Bangladesh’s growth story can be explained in a number of ways. With steady and consistent growth (+5% GDP Growth) over last one decade, the economy has slowly graduated to the lower-middle income level rung crossing the threshold of USD 1,000 per capita. If the economy can maintain momentum, it will be easy to attain the middle-income threshold within a decade.
So, what intrinsic and extrinsic factors are contributing to this Growth? Why are international investors bullish about the economy’s growth prospects?
The country is strategically located between India and China, two rising economic powerhouses of the region. With over 920 million middle-class people across this region, Bangladesh can be a perfect launching ground for capturing this market. Bangladesh is already enjoying fruits in apparel sector as low value orders shift from China to Bangladesh. Alongside, regional investors are inquiring about possibility of making FDIs prompting government to announce formation of new EPZs for foreign investors.
Another phenomenon will have a major impact on the country’s economic fabric. Over the last decade, the country has experienced growth in the Middle and Affluent Class (MAC) segment. According to the latest report by The Boston Consulting Group (BCG), a reputed strategy consulting firm, the size of the MAC population (minimum annual income of USD 5,000 and above) stands at 7% of the population. These 11 million people have growing disposable income and needs which can be served profitably.
According to BCG, the MAC population will keep on rising constituting 27 M people within 2025. Within the next decade, economic activities will spread across the country, as opposed to concentration in Dhaka and Chittagong region.
Some fundamental factors will have major impacts on Bangladesh’s transformation into a digital economy. Bangladesh is the 8th largest country in the world (in terms of population) and 5th most densely populated country in the world. With average population of only 23.4 years and 70% of population below the age of 35 years, the country has potential of experiencing demographic dividend.
Alongside, telecom and internet penetration has been increasing over the last 15 years mainly spearhead by competing telecom companies. Most of + 50 million internet users are mostly using mobile as the primary medium for using internet.
The advent of young population, rising income and growth of MAC population, internet penetration and availability of cheap smartphones will make the digital space more attractive. According to the BCG report, MAC population is more open towards adopting technological tools for engaging in online transactions. Rise in usage of popular social media platform (10 M Facebook users) and popular e-commerce purchase are testament to the prospect of companies in digital space.
Tools for augmenting Digital economy
Bangladesh telecom companies have made significant progress in connecting the country. Currently, almost 99% of the country is covered by mobile network. Due to decrease in SIM price and talk time, mobile phones have become ubiquitous among the majority of the population. Mobile data usage has also increased as Telecom operators have consciously encouraged mobile data usage to augment ARPU.
Internet usage has proliferated due to slump in price of smartphones. Entry of local players e.g. Symphony, Walton, Elite and Aamra and cheap Chinese alternatives have made smartphones affordable and accessible to the mass. Although feature phones still retain 80% of the market, smartphone market is growing at a significant pace. Sales of smartphones have almost tripled in the 2Q of 2015 compared to the same period in 2014.
How should the Government Help?
Although the government has earmarked Digital Bangladesh as the pillar of the growth strategy, its responsibility doesn’t end there. Concrete steps are imperative for turning Bangladesh into a truly digital economy. Responsibility starts with fixing infrastructure, regulations and making digital gadgets accessible to all at affordable prices.
- Internet bandwidth price needs to be further decreased ensuring trickle down benefits for end users. Since most users access internet using mobile data, government needs to regulate pricing further. Existing mobile data charges are beyond the reach of majority and telecom operators need to understand the importance of broadening user base as opposed to solely focusing on maintaining ARPU.
- Government needs to encourage manufacture of smartphone and gadgets offering tax breaks and rebate to local manufacturers. International smartphone manufacturers should be encouraged to set-up Semi-knocked Down (SKD) and Completely Knocked Down (CKD) assembly plants within Bangladesh.
- Government should provide free wifi-access at different hubs of top 30 cities in the country. Corporate houses can also be involved as sponsors in lieu of marketing leverage.
Although Bangladesh has made significant progress in digital space, success remains limited compared to its neighbors and peers. Concrete steps, follow up from responsible policymakers and stakeholders are imperative to provide infrastructural and regulatory support.
This article was primarily published here at The Financial Express.