E-commerce technologies and business models are evolving rapidly around the world. As the sector is increasingly using sophisticated technologies such as artificial intelligence, machine learning, and big data, more consumers have been able to enjoy the increased convenience of online shopping and super-fast delivery. E-commerce technologies have also allowed small and medium-sized enterprises (SMEs) established in any part of most of the developing and developed countries to tap global markets and value chains with minimal additional cost and effort.
Major e-commerce categories include business to-business (B2B), business-to-consumer (B2C), consumer-to-consumer (C2C), and business-to government (B2G) transactions. In many least developed countries (LDCs) and developing countries in Asia and the Pacific, e-commerce use among firms is extremely low. For instance, in September 2017, Pakistan only had some 400 e-commerce vendors, roughly 0.44 per cent of its estimated 900,000 physical stores. Philippines had 0.5 per cent of its retail sales conducted online in 2015. Armenia's e-commerce amounted to 0.08 per cent of GDP in 2012 and Bangladesh's online grocery market is just 0.03 per cent of its overall grocery sales (Bansal 2017). In contrast, in 2016, the share of online fast-moving consumer goods (FMCG) to total FMCG market was estimated at 16.6 per cent in the Republic of Korea.
Bangladesh has the potential to increase investment to facilitate expansion of the e-commerce market. But it is likely to face many challenges particularly in developing countries. Some ways of reducing these barriers include (i) enacting e-commerce legislation, (ii) implementing measures that will make e-commerce more affordable and accessible, (iii) directly facilitating and supporting e-commerce activities, and (iv) launching public-private partnership programmes. Legal barriers are one of the major barriers to adopting both domestic and cross-border e-commerce, especially in developing countries.
The government has been encouraging foreign direct investment (FDI) into the e-commerce sector alongside other sectors in the country. Recently the ICT (Information and Communication Technology) ministry has prepared a policy to restrict overseas investment in e-commerce to 49 per cent only. A daily newspaper has reported that the Ministry of ICT is expecting that the Ministry of Commerce will implement the policy 'soon'.
Such a policy will be extremely harmful for the e-commerce sector in Bangladesh. Overseas companies go for FDI mainly because they want to gain access to a larger market; to acquire more resources and to minimise risks. Other reasons include flexible labour market; low corporate tax; availability of skilled workers; availability of duty free market access in developed countries etc.
On the other hand, FDI for a host country increases government revenue earnings via corporate tax, income tax, and VAT; leads to employment generation; helps technology transfer; increases gross domestic product (GDP) growth; develops new sectors; helps to introduce and normalise corporate culture and promote CSR activities in host country. FDI has a positive impact on balance of payments. It can reduce import by producing import-substitute products and save foreign currency. Finally FDI helps to alleviate poverty and foster economic development of host country.
Through Industrial Policy 2016, Bangladesh welcomed FDI in all areas of the economy and there is no restriction on the amount of stakes in the investment. Bangladesh passed The Foreign Private Investment (Promotion and Protection) Act 1980 (FPIPPA) to give full protection to foreign investors. This law ensures fair and equitable treatment for foreign investors, provides protection in relation to expropriation and, in conjunction with regulations of the central bank, provisions for foreign exchange. The law provides measures for the non-discriminatory treatment and protection of foreign investments.
The existing National Investment Policy (NIP) even allowed a foreign investor to own 100 per cent stake in any business entity in Bangladesh. There is no restriction of FDI in e-commerce sector. The policy facilitated foreign and domestic private entities and allows them to establish and own, operate, and dispose of interests in most types of business enterprises. Four sectors, however, are reserved for government investment: (1) Arms and ammunition and other defence equipment and machinery; (2) Forest plantation and mechanised extraction within the bounds of reserved forests; (3) Production of nuclear energy; and (4) Security printing.
Industrial Policy (2010) established 17 "controlled industries" where any proposed foreign investment will require approval from the relevant ministry. In addition, there are 17 controlled sectors that require prior clearance/ permission from the respective line ministries/authorities. E-commerce is not included in the restricted list.
There are a number of laws and policies for provision of incentives. Some attractive policy has been offered to foreign investors including tax holiday for several years, duty-free facility for importing capital machinery, 100 per cent foreign ownership, 100 per cent profit repatriation facility, reinvestment of profit or dividend as FDI, multiple visa, work permit to foreign executives, permanent resident or even citizenship for investing a specific amount, eligibility to be involved in the Export Processing Zones (EPZ) and newly-established free economic zone, and easy hassle-free exit facility. Potential sectors that can attract more FDI are power generation, infrastructure development, private port establishment, joint venture with deep sea port establishment under PPP, ship building, ICT sector, call centres, education, healthcare, mining, gas extraction, agro processed product, electrical & electronics, light engineering, and fashion designing.
Readymade garments export is gradually switching to e-market. Bangladesh can take a lead in e-export market with the support of global experts in order to compete with other countries. Such techniques will ensure first-mover advantage for Bangladesh as it needs to sustain the global market of its single largest export product.
The non-committal language and non-exhaustive scope of the FPIPPA has left ample room for interpretation of the actual openness to FDI. At present, investments in some economic activities are not covered by FPIPPA while others are subject to restrictions found in sectoral regulations that are contrary to the spirit of the general law. In addition, restrictions in foreign exchange provisions also jeopardise the openness to inward and outward FDI.
Inadequate infrastructure and consumers' limited technical and economic resources are often barriers to participating in e-commerce. This sector around the world are embracing new technologies-such as big data analytics, the internet of things (IoT), artificial intelligence (AI), augmented reality (AR), virtual reality (VR), and blockchain technology-to meet evolving customer needs, befitting greater customisation, maximum convenience, and security.
Bangladesh needs huge investment in technology, infrastructure and human resources. E-commerce transactions require more than basic internet access. Availability, accessibility, and affordability are basic requirements for the promotion of e-commerce sector. The government needs to promote widespread ICT infrastructure that offers low-cost and secure broadband. The government can also foster an investment climate that will encourage private sector involvement in ICT infrastructure and technology.
There is no alternative to foreign direct investment in developing technology and infrastructure and human resources. Bangladesh may give priority to FDI to build capacity of (i) ICT affordability and accessibility, (ii) bandwidth availability, (iii) availability of online payment options, (iv) delivery infrastructure development etc. Government should promote online payment platforms such as Mastercard, PayPal, Visa etc for local and overseas sales. Another key concern in e-commerce development is affordability of ICT hardware, software, and services.
Any policy formulated by any Ministry that conflicts with the industrial policy and FPPIPPA law has apparently no legal basis. Moreover, e-commerce is not included in the negative and restricted list for FDI under the industrial policy. Such confusion in policies may frustrate potential overseas investors. This is, after all, a subject that needs to be addressed by Bangladesh Investment Development Authority (BIDA) under the Prime Minister's Office.
MS Siddiqui is a legal economist.
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