DIGITAL BANGLADESH AS AN ENGINE FOR ECONOMIC GROWTH
Ifty Islam, Shama Alam
Can tech powerhouses emerge from Bangladesh?
Digital World 2015, the recently concluded four-day conference, was the fourth largest ICT event in the world, with 120 private companies and 100 governmental organisations from 25 countries. It also featured representatives from leading technology companies, most notably Google, which sent a broad range of executives, as well as Facebook and Microsoft, among others.
While the primary focus of the event was to highlight the advances of the “Digital Bangladesh” initiative of the current government as well as potential growth opportunities in the ICT sector, in this long form we want to discuss some of the broader potentials of technology as a catalyst for economic growth.
There is a broad consensus that greater infrastructure investment in developing countries can produce faster economic growth. In the case of Bangladesh, typical estimates are that infrastructure bottlenecks, whether in the power sector or transportation/logistics, limits annual GDP growth by 1-2%.
Infrastructure is what economists call an “economic enabler” that allows the economy to perform at its full potential. However, there is less appreciation of the importance of ICT as a similar economy turbocharger and one that has equal and perhaps even greater potential than infrastructure investments to boost Bangladesh’s economic growth potential.
The Digital Bangladesh initiative undertaken by the current government focuses on the four key areas of M-health, M-Education, M-Agriculture, and M-Transactions/Banking. However this article aims to take a broader look at the potential transformative power of technology on the economy.
It has been estimated that a 10% increase in broadband penetration increases economic growth by 1.3 percentage points, but almost certainly the impact in developing countries is greater than that for developed countries.
How does technology affect economic growth? Actually, in a much broader way than most economists had previously imagined, and one that is evolving and changing all the time.
Nobel Prize-winning economist and former dean of the Stanford Business School, Michael Spence, in his book The Next Convergence, noted that “the informational structures in markets, supply chains, and transaction systems — indeed, the whole global economy — (have seen) a fundamental and permanent shift … The information layer that surrounds, organises, and governs the real economy and all its parts is gravitating to the Internet …”
We will look at the impact of technology on economic growth across six main areas: Education/knowledge transfer; productivity enhancement including agriculture; content creation; culture/Facebook generation; access to markets/outsourcing; and enhancing economic efficiency now.
The most traditional mechanism by which technology underpins growth is by facilitating knowledge and innovation transfer. This could be at the company level in terms of reducing the time and transactions costs by bringing the best global practices from developed to developing countries.
At an individual level, the ability to access information and e-learning gives, in theory, the poorest child in a remote village the same access to knowledge as his counterpart in the US or Japan.
The scale of learning tools and educational materials that has become available on the Internet is truly breathtaking. Anyone in the world with access to broadband can watch lectures from the very best professors at Harvard, MIT, Stanford, or Cambridge in a way that was unthinkable even a decade ago.
The benefits in terms of library access of attending Ivy League universities has largely disappeared since most books and articles have been digitised through the pioneering initiatives of companies like Google.
A shortage of skilled teachers in technical subjects or English, particularly in rural areas, is a common constraint faced by developing nations. One could conduct lectures and lessons by video conference, using high-speed Internet connections to broadcast the session in real time to multiple classes of students. Such sessions can be made interactive, with the use of presentation materials and opportunities or question and answer sessions.
An added advantage is that the teacher can continue to be physically based in the urban areas while providing lessons to students in rural areas. The Khan Academy, founded by Salman Khan who had a Bangladeshi father from Barisal, is perhaps the most well-known of the e-learning platforms.
Of course, in order for a child in a Bangladeshi village to be able to take advantage of the massive e-learning opportunities requires not only access to broadband and either a smartphone or tablet, but also greater training in IT literacy. But the potential is self evident, massive, and in countries such as Bangladesh, largely untapped.
Technology enhances company productivity in multiple ways and the rapid growth of cloud-based computing has reinforced the impact and expanded the possibilities. The early impact of technology in emerging markets on company productivity were at the basic level of greater PC usage, office software, and email.
The rapid decline in the cost per unit of computing power as microprocessors become faster and cheaper is growing at an exponential pace as well, publicised by Moore’s Law which stated that the number of transistors in a densely integrated circuit doubles approximately every two years.
But more recently, the Internet has transformed supply chains and transformed how products are bought and sold. Technology has helped companies improve how they interact with and take feedback from their customers.
It has also helped with talent sourcing and analysis of large data sets with the advent of big data. The cloud gives companies of any size access to capabilities and services that previously were available to only the largest enterprises, at a fraction of their historical cost. Even quite sophisticated software suites are available at very little cost, or in the case of open-source software, at no cost.
The Internet has become a big leveller allowing small companies to operate on a level playing field with large ones. The Internet has made it easier for producers to procure inputs (raw materials) for their production processes and reduced production costs.
They have been able to engage in better and less costly supply chain management and operate with significantly lower levels of inventory. Price discrimination (targeting marketing, products, and prices to specific individuals) has been made much easier by the Internet.
In the agriculture sector, the Digital Bangladesh initiative is already producing a major impact by providing farmers with access to market prices and offering them with a potential platform for increasing crop yields. The Internet and smartphones are allowing not just the dissemination of best practices for farmers, but can also record soil and crop data for analysis by experts.
