Bangladesh: Notes from the (Tech) Revolution

The Forward Observer is a series written by Kevin Virgil, CEO/Co-Founder of Frontera. Every two weeks he writes about trends that are re-shaping our world, and events taking place at the cutting edge of foreign affairs, business and finance.

 

“Where are you headed?” asks the flight attendant.  I’m four hours into a long-haul flight to Dubai.

“Dhaka”, I reply.

Her flirtatious manner gives way to mild shock, and then she giggles.

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“Why?” she asks.

Why, indeed.  She won’t be the first to ask me this question; the girl running the Emirates airport lounge will also give me an incredulous look when she checks the final destination on my boarding pass.  It seems that there aren’t a lot of Western tourists heading to Bangladesh these days.

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Source: Wikipedia

I’m scheduled to speak at the country’s ‘Digital World’ technology conference.  It is the cornerstone event in the national government’s long-term plan to bolster its information technology industry and diversify its exports beyond garment manufacturing.  When I first arrive, I immediately notice that the government has spared no expense in promoting the conference domestically.  Every intersection, and nearly every unoccupied edifice, holds a sign advertising Digital World and Prime Minister Sheikh Hasina’s grand strategy to transform Bangladesh into a global IT powerhouse.

It quickly becomes apparent that there are additional reasons for the local public relations campaign. Bangladesh is a country in turmoil at the moment.  The leaders of its two main political parties – interestingly, both are women – have been feuding for the past twenty-five years.  Both have held power, and both have abused the public’s trust during their tenure.  Sheikh Hasina’s Awami League has held the reins of power since December 2008 and has steadily increased pressure against the rival Bangladesh Nationalist Party (BNP) and its head, her lifetime nemesis Khaleda Zia.  The long-running feud has been branded the “battling begums”, in reference to the Bangla descriptive term for a married woman.  Tensions have escalated and began to boil over in December of last year, when the BNP called for a nationwide transport strike in protest.  Over 100 people have died in the past two months during violent incidents, most frequently involving makeshift bombs thrown into crowded buses.

PM Hasina was the keynote speaker for the conference, and used the opportunity to reveal her grand vision for Bangladesh’s ‘digital revolution’.  It is indeed ambitious; the government has set the goal for its national software and IT industry to contribute 1% to GDP by the year 2018, and to create ten billion-dollar companies (also known in Silicon Valley circles by the ghastly moniker ‘unicorns’ because of the infinitesimal odds of investing in one) by the year 2025

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Watching a speech from Bangladesh Prime Minister Sheikh Hasina

Security appears tight at the conference center and I have to walk through three metal detectors and one pat-down before I can sit in the auditorium with the Prime Minister and over 1,000 of the Bengali elite.  (That being said, we were told that mobile phones were forbidden at the event and I was able to walk through all three checkpoints without mine being discovered.)  As I take my seat and listen to the long list of bureaucrats who will speak before the prime minister takes the stage, I read through my trip notes and recall why I decided to fly halfway around the world for a four-day event.

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Bangladesh is the world’s most densely populated country.  Its surface area is roughly on par with the state of New York, but at 160 million residents its population is over half that of the entire United States.  This becomes even more remarkable when you consider that a majority of its surface area is occupied by the enormous Ganges River delta and flood plain; it is the world’s largest, at nearly 2,500km across when it empties into the Bay of Bengal.  It is also one of the world’s newest countries, having achieved independence from Pakistan only in 1971.  Its recent history is full of turmoil and bloodshed.  The journey to independence began with India’s own independence from British colonial rule in 1947.  As part of that process, the new government partitioned the former province of Bengal into two parts — West Bengal, which is now a part of India and contains the enormous city of Kolkata; and East Bengal (first renamed as East Pakistan, and now Bangladesh) which was absorbed by Pakistan.  Tensions between East and West Pakistan boiled over in 1971 when West Pakistan refused to recognize an election in the east; the ensuing war created 10 million refugees, over 300,000 dead, and was only ended when the Indian Army backed the East Bengali rebels in order to stave off a humanitarian crisis.

For its first thirty years of existence, Bangladesh was a country on life support. It became a ‘donor darling’ of NGOs because of its unusually bad luck in attracting cyclones and floods, and rampant poverty and starvation.  Lately though, Bangladesh appears to be making a belated and admirable attempt to join the economic growth surge that is sweeping across Asia.  Goldman Sachs recently included the country in its report on the ‘Next 11’ emerging markets to watch.

