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The rapid growth of digital platforms is transforming our economic landscapes and social lives. Access to high-speed internet connections and the growing usage of digital applications, tools, and communication technologies are leading to a range of improved business outcomes, such as productivity gains, cost savings, and new revenue streams. Increased availability of smartphones is reshaping consumer experiences, financial transactions, social interactions, and leisure and entertainment.
A broad range of economic activities that utilise digitised information and knowledge as the key factor of production; information and communication networks as an important activity space; and aim for effective service delivery, productivity growth, and business process optimisation is, taken as a whole, termed the digital economy. Organisations, people, and machines interconnected with the Internet, Internet of Things (IoT), and mobile technologies are the foundation of the digital economy.
In a digital economy, companies use digital data to create their business models. Numerous sectors at present depend on or are significantly enhanced by digital technologies and digital inputs for production and service delivery, such as telecommunications, banking, insurance, tourism, agriculture, trading, health, education, and others. Digital services, products, and solutions are enhancing efficiencies, increasing productivity, generating insights through data analytics, expanding access to information and knowledge, and facilitating communication across the globe. The digital economy is not merely an avenue for generating more profits; it is the highway toward more efficient growth and inclusive prosperity. The most visible components of the digital economy are:
- ICT equipment, semiconductors industry;
- Telecommunication and Internet services;
- Data processing, software and other information services;
- Online platforms, including e-commerce platforms;
- Platform-enabled services (e.g. ride sharing, etc.).
The digital economy has the potential to grow and flourish when certain basic factors are in place. The first and foremost requirement is reliable, high-speed, robust digital infrastructure. Other important factors include digitally competent and engaged companies as well as digitally willing and competent employees, consumers, and citizens. An inclusive digital ecosystem where no one is digitally excluded is the touchstone of success in the digital world.
Digital infrastructure: High-speed, reliable and robust digital infrastructure is the key to digital economy. Digital infrastructure consists of connectivity through high-speed internet and related technologies, IoT such as mobile devices, appliances, computers, sensors, geospatial instruments, machine to machine communications, etc. and data repositories such as data centers and cloud technology. Digital infrastructure provides the channel for people, businesses and governments to access online local and global digital services and connect them to the global digital economy.
Growing reliance on connectivity in the developing world is transforming economies, societies, governance, and interpersonal relationships. The digital transformation was accelerated by necessity during the COVID-19 pandemic when people, businesses, schools, and governments had to rapidly adopt digital channels amid lockdowns and social distancing guidelines.
In Bangladesh, growing demand for digital devices, connectivity and consumer gadgets among the emerging middle class have created a favourable environment for the growth of digital economy. Bridging the digital divide is crucial for developing an inclusive society in which digital economy can thrive.
Digital inclusion: Globally, digital inclusion has become a top policy priority. In 2023, the G20 Leaders' Summit in New Delhi put emphasis on digital inclusion. Additionally, the UN Economic and Social Commission for Asia and the Pacific (UNESCAP) highlighted the importance of digital inclusion and cooperation in its 2023 Annual Report.
The mobile telecommunication technology thrives as the vital organ of the digital ecosystem. Key transformative power of mobile technologies lies in their role as the enabler of digital economy. According to the Association of Mobile Telecom Operators of Bangladesh (AMTOB), more than 98 per cent of the population in Bangladesh is covered with high-speed 4G network. The Mobile Network Operators (MNOs) are playing a positively supportive role to bridge the digital divide by providing fast and reliable connectivity, particularly in rural areas where other options are limited. The MNOs have invested heavily in their infrastructure with capital expenditure (capex), set to increase mobile broadband network deployments.
A vast number of literature show evidence regarding the enhancing effects of ICT adoption on growth and development. Researchers have shown that a 10 per cent increase in mobile broadband networks adoption causes a 0.14 per cent increase in GDP for non-OECD countries. And a 1 per cent increase in mobile phone penetration leads to a 0.12 per cent increase in human development index in South Asia.
