Leapfrogging the digital chasm
Wednesday, 21 December 2011
Habibullah N Karim, Quamrul Mina and Gulam Samdani
The concept of leapfrogging originated in the context of economic growth theories that promulgated sustainable development for developing countries by jettisoning inferior, less efficient, more expensive, more polluting technologies and industries while moving directly into more sophisticated ones. Technology leapfrogging: A case in point is digital communication in developing countries like Bangladesh by moving directly from having a few landline telephones to having widespread mobile or cellular phones, thus skipping the stage of copper-wire telephones altogether. This has allowed Bangladesh to shed its identity as a nation with the lowest teledensity in Asia in 1997 - today it has a telecommunications coverage of above 50 per cent. The city of Rizhao in China is a shining example of energy leapfrogging in urban areas where almost 100 per cent of the households in the central district reportedly use solar water heaters, and most of the street lighting and traffic signals are powered by photovoltaic cells. Rizhao city was recognised by the United Nations as one of the most habitable cities in the world in 2009 - not too shabby for a middle-income country with more than billion people to feed and house! Social leapfrogging: The social dimension of the leapfrogging concept entails diffusion and adoption of modern technologies that would not only cut costs and adverse environmental impacts, but also contribute to the attainment of UN's Millennium Development Goals (MDGs) - e.g., eradicate extreme poverty and hunger, achieve universal primary education, promote gender equality and empower women, reduce child mortality rate, improve maternal health, and develop a global partnership for development with measurable targets to be achieved by 2015 - by promoting greater access to resources and technologies to under-privileged people. The good news is that Bangladesh has already achieved several targets of the eight-point MDGs and claims to be on track to achieve many of the other goals within the deadline of 2015. Now the question is, 'Could leapfrogging as Digital Bangladesh dramatically improve the odds of our achieving additional targets in MDGs by 2015 and beyond?' We believe the answer is a resounding yes! What's more, we envision the actionable ideas of Digital Bangladesh catapulting her status from currently being a low-income country (LIC) to that of a middle-income country (MIC) - the coveted "middle class" member of the global economy - by 2021, perhaps not a moment too soon to celebrate the occasion of the 50th anniversary of our independence. Missed opportunities to leapfrog: Since the mid-sixties, despite fits and starts and great promise at all times, the country's IT industry has been a victim of policy apathy and investment drought that has brought the industry crawling to a market size of US$300 million (Japan International Cooperation Agency or JICA study 2008) of which only a third accounts for software and services. Some of the biggest failures and missed opportunities are as follows: Focusing only on import of computer technology for far too long: The local IT entrepreneurs have largely focused on import and distribution of computer products - a trend that got a boost with the complete withdrawal of import duties and taxes on computers in 2000. This policy intervention - while made at the behest of the IT industry players - acted, strangely enough, as a strong disincentive for setting up manufacturing plants for any computer products, even accessories. This also highlighted only the tangible aspects of computer technology, that is, hardware while diluting the importance of software and services. What's more, piracy of software products is rampant and Bangladesh is a laggard in terms of computer usage, even compared with economies of similar standing. Not recognising the IT wave early on: In the early 80s, a pool of highly educated and motivated entrepreneurs jumped in IT ventures in the country. By the early nineties this group of entrepreneurs swelled to more than a hundred. However, most of these IT ventures focused on providing IT products and systems as opposed to services and locally developed software. The market for computer products was growing and there was easy money to be made from selling computer hardware and packaged software. The computer hardware vendors kept on pushing the latest this or latest that, garnishing them with all kinds of free-of-cost (FOC) pirated software applications. This hardware-centric expansion of the computer market here completely blindsided the entrepreneurs to tap into the immense possibilities of local and international software and IT services markets. In the mid-nineties, the IT entrepreneurs in Bangladesh were caught completely off-guard by the new wave of software off-shoring happening on an increasingly rapid pace in the so-called three Is - India, Ireland and Israel. Lack of market access development: Despite the strong demand for software