repatriation of proceeds from sales of shares and profit. Despite change in government, there has been a continuity of policies with regards to attracting foreign investments. Bilateral agreement and treaty: The Government of Bangladesh has a series of bilateral investment agreements with a number of countries in Asia (China, India, Japan, Singapore, South Korea, Sri Lanka, Thailand, Iran, Malaysia, Pakistan, Philippines), Europe (Belgium, Denmark, France, Germany, Poland, Romania, Sweden, The Netherlands, United Kingdom, Italy, Romania, Switzerland, Turkey) and North American (Canada, USA). In addition, Bangladesh is a signatory to MIGA (Multilateral Investment Guarantee Agency), OPIC (Overseas Private Investment Corporation) of USA, ICSID (International Centre for Settlement of Investment Disputes) and a member of the WIPO (World Intellectual Property Organization) permanent committee on development co-operation related to industrial property. Preferential Trade Agreements: Bangladesh has a number of preferential trade agreements with countries having significant market size like GSP with EU, quota and tariff free access to Canada and Japan.


About us: LightCastle Partners simplify decision making by providing advisory services (market intel/industry, due-diligence/business design) and tools to make life simpler. On the private sector side we have worked with global end clients like Mitsubishi (Japan), Generac (USA), Telenor (Norway), Starbucks (US) and International Investment Funds (like Asian Capital Advisors) and local business conglomerates. In impact investments we have worked in multiple projects with top tier firms like CARE Bangladesh, Swisscontact Katalyst, Traidcraft (UK), Habitat for Humanity (Philippines) and Hivos (Indonesia). The founding partners have backgrounds in Corporate and Investment banking, Audit and Advisory with firms like Citi, HSBC, StanC, KPMG and Deloitte. All information contained herein is obtained by LightCastle from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein “As IS” without warranty of any kind. LightCastle adopts all necessary measures so that the information it uses is of sufficient quality and from sources LightCastle considers to be reliable including, when appropriate, independent third-party sources. However, LightCastle is not an auditor and cannot in every instance independently verify or validate information received in preparing publications.

For any Queries please contact- LightCastle Partners FR Tower 19 Floor 32 Kamal Ataturk Avenue Banani Dhaka 1213, Bangladesh Mail @ [email protected] Read our blog at http://www.lightcastlebd.com/blog Visit us at http://www.lightcastlebd.com/

mailto:[email protected]

http://www.lightcastlebd.com/blog

http://www.lightcastlebd.com/blog

http://www.lightcastlebd.com/

http://www.lightcastlebd.com/

bangladesh the digital deltadocshare01.docshare.tips/files/26900/269006090.pdfbangladesh was sheba...

Documents