In developed countries, ICT has transformed the print, movie, music, and gaming industries with an increasing number of consumers now creating their own content through blogs, wikis, podcasts, Facebook, Instagram, and Vine. Authors can publish their books digitally on Amazon for a fraction of the cost of using traditional publishers. Musicians and filmmakers likewise have web-based access to potential customers through Youtube and other online platforms.
A May 2014 estimate suggested that there are 7.4 million Facebook users in Bangladesh of which 6.4 million are accessing the site via mobile phones. This is truly an incredible number for a developing country and has massive implications for connectivity, awareness of global news and cultural trends, and speed of information dissemination, especially among the younger generation.
Technology also profoundly changes market access, especially for SMEs. It has become much easier for very small firms to coordinate production of highly tailored products as part of extended supply chains. The Internet is part of the process of technological change that has enabled this shift.
We need to encourage a local mobile apps ecosystem and that process has already begun with the arrival of Tech VC firms from overseas such as Fenox which is in the process of setting up a $200m Bangladesh fund to invest in tech companies here. A number of incubators have also been established to encourage a startup culture where Mobile operators can also help to encourage and support the development of mobile apps.
The ICT sector itself, as a producer of goods and services, has become increasingly important as evidenced by the rapid growth of India’s ITES and outsourcing sector over the past 15 years. We also envisage Bangladesh’s outsourcing sector to increase substantially in size over the next 10 years to become a $5bn export sector.
Technology also contributes to growth by increasing competition. It is estimated that in the US, online goods are on average 10% cheaper than those sold by traditional bricks and mortar stores. This is partly because of increased price transparency and the ability of consumers to use online price comparison tools to find the cheapest products. Secondly the Internet e-commerce platforms, most famously Amazon, offer massive economies of scale.
Ebay auction sites were also a disruptive technology in retailing space by making the sale of used products and new goods much easier, again putting downwards pressure on prices.
So Internet markets are argued to be more efficient due to the ease of information transmission, which leads to lower transaction costs. Different pricing and selling mechanisms, such as online auctions, also contribute to increased efficiency.
We have already seen a rapid growth of e-commerce in Bangladesh with the Digital Bangladesh initiative continuing to encourage the expansion of this sector. Recent initiatives by Bangladesh Bank to allow e-payment facilities online, using credit cards such as by enabling Paypal in Bangladesh, will help the growth of the sector even further. In a country like Bangladesh, where supply chains are not that efficient, ICT will reduce the scope for price distortions and manipulation by unscrupulous middlemen to ensure that consumers receive fair prices.
To the extent that we accept that the effective utilisation of technology can have a transformative impact on the economy, it is important to determine what steps policymakers should take in Bangladesh. Firstly, they should ensure world class digital infrastructure and networks at competitive prices. In this area, the Bangladesh government has made major progress in recent years with the dramatic fall in broadband prices, the rapid rollout of 3G services, and the prospects for fast introduction in the near future of 4G and LTE.
Secondly, the government can encourage the development of a strong local IT ecosystem. Thirdly, expanding the IT skills base is critical with more vocational colleges to increase the supply of programmers and IT management and marketing professionals. Effective use of ICT can also play a key role in female empowerment by bringing more women into the workplace and allowing them greater flexibility in working from home/working hours that enables greater balance with family commitments.
It is also important that the government ensures a stable and supportive regulatory framework both in terms of avoiding regulatory volatility and inconsistent or negative taxation policies for the IT sector.
The government has committed to establishing 12 new technology parks in Bangladesh, with the first being the 238 acre park in Kaliakoir near Dhaka. But there are some other encouraging initiatives from the private sector in the pipeline. Sajeeb Wazeb Joy, ICT Advisor to the Prime Minister, noted in his speech at the Digital World 2015 that: “One of the problems is financing. In America, new innovations don’t get support from the government. They get their funding from the private sector.”
In this context, the announcement in November that Fenox, a Silicon Valley venture capital firm, was raising a $200m fund for Bangladesh IT, is especially encouraging. Kyle King from Fenox noted:
“Bangladesh has a large, young population, an outstanding Internet and mobile growth with an unexplored entrepreneurial system which all make Bangladesh a place for innovation, discovery, change, disruption, creation, and investment … For Fenox, Bangladesh qualifies as the right country to be a part of in terms of developing the world’s most influential startups.”
Sajeeb Wazed Joy also stated: “I want companies like Google and Facebook to emerge from Bangladesh.”
On the face that may sound like wishful thinking. But in fact technology is levelling the competitive playing field so fast that in our generation it is definitely conceivable, perhaps even likely, that a boy from a Bangladeshi village has the potential to create a company with a disruptive technology as powerful as Google or Facebook.
To paraphrase NY Times columnist Thomas Friedman. Technology is the primary driver of such “flattening” of the global economic landscape.
In conclusion, we believe that ICT is every bit as important as energy and infrastructure investment in raising the trend growth rate. Effective implementation of Digital Bangladesh may yet prove to be the single most important weapon in poverty alleviation allowing Bangladesh to achieve its potential as the fastest growing economy in Asia.
FEBRUARY 25, 2015