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October 2024
This month, we explore Bangladesh’s growing influence in the global tech landscape as its IT outsourcing sector rapidly expands. Driven by a burgeoning pool of skilled developers and government incentives to attract foreign investment, the country is becoming a prime destination for tech partnerships and innovation, positioning itself as a critical player in the global outsourcing market. Meanwhile, foreign exchange reserves have rebounded to over $25 billion in October, and major apparel brands like Adidas and H&M continue to source from Bangladesh, with some offering financial support to suppliers and extending timelines to mitigate disruptions.
• North America Update: Pennsylvania is the key battleground in the U.S. election, and the Federal Reserve is considering interest rate cuts amidst strong economic growth, raising inflation concerns.
• Europe Update: The European Council adopted listing reforms to retain IPOs, and the European Central Bank cut interest rates for the third time this year to boost economic growth.
• Asia Pacific Update: The Asia-Pacific IPO market rebounded in Q3 2024. The region also awaits news of a Chinese government stimulus that hopes to boost growth.
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 GitHub surged 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.
Majority of Apparel Brands Kept Orders in Bangladesh Despite Unrest
A Business and Human Rights Resource Centre (BHRRC) survey revealed that 12 out of 20 global apparel buyers, including brands like Adidas, H&M, and Walmart, have maintained work orders in Bangladesh despite ongoing unrest. While most brands upheld responsible purchasing practices, several did not fully disclose how they managed worker welfare and wage payments during the disruptions caused by protests over quota reforms.
The survey highlighted that 13 brands refrained from penalizing suppliers for late deliveries due to supply chain issues. However, only seven brands confirmed timely wage payments in July, while others, including Adidas and M&S, monitored payments without confirming they were on time. Some brands, like ASDA and M&S, offered financial support to suppliers, such as supply chain finance options and low-interest loans, while Primark extended production timelines. Despite these efforts, the apparel industry has faced significant indirect financial losses, particularly from expensive air shipments.
Bangladesh Adviser Announces $300m Clean Air Project Funding from World Bank
Bangladesh's Environment Adviser, Syeda Rizwana Hasan, announced that the World Bank will provide $300 million for the Bangladesh Clean Air Project (BCAP). This project aims to improve air quality management and reduce emissions across key sectors. The funding, provided through an IDA credit, may also include a grant for clean cooking initiatives under the National Air Quality Management Plan. The announcement followed a high-level meeting with World Bank officials, where Hasan also sought support for waste management and restoring Dhaka's canals to create a "blue network."Bangladesh's air quality is regularly reported as one of the worst in the world due to the widespread use of kilns to make bricks. Given this, it is hoped that such efforts will help reduce the health and environmental consequences for Bangladeshi citizens.
Bangladesh Gross Forex Reserves Surpass $25 Billion in Consistent Recovery
Bangladesh's foreign exchange reserves have rebounded to over $25 billion, reaching $25.14 billion on October 15, 2024, driven by reduced import payments and increased remittances. The rise in reserves, from $24.97 billion a week earlier, was supported by $1.21 billion in remittances in the first half of October. The International Monetary Fund (IMF) calculation put the reserves at $19.93 billion. Higher remittance inflows, growing over 33% in the first quarter of FY 2024-25, and the central bank's U.S. dollar purchases from commercial banks contributed to this increase. Import payments and new import orders declined due to political instability. Bangladesh's forex reserves peaked at $48.04 billion in August 2021.
Global Markets: North America
Trump and Harris Battle for Pennsylvania
With less than three weeks left until America's Federal Election, the winner of America's 2024 election is anyone's guess, with Harris currently leading by 2 points. Both candidates have their sights set on Pennsylvania's 19 electoral votes - the largest of all swing states. Over the past three months, Trump, Harris, and their running mates, Minnesota Governor Tim Walz and Senator JD Vance of Ohio, have made approximately 50 appearances in Pennsylvania, more than any other swing state. Advertising dollars have followed this focus, with one in every four dollars spent on ads between September 1 and 20 directed toward Pennsylvania, according to AdImpact.