The country’s macro-level statistics make a compelling case for its potential.  The World Bank expects GDP growth to surpass 6% in 2015, a pace that it has maintained for the past twenty years.  Inflation is high but manageable at 7%, and it runs a current account surplus due primarily to a huge inflow of remittances from its diaspora. (Bangladesh is the world’s 8th-largest recipient of remittances, with an estimated US$ 15 billion received in 2014).

This is also a very young country; over 65% of its population is under the age of 35.  Its labor costs are among the lowest in Asia — the monthly minimum wage for garment manufacturing workers is US$ 68. These costs are up to 40% lower than their rivals in India or the Philippines.  However, Bangladesh did achieve notoriety of the worst sort two years ago, when a garment manufacturing warehouse collapsed in the wake of its owner’s criminal negligence and resulted in over 1,100 deaths.  Many Western retailers have since re-examined their supply chains since that incident and called for improved working conditions; of course, the burden for these improvements rests with the local factory owners, in an industry where the standard margins are often less than 2%.

Bangladesh prides itself on its garments industry, and rightly so — it comprises roughly 80% of the country’s net exports and employs over four million people.  The country’s income per capita is currently US $1,190 per year, and the World Bank estimates that this number will surpass US $2,000 within the next decade.

Lately though, Bangladesh has pinned its economic development hopes squarely on its nascent IT industry, which is now growing at a rate of 20-30% per year.  In its recent report on IT outsourcing, the consulting firm AT Kearney gave the country top marks for ‘Financial Attractiveness’ — a nice way of pointing out that foreign companies can negotiate lower labor costs here than anywhere else.  Outsourcing in Bangladesh doesn’t just happen at the corporate level, though; there is a vibrant community of freelance IT contractors on hand.  After just three years, Bangladesh now produces more freelancers on oDesk than any other country except the Philippines and India.

Speaking of India, it becomes readily apparent when speaking to local politicians and business executives that they intend to replicate many of the successes seen in the Indian ‘Tiger Economy’ of the past decade.  While at the conference I lost track of the number of references that were made to Flipkart, the largest e-commerce retailer in India.  (Flipkart was valued at over US$ 10 billion in a financing round late last year). Snapdeal.com is another Indian e-commerce behemoth that raised over $600 million, and both are now in head-to-head competition with Amazon for national dominance. To date, no global e-commerce sites have entered the Bengali market.  The local technorati is convinced that their Flipkart is being built today. Which seems reasonable enough, and ultimately is what convinced me to hop on that red-eye flight to Dhaka.

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Source: Dow Jones

Dhaka is chaos, anarchy and mayhem.  It is impossible to describe the energy and sheer force of humanity that pervades its streets and avenues.  This is a city of twenty million people – the political, cultural, and financial capital of the world’s most densely populated country.  As I cross the street near my hotel, I stop for awhile and watch the action at one of the city’s main roundabouts.  I see at least five (at least they appear to be) near-death experiences in the first couple of minutes — a bicyclist cuts in front of a five-ton bus, and a young kid who can’t be more than eight years old runs into moving traffic while carrying an empty bucket.  I watch a rickshaw driver literally get slapped off his ride after he mouths off to the angry (and no doubt PTSD-prone) police officer that has assumed the Herculean task of maintaining law and order in this setting.

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Welcome to Dhaka (Photo courtesy of Associated Press)

Back at the conference, I walk through the expo area and visit with the companies that are on my watch-list.  The majority of exhibitors are BPO (business process outsourcing) specialists that offer increasingly commoditized solutions to foreign clients — accounting, HR, payroll services et al.  Quite a few mobile/app developers (the aforementioned oDesk crowd) are also on hand.  I quickly become a stage prop; everyone wants a photo of the American investor engaged in deep conversation with their CEO.  If you hire a Bengali outsourcing company in the near future there is a fair chance that you will spot me in their marketing material.