and IT services from many developing nations such as India, Pakistan, Philippines, Sri Lanka, Vietnam and others, Bangladesh has to date remained outside the mainstream destinations for such services outsourcing. Even though Bangladesh featured prominently in the JP Morgan's "Frontier Five" or Goldman Sachs' "Next 11 Emerging Markets", the country failed to secure a spot in the IT services outsourcing rankings by industry monitors such as IDC and AT Kearny. There are presumably a slew of inhibiting factors; the most important of which is the lack of drive to foster market access in a systematic manner. The local market development has also remained sluggish. The absence of an incentive regime and the government's no-preference for local software and IT services have aggravated the situation. Lack of e-Government: According to the UK-Intellect (British IT services industry association), the British government accounts for almost half the IT industry revenues and is automatically the single largest buyer of IT services there. Although we lack proper statistics for Bangladesh, we estimate that the government procurement of IT services is anywhere from a third to around half of the market, despite the lack of a coordinated and strategic push from the top. Government departments and affiliated organisations in Bangladesh have ramped up purchase of ICT products since the eighties, but buying of ICT services such as business process consulting, software development, staff training and adaptation, facilities management outsourcing etc. is not so visible. Thrust on local capacity building through government-sponsored pilot programmes (such as those funded by the Department of Defense in the USA and Department of Electronics in India) is totally absent. Rather private sector- funded e-government projects have been allowed to wither away without appropriate patronage causing both immediate-term and long-term damage (some irreversible) to the local software and IT services industry. Lack of online businesse-commerce initiatives: Bangladesh entered the realm of e-commerce early on with excited entrepreneurs trying to carve out a market for online trading at the turn of the new century. Following the footsteps of Amazon.com, several vendors started hawking books online, such as 'munshigi.com,' but these businesses foundered owing to the absence of online payment system. However, very recently the county's central bank has lifted the artificial sanctions on online credit and debit card transactions (the statutory order was issued by the Bangladesh Bank in early 2010). Two private commercial banks have launched e-commerce payment settlement platforms for Visa Mastercard debitcredit cards at the end of 2010, which are starting to get some traction now. In this sphere, however, Bangladesh has barely scratched the surface. It's estimated that 84 per cent of internet users in the US conducted at least one online purchase during the final quarter of 2010, and in a 2010 survey conducted by KPMG in India, 38 per cent of the respondents said they used mobiles to shop while 43 per cent for financial transactions. Clearly, in Bangladesh we have a very long way to go no doubt, but we suspect this market will grow at a breakneck speed for several reasons. First, more than 10 million Bangladeshi diaspora around the world are hungry to buy Bangladeshi gift items both for near and dear ones living in the country as well as in faraway lands. Second, large urban centres such as Dhaka and Chittagong have been ripe for online purchases for many years now with their congested roads and chronic traffic jams. An explosive growth of online offerings is right under our noses (another leapfrogging opportunity). Pro-active Agenda: Missed opportunities notwithstanding, Bangladesh has seen a steady growth of the IT industry, which gives us hope provided we push and promote adoption of ICTs as a core national agenda. The ICT agenda need to focus on the following, among others. Expand broadband connectivity: WiMax (Worldwide Interoperability for Microwave Access) and LTE (Long Term Evolution) are the two key 4G standards and are being deployed in USA, Japan, Korea and Europe at a furious pace. WiMax is being picked up by new network providers and LTE by the existing mobile phone operators. Given that wired phone tele-density is so low in Bangladesh, 3G and 4G wireless broadband will be the cornerstone of widespread internet access to reach its large population in every home and office across cities and villages. BTRC has already pushed the mobile operators to build and deploy 2.5G, 3G mobile networks, allocating them the frequency spectrums necessary. Nurture entrepreneurial culture at universities: We recommend that the government establish entrepreneurial development centres in Public-Private Partnership (PPP) model around at least 10 major public and private universities of the country. We believe that ten-year roadmaps should be developed for these 10 centres and money should be doled out to implement the plans. Not only will these centres create