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LightCastle Partners - Digital Commerce in Bangladesh : Policies & Possibilities

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LightCastle Partners - Digital Commerce in Bangladesh : Policies & Possibilities

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Despite the pandemic, Bangladesh, till Sep 2020, has clocked a GDP growth rate of 5.2% (ADB, 2020) - one of the highest in Asia.

Digital transactions are growing faster than ever. The first three quarters of 2020 saw a total od USD 65 billion+ digital transactions, where 72% of the transactions were dominated by MFS banking. With 96 million registered MFS users and USD 202 million daily MFS transactions, digital transactions can unlock new potentials of the digital commerce industry.

The eCommerce market (including f-commerce) has grown at a steady pace to USD 2.1 billion in 2020. The market holds the potential to become USD 3 billion by 2023 and can create around five lakh jobs in digital commerce industry.

Can the Digital Commerce Industry become a critical driving force of the future economy of Bangladesh?

LightCastle Partners presents "Digital Commerce in Bangladesh: Policies & Possibilities"

Despite the pandemic, Bangladesh, till Sep 2020, has clocked a GDP growth rate of 5.2% (ADB, 2020) - one of the highest in Asia.

Digital transactions are growing faster than ever. The first three quarters of 2020 saw a total od USD 65 billion+ digital transactions, where 72% of the transactions were dominated by MFS banking. With 96 million registered MFS users and USD 202 million daily MFS transactions, digital transactions can unlock new potentials of the digital commerce industry.

The eCommerce market (including f-commerce) has grown at a steady pace to USD 2.1 billion in 2020. The market holds the potential to become USD 3 billion by 2023 and can create around five lakh jobs in digital commerce industry.

Can the Digital Commerce Industry become a critical driving force of the future economy of Bangladesh?

LightCastle Partners presents "Digital Commerce in Bangladesh: Policies & Possibilities"

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LightCastle Partners - Digital Commerce in Bangladesh : Policies & Possibilities

