As of May 2023, inflation rate in Bangladesh stands at 9.94 per cent. A VAT of 7.5 per cent on handsets being assembled in the country with all imported components is set to be levied from the upcoming fiscal year – a substantial rise from the current 5 per cent.
Owing to such high inflation rates, Bangladesh’s smartphone shipments declined by 23 per cent YoY (Year on Year) in 2022, according to Counterpoint’s Market Monitor Service. Adding to that, macroeconomic crisis, disruption of the global supply chain, increased import duties, higher tax rates and a consequent fall in demand further reinforced the decline.
In an era of technological advancement, the smartphone industry has emerged as a catalyst for economic growth and digital transformation worldwide. Making us dependent on this all-encompassing piece of tech for our daily needs, smartphones have now become an integral part of life and living. However, recently in Bangladesh, this crucial sector is facing significant challenges, posing hindrances in its progress - clearly represented by the numbers above.
Bangladesh has been grappling with economic and financial pressures, resulting in a decline in smartphone manufacturing and assembling activities. Inflation rates have soared, burdening the population and leading to reduced consumer demand. Additionally, additional taxes and restrictive LC (Letter of Credit) policies have further constrained the industry's growth. According to Bangladesh Telecommunication Regulatory Commission data, mobile phone manufacturing in the country dropped by 3.81 lakh in March compared to the previous month.
The data also exhibited that among 1.75 million units of phones produced in March 2023, 1,177,000 units were equipped with 2G technology, 570,000 with 4G technology and only 3,000 units with 5G technology. Of the phones, the feature phones accounted for 676.28 per cent and the smartphones only 32.72 per cent. These figures are worrying.
Besides the macroeconomic implications, other formidable obstacles facing the smartphone industry in Bangladesh includes the "Grey Market” - the unauthorized sale of smartphones at prices lower than the market value of officially marketed devices. This illicit market undermines the legitimate industry by diverting consumers away from locally manufactured and legally imported smartphones. As mentioned by Rizwanul Haque, Vice President of the Mobile Phone Industry Owners' Association of Bangladesh, in an interview with a national daily, there has been a massive growth in market share of the grey market – a rise from 20 per cent to 50 per cent.[1] Consequently, the Grey Market exacerbates the economic pressures faced by the industry, impeding its growth potential and thwarting progress – putting impact on the overall industry.
To overcome these challenges and revive Bangladesh's smartphone industry, a collaborative effort between the government, customers and industry leaders is imperative. The government should actively engage with local manufacturers and industry stakeholders to address the burden of additional taxes and streamline the LC policies. By alleviating these financial burdens, the industry can regain its competitive edge, stimulate investment, and generate employment opportunities for the nation's workforce.
It is also essential to enhance the domestic manufacturing ecosystem through policy support and incentives. Encouraging local component production, research and development, and innovation will reduce dependency on imports and enhance the industry's self-sufficiency. Collaborative initiatives between the government, industry leaders, and academic institutions can foster a skilled workforce and nurture an environment conducive to technological advancements. That being said, many brands like realme have set up local manufacturing plants in Bangladesh since 2017-18 fiscal year, contributing to the overall economic growth of the nation.
Simultaneously, stringent measures must be implemented to combat the grey market. Robust enforcement against the import and sale of unofficial smartphones is crucial to safeguard the interests of legitimate manufacturers and create a level playing field. Educating consumers about the risks associated with purchasing unauthorized devices can also foster support for the local industry. Additionally, partnerships between government agencies and industry associations can establish mechanisms for tracing and identifying smuggled devices, ensuring fair competition.
Promoting research and development within the smartphone industry is imperative for long-term growth. It’s important for the government to collaborate with academic institutions to establish research centers and innovation hubs focused on developing advanced technologies and creating an environment conducive for entrepreneurship. Additionally, aiding smartphone manufacturers in conducting research to make space for the latest innovations is also necessary.
But, why is the smartphone industry so important?
The smartphone industry is a vital tool for Bangladesh's digital transformation. The industry plays a pivotal role in achieving Smart Bangladesh 2041 vision by expanding access to digital services and bridging the digital divide. Moreover, the smartphone industry has been a significant driver of economic growth by attracting foreign investment, generating employment, and bolstering export potential. Neglecting this crucial sector would not only hinder progress but might also curtail the socioeconomic advancements of the nation.
Smartphones empower individuals by providing access to education, healthcare, e-commerce, and government services, enhancing overall productivity and quality of life. With the rapid proliferation of digital platforms and mobile applications, the smartphone industry serves as a catalyst for entrepreneurship, innovation, and job creation, while also offering the grounds for small and medium enterprises to thrive.
The smartphone industry has the potential to create a ripple effect across various sectors of the economy. As the industry flourishes, it stimulates demand for ancillary products and services such as mobile accessories, mobile applications, and digital content. This, in turn, opens up avenues for entrepreneurship and job creation, benefiting not only large manufacturers but also small and medium-sized enterprises involved in the supply chain.
In 2021, the mobile industry contributed 4.5 trillion U.S. dollars to global GDP, making up 5 percent of the global GDP. This figure alone is a reflection of this industry’s significance.
A thriving smartphone industry attracts foreign investment and promotes technological collaboration, often incentivizing global smartphone manufacturers and component suppliers to establish manufacturing plants or research and development centers in Bangladesh. Eventually, this can contribute to technology transfer and knowledge exchange, enhancing the country's technological capabilities and competitiveness on a global scale.
Moreover, the smartphone industry plays a pivotal role in boosting export earnings. Bangladesh has already made significant strides in local handset manufacturing and assembling. By nurturing the industry and building a robust ecosystem, the country can tap into international markets and become a key player in the global smartphone trade. Exporting locally manufactured smartphones would not only generate revenue but also enhance the country's reputation as a reliable and innovative technology hub.
The revival of Bangladesh's smartphone industry is essential for the country's economic growth and digital transformation. By addressing the economic pressures, combatting grey market and fostering collaboration between stakeholders, the industry can regain its momentum and contribute to the nation's development. A catalyst for economic growth, smartphones can empower individuals, connect communities and propel the country closer to its vision of a Smart Bangladesh. Hence, now is the time for all stakeholders to come together, prioritize the revitalization of the smartphone industry and unlock its immense potential for the betterment of the country and its people.
* Alen Chen is CEO, realme Bangladesh