the countrywide regional research and development activities and drive high-tech job growth in start-up entrepreneurial companies, they will also be the pride of the nation. The National Science Foundation (NSF) in the US drives this type of science-driven research programmes with government funding. Make government a big buyer of IT services: It is almost axiomatic that a nation that does not use IT services cannot be an exporter of it. We believe that the realisation of this axiom by the government of Bangladesh will help us overcome the single biggest hurdle in achieving the expected economic growth and prosperity for the nation. As a champion of the visions of Digital Bangladesh, the government has to be a big buyer of digital products and services not only to instill confidence in the population about the benefits of going digital but also to steer the private as well as the public sector to adopt modern digital technologies for efficiency and to improve speed of service and workforce productivity. This will catalyze the virtuous cycle of expansion of demand for computers, software, IT services, electronic goods, mobile phones, smart phones, broadband network, internet services providers and technology-savvy work force - essentially building what is called a "positive feedback loop" in electrical engineering parlance. Keep the intrinsic growth of the IT industry intact: The overall software and ITES market today is estimated to be worth more than Tk 10 billion or US$ 150 million, of which around 22 per cent is export revenue, according to BASIS. The export growth last fiscal year was 32 per cent while domestic growth was around 23 per cent giving the overall industry a 25 per cent growth in 2009 (July to June). The public sector procurements of IT services should see a sharp rise in the next three years, increasing the overall local market by a factor of 5 in the next five years. By 2014, the overall software and ITES market in Bangladesh should reach nearly half a billion US dollars, a fifth of which will be from exports. The World Bank in a study conducted in 2008 concluded that Bangladesh IT services export will reach more than half a billion US dollars by 2014 and create more than 50,000 IT services jobs. Japan International Cooperation Agency (JICA) in a regional survey carried out in 2007 concluded that Bangladesh is most competitive for IT services in Asia and overall ranks only behind China and India in competence in this industry. International Trade Center (ITC) also conducted a study in 2007-2008 with the conclusion that IT enabled services (one derivative of IT services) will reach US$ 150 million in exports by 2011! Even Gartner listed Bangladesh as one of the 30 most potential IT services global sourcing destinations in early 2011. Leapfrog the gender divide: An important positive impact from Bangladesh's participation in the ITS and ITES markets would be on the status of women. For example, women account for about 65 per cent of the total professional and technical workers in ITS and ITES in the Philippines. In India, women make up 30 per cent of the ITS and ITES workforce in 2007 - a much higher rate of female participation than in the services sector overall - and this share grew to 45 per cent by 2010. Women constitute more than half call centre employees. In both countries, women fill a greater number of high-paying jobs in ITS and ITES than in most other sectors of the economy. The IT industry offers one of the best opportunities for leapfrogging the gender divide in services industry. Funding Digital Bangladesh: Finally, let's talk about money! Nothing good can ever happen if funds are not made available to implement even the best ideas in the universe. What would it cost to build a Digital Bangladesh? We estimate that the investment required to deliver on the promises of Digital Bangladesh would amount to about US$1.0 billion in the 2009-2013 time period. The required investments for the next five years (2014-2018) should add up to $2.0 billion, to be followed by $4.0 billion for the 2019-2023 period. Thus, the overall investment for these 15 years of digital development in Bangladesh is pegged at about seven billion US dollars. On an annualised basis, that's less than half a per cent of our GDP. The quantum leap: The intrinsic growth will keep the IT industry chugging along but a quantum leap consistent with its true potential can only happen with appropriate leapfrogging policies, incentives and investments from the government. According to our above estimates, only $2.0 billion worth of investments and incentives are required over a period of seven years to take the IT industry from a paltry $100 million to multi-billion dollars. Without even accounting for the incredible social benefits ICTs will bring, you couldn't ask for a higher rate of return than that! (Adapted from a book "Going Digital: Realizing the Dreams of a Digital Bangladesh for All" published by the University Press Limited, 2011) ......................................................................................... The authors can be reached at: hnkarim@gmail.com
