Bangladesh has experienced remarkable growth and development in various sectors in the fifty years since its independence. We have become an essential clothing, textiles, and leather manufacturer. Still, it has yet to be able to duplicate the success of its well-known Ready-Made Garments (RMG) sector. In 2022, more than 80% of all exports from Bangladesh came from the RMG business. Even though the clothing, linen, and leather goods sectors are also essential to the economy, they haven’t reached the export potential of the RMG sector.
The phases of evolution in the political framework of Bangladesh enables us to look at the different ways significant development challenges were addressed in different periods. Economic development involves adopting and adapting technologies that result in a structural transformation of society. Structural reforms are needed to support faster growth over the medium term. To achieve the vision of attaining upper middle-income status by 2031, Bangladesh needs to create jobs and employment opportunities by creating a competitive business environment with supportive policies that attract private investment.
Import policies and LCs
The recovery from the pandemic has been slowed by internal and foreign shocks, which have come from inside and outside the country, and during the first half of FY23, gas, and power shortages made it hard to make things like electrical goods, digital goods, fertilizer, cement, and steel. In addition to higher input costs, the government limits issuing Letters of Credit (LCs) to limit the amount of foreign exchange. This made it harder to get important imported materials. A Letter of Credit, or LC, is a document that a bank gives to a seller of goods or services to guarantee payment. It is usually used in foreign trade to ensure the seller gets paid even if the buyer doesn't pay.
Because there are so many rules about LCs, it is hard for businesses to get the foreign currency they need to buy things like raw materials and machinery. This has messed up production and slowed down economic growth, especially in industries like textiles that depend significantly on foreign materials. For example, a Bangladeshi clothing company must buy cotton yarn from India. Under the current rules, the producer would need government permission before issuing an LC for the cotton yarn.
This process can be long and difficult to understand, and the government only sometimes agrees. If the government chooses to withhold the textile company from bringing in the cotton yarn, they can. The government must figure out how to deal with the LC problem in a way that doesn't hurt the business. One option would be to give businesses more freedom when issuing LCs for necessary imports. Another choice would be to give businesses more support in getting foreign currency.
Predominantly, the high import duty on a few major raw materials, compared with finished goods, hampers the growth of Bangladesh's digital products manufacturing sector. In fact, the government imposes a substantial import duty on raw materials of digital goods, increasing the production cost for electrical, electronics, and digital goods manufacturers.
This makes it difficult for local companies to compete with imported electrical, electronic, and digital products, as they must bear higher production costs. As a result, most electronics manufacturers prefer to import finished products rather than produce them locally. A number of products have been impacted by such policies such as smart surveillance systems, printers, smart watches, network devices, hybrid solar systems, etc.
Aiding digital device manufacturers
The Bangladeshi government has, however, implemented policies to support local manufacturers of computer and mobile devices, including tax breaks, access to cheap loans, investment in research and development, and government procurement. These policies have helped to create a growing device manufacturing industry in Bangladesh, with the number of companies increasing from 100 in 2015 to over 500 in 2023 and the value of exports growing significantly.
The growth of this industry is creating jobs, boosting the economy, and helping Bangladesh to become more self-reliant in terms of its technology needs. The policies of the Bangladeshi government to help local makers of computers and mobile devices have led to a growing machine manufacturing industry in Bangladesh. This has enabled consumers by giving them access to low-cost, high-quality goods.
Now, the government should try to support the growth of other industries that make digital devices, like laptops, tablets, and wearables, by giving tax breaks, making cheap loans available, investing in research and development, and buying from those industries. This would create more jobs, improve the economy, and help Bangladesh meet its technology needs.
At the same time, Bangladesh has a large and growing market for refurbished digital devices, but there are no policies in place to regulate the market. Refurbished devices may have hidden defects or may not perform well. The government should consider implementing policies to regulate the refurbished digital device market, such as requiring refurbished devices to be inspected and certified by a third-party agency and sold with a warranty. This would help protect consumers and ensure they get the right value for their money.
The logistics of infrastructure and ransportation
Another challenge to the growth of the electronics sector is the lack of adequate infrastructure. Bangladesh faces issues such as frequent power outages and inadequate transportation facilities, which affect the production and distribution of goods. An unreliable power supply disrupts manufacturing processes and increases production costs, while poor transportation infrastructure hampers the timely delivery of products to customers. There needs to be improvement in providing domestic and international logistics opportunities in our country, which is a substantial problem for exporting products to the global market.
The absence of a national logistics strategy, entry barriers for foreign logistics operators, long container dwell times at Chittagong port, complex port governance system, policies leading to less efficient port operation, and limited private sector participation in port operation are all serious bottlenecks to the production process. Our infrastructure investment to GDP ratio needs to be increased to a minimum 5% threshold for an improved logistics system.
Trade-led economies like China, Vietnam, the Philippines, and India have put a lot of money into their transportation, energy, communication, and, most importantly, technology. This has helped them rank higher in the logistics network, as measured by the World Bank's Logistics Performance Index (LPI). Investing in tech and changing the way tech policies are made can be very helpful in building a strong transportation network. Governments can help create new technologies to make shipping operations more efficient and cost-effective, and ensure fair regulations.
Lack of experts and financing
The lack of skilled labour is another challenge Bangladesh's electronics sector faces. Despite a large population, there is a shortage of skilled workers with expertise in electronics manufacturing. This limits the capacity of local companies to expand their operations and meet growing demand.
Industry and education sectors should work very closely to build an ecosystem like developed countries for creating a skilled workforce with hands-on training from school, college, and university levels to help these industries find suitable resources in the long run. Being informed about the latest insights and trends regarding digitization can better equip us against all possible threats in the near future.
Inadequate access to finance is a significant hurdle for small and medium-sized enterprises (SMEs) in the electronics and digital device sector. Many SMEs struggle to secure loans from financial institutions due to stringent lending criteria and high-interest rates. This restricts their ability to invest in technology upgrades, research and development, and expansion, hindering their growth potential.
Access to capital is crucial for investing in research and development, scaling operations, and competing in the global market. Attracting foreign investors and helping with lower interest rate policy for long-term loans will enhance local manufacturing of digital products and help to increase the market share of this sector.
Lessons from other countries
Fortunately, Bangladesh can learn from the experiences of other Asian nations, such as South Korea, China, Taiwan, and Japan, which have made significant investments in R&D, education, and infrastructure to foster digital innovation along with collaboration between private and public sectors. Their success in the technology and electronics industries has stimulated their economies and created many employment opportunities. By emulating their strategies, Bangladesh can diversify its economy and delve into the immense potential of this sector.
Md Touhidur Rahman Rad is the Chief Business Officer, Walton Digi-Tech Industries Ltd (Computer, IT & E-bike), and a Fellow, CUBE (Coalition for Upgrading Bangladeshi Economy), Youth Policy Forum. Redwan Uz Zaman Reham is a Student, Bachelor of Philosophy, Politics and Economics, The University of Western Australia (UWA) and an Associate, CUBE, Youth Policy Forum.