Polling in Pennsylvania reflects a tight race. Recent surveys show Harris with a slight lead, including a 3-point advantage in a Quinnipiac University poll and a 4-point lead in a Philadelphia Inquirer/New York Times/Siena College poll. However, The Wall Street Journal has Trump up by 1 point. Pennsylvania played a pivotal role in both the 2020 and 2016 elections, with President Joe Biden winning narrowly in 2020 and Trump securing a razor-thin victory in 2016. This makes Pennsylvania a critical state for both parties heading into 2024.
US Federal Reserve Considers Interest Rate Cuts Despite Robust Economic Growth
There are positive developments in the U.S. economy, including rising wages, a strong stock market, and significant job creation. Despite these strengths, the Federal Reserve is considering rate cuts, which raises questions about the necessity of such measures when economic growth is robust. A key concern is the rising core inflation, currently at 3.3% per annum, and increasing consumer inflation expectations. While some argue that rate cuts are needed to stimulate a cooling labour market, the unemployment rate remains low at 4.1%, and recent job creation figures are strong at 254,000 new jobs added in September.
Additionally, consumer spending is healthy, but household debt reached a record $17.8 trillion at the end of Q2. Rate cuts could exacerbate inflation, harming low- and middle-income households and ultimately leading to decreased returns on savings for working families and retirees. The beneficiaries of rate cuts would primarily be borrowers and banks rather than the general public. The perception that rate cuts are inherently beneficial for the economy argues that low rates can lead to negative consequences like wealth inequality and corporate consolidation. It suggests that the Federal Reserve should refrain from further cuts, given the strong economic indicators.
Hedge Funds Shift Focus Back to North America; China Sees Increased Volatility
According to a Goldman Sachs report, hedge funds rotated back into North American equities last week, marking the largest weekly inflow since June. This was the first time in nine weeks that North American equities saw net buying by hedge funds, while Asia, particularly China, experienced volatile flows and significant net selling. Hedge funds favoured individual stock opportunities, with strong net buying in Health Care, Financials, and Information Technology sectors, while Utilities and Real Estate saw the most selling. In China, hedge funds reversed 60% of their recent buying, marking the largest sales on record.
Global Markets: Europe
European Council Adopts Listing Reforms in Attempt to Retain IPOs
The European Council has adopted the Listing Act to simplify listing rules and reduce company costs, particularly benefiting small and medium-sized enterprises (SMEs). These reforms also hope to increase transparency, investor protection, and market integrity in the European Union. However, concerns remain that the act may not be enough to make the EU a top destination for IPOs, as Europe only accounted for 10% of global IPOs in the past year. While IPO activity in the EU increased in 2024, it remains below historical averages, and competition from the US and emerging markets is growing. The act also includes provisions for multiple-vote shares to attract high-growth companies, with reforms set to be implemented over the next two years.
European Central Bank Cuts Rates Once Again as Economy Slows
The European Central Bank (ECB) cut interest rates for the third straight time this year, reducing the rate on banks’ deposits to 3.25%. This signalled a shift from inflation control to protecting economic growth. ECB President Christine Lagarde emphasized that disinflation is on track, but the economic outlook remains challenging. The ECB is monitoring global uncertainties, including potential trade tariffs from the U.S. if Donald Trump wins the presidency and oil price fluctuations due to Middle East conflicts.
While inflation in the eurozone dropped to 1.7%, below the 2% target, wage growth continues to support domestic inflation, though pressures are easing. The eurozone economy, particularly Germany, faces structural challenges like high energy costs and low competitiveness, which have weakened investment and growth. There are calls for European policymakers to implement reforms to strengthen the region’s economy. Money markets are predicting more rate cuts in December and through 2025, with interest rates potentially reaching a neutral level of 2%. Despite high inflation and economic concerns, the ECB is cautiously optimistic about future economic stability.
