Exiled PM and Political Chaos: What’s Next for Bangladesh’s Startups?

Bangladesh is navigating turbulent waters. The recent mass protests leading to the abrupt fall of former Prime Minister Sheikh Hasina’s 15-year tenure mark a significant political shift. This upheaval comes at a critical juncture as the nation grapples with profound economic challenges, including soaring inflation and diminishing macroeconomic stability.

Amidst the political chaos, the garment manufacturing body of Bangladesh already called for a complete halt to the operations of all garment facilities in the country.

The garment industry is a cornerstone of Bangladesh’s economy, significantly contributing to the country's exports. Major retail brands like H&M and Zara import ready-made garments from Bangladesh on a large scale. According to the World Trade Organization’s ‘World Trade Statistics 2023’, Bangladesh exported $38 billion worth of garments in 2023. While China and the EU are the top two exporters of garments, Bangladesh ranks as the third-largest in the world.

The Bangladesh crisis, not restricted to any particular sector or industry, is also sure to hit the businesses and the emerging startup ecosystem nof the country. Ranked 4th in South Asia and 83rd globally, the nation's startups had been thriving, raising an average of $3.7 million. However, the current political turmoil threatens to undermine this progress, casting a shadow over the future of entrepreneurial ventures in the country.

Economy and Startup Ecosystem: A Dual-Edged Sword

Despite remarkable progress in various socio-economic indicators and sustained high growth, Bangladesh's economy faces substantial hurdles. The falling value of the Bangladeshi taka against the US dollar, combined with declining foreign remittance earnings and modest export inflows, has contributed to an inflation rate exceeding 9% over recent months. The taka's value plummeted from 95 per dollar in August 2022 to 118 per dollar in August 2024. Furthermore, the depletion of foreign reserves, dropping from $39.6 billion in July 2022 to $26.8 billion in June 2024, raises alarms among policymakers and economists alike.

Startup Ecosystem: An Emerging Powerhouse in Doldrums?

Amidst these economic trials, Bangladesh's startup ecosystem showed remarkable promise. In 2023, Bangladeshi startups raised $73 million, with approximately 70% of this funding coming from foreign investors. On a per capita basis, Bangladesh invested 43 cents.

Understanding the need for investment in startups is crucial. Startups drive innovation, create jobs, and stimulate economic growth, making them essential for a country's development.

Sheikh Hasina's Vision for Unicorns

The former Prime Minister Sheikh Hasina had ambitious plans for Bangladesh’s startup ecosystem. She envisioned supporting at least five startups to achieve billion-dollar valuations by 2025, with a broader goal of nurturing 50 unicorns by 2041. However, the reality on the ground presents a mixed picture.

Bangladesh’s Unicorn Startups: Who Are They?

Bangladesh boasts over 8,800 startups, but only two have achieved unicorn status. These companies are leading the charge in innovation and disruption within the fintech sector, each bringing unique solutions to the market and contributing significantly to the country's economic landscape.

Nagad: Revolutionizing Digital Banking

Nagad, a dynamic mobile financial service provider, has swiftly ascended to unicorn status since its inception in 2019. Within just three years, Nagad has become an indispensable part of daily life in Bangladesh, offering a comprehensive suite of digital banking solutions. Through its app-based wallet, users can access a wide range of services, including savings accounts, money transfers, bill payments, and mobile recharges. The platform is designed for accessibility and convenience, available on both iOS and Android devices.

Nagad's innovative approach extends beyond basic financial transactions. It enables users to make payments via credit or debit cards, thus bridging the gap between traditional banking and digital finance. The company serves both B2C and B2B markets, solidifying its presence across various segments of the fintech sector. Supported by the institutional investor Inclusive Fintech 50, Nagad's rapid growth and widespread adoption reflect its significant impact on the financial landscape of Bangladesh. Despite facing stiff competition from other giants like Paytm, MoneyGram, and bKash, Nagad has carved out a niche for itself, ranking fourth among 21 competitors.

bKash: A Pioneer in Mobile Financial Services

bKash, another trailblazer in the fintech industry, joined the prestigious unicorn club in November 2021. This milestone was achieved following a substantial $250 million Series C funding round led by the SoftBank Vision Fund. Founded in 2011, bKash has been at the forefront of mobile financial services in Bangladesh, providing solutions that simplify financial transactions for millions of users.

bKash offers a diverse array of services, including money transfers, mobile recharges, and utility bill payments. The platform is designed for ease of use, allowing users to initiate transactions via phone, which is particularly beneficial in a country with a high mobile penetration rate but relatively low banking service accessibility. With its applications available on both Android and iOS platforms, bKash ensures that its services are within reach for a broad audience.

