R&D: Businesses in Bangladesh investing in the future

Businesses in Bangladesh are increasingly investing in innovations as evidenced in a survey that shows the business sector employed the highest and spent the most in research and development activities.

The survey carried out by the Bangladesh Bureau of Statistics reveals the business sector consistently had the highest number of R&D personnel in three fiscal years between 2018-19 and 2020-21.

In its first-ever Research and Development Survey 2022, the BBS estimates that the total R&D expenditure for FY21 was Tk10,481 crore, 6% more than the year before. The business sector spent the most money over the course of the three years, followed by the government sector, while non-government non-profit institutions spent the least in R&D, it finds.

Capital expenditure was the largest portion of total R&D spending. The amount was Tk6,482 crore or nearly 62% of total R&D spending for FY21. Here too, the private sector is the biggest spender. "This is mainly because businesses generally prioritise capital spending over other forms of R&D spending, which enables them to invest in new technologies and products. This strategy also contributes to its growth in the market," reads the BBS survey report released on 27 May.

The business sector consistently had the highest number of full-time equivalent R&D personnel throughout the three fiscal years surveyed. The business sector accounted for 45.65% of the total full-time R&D personnel in FY19, 45.95% in FY20, and 47.10% in FY21, it said.

It estimated the total number of R&D personnel in FY21 was 31,588, which included researchers, technicians and other staff. In FY21, there was a significant rise in the number of R&D personnel in the business sector, it said. 

Of the country's total R&D personnel, 18,025 were researchers and 12,797 of them were full-time equivalent in FY21, it estimates. The number of technicians was 3,052 and other staff was 10,511. 

The increase in business sector R&D personnel can be attributed to the rising demand for innovative technologies in the country, the BBS report says.

"The data discloses that there is a growing emphasis on research and development in the business sector. Moreover, it is highly probable that this trend will persist in future," it said, analysing the trend.

It finds businesses are spending significantly in acquisition of capital assets, such as machinery and equipment, a move that is expected to enhance productivity and foster long-term growth. "This also indicates that the business sector has a positive outlook on the future of the economy and is prepared to make investments in its growth."

Capital assets make up nearly two-thirds of the capital expenditures of industries who are moving towards automation and innovation fast to keep pace with the world. Businesses need to diversify, they need to become efficient and more productive to ride over the tough competition in the global market. The need is more pressing than ever with LDC graduation approaching. This is why the industries are gradually investing more in innovations.

But the cost of procuring modern technology and knowledge from abroad is heavy. The R&D survey shows the business sector spent 63% of the total capital expenditure for acquiring technology and equipment in FY21.

This is an area where industries need policy support from the government. The experience of South Korea is often cited worldwide to show how consistent strategic support over decades helps local companies grow big and global.

Once an agrarian nation, South Korea has emerged among the world's most innovative countries in five decades on the back of the government's strong support for R&D, which was central to the country's first five-year plan in the early 1960s and later.

South Korea's family businesses, known as chaebols, were encouraged to invest heavily in R&D with tax incentives and import of foreign technology, and partner with universities to find suitable technologies for heavy industries such as manufacturing, automobile, ship-building and electronics.

This was how a grocery business of the 1930s grew into a global hi-tech giant Samsung, which still invests extensively in R&D.

The extended R&D activities in 14 countries where it operates, one such research centre has been set up in Dhaka too.

South Korea's government spent 4.5% of GDP in R&D, only second to Israel with 4.9%, followed by Japan, the USA, China and Canada, investing between 3% and 1.5% of GDP in 2020, according to the Nature Index. In 2018, South Korea's R&D spending was $95.4 billion.

Still, South Korea's private sector accounts for nearly 80% of the country's R&D spending.

Bangladesh spent only 0.30% of GDP in FY21, a decline from 0.35% in FY19, said the BBS report.

There was a decrease of 8.79% in gross expenditure in R&D per capita in PPP dollars (constant prices) over the course of three years, it said, identifying it as a significant cause of concern as "it can hinder the progress of multiple research domains".

Of the overall R&D spending, 14.52% came from the government in FY21 and only 4.38% was sourced from international partners, indicating that international partners are not the primary source of research and development funding in Bangladesh.

Good thing is most of the R&D funding comes from domestic sources, mainly the private sector itself.

Organisation's own finances constituted 72.63% of the total R&D expenditure in FY21, following a similar trend in the previous two years, the BBS found.

Businesses feel they need to do more instead of waiting for the government to fund R&D.

Bangladesh Association of Software and Information Services (BASIS) President Russel T Ahmed told TBS that technology firms are spending a lot in research and training and it's working well.

"IT firms from Dhaka are maintaining some crucial public infrastructure and service systems in the developed world, a clear reflection of capacity building," he said, hoping that if the government incentivises R&D, skill training, firms will thrive more.

Electronics, pharmaceuticals, agriculture, textile, automobiles, RMG are among the top industries spending more on innovations, according to entrepreneurs. Local tech firms are spending in robotics and AI research to build robots for military usage. Apart from product innovation in agriculture, textile, electronics, even reverse engineering needs a strong R&D, especially observed in the pharma sector, they said.

Dr FH Ansarey, managing director of ACI agribusiness, said his company spends a lot for R&D that strengthened its position in the market for a complete agricultural value chain.

Abul Kasem Khan, former president of Dhaka Chamber of Commerce and Industry, told The Business Standard businesses would have been encouraged to invest more in innovations if there were tax incentives and research spending was considered an "allowable expense".

He recalled that the business community had approached the former finance minister AMA Muhith with a set of proposals such as individual tax exemptions for research activities, but that did not succeed.

"It may not be possible for the government to provide enough funding for R&D. But indirect support will encourage more investment in the area," he said.