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Role of BEPZA in Attracting FDI in Bangladesh
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Transcript of Role of BEPZA in Attracting FDI in Bangladesh
1
Chapter –01
INTRODUCTION
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Economic supremacy is the foremost feature of the current world. In order to survive,
Bangladesh has no other options but to attain economic development. Foreign Direct
Investment (FDI) is recognized as a key component for economic growth for Bangladesh.
Being one of the Least Developed Countries (LDC) with insufficient domestic savings
rate for investment after fulfilling its basic needs, the importance of foreign investment is
unquestionable. Foreign Direct Investment (FDI) will create employment, increase
efficiency of labor, encourage technology transfer and develop new exportable sector. To
attract more and more FDI the government of Bangladesh has been trying to establish
private investment friendly environment. A number of opportunities have been given by
the Government of Bangladesh (GOB) to attract foreign investors to invest in the country
in some prospective sectors. Sponsoring agencies responsible for private sector industrial
development are Board of Investment (BOI), Bangladesh Export Processing Zones
Authority (BEPZA), Bangladesh Small and Cottage Industries Corporation (BSCIC),
Financing Institutions (FI) and Commercial Banks (CB) including Development
Financing Institutions (DFI) and Nationalized Commercial Banks (NCB) etc.
In late 70’s when individual ownership economy revived in our country, EPZ was created
to attract capital investment, employment generation and rapid industrialization. As a
matter of fact, the main objective of setting up EPZ is to create individual industrial
entrepreneurs and thereby to achieve the other objectives. The economy of Bangladesh is
basically agro-based. The habitants of agro-based economy are generally remains
habituated in a risk less life. In other way, business investment particularly industrial
investment brings solvency and dynamism in human life but it is risky and hazardous.
Therefore, to create industrial entrepreneurs some institutional support must be extended
to the individual businessmen. EPZ ensures this institutional support to the potential
business entrepreneurs in Bangladesh.
1.1 Background of the Study:
This study is made to fulfill the partial requirement of the EMBA program of Department
of Marketing, University of Dhaka. As the internee assigned in BEPZA, during the
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internship period, practical knowledge has been gathered on the sector and on the roles of
EPZs in attracting Foreign Direct Investment.
1.2 Objectives of the Report:
The objectives of this report can be explained as follows:
1.2.1 Broad Objectives:
The contusive aim of this research is to evaluate the roles of EPZs on attracting FDI.
1.2.2 Specific Objectives:
To provide the legal, institutional and incentive framework.
To achieve economic objectives on behalf of the government.
To integrate Bangladesh into the global supply chain.
To attract export-oriented investments in the zones.
1.3 Methodology:
The proposed study was carried through an exploratory research. First of all, elements of
Bangladesh Export Processing Zone and detail structures are given. Then I have gone
through necessary detail study on incentives provided by BEPZA to attract foreign
investment.
1.4 Source of data:
In this research both Primary and secondary data were used to making the report though
more emphasis was given on secondary source of data in order to carry out the objectives
of the report.
1.4.1 Primary data:
Primary data has been collected through:
observation
interviewing the officials of BEPZA, and customs
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communication with the investors
1.4.2 Secondary data:
For secondary sources of data:
Records and BEPZA documents
Books, texts and publications
Websites
1.5 Limitation of the Report:
There may be some short fall in data collection and so analysis due to the
following reasons:
Shortage of time
Inaccessibility to different concerned Department and Ministries
Working pressure
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Chapter –02
ORGANIZATION PART
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Historical Background
Prior to liberation of Bangladesh all the major industries of our country belonged to West
Pakistani entrepreneurs. Just after liberation, all the medium and large industries were
nationalized with a view to back up socialistic economic order; consequently the process
of creating individual industrial entrepreneurs came to a halt. In late 70’s the economic
theme of Bangladesh started to revert back from state ownership to individual ownership.
But the process of transition to new economic system was not backed up by specific rules
and regulations, institutional arrangement and state sponsorship. As a result, the process
of growing individual entrepreneurship could not be accelerated. Till the middle of 80’s
almost Bangladeshi businessmen were engaged in import based trading business.
Meanwhile, the Government started to denationalize the state owned industries and many
industries were sold out to the individual businessmen. But that process of disinvestments
by the government also could not contribute a lot for creating industrial entrepreneurs in
this country. Of late, at present many individuals have got the opportunity to float
industrial undertaking with Govt. patronization, active support from the financial
institutions and personal initiative
In late 70’s when individual ownership economy revived in our country, EPZ was created
to attract capital investment, employment generation and rapid industrialization. As a
matter of fact, the main objective of setting up EPZ is to create individual industrial
entrepreneurs and thereby to achieve the other objectives.
In order to stimulate rapid economic growth of the country, particularly through
industrialization, the government has adopted an 'Open Door Policy' to attract foreign
investment to Bangladesh. The Bangladesh Export Processing Zones Authority (BEPZA)
is the official organ of the government to promote, attract and facilitate foreign
investment in the Export Processing Zones. The primary objectives of an EPZ are to
provide special areas where potential investors would find a congenial investment
climate, free from cumbersome procedures.
