Reverse flow taking e-commerce startups to overseas business havens

Opening up scope for foreign companies to make investment on their own in e-commerce business in Bangladesh failed to make headway and left the country lamenting missed chances of hitting a jackpot of billions of dollars in global sales.

Three years have elapsed with little gains since the government, in June 2020, made a decision allowing 100-percent foreign direct investment (FDI) in e-commerce, which was capped earlier to 49 per cent in the National Digital Commerce Policy 2018.

Although it is one of the fastest-growing sectors worldwide in the digital era, Bangladesh stands nowhere near what it takes to lure investment to grab a countable slice of the business cake, and thus lagging behind other South Asian countries in cashing in on electronic commerce that transcends once-sovereign borders.

Absence of an integrated policy, lack of dedicated authority and erosion of confidence of consumers following recurrent scams are cited by industry- insiders as deterrents, apart from prolonged global uncertainty.

Worse still, there has been a reverse trend created in which many of the e-commerce businesses have shifted their ventures to business hubs like Dubai, Singapore and Malaysia to tap their market potential, industry- insiders said.

They said local investors in e-commerce business are now preferring those countries following erosion of consumer trust due to confidence trick and scams and also for a lack of policy support.

In the South Asian region, cross-border e-commerce comprises 55 per cent in Singapore's total digital trade while 40 per cent in Malaysia.

Currently, two multinational companies (marketplace) -- Daraz, which was originally based in Pakistan, and Germany-based Food Panda -- are operating here having invested in 2014 and 2013 respectively, before the opening up of the doors in 2020.

However, Chinese tech-startup giant Alibaba acquired Daraz in 2018 -- in one of their acquisitions of businesses across the world.

Global e-commerce brands such as Amazon, Walmart, ebay, target, Lazada, Rakuten, and BigCommerce who have also spread their wings the world over are yet far off the bounds of Bangladesh.

Amazon, Wallmart, and e-bay have investment in India through its e-commerce penetration which is, however, still about 8.5 per cent of the total population.

Industry-insiders say there is scope to invest in Bangladesh as field is open here with a huge size of domestic consumers in a country of 170 million.

According to the e-Commerce Association of Bangladesh (e-cab), the e-commerce market in Bangladesh is set to grow by US$4 billion to $10.5 billion by 2026.

TIM Nurul Kabir, Executive Director of the Foreign Investors Chamber of Commerce and Industry (FICCI), says overall investment situation remained stagnant in Bangladesh during the last three years, like all over the world.

According to Washington-based research platform Macrotrend, FDI in Bangladesh declined by 9.77 per cent in 2022 compared to that of the previous year.

Mr Kabir feels that the major e-commerce companies may invest in Bangladesh if the government considers opening up barriers to cross-border e-commerce, eases legal framework for repatriation of profits and pays attention to rebuilding consumer trust.

He also suggests that online-payment gateways like Paypal be allowed in the country on a full scale to facilitate investors in digital business.

Though PayPal is available in Bangladesh, its services are limited here. Bangladeshi users make payments through PayPal using foreign IDs for purchase of goods and services online.

Existing investors also felt the necessity of creating investor-friendly atmosphere in e-commerce sector to make the market vibrant and competitive.

"Investors have adopted wait-n-see approach following global turmoil, Russia-Ukraine war, US-China tension and high inflationary pressure world-wide," says Khondokar Tasfin Alam, Chief Operating Officer (COO) of Daraz Bd (Alibaba Group).

"We'll welcome new investors in this area. Usually, investors want a sustainable growth in their business that has been jeopardised by growing uncertainty in the world economy," he said, expecting new FDI in this sector in the next two-three years.

The Daraz COO, however, mentions that FDI in e-commerce sector has not been visible in other neighbouring countries, too, including in India, in this period.

Apart from food and beverage categories, e-commerce penetration in Indonesia and Singapore is approximately 30 per cent while it is about 15 per cent in the Philippines, Thailand and Vietnam, findings by Mckinsey&COMPANY showed last year.

Ambareen Reza, co-founder and Chief Executive Officer (CEO) of Foodpanda Bangladesh, feels that, while foreign direct investments in the e-commerce sector currently fall below desired levels, its strong potential to attract more FDI remains evident.

"Despite the sector's present contribution of less than 1.0 per cent to GDP and a current investment of only $2.0 per capita, compared to India's $70-$80, there is an opportunity to raise its share in GDP to 5.0 per cent within the next 5-6 years," she says.

She points out high cost of internet use, which is seven times above the global average, as one of the major hurdles in the way of attracting investment in e-commerce.

"Enhancing data accessibility, and refining venture-capital exit strategies are imperative too to bolster FDI in the sector," she says.

Prioritizing delivery infrastructure, advancing rural digital literacy, introducing e-commerce education, and fostering entrepreneurial inclusivity are necessary, too, not only for expanding the sector's scope but also enhancing its appeal to foreign investors and facilitating its growth trajectory, she adds.

Ms Reza has found the prevalence of limited digital penetration a significant challenge, and underscores the importance of fostering digital awareness and inclusivity.

"Operating in a relatively nascent market, we've observed that sustained growth hinges on strategic investments in technology and consumer education," she says about ways of a breakthrough.

Jahangir Alam Shovon, Executive Director of the e-cab, has noticed e-commerce businesses grow tremendously during the COVID-19 period in other countries while it was "far below the global average".

In Pakistan, Vietnam and Cambodia, e-commerce business surged up to 700 per cent on food delivery in pandemic period while it was up to 300 per cent in Bangladesh in both grocery and food delivery.

"Growth in e-commerce is not commensurate with the number of smart- phone users and growth of digital technology in Bangladesh," he says.

Some of the foreign investors fear whether the upcoming law of e-commerce may affect their investment plant, he adds.

According to the market forecast of German platform Statistia, the number of users in e-commerce in Bangladesh is expected to number 86.1 million and user penetration to hit 47.9 per cent by 2027.

The average revenue per user (ARPU) is expected to amount to US$116.40.

It would show an annual growth rate (CAGR 2023-2027) of 15.78 per cent, resulting in a projected market volume of $13.71 billion by 2027.

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