BCG Study: Bangladesh

Increasing new business activity

In a country like Bangladesh, the Internet can help make up for shortages in other forms of infrastructure, such as roads, by enabling people to transact across large distances. There is already evidence of new business models based on the Internet, such as providing Internet services in rural communities, Bangladesh-focused job search sites, and many other innovative ways for entrepreneurs to harness the Internet


By WAVE Team
from Belgrade, SERBIA


Despite rapid growth over the last 5 years, Bangladesh remains one of the most poorly penetrated countries in the world, with estimates suggesting that there is approximately one subscriber for every 100 people. Furthermore, growth rates already appear to be slowing.

Bangladesh faces a number of critical obstacles to widespread Internet adoption. Fixed line coverage and quality are poor, particularly outside of the core urban areas. Currently, approximately 90% of fixed lines are concentrated in the urban areas, where only 25% of the population live. Until recently, access prices were also high. In 2006 the ITU estimated that the PPP adjusted price of basic Internet access (20 hrs a month) was almost USD 8, more than three times the equivalent in Thailand. Against the context of a GDP per capita of around USD 500, this clearly put the Internet out of the reach of the majority. However, this appears to be improving as mobile operators have started to offer cheap pre-paid packages.

From the people perspective, there are two challenges. One is the low awareness of the Internet and the benefits it can bring. In a survey in 2007/2008, almost three quarters of rural Bangladeshis surveyed admitted that they were not aware of the Internet. A more fundamental challenge is the lack of literacy, particularly English literacy and proficiency. Headcount literacy rates in Bangladesh are around 50%, where "literate" is defined as someone who is able to sign their own name. Based on current interfaces, this is likely to be insufficient for someone to effectively access the Internet.

These challenges, while significant, are not insurmountable. International experience has shown that wireless broadband can quickly and relatively cheaply spread the benefits of the Internet, particularly in sparsely populated rural areas. Although download speeds are limited relative to fixed line technologies, wireless compensates for this with its lower construction cost, shorter timeline for rollout, and lower costs for end users. Wireless broadband has also been shown to provide an additional boost to business productivity, strengthening the value proposition for potential adopters. A further advantage is that the additional competition provided by wireless players could accelerate the downward evolution of prices. In terms of awareness, encouraging the proliferation of community access points could help raise awareness in the short term, and offer Bangladeshis a low-cost entry point to experience the Internet. This will in time build a corps of advocates who can then recommend the Internet to their friends and neighbours.

Economic benefits

In terms of overall contribution to GDP, the figure is expected to rise at an accelerating rate, reaching 2.6% p.a. in 2020. The key driver of this is the productivity gains experienced by business users in all industries. It is projected that service firms will experience a gradual, continual increase in productivity gains (defined as gross value added per worker, or gross profit per employee), reaching 3.5% in 2020, and manufacturing firms will gain by up to 1.8%. This allows them to contribute 1.4% and 0.5% to GDP respectively, for a combined total of 318B BDT a year by 2020. Agriculture is projected to contribute up to 0.4%. With small household farms in rural areas dominating production, there is significant scope for the use of Internet to increase value added, through providing better information on planting times, methods, use of fertilizers, etc. This output could be worth up to BDT 68B in 2020.

Rising Internet penetration should also drive an increase in new business activity. Particularly in a country like Bangladesh, the Internet can help make up for shortages in other forms of infrastructure, such as roads, by enabling people to transact across large distances. There is already evidence of new business models based on the Internet, such as providing Internet services in rural communities, Bangladesh-focused job search sites, and many other innovative ways for entrepreneurs to harness the Internet. This could potentially increase the number of new businesses each year by up to 42K in 2020.


(Published: 11.10.2009.)