Home ›› 03 Jan 2022 ›› News
Startups have the potential to redefine economy as is evident across the world, but they are far from making considerable headway in the context of Bangladesh.
The startup economy appears to have not gained public patronisation so far, but faces roadblocks instead.
With its favourable demography and entrepreneurial culture, Bangladesh can nurture startup ideas that aim to offer innovative products and services, and bring competitive dynamics into business environment.
An existing bureaucratic tangle and other complexities relating to business issues are putting a strain on the development of ideas. Even many neophyte business models die in their infancy.
Failing to make progress in local base, many a startup venture is looking to offshore companies to engage in investment relationship that can help mutual success and drive economic growth for both parties.
In line with the upswing of economy, investors are turning to Bangladesh for an optimum productivity with low wages and the kick-starters are trying to grab that opportunity.
Industry insiders say they are always on the lookout for luring investment, and are stressing the importance of enhancing domestic software and hardware development skills to provide more sophisticated services.
“Bangladesh is strategically positioned between Southeast and South Asia. A high domestic consumption and natural resources make it a good place for investment,” said Shameem Ahsan, president, Venture Capital and Private Equity Association of Bangladesh.
Quizzed about startup culture, Bangladesh Investment Development Authority (BIDA) Executive Chairman Sirajul Islam told The Business Post, “The country is yet to grow startup culture. It will take time.”
“Trust and confidence are the benchmarks for investors before deciding on investment in startups.”
Why local startups go for registration in foreign land
Entrepreneurs say they prefer to have their startups registered either in USA or in Singapore to keep holding entity out there while operating locally in Bangladesh.
With this they want to shy away from bureaucratic tangles in home country that come in the way of the registration of their fledgling enterprises.
The digital healthcare startup Maya, online grocery store Chaldal and EdTech startup Shikho are such instances.
Maya and Shikho got themselves registered in Singapore and Chaldal in USA while the three are running operations locally.
As an entrepreneur one has to earn the trust of their investors, said Hussain M Elius, founder and senior adviser of Pathao.
“I prefer Singapore as it has lower corporate tax and is neutral to most Chinese investors. For this, one need not worry about the US-China trade war,” he pointed out.
“Entrepreneurs have to answer questions to their potential investors about tax and regulatory regime, and how the investors will able to recoup their money – through dividends or capital gains -- or how they are going to pay their vendors,” said the entrepreneur.
“In most cases, foreign venture capitalists and their lawyers are less likely to understand Bangladesh Law. Our corporate law does not allow for sophisticated features such as multiple classes of shares and employee stock options which are necessary for startups,” explained Elius.
The objective of becoming a developed country by 2041 would require systematic branding for attracting more foreign investments and expansion of the startup sector.
According to Bangladesh Startup Ecosystem Report 2021 released by LightCastle Partners, with more than 1,200 active startups, the non-traditional economic sector – startups – has generated over 1.5 million employments through product innovations and services as is evident in the operations of FinTech, Logistics, IT and Mobility.
Startup ecosystem at a glance
A survey of LightCastle finds a number of problems facing the startup entrepreneurs. Finding right talent, access to funding and cash flow management, government support, and legal or regulatory affairs are mentionable.
The survey recommends an enhanced cooperation between industry and academia which is necessary to propel the growth of startups.
A similar report published by the Foreign Investors' Chamber of Commerce and Industry this year said digital banking, IT and startup initiatives are concentrated in Dhaka and Chattogram, leaving a large part of Bangladesh till now untouched by the government and private industries.
It advocates for more digital penetration through accessible and inexpensive smartphones or devices, internet connectivity and digital literacy especially among low-income and rural people.
The report finds that tax barrier is a hindrance to startups.
The digital economy strives for efficient and open market access. Policy level tax barriers, for example, 69 per cent import duty on the firewall, restrict market access by interested players, according to the survey.
In this regard, BIDA Executive Chairman Sirajul Islam said: “The recent e-commerce scandal hit the trust-building process for investors largely. So to keep it under check, the commerce ministry made a policy. Likewise, we need to frame a policy on how startups will run in the country.”
The Bangladesh Bank needs to relax some of its regulations on remitting, he opined, arguing that, “The startups have to prove that if we are expending a certain amount of forex overseas, we are earning a significant amount against it.”
Venture Capital and Private Equity Association president Shameem Ahsan said investors struggle to find confidence to invest in Bangladeshi markets. They have a perception that if they invest here, it will be difficult to exit.
