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For nearly two decades, Bangladesh has blindly put its faith into the hands of the RMG (ready-made garments) sector, and indeed this sector has been the cardinal impetus for the economic prosperity that the nation has enjoyed from the 1990s to current times. With the proliferation of the garment factories, exports grew from a paltry few hundred million USD in the early 1990s to over USD 30 billion in FY 2018; additionally, this sector has generated full-time employment for more than 4.0 million Bangladeshi nationals, 80 per cent of whom are women, and propelled the nation to the apex of garments producing nations in the world map. Yet, we Bangladeshis always tend to ooze excess excitement about any of our achievement, and that has been the case for the RMG sector for nearly a decade.
While the rise of Bangladesh in the RMG sector has been nothing short of an economic tour de force, if Bangladesh is to continue its ascent into the pinnacle of economic prosperity, it must wield and utilise other sources of economic stimulus within the national economy-the vial of economic elixir given by RMG is only drops away from exhaustion. However, this by no means defames the RMG sector as it will still remain the keystone economic sector for the nation for years to come. Instead, to continue rapid growth in the national economy, Bangladesh must find a way to close its national trade deficit, which has grown from approximately USD 500 billion to USD 1750 billion. Although trade deficits don't necessarily spell economic perdition for a nation, it generally implies that plenty of manufacturing and export jobs are being lost to foreign economies due to a high reliance on imports to satiate national demands. With RMG sector import growths on the decline for nearly a decade, Bangladesh and its citizens must accept a bitter reality-for once the answer isn't garment factories. To achieve a lower and possibly positive trade balance, Bangladesh must localise its consumption, and luckily the nation has a hidden chest of answers. SMEs (small and medium enterprises) are the solution to Bangladesh's current economic problem, and although this sector of the economy has been perpetually thwarted by a host of locally fostered economic parasites, the prospects of this sector are immense and unprecedented.
SMEs have been the lifeblood of local employment in Bangladesh, employing 80 per cent of industrial workers in the nation (about 25 per cent of the total national workforce) and constituting 31 per cent of the national GDP (gross domestic product). SMEs are often the businesses that introduce a novel product or service in the markets, and these companies are generally the ones that break from convention to create innovative solutions to problems consumers experience. Ultimately, large enterprises may serve as the bedrock of every economy, but that is precisely their purpose-to maintain the status quo. While exceptions like mega-growth bluechip big techs exist in the form of Facebook, Amazon, Apple, Netflix, and Google (FAANGS), most large enterprises rarely manage to post growth figures that smash through the inflation rate of a certain country. On top of that, these large enterprises are not intrinsic innovators; on a rather contrarian note, big firms often boast stingy research and innovation budgets and thwart innovations being preached by their smaller, often more enlightened, counterparts. And history has continually served as a testament to this central truth. From the 1900s to the 1950s, SMEs were responsible for 85 per cent of global economic growth; in addition, the third industrial revolution, which witnessed the broth and integration of computers into daily human life, was led by newly-born tech firms that currently sit at their thrones in the global halls of technological development: Intel, Qualcomm, Apple, Google, IBM, Facebook and many more.
Now, should Bangladesh expect one of its SMEs to turn into the next global tech-titan? Given the current levels of mobile and technological penetration within the nation, that may be a far-fetched prospect. However, can the nation expect some SMEs to deliver products and services to consumers and businesses at the national level at prices and qualities never witnessed before? Absolutely. In addition to this, Bangladesh's population will remain on an upward trajectory until approximately 2055, at around 221 million, and this rapid population growth will be complemented by an increase in the number of working age (18-65) individuals. Maintaining unemployment at low levels is quintessential of a developing country looking to attain a middle-income economy within the coming few decades; current job creation in Bangladesh will gradually be rendered unsuccessful to provide a growing educated population with skilled jobs. Thus, industries and sectors with explosive growth potential will be in the limelight to prop up the national economy. SME sector growth in Bangladesh is obvious but unexplored to satiate the growing employment demands of a growing educated population, and realising the potential of this sector earlier will result in reaping greater economic rewards in the future.