BSS Group Expands European eCommerce Market Presence with Acquisition of On Tap and Aitoc
BSS Group has acquired the EU-based eCommerce development firm On Tap, marking its expansion into the European market. This acquisition adds On Tap's 18 years of experience in platforms like Adobe Commerce, Shopify, and Shopware to BSS Group’s portfolio, which includes brands like BSS Commerce and Magestore. With this merger, BSS Group’s team grows to over 400 professionals, allowing them to offer enhanced services to more than 100,000 clients across 150 countries.
Trung Nguyen, CEO of BSS Group, highlighted the acquisition as a significant step in strengthening their global position and providing greater value to customers. Dan Garner, Founder and Managing Director of On Tap, will serve in an advisory role to support integration and enhance service offerings. Overall, this acquisition enables BSS Group to deliver more comprehensive digital commerce solutions and drive growth in Europe.
Global Markets: Asia Pacific
Asia-Pacific IPO Markets Recover in Q3
The Asia-Pacific region experienced a strong recovery in its IPO market in the third quarter of 2024, according to Ernst & Young (EY). After overcoming earlier declines, the region contributed to an 11% global increase in IPO numbers, with notable activity in mainland China, Indonesia, Malaysia, and South Korea.
The region saw 94 IPOs raising $2.5 billion YTD in 2024, a decrease from 127 IPOs raising $4.9 billion in the previous year. However, in Q3 alone, 28 IPOs raised $1.1 billion, a 100% increase in proceeds from the previous quarter. This surge was primarily driven by the listing of 99 Speed Mart Retail Holdings Bhd. from Malaysia, the second-largest IPO in the region in 2024.
Across ASEAN, Indonesia led with 34 IPOs that raised $0.3 billion, followed by Thailand and the Philippines. Singapore and Sri Lanka also saw small-scale IPOs. EY expects IPO activity to continue rising as interest rates ease and companies prepare for growth. Regulators are also exploring policies to support growing companies in accessing capital markets, and cross-border listings are expected to increase as firms expand into new markets.
Private Capital Market Seeks Encouraging Developments in China for Growth
According to data provider Preqin, the Asia-Pacific private capital sector may benefit from Chinese government stimulus and the development of regional financial markets. Although China’s contribution to this market has declined in recent years, reforms and stimulus measures could spur a comeback, as highlighted by Angela Lai, Preqin's head of performance and valuations.
China's GDP growth is among the highest globally, and initiatives targeting the property sector and technological advancements could enhance market resilience. Preqin forecasts that private market fundraising in the region has reached its lowest point and will see an annualized growth rate of 6.7% from 2023 to 2029. While fundraising for China-focused private capital fell to $3.4 billion in the first half of 2024 due to economic challenges, a recovery in assets under management (AUM) is anticipated, with growth expected to rise to 9.5% from 2023 to 2029.
Asia-Pacific Region Propels a Surge in Global Business Travel
A recent report from the World Travel & Tourism Council (WTTC) indicates a strong recovery in global business travel, particularly in the Asia-Pacific region, with China at the forefront. Business travel spending is projected to surpass pre-pandemic levels, reaching $1.5 trillion sooner than expected. In China, spending is anticipated to rise by 13.1% to nearly $211 billion.
The Asia-Pacific area is experiencing significant growth in corporate travel, fueled by economic recovery and a renewed emphasis on face-to-face meetings. Countries like Japan, South Korea, and Singapore are witnessing increased demand. The U.S. is still the largest market for business travel, with spending forecasted to hit $472 billion.
Key trends driving this recovery include blended travel, which combines business and leisure activities, and the resurgence of the Meetings, Incentives, Conferences, and Exhibitions (MICE) sector. As these trends unfold, business travel investments are expected to increase, solidifying Asia-Pacific's position as a major global business hub.
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