Later on I attend the ‘Tech Rockers’ event.  This is a first for Bangladesh — an opportunity for promising start-ups to conduct a three-minute pitch to an audience of local and foreign investors.  Presiding is Shameem Ahsan, the founder of Akhoni.com and the head of Bangladesh’s IT industry trade group.  The first speech is given by Iraj Islam, a Swedish-educated Bengali entrepreneur who is renowned locally for having founded NewsCred, a local content marketing platform and probably the biggest technology success story thus far (they have raised US $45M in venture funding across three rounds).  Iraj gives a rousing speech titled “Made in Bangladesh” where he calls for the country’s giant garment manufacturing sector to focus less on providing low-cost services to Western retail giants and instead to apply its labor force and low costs toward the creation of its own global brands.  He makes a compelling point.

The ensuing ‘pitch-off event’ makes for compelling viewing, not just because of the interesting startup CEOs in the room but because it has attracted a “who’s who” of the Dhaka business community.  In all, eight companies pitched at the event; while the questions are pointed and often difficult, the tone is much more constructive than competitive.  It becomes apparent that everyone in the room wants to see these young entrepreneurs succeed, and that a sense of national pride pervades the group. This is a room full of impatient people who feel that now is the time for their country to shine on the global technology stage, and they want it to happen quickly.

After the event I am in the mood to explore, so I decide to leave my assigned conference minder and find my own way home.  As I walk through the security barrier and emerge into the parking lot I am forced to thread my way through a mob of hundreds of teenaged boys that are swarming around the conference registration table. A coding seminar is being held inside, and the kids are jockeying to secure one of the available tickets.  I stick around to watch for a bit, and an official hands out five vouchers to the crowd. Fistfights and shoving matches immediately break out, and at least one would-be coder is thrown into a decorative pool not far from where I am standing.  Another bystander nods to me and shrugs, and explains that the seminar is free, and therefore a rare opportunity for the impoverished boys in this crowd to pursue a better life.

The streets are gridlocked near the conference, so I walk for a couple of blocks before hopping in a rickshaw for the ride home.  My driver speaks no English, and my Bangla is nonexistent.  The ride is thoroughly enjoyable, especially when I successfully communicate that I will pay double his requested fare (equivalent to US $3) if he pedals as fast as he can.  He grinningly obliges and we’re off.  I’m reminded of the time that I paid a Bangkok tuk-tuk driver to take me for a 3am joyride of hairpin turns and other assorted stunts.

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A rare open street in Dhaka, as viewed from a rickshaw

Unfortunately I soon realize that navigating in Dhaka is exceedingly difficult because every street looks like the one before it, and most are not marked.  Nearly every building is a 5-10 story concrete shell, where at least a couple of the floors have no walls.  Each building typically houses a hodgepodge of residences, manufacturing businesses, community markets, metalworking shops, and restaurants — some of which overlap to an uncomfortable degree.  With a toothy smile and shrug, my driver eventually admits that he has no idea where my hotel is, and I realize that the landmarks I was attempting to navigate with are replicated on nearly every street. That Samsung sign above the welding shop that I saw on the way in?  I swear there were two more just like them on a street that I’d never been on previously.

I pay and thank my driver, and find a compressed natgas-powered scooter (called “CNGs” here) to take me home.  Along the way I recall the warning that is slipped under my hotel door every morning.  At the time, the opposition BNP party has called for a nationwide general strike in defiance of the currently ruling Awami League.  I am surrounded by gridlock for the entire way home – an indication that the strike and fear of violence has not deterred many.

After some quick sightseeing and follow-up meetings, I hurriedly make my way to the airport for the flight home.  I leave with conflicting opinions on Dhaka.  On the one hand, I can’t say that it is the most pleasant city I have ever visited.  I seriously doubt that even the hardiest tourists visit Dhaka with an intent to return regularly.  From a professional perspective, though, this is certainly a frontier market to watch. Despite its corrupt politics and troubled past, I can’t escape the feeling that I am exploring at the earliest days of a secular cycle of growth and expansion.  There is a hunger here amongst its people that is well worth monitoring.

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I did, of course, take copious notes during my meetings with several companies – many of which are seeking investment.  While a detailed review is outside the scope of this article, I am happy to provide more details to interested parties.  Feel free to get in touch if you would like to learn more.  Alternatively, stay tuned to Frontera!  I expect that you will see at least one Bengali company posted here in the coming months…

Stay tuned for my next missive in two weeks time, when we dive back into the ‘Second Cold War’.

Kevin

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