IT exports in the slow lane as demand falls

Information technology exports from Bangladesh dropped 4.4 percent in the first five months of the current fiscal year as the demand for software developers and products has fallen due to the lingering global economic slowdown.

According to the Export Promotion Bureau (EPB), earnings of domestic IT firms stood at $221.15 million in July-November of 2023-24, down from $231.34 million in the identical period a year earlier.

Industry people said the demand in major export destinations such as the United States, the United Kingdom and the European Union has either dipped or hasn't grown much in the last one year, forcing firms to put the expansion plan related to IT teams on hold.

The drop in IT exports was mainly contributed by lower earnings from software sales, which decreased 31.63 percent year-on-year to $16.19 million in the five months to November.

Ferdous Mahmud Shaon, managing director of Cefalo, a software company, said the firm experienced a 15 to 20 percent drop in demand in the last six months in the EU, especially in Norway, the biggest market for the growing company.

"We are witnessing a substantial low demand from the Norwegian market due to the gloomy economic situation."

He identified two reasons for the business slowdown.

First, startups in export destinations are cutting back their investments as they are not getting venture capital investments, thus slimming down their own IT teams as part of the cost-cutting measures.

"For example, two startups that source software developers from us have reduced the number of employees from 25 to just five," Shaon said.

Similarly, big companies in the EU are posting lower profits, so they are not hiring developers from countries like Bangladesh even if someone resigns, he added.

Cefalo hired more than 100 people from early 2022 to mid-2023 to take its overall manpower to 250. The hiring has remained paused for the last six months.

"I am not surprised by the export drop," said Fahim Mashroor, a former president of the Bangladesh Association of Software and Information Services (BASIS).

He said many tech professionals in the developed markets have lost jobs in recent times. And, companies might have engaged them as freelancers rather than outsourcing the tasks to countries like India and Bangladesh.

Another reason is the sharp appreciation of the US dollar, he said.

The taka has lost its value by about 30 percent against the American greenback in the past two years amid fast depletion of the foreign currency reserves, making imports costlier and exports cheaper in Bangladesh.

"As a result, many outsourcing companies in Bangladesh are delaying bringing in their export earnings because they anticipate a further spike in the dollar rate. They believe that they will gain more if they fetch their proceeds at a later time," Mashroor said.

Raisul Kabir, CEO of Brain Station 23, a software exporter, said the export is in the slow lane in the EU market.

"However, the demand in the Middle-Eastern countries such as the UAE and Saudi Arabia and in the African market is growing."

According to EPB data, receipts from ITES exports, which cover data processing and web hosting, grew 2.76 percent year-on-year to $196.29 million in July-November. IT consultancy services plummeted 48.40 percent to $7.73 million.

Installation, maintenance and repair of computer and peripheral equipment services witnessed a decline of 43.98 percent to $0.93 million.

In fact, IT exports from Bangladesh has been witnessing a downward trend for the past one and a half years. The shipment from the sector fell in the last financial year that ended in June, the first such decline in five years, dealing a blow to the government's export diversification efforts.

The earnings of domestic IT firms declined 7.42 percent to $548.10 million in 2022-23.

Rashad Kabir, managing director of Dream71 Bangladesh Ltd, called the fall in IT exports "alarming" since the sector is considered to be the most promising when it comes to export diversification after the garment industry, which accounts for 85 percent of national export earnings.

"The main reason we are predicting is the worldwide economic crisis, especially in the US and Europe where Bangladeshi ICT companies export their software products mostly."

A lack of skilled human resources has also contributed to the decline since it is quite impossible to compete in the international market with this shortcoming, he said.

Kabir urged Bangladeshi companies to focus on technologies like Artificial Intelligence, Blockchain and Big Data.

"This is because it will be tough for our tech companies to grow in the coming years if they rely only on conventional technologies."