ICT industry thriving, needs reform

The Information and Communications Technology (ICT) sector of the country has been maintaining 57.21 per cent export growth on an average over the last nine years. In the fiscal year (FY) 2016-17, it registered export earnings worth US$ 0.8 billion from the global market and US$ 1.54 billion from the domestic market span - thereby making around one per cent contribution to the gross domestic product (GDP).

The ICT sector has created around three hundred thousand job opportunities. Not only that, the horizontal and vertical integration of the software and IT-enabled services (ITES) sector has upgraded the lifestyle of the people alongside industrial and government efficiency in many ways. Around 80.83 million people are using internet now (BTRC, 2018) and 59 million are registered under the mobile financial services until January this year (Bangladesh Bank, 2018). This can be deemed as a catalyst to ensure inclusive financial and equitable economic growth mostly targeting the unbanked people as they transacted around US$ 42 billion alone last year.

IT/ITES firms are often dubbed as knowledge factories serving the purpose of making a 'knowledge-based country' by 2041. The 'knowledge-based country' is going to be more relevant in the coming days as Bangladesh is on the cusp of graduation from the category of least developed countries (LDCs) and has aimed to be a developed one by 2041.

In pursuit of a 'Developed Bangladesh' by 2041 through skipping the 'middle-income country trap' after 2024, it is required to start initiating policy reforms such in a way that would make a bridge between the future transitory phases, from LDC to middle-income country (MIC) and MIC to a developed economy. To reach there and to enable Bangladesh's ICT sector operating to its optimum level, the following reforms should be undertaken:

n Minimising skills gap: The government through BASIS should conduct skills gap analysis every year as the IT/ITES industry's skill dynamics change pretty frequently. It is also needed to remould the academic curricula and introduce new syllabus immediately. Besides, if any long-term project is taken to upskill the graduates, then that project should consider re-analysing the skills gap of the industry every year and initiate new training programmes accordingly to meet the changing demand of ICT industry.

n Inclusive ICT industry growth: The Ministry of Commerce in its publication "Towards Digital Bangladesh: Scenario of 2017" said BDT 92.63 billion has been allocated in 73 development projects in the fiscal year 2017-18 with a view to digitalising the country. The amount is 38 per cent higher compared to the last FY 2016-17. However, it shows that almost nothing has been allocated to use the local industry-developed cutting-edge technologies. In this regard, it is suggested that at least 10 per cent of such allocations should be kept for spending on IT/ITES upgradation and maintenance in a bid to get things truly digitalised while creating market opportunities for the local ones. The government can also inspire local IT/ITES firms during electronic procurement process like e-tendering. There should be an additional provision in e-tender process that can stipulate the Bangladeshi ICT firms performing at least 40 per cent value addition within the country will get additional preferences during the entire process to be selected. It'll save foreign currency from getting drained away and ensure inclusive ICT growth - thereby expanding local market opportunities for the country's IT/ITES firms.

n Rationalising electricity costs: Most of the local IT/ITES firms are still in the shape of micro and small enterprises as was recognised in the country's National Industrial Policy-2016. As per BERC  Order (November 2017) No. 28.01.0000.012.04.013.12-6487, the flat rate charged for every unit electricity used in small industries is BDT 8.20. However, the micro and small enterprises in the field of ICT are not getting the benefit as they are still charged BDT 10.30 by DESCO for per unit electricity consumed. In fact, DESCO counts them as commercial entities housed in commercial spaces, which they are not in the truest sense. Under such circumstances, BASIS can be made the certifying agency while charging BDT 8.20 for every unit of electricity used in micro and small ICT enterprises. It'll certainly cut down the firms' electricity bills by 20.39 per cent and significantly lower operational costs, which will eventually enhance the industry's competitiveness further.