  1. 1. DIGITAL COMMERCE IN BANGLADESH Policies & Possibilities
  2. 2. Bangladesh’s digital commerce industry is gaming forward on the back of the following growth drivers: Strong Economic Vitals for Tech Products and Services Despite the pandemic, Bangladesh till Sep 2020 has clocked a GDP growth rate of 5.2% (ADB, 2020) - one of the highest in Asia - much ahead of South Asia’s average growth rate of -6.8% or compared to India’s - 9% or Sri Lanka’s -5.5%. Majority of the population of Bangladesh are young and tech-adaptable, where 62%+ are under 35 years. The Middle class is growing at 10% per annum to reach 34 million by 2025. Increasing adoption of digital services with 110Mn+ internet users (95% on mobile devices), 40Mn+ on smartphones (BTRC & GSMA, 2020). Growth in Digital Transaction Embracement Digital services in the financial sector are slowly expanding. The Covid-19 pandemic has added momentum to them. Private banks have scaled up their digital services during the pandemic. As part of digitization, each bank has to launch e-KYC system by December 2020. The first three quarters of 2020 saw U$ 65 Bn+ transaction with 72% of the market dominated by mobile banking. With 96Mn Registered users and U$ 202Mn daily MFS transactions, digital transactions will unlock the digital commerce industry's potentials. E-Commerce Market Grows at a Steady Pace reaching USD 2.1 Bn All online-based platforms that mainly retail everyday essentials have experienced remarkable business growth during the pandemic, shooting the eCommerce market (including f-commerce) at a steady pace to U$ 2.1Bn in 2020. The sector has connected 1,200 e-commerce companies, 60,000 SMEs (35,000 individuals; 25,000 enterprises), among which are 2,000 web-based and 50,000 active f-commerce merchants. In the next five years, the country's e-commerce sector can create around five lakh jobs and holds a potential to be a key driving force of the economy. Pandemic propelling Digital Transformation in all sectors The COVID-19 pandemic has undeniably altered consumer buying behavior, wherein traditional retailing has taken a back seat. An exemplar shift towards a more digitized world is evident, with prompted changes in spending habits are likely to have long-term ramifications. High priority sectors poised for growth and digital transformation in the coming decade show early promises, including Pharmaceuticals, Agriculture, ICT/ITES, Logistics, and Digital Financial Services. Gateway to Digital Bangladesh: Vision 2041 ● Interoperable and connected health management systems ● ‘Made in Bangladesh’ policy boost in ICT and emerging Technologies ● Universal affordable access to digital literacy ● Universal coverage of digital financial services ● Financial data interoperability to speed up financial inclusion by 10X ● Alternative credit rating system for CMSMEs and vulnerable citizens ● Digital commodity exchange for agriculture produce connecting farmers at their doorsteps ● Facilitating bottom-up e-commerce for livelihood of local producers and artisans ● Transformation of education to 4IR adjusted blended learning approach for all citizens ● Position on “Ease of Doing Business Index” at 50 by 2025 ● Formulation of National Policy and Agenda for Start-ups Executive Summary 2
  3. 3. Table of Contents 3 Macroeconomic Overview The Surging Bangladesh Economy Sectoral Overview The State of Digital Commerce in Play COVID-19 Shockwave Propelling Digital Adoption Across the Country Key Drivers Challenges and Opportunities Recommendations Gateway to Digital Bangladesh: Vision 2041 1 2 3 4 5
  4. 4. Macroeconomic Overview The Surging Bangladesh Economy
  5. 5. Bangladesh Economy Fights Pandemic like a Champion With the Fastest GDP Growth Rate in South-Southeast Asia, 2020 5Source: ADB, Sep 2020 Bangladesh has been the best performing economy among 46 countries in the South-Southeast Asia, including many economies that post negative growth. (Recorded till September 2020) 5.2% 2.4% 2.3% 1.0% 1.0% 1.0% -0.4% -1.0% -5.0% -5.5% -8.0% -9.0% -20.5% Bangladesh Bhutan Nepal China Vietnam Myanmar Pakistan SouthKorea Afghanistan SriLanka Thailand India Maldives GDP Growth Rate in South-Southeast Asia, 2020
  6. 6. 0% 1% 2% 3% 4% 5% 6% 7% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 FDIas%ofGDP Bangladesh India Indonesia Myanmar Pakistan Sri Lanka Vietnam Foreign Direct Investment Requires Improvement In Comparison with Regional Peers 6Source: UNCTAD World Investment Report, World Bank Data & LightCastle Analysis Despite the excellent progress, the country’s Foreign Direct Investment (FDI) in CY 2019 stood at a mere 3% (U$ 2.87Bn) of the country’s total investment. With policymakers devising policies to attract FDIs, investments are expected to increase in the new decade 0.5% 1.8% 2.2% 4.2% 0.8% 0.8% 6.2%(FDI as % of GDP, 2019) Comparison with Regional Peers: FDI as % of GDP