The benefit consumers receive from mobile technologies is usually quantified by using an economic concept called consumer surplus, i.e., the value that consumers themselves receive, over and above what they pay for devices, apps, services and Internet access.
According to data from Bangladesh Telecommunication Regulatory Commission (BTRC), over 90 per cent of the total internet subscribers in Bangladesh use mobile internet. The MNOs are now the digital service providers offering numerous digital services to diverse segments of customers. For the 117.47 million mobile internet subscribers, the MNOs are offering diverse digital services such as e-education, e-health, e-commerce and e-entertainment.
However, certain barriers for access to the digital economy and digital government services still exist. More than 50 per cent of the population in Bangladesh covered by mobile internet networks still do not subscribe to internet services. Affordability of digital devices and data as well as lack of digital literacy are core reasons for such shortfall in digital inclusion.
Financial inclusion: Mobile Financial Services (MFS) have successfully brought a substantial number of previously unbanked poor populations into the formal banking system.
MFS operators are supporting financial inclusion and boosting the growth of the digital economy in Bangladesh. Disbursement of government financial support under social safety net programmes and stimulus packages through MFS has broadened the range of people into the formal financial system.
Currently, 10 banks and 3 subsidiary companies in Bangladesh are providing MFS as an alternative payment channel. Among the more popular MFS providers are bKash, Rocket, Nagad and others. Initially confined to money transfers, the landscape of MFS has been changing with providers introducing digital credit and money-saving features through mobile applications, boosting a broader and more sophisticated financial ecosystem. The share of money transfers stood at 86 per cent out of all transactions in 2022, whereas merchant payments, salary disbursements, government cash transfers to people, utility bill payments, talk-time purchases, and other usages accounted for more than 10 per cent of all transactions.
bKash has been a leader in introducing innovative digital financial services in Bangladesh. bKash offers various bill payment services, including utility bills, internet bills, and mobile phone recharges. bKash has expanded its services to enable users to make payments at various merchants, allowing for cashless transactions at shops, restaurants, and other retail outlets.
bKash has collaborated with international partners to facilitate cross-border remittances, providing a streamlined and cost-effective way for Bangladeshi expatriates to send money home. bKash pioneered digital nano loans and savings accounts through MFS, promoting financial inclusion and allowing users to access credit and savings services. bKash also introduced utility bill payment, ticket payment, government services and educational fee payment, insurance premium payment, government-to-person payment, salary disbursement of RMG and other organisations.
To boost the current momentum of building a robust digital economy, it is crucial to bring Micro, Small, and Medium Enterprises (MSMEs) into the fold of the digital ecosystem. Integrating MSMEs to utilise the convenience and harness the competitive advantage of digital transactions will accelerate our move towards building a cashless society.
The growth potential of MFS in Bangladesh has yet to be fully tapped. Mobile financial transactions are still dominated by point-to-point (through agents) and person-to-person (P2P) transactions. Payment for the vast majority of e-commerce orders is still done on the basis of cash on delivery (COD). MFS operators need to come up with offers that are easy to use and inexpensive in terms of transaction costs to encourage more customers to switch to digital payments and transactions.
MFS is boosting economic growth and supporting the expansion of the digital economy. MFS providers need to work with financiers (banks, NBFIs, and MFIs) to provide loans, insurance services, and innovative savings schemes, some of which have already been implemented as pilot initiatives and are known to have generated promising results. Inward remittance flows through MFS represent a highly potential segment for Bangladesh.
IT industry in Bangladesh: IT industry in Bangladesh has seen significant growth in the last decade, driven by such factors as increased internet penetration, growing pool of skilled IT professionals as well as initiatives on behalf of government. According to the Bangladesh Association of Software and Information Services (BASIS), the software and IT services industry has been growing steadily, with annual revenue reaching around $1 billion by 2020. According to the Export Promotion Bureau (EPB), earnings of domestic IT firms stood at $221.15 million in July-November of 2023-24.
