Innovation in financing sustainable development

Bangladesh is facing significant development challenges while addressing the sustainable development goals (SDGs) and trying to meet growth aspiration to become a high-middle income country by 2030. Some of these challenges are about creating high-income jobs for educated youths, leveraging low-cost labour advantage, improving production competitiveness, and driving inclusive, green growth. In addressing them, public debt should be kept at a tolerable level, which has been experiencing sharp upsurge. Moreover, the non-performing bank loan issue should be seriously taken into consideration. On the other hand, there has been a call for addressing substantial financing gap to meet the SDGs. In addressing these issues, should Bangladesh keep looking for grants, debts and foreign direct investments to scale up production? Or, is it time to bring innovation in development finance?

Historically, protection for import substitutions, investment in infrastructure, fiscal incentives for attracting foreign direct investment and regulations for addressing environment have been the major elements of Bangladesh's strategy in driving economic growth. Protection in import substitution strategy pursued the policy of technology import for opening the door of labour addition with the purpose of creating industrial jobs and offering low-cost import substitution. But it has been found that such a strategy has failed to deliver low cost import substitution. On the other hand, the import of labour substituting technologies has been continuously closing local job creation windows. As a result, on one side, the government's liability has been increasing, and on the other, non-performing bank loans have been soaring to alarming levels. The success in attracting foreign direct investment does not appear to be encouraging either. Moreover, such technology import-driven policies have failed to create a local innovation market for sustainably addressing competitiveness.

In export and foreign direct investment, although Bangladesh has achieved some success, both sustainability and scalability are now big questions. So far, job creation has been for the low skilled labour force. Prevailing policies have been failing to create high-income jobs for university graduates. On the other hand, the government's debt for financing mega infrastructure projects is a growing concern. If 40 million students fail to get high-income jobs upon graduation, and the existing labour advantage disappears due to technology progression, how will Bangladesh repay the debts with interest?  It is presumed that within the next 30 years or so, Bangladesh's labour force will start showing signs of aging. In this context, what could be an alternative to finance development in creating sustainable growth opportunities?

For addressing most of the 17 goals and 169 targets of sustainable development goals (SDGs), existing ways of getting things done should be upgraded with the next generation technologies. In addition to importing technologies, Bangladesh can craft local innovation as a strategic tool. To leverage this opportunity, the focus should be on R&D to develop a concept to stimulate innovation and start-ups. The subsequent step would be to stimulate the local demand creation of those innovations. Once innovation driven start-ups in addressing local problems begin showing potential, foreign venture capital funds will likely pour in. Despite some successes in attracting foreign direct investment in manufacturing and telecom, and receiving concessional loans for infrastructure and power, Bangladesh's success in attracting foreign venture capital to thrive in the innovation space is virtually negligible. For example, Bangladesh has not succeeded even in attracting a single dollar of investment from SoftBanks' $100 billion portfolios.  

Venture capital finance is no longer a local phenomenon, limited to certain hotspots like Silicon Valley.  Among major global funds, SoftBank's Vision Fund of 100 billion is a new source of global risk capital to finance possibilities anywhere. For example, as reported by Forbes, venture funds globally raised $79 billion and invested $275 billion in 2018 across the globe, according to statistics from alternatives assets provider Prequin in London. Similarly, long-time tech investor SoftBank Group plans to raise a new fund every couple of years and invest $50 billion a year. Capitalising on this new source of fund, with no repayment obligation with interest, appears to be an opportunity for developing countries like Bangladesh. But this is not a grant. They are targeting prospects in generating at least 10 times return on the capital to be invested. How to create such prospects is the challenge to leverage this financing opportunity. 

To create such prospects, we should look for opportunities to strengthen local production capacities through innovation. For example, data analytics-based innovation from images provided by unmanned aerial vehicles (commonly known as drones) has the potential of reducing road repairing cost, increasing farming yield, reducing failure of power and gas infrastructure, lowering traffic congestion, and assuring the quality of construction. The exploitation of such innovation potentials will likely contribute to fulfill SDGs' targets. Such innovations have global outreach. For example, global data analytic service for deriving actionable insights from imagery provided by UAVs has been increasing at a rate of around 30 per cent annually. Expertise in this area has the potential of creating start-up success stories in generating high-paying jobs in offering such service over the internet anywhere in the world.

In order to exploit this new form of development finance, developing countries like Bangladesh should invest in R&D to support innovation and start-ups around next-generation technologies to strengthen local productive activities. Policies should be updated in creating local demand of those innovations so that advancement in SDGs gets easier, and proven competence is acquired to support global start-up success stories. Once those start-ups start showing globally competitive promises, it's likely that global VC fund managers will start providing risk capitals, opening access to the global network, and offering advisory services to make them global success stories. As opposed to debt, this mode of financing opens up the opportunity of creating new wealth and high paying jobs in addressing SDGs. It's time for developing countries to graduate from the conventional thinking of financing through debt money to tap into global venture capital finance to develop innovation economy--to succeed in meeting Sustainable Development Goals. 

M Rokonuzzaman Ph.D is academic and researcher on technology, innovation and policy. [email protected]