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Adverse impact of inflation on ICT sector

Published : Monday, 7 November, 2022 at 12:00 AM  Count : 491

Md Mahmudul Haque Khan

Md Mahmudul Haque Khan

Everything has become more expensive due to inflation. Furthermore, import prices have increased due to the depreciation of taka against the dollar. As Bangladesh was recovering from the pandemic led recession, Russia-Ukraine war has once again worsened the situation causing a major disruption in the global supply chain.  Western countries are also facing the challenge of high inflation.

The ICT sector in Bangladesh is experiencing a year of unparalleled difficulty. Devaluation of local currency occurred at a time when the country was recovering from pandemic induced economic challenges. Electricity shortages within the country has become prevalent in recent times.

In Addition due to load shedding, software providers are also struggling. The corporation would suffer severe losses if exports of software cannot be delivered on time. We have the opportunity to make enormous sums of money from the software industry. This industry can contribute highly in the Bangladesh economy especially in this period of economic hardship.  Thus, this high dividend sector merits special consideration.

USA is one of the top countries worldwide as regards revenue earning in the software industry. Revenue growth for US data processing and hosting is predicted to reach 15% in 2022. Advances will be reflected by anticipated 12% increase in fixed investment in information processing equipment. Customers' increasingly complex data needs and the continuous shift from on premise operations to cloud services will be the main drivers of growth.

Higher inflation is risky for businesses. Like laptops, PCs, servers, etc, IT sector is also heavily dependent on hardware. The cost of the hardware has risen about 60% recently. Even in this increased price, hardwares are not available in the market.  Although the use of cloud technology is growing day by day, cloud computing firms are increasing their product prices due to increased price of raw materials.

According to Gartner Inc. which is a technological research and consulting firm, global IT investment will reach $4.5 trillion in 2022, an increase of 3% from 2021. However, despite an increase in company IT investment, device sales have decreased from 2021 to 2022. According to Gartner, consumer spending reductions on PCs, tablets, and printers caused a 5% fall in device shipments.

According to John-David Lovelock, distinguished research vice president at Gartner, "inflation is top of mind for everyone." The fight against inflation is a top priority for central banks worldwide, and through the end of 2023, overall inflation rates are predicted to decline. Though current levels of inflation and foreign exchange rate volatility are not anticipated to affect Chief Investment Officers' (CIOs') investment plans for 2022.  Organizations that don't make investments in the short term are more likely to lag behind in the medium term and they are at high risk of going out of business altogether.

According to Gartner's research, price hikes and delivery uncertainty, which were made worse by Russia's invasion of Ukraine, have sped up organizations' and CIOs' shift from ownership to service-based purchasing, increasing cloud expenditure  by 18.4% in 2021 and forecasting growth of 22.1% in 2022.

Demand for cloud services is not only changing the IT services sector, but, according to Gartner, it will also increase server spending by 16.6% in 2022 as hyperscalers expand their data centers.

Community of freelancers and middle-class students will be affected by higher inflation disproportionately. To facilitate this community, governments worldwide should assist technological entrepreneurs with subsidies, incentives, and most importantly by decreasing cost of doing business. If we take proper policies in this sector, export earnings will rise by manifold.
The writer is an assistant IT Officer, Bangladesh Institute of Governance and Management (BIGM)

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