The IT industry in Bangladesh comprises software development and IT-enabled services (ITES), including business process outsourcing (BPO) services, which have high export potential. According to the Bangladesh Association of Software and Information Services (BASIS), export earnings from software and IT services reached around $1 billion USD in the fiscal year 2020-2021. To gain a competitive edge in the global market, IT firms in Bangladesh need to form partnerships with international partners for brand building and the reduction of production costs through economies of scale.
Unlocking the growth potentials: Domestic e-commerce and f-commerce has been rising fast in Bangladesh in recent years, particularly since after lockdown during COVID-19 pandemic. According to the e-Commerce Association of Bangladesh, e-commerce sales increased by 70 per cent in 2020 compared to a year earlier. The e-commerce retail sector is a significant source of foreign investment, which reportedly raised approximately $41 million dollars in 2020.
In 2016 Malaysia became the first country in the world to establish a Digital Free Trade Zone (DFTZ) to promote e-commerce by providing a state-of-the-art platform for small and medium enterprises (SMEs) and others. Jack Ma, CEO of Alibaba, the largest e-commerce company in the world, is reported to have committed major investments to the DFTZ.
India has successfully made technical advancements in diverse digital economy sectors, such as internet marketing services, e-learning initiatives, online banking capabilities, and the digitisation of bus and rail systems. Digitalisation is set to boost Indian Railways, enabling the adoption of many features planned for the Future Railway Mobile Communication System (FRMCS). GPS tracking, live bus locations, and mobile alerts have enhanced the convenience and safety of bus travel. Operators also benefit from technology in terms of fleet management, curbing speeding, and managing route deviations.
The Industry Development Program (IDP) of Sri Lanka has been put forward with foresight and designed localised projects to align Sri Lanka's tech ecosystem with global trends, aiming to generate $3 billion in annual foreign exchange revenue from the knowledge services and electronics sectors.
As a middle-income nation in the Indian Ocean, Sri Lanka has adopted a forward-looking strategy for fostering a sustainable digital economy, balancing the benefits of technological advancements with long-term viability. Emphasising the development of robust technological infrastructure to ensure widespread digital inclusion and literacy, the National Digital Strategy of Sri Lanka aims to encourage innovation and entrepreneurship and provide support for new business ventures. The Digital Strategy of Sri Lanka emphasises dynamic public-private partnerships (PPPs) to invigorate the digital economy, improving governance and growth.
Future path for the digital economy: Cutting-edge innovations led by advanced digital technologies have emerged as key drivers of business growth, economic development, and lifestyle improvements. People, organisations, and machines interconnected with the Internet, the Internet of Things (IoT), and mobile technologies are reshaping business processes, governance procedures, workplaces, markets, payments and transactions, consumer experiences, social interactions, and entertainment.
The digital economy is creating income-earning opportunities, generating jobs, and facilitating the delivery of public services. To boost growth in the digital economy, it is crucial for Bangladesh to adopt a viable strategic approach. There is an urgent need to enhance the skills of the workforce, including technical skills as well as an understanding of international market dynamics, intellectual property rights, and global trade regulations.
Education, IT outsourcing, digital media, telecommunications, and emerging Fourth Industrial Revolution (4IR) technologies are the present and future categories of the digital economy in Bangladesh. As Bangladesh strides towards a knowledge economy, large-scale investment is essential for the deployment and development of technologies such as 5G, AI, IoT, machine learning, and big data for various manufacturing and service industries.
It is imperative for Bangladesh to invest in digital infrastructure, research and development (R&D) for innovative solutions, services, and products, and in the creative ingenuity of young generations to create a machine-ready human resource proficient in 4IR technologies. This will fully explore and harness the transformative powers of the digital economy and facilitate the transition to a knowledge economy.
The writer is a trade, investment & technology analyst.