  7. 7. 50% Population under the age of 25 9th Largest Mobile User Market 9.1Mn+ Daily MFS Transaction (Sep 2020) 600+ Govt. E-Services (2020) USD 2.1 Bn+ Local E-Commerce Market (2020) 168Mn+ Mobile Subscribers (Oct 2020) USD 3.2Mn+ Avg. Daily Volume of MFS Transaction (Sep 2020) 2Mn+ Monthly Govt. E-Service Users (2020) USD 800Mn+ ICT Exports (2018-19) 111Mn+ Internet Users (Oct 2020) 95Mn+ MFS Registered User (Sep 2020) 100Mn+ Digital Cards Issued (2020) Bangladesh Leapfrogging in ICT & Digital Adoption Indicating a Promising Future 7Source: World Bank Data, BTRC, Bangladesh Bank, a2i Demography Mobile Penetration MFS Penetration Govt. E-Services Penetration
  8. 8. Sectoral Overview The State of Digital Commerce in Bangladesh
  9. 9. E-Commerce, Marketplace and Financial Service Sectors Lead the Digital Ecosystem of Bangladesh E-Commerce Classified Ads F-Commerce Branded Mobility Transport Logistics Food Delivery Travel Hotels Flights Tickets Online Media Advertising Gaming Video On Demand Health-Tech Screening & Diagnostics Pharma Supply Chain Virtual Care EdTech K12 Education Career Development LMS (Learning Management System) Market Place Home Service Business Solution Jobs Financial Services Transfer Payment Lending 9Source: LightCastle Analysis
  10. 10. Ecommerce & Retail Healthtech Edtech Digital Media & Content Service Traveltech Logistics & Mobility Bangladesh Startup Ecosystem is diverse and operating in multiple Digital Commerce Sectors 10Source: LightCastle Analysis *List is not exhaustive Fintech
  11. 11. Digital Transaction came back strong in 2020 Q3. Need to keep the momentum on & ensure stickiness 0.4 2.3 5.3 14.5 0.3 2.1 3.8 14.3 0.3 0.2 3.7 18.1 Credit Card Internet Banking Debit Card Mobile Banking Q1 Q2 Q3 Mobile Banking Contributed 72% of U$ 65Bn+ Digital Transaction in 2020 (Q1-Q3) 9.3Mn+ Daily MFS Transaction (Oct 2020) U$ 202Mn+ Avg. Daily Volume of MFS Transaction (Oct 2020) 96Mn+ MFS Registered User (Oct 2020) 1Mn+ MFS Agents (Oct 2020) 15 Banks with MFS Service (Oct 2020) Digital Transactions in 2020 Q1-Q3 (U$ Bn) 11Source: Bangladesh Bank U$ 1.1Bn U$ 4.5Bn U$ 12.8Bn U$ 46.8BnTotal Transaction U$ 65.2Bn (2%) (7%) (20%) (72%)
  12. 12. 2,000 Website Based Entrepreneurs 50,000Facebook-centric Entrepreneurs $2.1Bn Market Size in 2021 $3Bn Market Size in 2023 E-Commerce Market Grows at a Steady Pace reaching USD 2.1 Bn While ~25% of the Transaction Occurs Digitally - an incentive is a must 12Source: ECAB, Statista & LightCastle Analysis Digital Payment Year Payment (USD) Growth (Y-o-Y) 2016 20 Mn - 2017 152 Mn 660% 2018 185 Mn 22% 2019 233 Mn 26% 2020 471 Mn (Projected) 102% E-Commerce Market Size Year Market Size (USD) Growth (Y-o-Y) 2016 66 Mn - 2017 1.1 Bn 1567% 2018 1.2 Bn 9% 2019 1.6 Bn 33% 2020 2.1 Bn (Projected) 31% 125K Employment in the Sector 500K Job Prospect in 2021 ~25% of the Transaction Occurs Digitally
  13. 13. Government Support for a Thriving Startup Ecosystem Propelling Digital Consumption Startup Ecosystem at Inflection Point Govt. Initiatives to Boost Startup Activity Local & Global Investors Betting on the Startups 1,200+ Active Startups in Bangladesh 28 Hi-Tech Parks Launched USD 300Mn+ Foreign Investment Raised 200+ New Startups born every year 2,650+ Unions under Broadband Connectivity 200+ Active Angels Boosting Early Initiatives Dhaka Chattogram Sylhet Major Active Cities in the Startup Ecosystem USD 45 Mn+ Government Fund formed Under ICT Ministry 1.5Mn+ Employment Created by the Startup Ecosystem 13Source: Bangladesh Startup Consortium, LightCastle Startup Index & LightCastle Analysis
  14. 14. 600+ Govt E-Services Serving 2 Million+ Rural and Per-Urban Populations Monthly 14Source: a2i
  15. 15. COVID-19 Shockwave Propelling Digital Adoption Across the Country
  16. 16. Digital Commerce Helped Maintain Basic Needs During Lockdown Source: LightCastle Analysis 16
  17. 17. While Lockdown Impacted the Most Business Verticals Badly, Grocery, Logistics and Fintech Sectors saw Boom in Growth Grocery, Logistics and Fintech Sectors saw growth during lockdown 300% E-Commerce Sector Growth in 2020 8% Companies Introduced Retail Grocery 300 Companies started online services 100,000+ Daily Ecommerce Orders Reached Per Day 25% Increase in avg. essential order’s basket size Pre-Pandemic vs Post-Pandemic Market Traction 17Source: ECAB, Bangladesh Startup Consortium & LightCastle Analysis
  18. 18. COVID-19 has Accelerated Some Sectors, While Setting Others Back 18Source: LightCastle Analysis
  19. 19. Key Drivers Challenges & Opportunities
  20. 20. Slow Online Adoption in Consumer Lack of Credibility Predominant COD Transactions Unstructured Supply Chain Underdeveloped reverse logistics Supply Side Inadequate Infrastructure Lack of Integration Demand Side City Center Based Bottlenecks from Demand Side and Supply Side are limiting the growth of digital commerce in Bangladesh Source: LightCastle Analysis 20