The concept of leapfrogging originated in the context of economic growth theories that promulgated sustainable development for developing countries by jettisoning inferior, less efficient, more expensive, more polluting technologies and industries while moving directly into more sophisticated ones. Technology leapfrogging: A case in point is digital communication in developing countries like Bangladesh by moving directly from having a few landline telephones to having widespread mobile or cellular phones, thus skipping the stage of copper-wire telephones altogether. This has allowed Bangladesh to shed its identity as a nation with the lowest teledensity in Asia in 1997 - today it has a telecommunications coverage of above 50 per cent. The city of Rizhao in China is a shining example of energy leapfrogging in urban areas where almost 100 per cent of the households in the central district reportedly use solar water heaters, and most of the street lighting and traffic signals are powered by photovoltaic cells. Rizhao city was recognised by the United Nations as one of the most habitable cities in the world in 2009 - not too shabby for a middle-income country with more than billion people to feed and house! Social leapfrogging: The social dimension of the leapfrogging concept entails diffusion and adoption of modern technologies that would not only cut costs and adverse environmental impacts, but also contribute to the attainment of UN's Millennium Development Goals (MDGs) - e.g., eradicate extreme poverty and hunger, achieve universal primary education, promote gender equality and empower women, reduce child mortality rate, improve maternal health, and develop a global partnership for development with measurable targets to be achieved by 2015 - by promoting greater access to resources and technologies to under-privileged people. The good news is that Bangladesh has already achieved several targets of the eight-point MDGs and claims to be on track to achieve many of the other goals within the deadline of 2015. Now the question is, 'Could leapfrogging as Digital Bangladesh dramatically improve the odds of our achieving additional targets in MDGs by 2015 and beyond?' We believe the answer is a resounding yes! What's more, we envision the actionable ideas of Digital Bangladesh catapulting her status from currently being a low-income country (LIC) to that of a middle-income country (MIC) - the coveted "middle class" member of the global economy - by 2021, perhaps not a moment too soon to celebrate the occasion of the 50th anniversary of our independence. Missed opportunities to leapfrog: Since the mid-sixties, despite fits and starts and great promise at all times, the country's IT industry has been a victim of policy apathy and investment drought that has brought the industry crawling to a market size of US$300 million (Japan International Cooperation Agency or JICA study 2008) of which only a third accounts for software and services. Some of the biggest failures and missed opportunities are as follows: Focusing only on import of computer technology for far too long: The local IT entrepreneurs have largely focused on import and distribution of computer products - a trend that got a boost with the complete withdrawal of import duties and taxes on computers in 2000. This policy intervention - while made at the behest of the IT industry players - acted, strangely enough, as a strong disincentive for setting up manufacturing plants for any computer products, even accessories. This also highlighted only the tangible aspects of computer technology, that is, hardware while diluting the importance of software and services. What's more, piracy of software products is rampant and Bangladesh is a laggard in terms of computer usage, even compared with economies of similar standing. Not recognising the IT wave early on: In the early 80s, a pool of highly educated and motivated entrepreneurs jumped in IT ventures in the country. By the early nineties this group of entrepreneurs swelled to more than a hundred. However, most of these IT ventures focused on providing IT products and systems as opposed to services and locally developed software. The market for computer products was growing and there was easy money to be made from selling computer hardware and packaged software. The computer hardware vendors kept on pushing the latest this or latest that, garnishing them with all kinds of free-of-cost (FOC) pirated software applications. This hardware-centric expansion of the computer market here completely blindsided the entrepreneurs to tap into the immense possibilities of local and international software and IT services markets. In the mid-nineties, the IT entrepreneurs in Bangladesh were caught completely off-guard by the new wave of software off-shoring happening on an increasingly rapid pace in the so-called three Is - India, Ireland and Israel. Lack of market access development: Despite the strong demand for software and IT services from many developing nations such as