It is imperative for Bangladesh to judiciously navigate the digital fields, carefully assessing the local and global impacts of potential rules and regulations related to data flows and streamlining such laws

Bangladesh's Information and Communication Technology (ICT) sector has shown phenomenal annual growth after the launch of the Digital Bangladesh initiative in 2010.

The ICT, marked as a thrust sector, with high growth opportunities, job creation, and positive spill-over effects on other sectors, has become instrumental in continuing robust economic growth. Therefore, the Digital Bangladesh initiative has now been extended further under Vision 2041, with the enhancement of the ICT sector and the use of effective technology for socioeconomic development being at its core.

In the era of the Fourth Industrial Revolution, digital trade has taken a central role around the world, facilitated by the free flow of cross-border data and digitalisation. With six out of 10 people worldwide utilising the internet, the world today is more connected than ever, resulting in enormous data flows. This link is expected to expand further.

JILLUR RAHMAN

Increased internet penetration and the emergence of IT-enabled services (IT-es) are dramatically changing how people live, work, trade, communicate, and practically do everything else, eventually boosting cross-border data flows (CBDF).

Such flows generate the potential for capturing new markets without the need to physically enter them, enabling small companies to reach out to potential clients all around the world by using internet platforms such as eBay or Alibaba.

According to industry experts, Bangladesh is projected to see a rise in CBDF because of the growing use of IT-enabled services and the expansion of electronic commerce (e-commerce) in the country. This signifies that the influence of policies facilitating CBDF is not limited to the technology sector but also impacts traditional industries.

As a result of digital transformation facilitating simpler global trade, new business models have emerged that increasingly rely on data. This has resulted in the creation of new risks related to data misuse.

Several governments, including in Bangladesh, are considering data protection and restriction policies. Such rules govern the usage of data, including data privacy and security. Measures under consideration include data localisation, restricting data transfers outside the country and conditional flow regime and imposing constraints on data flow, storage, and processing.

The Bangladesh government is gradually adopting data governance through laws such as the Digital Security Act of 2018 and the Information and Communication Technology Act of 2018.

The Data Protection Act is currently being prepared. The Act aims to protect personal data in terms of life, property, the freedom of opinion, speech, and conscience, as well as the right to privacy, secrecy, and personal identification. While this law will serve as a formal basis for the country's data protection and privacy and incorporate the rights of users.

It includes data localisation provisions that require data controllers to store sensitive, classified and user-generated data within Bangladesh. Such restrictions may negatively affect trade and productivity. It is imperative to assess the potential and issues posed by CBDF regulations.

Concerns about the localisation efforts increasing the hazards of cyber-attacks, privacy violations, and data breaches, and reducing the breadth of services provided and swelling the operating expenses of enterprises are also there. On the other hand, localisation is perceived to enhance data privacy and security, which is vital. However, such perceptions are contestable.

Any lop-sided regulatory position with CBDF could be damaging to Bangladesh's ICT sector as the present infrastructure and human capital are not aligned with the requirements of data localisation.

A recent study, undertaken by the Research and Policy Integration for Development, has evaluated the impact of CBDF restrictions on Bangladesh's digital services exports and the economy.

Primarily, two scenarios were considered: Bangladesh adopting more restrictive CBDF policies akin to those of India and adopting substantially restrictive CBDF policies comparable to those of Vietnam. The two countries were selected because they are in the Asian region, and their data localisation and data protection policies are regularly discussed in the policy and public sphere. The objective of this analysis is to provide a directional view, therefore, assessing all policy alternatives against the likely outcomes.

The study used a gravity modelling framework to estimate the impact of the given scenarios. According to the analyses, CBDF restrictions are likely to have a negative impact on digital service exports. Estimates show that Bangladesh's digital services exports could fall by 29 per cent and 38 per cent if it imposes limitations like India and Vietnam, respectively.

Similarly, to understand the effects of the impact of CBDF restrictions on the economy, another exercise was undertaken. It shows the existence of a positive relation between digital services exports and the GDP, meaning that digital services exports make a significant contribution to the economy.

It is found that Bangladesh's GDP could decline by 0.58 per cent as a result of CBDF restrictions, akin to those in India, on digital services exports. A more restrictive policy similar to that of Vietnam could cause the GDP to fall by 0.76 per cent. Similar retaliatory actions by trading partners may cause the GDP to fall further.

The reduction in GDP could adversely impact employment, investment and innovation growth in Bangladesh. Although the econometric model provides evidence of the significant adverse impact of data restriction on digital exports and the economy, some possess the view that such restriction on data could improve productivity and exports in the long run.

Therefore, it is imperative for Bangladesh to judiciously navigate the digital fields, carefully assessing the local and global impacts of potential rules and regulations related to data flows and streamlining such laws to the country's current scenario so that socioeconomic development is not hindered.

The authors are, respectively, executive director and associate director of the Research and Policy Integration for Development