Why the govt, pvt sector have so little interest in R&D
Out of a total Tk10,481 crore spent on R&D in 2020-21, only Tk331 crore was invested in the industrial sector
Economists and experts have been clamouring for a few years now that once we graduate from LDC status in two years time, our staple economic model - low skilled workers at low wages - will fall into jeopardy. Once incentives dwindle, we will need to learn how to make more advanced products, diversify our export basket and upskill our workers.
All this, of course, is tied to the state of research and development in our country, which could significantly improve our capacity on all three fronts.
The latest report of Bangladesh Bureau of Statistics (BBS), however, paints a rather dismal picture in this regard. Bangladesh's gross expenditure on research and development (GERD) was just 0.30% of GDP for the fiscal year 2020-21, following 0.35% and 0.31% in the previous two years.
These low figures place Bangladesh among the world's lowest in R&D investment.
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Despite consistent GDP growth averaging 6.5% since the early 2010s, in the Global Innovation Index 2022, Bangladesh ranked 102nd, lagging behind regional peers like India (40th) and Indonesia (75th).
R&D expenditures for the fiscals 2018-19, 2019-20, and 2020-21 were Tk10,192 crore, Tk9,885 crore, and Tk10,481 crore, respectively.
This figure becomes even more worrying when you discount research expenditure in the agricultural sector, which single handedly accounts for Tk3,875 crore - a reflection of our strong commitment to food production. Our expenditure in the industrial sector is a paltry Tk331 crore.
According to the BBS report, the total number of researchers in all sectors of the country is 18,025, with 12,797 being full-time researchers.
First, it's right that there needs to be an incentive for R&D investment. Companies that incur these expenses should benefit from tax reductions. Second, the business community, especially the concerned companies, must demonstrate integrity in accounting for these expenses.
Lack of incentives
In some countries, the government itself invests in R&D alongside the private sector, creating a partnership that encourages private sector innovation and benefits the country. It's a win-win for both the private sector and the government.
In Bangladesh, there are virtually no government incentives or tax benefits for R&D expenditure. The private sector has been asking the government to separate R&D expenditure and offer tax exemptions, but these requests have so far been ignored.
"Impactful research is almost nonexistent in our country, nor even encouraged," said Abul Kashem Khan, Managing Director of AK Khan Telecom Ltd (AKTL).
There are rigid rules for investment in R&D in Bangladesh. If companies spend extra money on R&D, it gets added to revenue and is taxed. Kashem Khan believes the government's mindset needs to shift in this regard.
"Bangladesh has achieved success in rice research…Research is also important for the advancement of the industrial sector. Both the government and private sector should come forward in this regard," said Binayak Sen, director general of the Bangladesh Institute of Development Studies, adding, "There is no alternative to research for future progress".
The government's lack of interest in providing incentives, however, is partially connected to bad experience. There have been instances in the past where fiscal incentives for R&D have been abused, leading tax collectors to view such allowable expenses negatively.
Debapriya Bhattacharya, a Distinguished Fellow at the Centre for Policy Dialogue (CPD), says there are two aspects to this argument.
"First, it's right that there needs to be an incentive for R&D investment. Companies that incur these expenses should benefit from tax reductions. Second, the business community, especially the concerned companies, must demonstrate integrity in accounting for these expenses."
It is time we revisit this issue and develop a more appropriate and efficient approach. "Ignoring it is not an option given our economic challenges, especially as the country transitions from LDC status to officially becoming a 'Developing Country,'" added Debapriya.
Research for the sake of research is not practical in our country. Industry will not fund research unless it directly benefits from it.
We need to elevate our industrial base
One of the main reasons for our low R&D expenditure is that we operate primarily in low-skilled sectors and the service industry, where the scope of R&D is low. Activities like garment manufacturing have limited scope for research and development, except for design.
In terms of production, only Walton is making some strides, but overall, the sector remains very small. We are mostly engaged in primary processes, where R&D is not necessary. We have yet to advance to the level of innovation and advanced production processes.
The market is not inclined to invest in R&D as we do not engage in light or heavy engineering or pharmaceutical product development beyond licensed products. To expand the scope for R&D, we need to elevate our industrial base. We must invest in new product development in sectors such as electronics, light engineering, and pharmaceuticals. We even lack significant IT firms or innovation hubs. In healthcare, for instance, icddr,b is working on limited projects and has a research centre, but the scope in the industrial sector is minimal.
"Research for the sake of research is not practical in our country. Industry will not fund research unless it directly benefits from it," said Ahsan H. Mansur, an economist and Director of Policy Research Institute of Bangladesh.
"We are currently at the technology adoption stage, where we import technology from countries like China and utilise it without creating anything new. Technology updates occur, but they are not driven by R&D," said Mansur.
Bridge industry and academia
There are over 100 universities in Bangladesh, but there is a lack of connection between academic research and industry needs. A major issue at the university level is the scarcity of research due to a lack of sponsors or grants. Encouraging private companies with tax exemptions for research investments could stimulate more funding and drive researchers to engage in more projects.
According to Abul Kashem Khan, universities should be research hubs, and industries should provide the necessary funding. "An innovation centre could facilitate this link, allowing industries to invest in promising academic projects," he suggested.
Ahsan H Mansur noted that Bangladesh's healthcare is also not research-driven. "Our medical colleges do not conduct substantial research. If promotions are based merely on teaching and practising, there is no reason for the professors to conduct research."
Investing in small and individual innovation
Small firms and Individuals should also be encouraged to engage in R&D. Innovation is no longer solely the domain of companies; individuals can also contribute significantly. With proper equipment and environments, young tech-savvy individuals can achieve remarkable things, develop skills that can earn foreign currencies. A tax exemption or subsidies on devices or equipment, or for skill development ventures, would encourage families to invest in such items.
Kashem Khan says when he was the President of Dhaka Chamber of Commerce & Industry (DCCI), he urged the government to support individual innovation.
The government's aim to create a "Smart Bangladesh" requires smart thinking, particularly from the youth. Innovation needs to spread from house to house, leveraging the country's demographic dividend.