India, Pakistan, Philippines, Sri Lanka, Vietnam and others, Bangladesh has to date remained outside the mainstream destinations for such services outsourcing. Even though Bangladesh featured prominently in the JP Morgan's "Frontier Five" or Goldman Sachs' "Next 11 Emerging Markets", the country failed to secure a spot in the IT services outsourcing rankings by industry monitors such as IDC and AT Kearny. There are presumably a slew of inhibiting factors; the most important of which is the lack of drive to foster market access in a systematic manner. The local market development has also remained sluggish. The absence of an incentive regime and the government's no-preference for local software and IT services have aggravated the situation. Lack of e-Government: According to the UK-Intellect (British IT services industry association), the British government accounts for almost half the IT industry revenues and is automatically the single largest buyer of IT services there. Although we lack proper statistics for Bangladesh, we estimate that the government procurement of IT services is anywhere from a third to around half of the market, despite the lack of a coordinated and strategic push from the top. Government departments and affiliated organisations in Bangladesh have ramped up purchase of ICT products since the eighties, but buying of ICT services such as business process consulting, software development, staff training and adaptation, facilities management outsourcing etc. is not so visible. Thrust on local capacity building through government-sponsored pilot programmes (such as those funded by the Department of Defense in the USA and Department of Electronics in India) is totally absent. Rather private sector- funded e-government projects have been allowed to wither away without appropriate patronage causing both immediate-term and long-term damage (some irreversible) to the local software and IT services industry. Lack of online businesse-commerce initiatives: Bangladesh entered the realm of e-commerce early on with excited entrepreneurs trying to carve out a market for online trading at the turn of the new century. Following the footsteps of Amazon.com, several vendors started hawking books online, such as 'munshigi.com,' but these businesses foundered owing to the absence of online payment system. However, very recently the county's central bank has lifted the artificial sanctions on online credit and debit card transactions (the statutory order was issued by the Bangladesh Bank in early 2010). Two private commercial banks have launched e-commerce payment settlement platforms for Visa Mastercard debitcredit cards at the end of 2010, which are starting to get some traction now. In this sphere, however, Bangladesh has barely scratched the surface. It's estimated that 84 per cent of internet users in the US conducted at least one online purchase during the final quarter of 2010, and in a 2010 survey conducted by KPMG in India, 38 per cent of the respondents said they used mobiles to shop while 43 per cent for financial transactions. Clearly, in Bangladesh we have a very long way to go no doubt, but we suspect this market will grow at a breakneck speed for several reasons. First, more than 10 million Bangladeshi diaspora around the world are hungry to buy Bangladeshi gift items both for near and dear ones living in the country as well as in faraway lands. Second, large urban centres such as Dhaka and Chittagong have been ripe for online purchases for many years now with their congested roads and chronic traffic jams. An explosive growth of online offerings is right under our noses (another leapfrogging opportunity). Pro-active Agenda: Missed opportunities notwithstanding, Bangladesh has seen a steady growth of the IT industry, which gives us hope provided we push and promote adoption of ICTs as a core national agenda. The ICT agenda need to focus on the following, among others. Expand broadband connectivity: WiMax (Worldwide Interoperability for Microwave Access) and LTE (Long Term Evolution) are the two key 4G standards and are being deployed in USA, Japan, Korea and Europe at a furious pace. WiMax is being picked up by new network providers and LTE by the existing mobile phone operators. Given that wired phone tele-density is so low in Bangladesh, 3G and 4G wireless broadband will be the cornerstone of widespread internet access to reach its large population in every home and office across cities and villages. BTRC has already pushed the mobile operators to build and deploy 2.5G, 3G mobile networks, allocating them the frequency spectrums necessary. Nurture entrepreneurial culture at universities: We recommend that the government establish entrepreneurial development centres in Public-Private Partnership (PPP) model around at least 10 major public and private universities of the country. We believe that ten-year roadmaps should be developed for these 10 centres and money should be doled out to implement the plans. Not only will these centres create the countrywide regional research and development