CBDF restrictions may affect digital services exports: Report

Bangladesh’s digital services exports could decline by as much as 29 per cent to 44 per cent depending on the severity of cross-border data flows (CBDF) restrictions and retaliatory measures, according to a joint study.

Published by the Research and Policy Integration for Development (RAPID) and CUTS International, the report “Digital Services Exports of Bangladesh: Will Data Localisation Propel or Imperil?” estimated impacts of CBDF restrictions on businesses, including compliance costs.

Released at a webinar on Wednesday, the report highlighted many stakeholders’ concerns that the quality of services in Bangladesh could be negatively impacted if CBDF restrictions mandate choosing local service providers.

Such a move could increase operational costs for digital services exporters’ businesses and adversely affect the small firms, they added.

Bangladesh is mulling policies that regulate data privacy, security, and cross-border transfer. These measures include the prohibition on CBDF outside the country, called data localisation, or conditions on the flow of data, storage, and processing, called a conditional flow regime.

The recently released draft Data Protection Act also restricts the transfer of data outside Bangladesh without prior approval of the government.

According to RAPID, such restrictive policy measures could adversely impact digital trade, affecting innovation, economic growth, and foreign direct investments. Given the increasing significance of the ICT sector for Bangladesh’s economy, including the prominence of digital trade, this study analysed the impact of CBDF restrictions on Bangladesh’s digital services exports.

This study assessed scenarios if Bangladesh were to adopt CBDF policies like India and Vietnam, including the impact of CBDF restrictions on digital exports because of retaliatory measures from Bangladesh’s trading partners.

Bangladesh’s ICT sector had an impressive annual growth of 40 per cent with the current valuation of $1.54 billion, engaging more than 300,000 professionals and 4,500 enterprises.

Facilitated by cross-border data flows (CBDF), over the past five years, ICT exports have doubled to $1.4 billion in 2019-20, wherein exports were made to as many as 80 countries by 400 enterprises.

Bangladesh envisions achieving $5 billion in ICT exports revenue by employing two million professionals by 2025, and making the ICT industry the next growth engine for the country’s economy.

As businesses are increasingly relying on data with increasing digital transformation and easier global digital trade, risks of data misuse, data privacy, and security concerns have increased.

RAPID Chairman Dr Abdur Razzaque said, “Restricting the flow of data could be a hindrance in taking full advantage of the rapidly evolving data analytics and techniques.

“Alignment with good practices in cross-border data flows are important for established companies and newer tech start-ups to participate in the global digital trade and markets.”

He added that the data security can make it more vulnerable when the local-level capacity in protecting data from unauthorised access is weaker. Bangladesh needs to develop and upgrade ICT infrastructure before implementing restrictions of cross-border data flows.

Restricting data flows can significantly influence a country’s economy, stifling trade performance, diminishing productivity, and rising costs for downstream businesses that increasingly rely on data, said Amol Kulkarni, the research director CUTS International.

He added that the free flow of data facilitates innovation as it builds upon sharing and disseminating ideas, and collaboration between individuals and companies.