Additionally, Bangladesh's national economy is currently standing at an inflection point; realising hidden economic powerhouses within the nation will send the economy skyrocketing for the next 2-3 decades. This is largely due to demographic dividends that will be at play in the economy during the time period: average population age for the nation will remain under 40 until approximately 2050 and a population decline is expected to occur around 2055. Thus, time is of the essence. It's time to strip ourselves of our national pride for the garment industry and embrace the unconventional and undiscovered.
Unfortunately, growth in the SME sector has been hindered by a slew of credit and logistical problems both at the local and national levels. The most significant of this is the massive financing gap; this is a rather common and global problem traditionally faced by all SME sectors. Currently, the financing gap for SMEs stands at USD 2.1 trillion throughout the world, and although various programmes and incentives are being implemented to stimulate investment growth in SMEs, the efforts have so far been in vain, yielding little output. In Bangladesh's perspective, the economy will require approximately USD 700 billion in financing to support growing enterprises by giving them the capital required to sufficiently expand and capture market share. However, in stark contrast, only about 20 per cent of total governmental and non-governmental financing is fed into the SME pipeline; this renders these already cash-starved enterprises unable to finance their expansion and growth plans. In addition, most SME owners have expressed concerns regarding the high collateral requirements, high-interest rates (charged by banks) and the complex application process for loans. Thus, Bangladesh's current SME financing system is unable to satisfy national demand. In addition, financial institutions like government and investment banks and NBFIs (non-banking financial institutions) often don't provide the required consultancy and guidance that most SMEs require to truly blossom into larger corporations; rather, in many cases, inexperienced SME entrepreneurs find themselves unable to sustain a feasible, steadily growing business model and end up defaulting on their business loans.
Yet 2015, the year in which the alternative investment laws were crafted and enacted by the Bangladesh government, witnessed the introduction of a sustainable and reliable solution to the plight of SMEs-venture capital came to the rescue. Venture capital is a relatively new-fangled investment concept that focuses on sustainable, socially-empowering investment in non-listed companies for long durations of time to reap a sizeable profit in the end. Instead of lending certain companies money, venture capital firms take an active interest in their client companies by acquiring their stakes, this creates an intrinsic motivation to guide client companies on a path of rapid yet sustainable growth. In addition, the long term view of the venture capital industry compels venture capital firms to value the long term viability and growth prospects of their clients above all else, which is especially important in a developing economy like that of Bangladesh. Many large tech firms that underwent their IPOs recently, such as Spotify and Uber, had venture capital firms that supported their journey from their infancy. While it is a new industry, venture capital is not something completely alien to the world of investing. This industry wields the ability of a high-budget private investor with expertise in specific fields of business in order to provide efficient consulting services and advice. Ultimately, the next generation of big companies will not be ones that climbed from rags to riches on their own, but they will be companies that have been fostered under the wings of a venture/risk capital firm. Thus, the time to embrace venture capital is now and now only.
Hypothetically speaking, there can be two Bangladesh's that exist in 2060. One of them has an economy that has started to recede already; large corporations and monopoly boast all the economic firepower in such an economy. Although there might be enough employment, the emigration of skilled workers is at all-time highs, and the nation continues to lose wave after wave of bright innovators, entrepreneurs, and unorthodox thinkers. While the near term horizon for such a nation may look fine, the long term prospects of the nations bear a turn of unfortunate consequences: a dearth of innovation, a lack of growth and eventual stagnation in the economy and a variety of industries.
In contrast, there is another Bangladesh that has embraced risk capital and treats private equity and venture capital as the lifeblood for innovation and national expansion into nascent industries. Instead of a centralised economy, where a few corporations and industries claim a larger chunk of the dwindling national economy for themselves, the nation advocated an open economic platform that enables that humblest of companies and innovators to introduce novel ideas and products. In short, this open economy values ideas regardless of where they come from; it always keeps its ears and eyes open to an ever-expanding horizon of innovation and ideas. Yes, not every venture balloons into a multibillion-dollar enterprise. But the nation is a nation of innovators where new ideas are the norm in every single business sector. Ultimately, this economic route is most optimised for Bangladesh and will properly accommodate the national economy's ascent in the coming decades. While it is true that the nation is incurring risk in the process, the windfall of innovation and nascent industries that will be reaped will comfortably justify the risk. Only one question remains: will the nation choose a straight road with a defined end or venture into the snaking road right beside it?