The company's impressive growth trajectory is backed by major investors such as the IFC and the Bill & Melinda Gates Foundation, which underscores its robust business model and future potential. As of its last valuation in 2021, bKash was valued at $2 billion, firmly establishing its position as a fintech leader not just in Bangladesh, but in the broader South Asian region.

The Crisis Unfolds: Political Turmoil and Economic Uncertainty

The political landscape in Bangladesh has been dramatically reshaped by the upheaval, which saw the abrupt resignation and exile of former Prime Minister Sheikh Hasina amidst widespread protests. The catalyst for this turmoil was a controversial job quota rule, but the underlying causes are far more complex, involving both economic and non-economic factors. The protests turned violent, resulting in over 300 deaths, and the refusal of the army to fire on demonstrators marked a significant turning point. This crisis, reminiscent of the chaos in Sri Lanka and Egypt, has left Bangladesh in a precarious state.

General Wakar Uz Zaman, the Army Chief and a relative of Hasina, played a pivotal role in orchestrating her safe exit. His actions led to the imposition of army rule and initiated consultations with political parties for the formation of an interim government. This transition, however, has been far from smooth. The release of BNP leader Khaleda Zia from house arrest has added another layer of complexity to the political saga. Calls for Nobel Laureate Muhammad Yunus to lead the interim government have gained traction, reflecting the public's desire for credible and ethical leadership during this turbulent period.

How Will Political Instability Impact the Startup Ecosystem?

The political uncertainty has cast a long shadow over Bangladesh’s burgeoning startup ecosystem. The nation, which ranks 4th in South Asia and 83rd globally for its startup environment, had seen promising growth with startups raising $73 million in 2023, largely from foreign investors. This inflow of foreign capital, vital for the ecosystem's growth, may now be at risk. Political instability typically erodes investor confidence, leading to a potential slowdown in funding.

Startups, which are inherently risky ventures, require a stable environment to thrive. The recent events have disrupted this stability, creating an atmosphere of uncertainty that could deter both local and international investors. The significant gap in per capita investment between Bangladesh and its neighbor India—43 cents compared to India's $7.76—highlights the challenges that Bangladeshi startups already face. This gap may widen further if the political situation remains unresolved, as investors seek safer havens for their capital.

Economic Ramifications

The broader economic impact of the political crisis is equally concerning. High inflation, a depreciating currency, and depleting foreign reserves are major economic challenges that have been exacerbated by the recent turmoil. The falling value of the Bangladeshi taka, which dropped from 95 per dollar in August 2022 to 118 per dollar in August 2024, has increased the cost of imports, putting additional pressure on the economy. Furthermore, foreign reserves have dwindled from $39.6 billion in July 2022 to $26.8 billion in June 2024, limiting the government’s ability to manage economic stability.

These economic stresses, coupled with political instability, pose a significant threat to the progress made by startups like Nagad and bKash. These companies, which have driven innovation and financial inclusion in Bangladesh, may face operational challenges if the economic situation deteriorates. For instance, increased inflation can lead to higher costs for goods and services, affecting consumer spending and the overall demand for fintech solutions.

For Bangladesh to navigate through this crisis, a multifaceted approach is required. Stabilizing the political situation is paramount. The interim government needs to be perceived as credible and capable of restoring order and confidence. Engaging key stakeholders, including political leaders, civil society, and international partners, will be crucial in forming a consensus-driven path forward.

Economic reforms are also essential. Addressing inflation, stabilizing the currency, and rebuilding foreign reserves should be top priorities. Ensuring a supportive environment for startups will involve not just economic stability, but also regulatory support and incentives to attract and retain investment.

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