n Restrictions on substitutive IT/ITES imports with relaxations of operating system, database not locally developed: To sustain the market of Bangladesh's IT/ITES industry, restrictions may be imposed temporarily on the imports of substitutive products/services, which are already available and generated in local market. Meanwhile, customs duties on basic software, which are not usually developed in recent time and has no potential to be developed by local ICT firms in near future, should be reduced significantly. To make Bangladeshi ICT firms competitive compared to other competing countries, the total tax incidence (TTI) should be immediately made at par with standard TTI rate. Otherwise, the increased cost due to the high tax burden can lead the local IT/ITES firms to uncertainty in expanding optimally.

n Creating further awareness on tax, vat, customs duty, cash incentives etc: The government in association with BASIS may devise appropriate knowledge disseminating tools to enable BASIS members to get familiar with all aspects of customs (tax & VAT), banking issues, international trade dynamics (tariff and non-tariff barriers), emerging and specific market information and entry strategy into those countries to boost export earnings. Although Bangladesh Bank of late has declared a circular outlining the total mechanism for providing 10 per cent cash incentive on the exports of hardware, software and ITES from Bangladesh during the fiscal year 2017-18, none of the firms could reap the benefit as of now since they are not aware of the documentation process. Therefore, it has been felt that the central bank along with BASIS should arrange training programmes and workshops to enable the local IT/ITES firms so that they can avail the financial scheme offered by the government.

n Declaring more cash incentives: The government can also think of providing 20 per cent to 30 per cent cash incentives for IT/ITES exports instead of recently-declared 10 per cent incentive (Bangladesh Bank/February 08, 2018). It can be implemented immediately based on BASIS certification. It would help inspire local IT/ITES firms not to retain a major portion of their export earnings with the foreign/offshore bank accounts being constrained by domestic rigid rules and regulations and also help bring more export earnings in the country.

n Engaging local IT/ITES firms with mega project: The government has already implemented a mega VAT online project as part of implementing a national single window for VAT. In such projects, the government should prepare a set of preferential rules to engage the capable domestic IT/ITES companies with such projects at different layers, rather than entirely awarding the work order of those projects in favour of the foreign firms.

n Easy access to finance: The government may think of taking necessary steps to inspire commercial banks, capital ventures and non-banking financial institutions disbursing adequate finance to the local ICT firms - thereby setting some flexible conditions. The scheme can be devised particularly for those intend to increase their capacity by installing new state-of-the-art technology.

n Single digit interest rate on credit: Although ICT industy has been maintaining steady growth in terms of export earnings and local market expansion, credit lines in the form of investments have been required to meet the growing demands. But the interest rate is still high, which, in turn, is creating pressure on rising operational costs. Taking this into consideration, the government should take necessary steps to ensure uninterrupted financial support. That means the paperwork of commercial banks should be eased further by way of taking less time to process those. Interest rate in such cases must be brought to single digit, which as if now stands at 12.77 per cent.

n Additional funds for research and development: Research and development activities (R&D) are of huge importance for the continued growth and escalation of this thriving industry. In this regard, the government must invest in the R&D with a view to boosting the country's IT/ITES industry. Although there are some R&D facilities available under the Fellowship and Innovation Rules (Amendment) 2016 for the Information and Communication Technology Sector Research (ICT Division, 2017), the total sum allocated should be increased and more initiatives have to be taken to further engage the industry people, academia and research scholars.

The digital revolution that Bangladesh is going through now is principally backed by its home-grown multi-dimensional ICT industry. To scale up national productivity and efficiency through appropriate use of ICT and in order to maintain 10 per cent GDP growth in next two decades escaping the middle-income country trap, it is required to continue policy reforms. What's highly necessary now is to support the country's thriving ICT industry that is making us proud every day!

Enamul Hafiz Latifee  ([email protected]) is Programme Manager, Bangladesh Association of Software and Information Services-BASIS.

Md. SajibHossain  ([email protected]) is Senior Assistant Secretary, Bangladesh Knitwear Manufacturers and Exporters Association-BKMEA