The Case for Investing in Bangladesh's IT Industry

The following was originally published in A. Wahab & Co.'s October 2024 Wahab's Wealth Watch Newsletter.

Thanks to its growing pool of skilled developers and vibrant tech ecosystem, Bangladesh is rapidly becoming a global hotspot for IT outsourcing. One of the clearest indicators of this rise is Bangladesh’s significant presence on GitHub, the world’s largest platform for software development collaboration. In the three months leading up to September 2023, the number of Bangladeshi developers on GitHubsurged to 945,696, compared to 568,145 in 2022—a 66% year-over-year increase, the highest proportional growth worldwide. This highlights Bangladesh’s expanding role in the global developer community, driven by a tech-savvy population eager to contribute to both open-source and proprietary projects. 

The country’s competitive edge lies in its large, young, and dynamic pool of English-speaking engineers, many of whom are proficient in the latest technologies like AI, web development, and enterprise resource planning (ERP) software. For example, Zaheed Sabur, the lead engineer for Google’s Gemini app, is a Bangladeshi national who received his undergraduate degree from American International University Bangladesh in Dhaka. His success underscores Bangladeshi universities' ability to produce world-class engineers. 

On the whole, Bangladesh offers foreign IT companies a unique combination of competitive labour costs, a rapidly growing developer base, and a skilled workforce eager to innovate. This, coupled with a supportive business environment, makes it an increasingly attractive destination for outsourcing and technology partnerships. In this month's issue, we will explore some of the competitive advantages of the Bangladesh Information Technology industry - one that does not get its fair share of global coverage.

A Large, Capable, and Eager Talent Pool

Bangladesh, with a population of 169 million, is the eighth most populous country globally. The working-age population (between ages 15 and 64) comprises 67% of this total, with the median age being 29.6 years. The literacy rate among individuals aged 11 to 45 has risen to 73.69%. Bangladesh boasts a range of higher education institutions, including 53 public universities and 111 private ones. The expansion of the outsourcing industry has prompted these institutions to concentrate on preparing graduates for IT roles with courses designed to make them job-ready. Currently, 40% of the population has internet access, and 99% have access to mobile phones. As such, more and more younger people in Bangladesh are picking up freelancing and other IT-related projects as their primary source of income. 

A Strengthening Local Market

Since 2021, Bangladesh's Real GDP (PPP) has consistently grown by 6% per year on average and was estimated at $1.413 trillion in 2023, ranking 23rd out of 224 countries. For the same period, Real GDP Per Capita has grown by 5% per year on average and was estimated at $8,200 in 2023, ranking 154th out of 222 countries. This steady growth has increased local demand for digitization in both public and private sectors, as well as the need for IT services, and contributed to the increase in IT workers due to greater access to computers, the internet, and computing education.

The Bangladesh Association of Software and Information Services (BASIS) reported $1.4 billion in export earnings from IT and IT-enabled services (ITES) in 2022, in addition to its $1.5 billion share of local market earnings. Currently, the IT sector contributes 1.28% to Bangladesh's GDP and employs more than 300,000 people. With over 4,500 software and ITES companies nationwide, businesses can tap into local talent to enhance their capabilities. Bangladesh boasts over 650,000 freelancers in the Upwork marketplace alone, earning an aggregate of $1 billion annually. This strengthening of the local market facilitates Bangladeshi professionals in taking on international projects and providing high-quality services. 

A Supportive Regulatory Environment 

Companies in Bangladesh can be 100% foreign-owned and controlled. The Bangladesh government offers various incentives to technology companies. First, per the Finance Act 2024, a 100% income tax exemption is available to IT and ITES providers until June 2027. Additionally, the Bangladesh Bank offers a 10% cash reward for the export of IT and ITES revenues (except for companies located in EPZ, SEZ, and Hi-Tech parks) and a 4% cash reward for freelancers working at any of 55 marketplaces or selected by the ICT Ministry. 

Finally, Bangladesh has 29 Hi-Tech Parks dedicated to fostering the development of IT and Hi-Tech industries through investment incentives. IT/ITES firms operating in these parks benefit from a ten-year corporate income tax (CIT) exemption, import duty exemptions on capital equipment (with a reduced 2% duty on ICT-related hardware) and construction materials, and tax exemptions on dividends, share transfers, royalties, and technical assistance fees. Individual expatriate workers in these Hi-Tech Parks are offered a three-year personal income tax exemption. There is also a VAT exemption on local bills during production and a stamp duty exemption on mortgage deed registration. These factors make Hi-Tech parks appealing locations for investment in Bangladesh’s growing IT sector.