activities and drive high-tech job growth in start-up entrepreneurial companies, they will also be the pride of the nation. The National Science Foundation (NSF) in the US drives this type of science-driven research programmes with government funding. Make government a big buyer of IT services: It is almost axiomatic that a nation that does not use IT services cannot be an exporter of it. We believe that the realisation of this axiom by the government of Bangladesh will help us overcome the single biggest hurdle in achieving the expected economic growth and prosperity for the nation. As a champion of the visions of Digital Bangladesh, the government has to be a big buyer of digital products and services not only to instill confidence in the population about the benefits of going digital but also to steer the private as well as the public sector to adopt modern digital technologies for efficiency and to improve speed of service and workforce productivity. This will catalyze the virtuous cycle of expansion of demand for computers, software, IT services, electronic goods, mobile phones, smart phones, broadband network, internet services providers and technology-savvy work force - essentially building what is called a "positive feedback loop" in electrical engineering parlance. Keep the intrinsic growth of the IT industry intact: The overall software and ITES market today is estimated to be worth more than Tk 10 billion or US$ 150 million, of which around 22 per cent is export revenue, according to BASIS. The export growth last fiscal year was 32 per cent while domestic growth was around 23 per cent giving the overall industry a 25 per cent growth in 2009 (July to June). The public sector procurements of IT services should see a sharp rise in the next three years, increasing the overall local market by a factor of 5 in the next five years. By 2014, the overall software and ITES market in Bangladesh should reach nearly half a billion US dollars, a fifth of which will be from exports. The World Bank in a study conducted in 2008 concluded that Bangladesh IT services export will reach more than half a billion US dollars by 2014 and create more than 50,000 IT services jobs. Japan International Cooperation Agency (JICA) in a regional survey carried out in 2007 concluded that Bangladesh is most competitive for IT services in Asia and overall ranks only behind China and India in competence in this industry. International Trade Center (ITC) also conducted a study in 2007-2008 with the conclusion that IT enabled services (one derivative of IT services) will reach US$ 150 million in exports by 2011! Even Gartner listed Bangladesh as one of the 30 most potential IT services global sourcing destinations in early 2011. Leapfrog the gender divide: An important positive impact from Bangladesh's participation in the ITS and ITES markets would be on the status of women. For example, women account for about 65 per cent of the total professional and technical workers in ITS and ITES in the Philippines. In India, women make up 30 per cent of the ITS and ITES workforce in 2007 - a much higher rate of female participation than in the services sector overall - and this share grew to 45 per cent by 2010. Women constitute more than half call centre employees. In both countries, women fill a greater number of high-paying jobs in ITS and ITES than in most other sectors of the economy. The IT industry offers one of the best opportunities for leapfrogging the gender divide in services industry. Funding Digital Bangladesh: Finally, let's talk about money! Nothing good can ever happen if funds are not made available to implement even the best ideas in the universe. What would it cost to build a Digital Bangladesh? We estimate that the investment required to deliver on the promises of Digital Bangladesh would amount to about US$1.0 billion in the 2009-2013 time period. The required investments for the next five years (2014-2018) should add up to $2.0 billion, to be followed by $4.0 billion for the 2019-2023 period. Thus, the overall investment for these 15 years of digital development in Bangladesh is pegged at about seven billion US dollars. On an annualised basis, that's less than half a per cent of our GDP. The quantum leap: The intrinsic growth will keep the IT industry chugging along but a quantum leap consistent with its true potential can only happen with appropriate leapfrogging policies, incentives and investments from the government. According to our above estimates, only $2.0 billion worth of investments and incentives are required over a period of seven years to take the IT industry from a paltry $100 million to multi-billion dollars. Without even accounting for the incredible social benefits ICTs will bring, you couldn't ask for a higher rate of return than that! (Adapted from a book "Going Digital: Realizing the Dreams of a Digital Bangladesh for All" published by the University Press Limited, 2011) ......................................................................................... The authors can be reached at: hnkarim@gmail.com