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.
If we look at South Korea, they have a lengthy history of investing in research and development (R&D), as evidenced by the country's progress towards becoming a technological superpower. In 2021, the nation allocated 4.5% of its GDP to R&D, surpassing other OECD nations. This kind of financial investment has produced global tech titans such as Samsung, LG, and Hyundai, firmly establishing South Korea's position in the innovative landscape.
Early South Korean trade policies were extremely protectionist, but in the 1980s and 1990s, the government gradually opened the economy. This initiative was meticulously planned and executed, with the government supporting domestic industries in the face of increased international competition. In 1961, the Export-Import Bank of Korea (Eximbank) was established as a vital trade policy initiative. Eximbank-Korea provided financing and other assistance to Korean exporters, enabling them to compete in global markets and progressively abandon protectionist policies.
It's not just about the statistics. South Korea's prosperity can be attributed to its unwavering commitment to human development. The country's remarkable education system with one of the world's best literacy rates has produced a highly skilled and technologically savvy workforce. Approximately 2 million South Koreans are employed in the technology sector, highlighting its importance to the nation's economy.
Moreover, South Korea has excelled at creating public-private partnerships (PPPs) that have boosted its technology sector. These collaborations have seamlessly united the efforts of the government and the private sector, channelling resources into research, technological innovation, and the commercialization of innovative ideas.
Additionally, South Korea's ascent into the world of technology has been fuelled by its astute approach to trade policies. Reduced technological barriers, export subsidies, and advantageous trade agreements have propelled the nation's electronics industry onto the international stage. Notably, the signing of the Regional Comprehensive Economic Partnership (RCEP) in November 2021 by ten ASEAN states, including China, Japan, South Korea, Australia, and New Zealand, opens doors to approximately 30% of the world's GDP and one-third of the global population.
Japan
On another hand, Japan, a nation with more than 14 thousand islands, has been Bangladesh's closest ally throughout the nation's entire history. Its long history of innovation is another prime example of effective tech sector policy reforms.
This island nation consistently invests in R&D, having allocated 3.24% of its GDP to this endeavour in 2021 -- placing it among the top four OECD countries in R&D spending. The investments through history bear fruit in the globally renowned technology companies such as Sony, Panasonic, and Toyota.
Japan's government and private sector collaboration has fostered a robust innovation ecosystem where cutting-edge technologies prosper. Hence, PPPs have been crucial to Japan's technological success. Collaborations like with the World Food Program (WFP) in 2021 demonstrate Japan's dedication to utilizing PPPs for the greater good, particularly in biotech and agro-tech.
The commitment of Japan to human development is also noteworthy. The country's renowned education system has contributed to one of the world's highest literacy rates. This solid educational foundation has produced a skilled labour force equipped to contribute to the development of the technology sector.
Moreover, Japan's forward-thinking policies include incentives to halt the rural population decline. Families willing to relocate outside Greater Tokyo are offered 1 million yen ($7,500) per child, demonstrating the nation's commitment to providing time-bound incentives and subsidies to promote development across the country.
Bangladesh can emulate Japan's success in the technology sector, but it faces three main challenges: A shorter history of innovation, a less developed technology sector, and a less supportive government policy environment. Like South Korea, by investing heavily in R&D, education, and training and creating a more favourable policy environment, Bangladesh can overcome these challenges and develop a thriving technology sector.
India
Being one of our few neighbouring countries, India serves as the finest example to learn. In terms of IT services exports, India's tech industry has become the second largest in the globe in recent years.
India's early trade policies were also protectionist, but in the 1990s, as part of a broader economic reform program, the government began to open up the economy. One significant trade policy initiative was the establishment of the National Manufacturing Competitiveness Council (NMCC) in 2005. NMCC assists Indian manufacturers in becoming more competitive in international markets. Recently in 2022, the government negotiated the Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates, opening the Indian market to foreign commerce.
R&D has been a major area of focus. Several institutions, including the National Research Foundation of India (NRF) and the Technology Development Board (TDB), have been established by the government to support fundamental and applied research in science and technology. These institutions have contributed to the innovation and development of new technologies adopted by Indian enterprises.
India is the world's most populous nation as of April 2023, so human development is another crucial area of focus. The government has made substantial investments in education and skill development, establishing a talent pool for the technology industry. The government has also launched programs like Startup India to encourage entrepreneurship and innovation.
The government has implemented policies that encourage public-private partnerships in the technology sector. For instance, the India Silicon Valley program seeks to attract foreign direct investment (FDI) in the Indian technology sector. The government has partnered with industry associations such as the National Association of Software and Services Companies(NASSCOM) to promote the tech sector's development.
India has also applied a number of trade policies to support the technology industry. For instance, the government has reduced import duties on IT hardware, making new technology investments more affordable for enterprises. Consequently the government managed to negotiate a number of favourable trade agreements with other nations, granting Indian technology companies access to new markets. These policies and initiatives have served to foster the development of the Indian technology sector. Consequently, India is now home to more than 50,000 startups, and their number continues to grow.
Setting Bangladesh apart
Bangladesh can distinguish itself from India and Japan by concentrating on niche technological areas in which it has a comparative advantage. For instance, Bangladesh could concentrate on developing agricultural, textile, or healthcare technologies. By emphasizing these sectors, Bangladesh could entice foreign investment and generate employment opportunities for its citizens.
Additionally, Bangladesh could create a more sustainable technology sector. This may involve a concentration on developing renewable energy technologies, energy-efficient technologies, and circular economy technologies. If it develops a more sustainable technology sector, Bangladesh could be seen as a global champion in transitioning to a green economy.
To promote the development of the electronics sector in Bangladesh, the government and other stakeholders must address the challenges it faces, including high import duties on raw materials, inadequate infrastructure, a lack of skilled labour, and inadequate access to finance. Bangladesh can diversify its exports, create jobs, and boost economic growth by creating a more conducive environment for the electronics sector to thrive.
Specifically, the government could reduce or eliminate import duties on raw materials for digital goods, invest in developing a skilled workforce in electronics manufacturing, provide financial assistance to SMEs in the electronics sector, and develop a national logistics strategy to improve the efficiency of domestic and international transportation and logistics. By taking these steps, the government can help to create a more vibrant and competitive electronics sector in Bangladesh.
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.