  21. 21. Investors will be increasingly selective going forward What’s In? • Sustainable Profits • Robust Cash Flow Profile • “Essential Services” What’s Out? • Vanity Metrics • Negative Scaling • “Non-essentials” ✓ X Recalibrating towards sustainable and profitable growth ▪ Adverse to “Blitzscaling” strategies that feature low take rate, high burn rate and weak cash flows. ▪ Refocus on positive unit economics and path to profitability vs growth only in GMV or active users Essential vs non- essential tech ▪ Focus on startups that drive improvements in efficiency and access to services (ie. Logistics, access to healthcare) ▪ COVID-19 has made evident which startups continue to offer essential services Budding sectors of growth ▪ Mature sectors such as e-Commerce, Transport & Food, Travel and Media are largely consolidated and have seen multiple rounds of late-stage funding over the past 3 years. ▪ Deal activity has instead picked up for nascent sectors, including FinTech, HealthTech, EdTech, and among others, B2B SAAS startups 21Source: LightCastle Analysis
  22. 22. Recommendations Gateway to Vision 2041
  23. 23. Action Agenda Policy and Regulation Interoperable and connected health management systems Investment in human capability and capacity, especially health care management so that the health system is transformed from 'doctor-centric' to 'healthcare management centric’ ▪ Development of an accountability framework for both public and private facilities ▪ Development and enforcement of a mandatory health data interoperability protocol for connecting data system of all public and private health facilities ▪ Launching of universal health insurance system covering both public and private facilities ‘Made in Bangladesh’ boost in ICT and emerging Technologies Development and enactment of 'Made in Bangladesh' Policy for promoting local manufacturing of digital devices for domestic and foreign market. The policy needs to be foreign investment friendly and at the same time promote local capacity Building Universal affordable access to digital literacy ▪ Development of digital literacy curriculum guideline for each segment of learners for development of course materials by public and private agencies ▪ Making curriculum and content for digital literacy open [creative commons licensing] Recommendations Gateway to Digital Bangladesh: Vision 2041 23
  24. 24. Action Agenda Policy and Regulation Universal coverage of digital financial services ▪ Digital Financial Inclusion Policy to incentivize digital financial transactions across the population. BASIS has proposed 5% incentive for digital payments. 3% for users & 2% for merchants for accepting digital payments Financial data interoperability speeding up financial inclusion by 10X ▪ Enactment of Data Interoperability Law ▪ Enactment of Data Protection and Privacy Law [e.g., GDPR] ▪ Revision of Digital Security Act, 2018 to connect with independent law on data ▪ protection and privacy Alternative credit rating system for CMSMEs and vulnerable citizens ▪ Enactment of a law for CMSME credit rating system with emphasis on credit 9 bureau database under Bangladesh Bank Order, 1972 Digital commodity exchange for agriculture produce connecting farmers at their doorsteps ▪ National policy for quality standards for different agro-commodities in Bangladesh ▪ National Agro-Commodity Exchange Policy Recommendations Gateway to Digital Bangladesh: Vision 2041 24
  25. 25. Action Agenda Policy and Regulation Facilitating bottom- up e-commerce for livelihood of local producers and artisans ▪ Upgrading National Broadband Policy, 2009 for revision of TAX, VAT, and Surcharge to decrease Internet price ▪ Upgrading National Digital Commerce Policy, 2018 for exemption of taxes imposed on digital commerce and advertising Transformation of education to 4IR adjusted blended learning approach for all citizens ▪ Digital Education Policy [in alignment with 8th Five-Year Plan] ▪ Upgradation of Intellectual Property Rights [IPR] Policy to ensure appropriate ▪ encryption and to protect the providers of online education Ease of Doing Business Index, 50 by 2025 ▪ Introduction of Ease of Doing Business Policy catering to each of the 18 sectors identified National Policy and Agenda for Start- ups • Introduction of National Policy for Start-ups to promote growth of the ecosystem, while also attracting foreign investment 25 Recommendations Gateway to Digital Bangladesh: Vision 2041
  26. 26. LightCastlePartners Level 5, House 10/12, Road 1, Block B, Niketan, Gulshan 1, Dhaka - 1212, Bangladesh Email:info@lightcastlebd.com Mobile: +8801744 736621, +8801711 385988 Web:www.lightcastlebd.com DataonDemandPlatform:www.databd.co Mehad ul Haque Project Manager & Sr. Business Consultant, LightCastle Partners Bijon Islam Chief Executive Officer, LightCastle Partners Authors Silvia Rozario Project Manager & Sr. Business Consultant, LightCastle Partners

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