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2.1 Mission of BEPZA
To strengthen the economic base of Bangladesh by:
Promoting investment &
Generation of employment
2.2 Objective
Promotion of FDI & local investment
Diversification of export
Dev. of backward & forward linkages
Generation of employment
Transfer of technology
Up gradation of skill
Development of management
2.3 About EPZ
An export processing zone (EPZ) is defined as a territorial or economic enclave in which
goods may be imported and manufactured and reshipped with a reduction in duties /
and/or minimal intervention by customs officials (World Bank 1999).
EPZ Provides:
Plots/factory BLDG in customs bonded area
Infrastructural facilities
Administrative facilities
Fiscal & non-fiscal incentives
EPZ attracts: foreign & local investment
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2.4 The institutional structure of the BEPZA
BEPZA formulates the policies for operation and management of BEPZA and the EPZs.
It also reviews the activities and performance of BEPZA. This Board is comprised of a
range of ministers and secretaries dealing with industry, commerce, foreign affairs,
energy, ports and shipping, and the Governor of the Bangladesh Bank. The Prime
Minister of Bangladesh chairs the Board, while the Executive Chairman of BEPZA plays
the role of secretary. The GOB has provided superior authority to this Board and its
decisions related to any ministry, division or public corporation and this supremacy helps
BEPZA in curtailing bureaucratic difficulties when dealing with other ministries and thus
facilitating the timely completion of projects.
However, since the Board comprises a wide range of high officials, including the Prime
Minister, meetings are held irregularly. In order to combat this and the problems it caused
BEPZA in achieving the appropriate co-operation, the GOB included the Principal
Secretary of the Prime Minister’s Secretariat and the Executive Chairman of the
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Board of Investment in BEPZA’s governing board. This enabled the Executive Chairman
of BEPZA to directly communicate with the Principal Secretary of PMO and to gain his
assistance, both formally and informally, in achieving the co-operation of related
ministries or corporations.
The Executive Board is the highest decision making body within BEPZA. This Board is
comprised of four members including the Executive Chairman of BEPZA, with the other
three members appointed by the GOB. The Executive Chairman of BEPZA presides over
the Board and plays a key role in making the various decisions and formulating policies
related to the efficient and proper functioning of BEPZA and EPZs. The Board also puts
forward recommendations and policies to the ‘Board of Governors’ where they do not
fall under the purview of their authority. However, recent amendments have extended the
authority of the Executive Board over finance and some other related issues, and BEPZA
officials have asserted that the Executive Board, in practice, independently makes
decisions and formulates policies – though for delicate matters, the board usually consults
with the Principal Secretary of PMO while making decisions. According to the 1984
amendment to the BEPZA Act, the GOB directed the formation of a Consultative
Committee, which would assist the Executive Chairman in decision making and in
providing advice on necessary improvements, and a Post Sanction Clearance Committee,
which would help BEPZA in the registration of companies, capital issues and foreign
exchange transactions related to zones. However, up to now, no consultative committee
has been formed and BEPZA believes that this is just an additional tier in the
bureaucratic process. Since the majority of these nominated members are bureaucrats
with no relation to trade and investment, as per the ordinance, this suggests that BEPZA’s
may be correct. However, an alternative approach to enhance the performance of BEPZA
could be to hire civil/society-based research organizations to scrutinize the activities,
policies and future agendas of BEPZA, and assist in outlining effective strategies. The
Executive Chairman of BEPZA also fills the role of Chief Executive Officer in the
institution, overseeing the regular functions and activities of BEPZA and acting as a key
decision-maker. The General Managers of the EPZs, who are also the Chief Operating
Officers of respective EPZs, directly report to the Executive Chairman of BEPZA.
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Fig 2.1 illustrates how BEPZA is organized, with three sections investment promotion,
finance and infrastructure development) which are also under direct control of Executive
Chairman. The internal organizational structure resembles a compact and less hierarchal
management structure. However, the internal structure did not contain any officers for
liaison with laborers until 2004 – though in 2004 several posts were created due to the
Workers Trade Union Act, and BEPZA had been reluctant to fill the posts until the labor
unrest forced their hand. Interestingly, the guarantee of efficiency by BEPZA, both in-
house and externally, is seemingly dependent on a ‘military’ person in post as its Chief
Executive. Consultations with BEPZA officials and foreign investors have revealed that
both groups agree that the performance of military personnel is far better than that of
regular bureaucrats, who, according to them, would emphasize and follow the formal
protracted process in decision making, while military personnel focus on speedy solutions
rather than the process. Accordingly it seems that the performance of BEPZA depends on
the personal dynamism of the Executive Chairman, which signifies a lack of the
necessary, inbuilt institutional development and practices that promote efficiency and
best practice for all the employees, irrespective of their orientation.
Bureaucrats may never be the best choices for running BEPZA, a commercial facilitation
body, as private-sector personnel may have done the job more efficiently. However, this
point clearly illustrates the need for evolving business-friendly rules and procedures,
rather than leaving too much to personnel dynamism. Quality and capacity of
bureaucracy is also a key factor for determining institutional performance. Based on the
work of Evans and Rauch (1999), concerning the three key ingredients of effective
bureaucracy, BEPZA qualifies on at least two of them: meritocratic recruitment and
career stability. However, BEPZA follows the regular promotional system, like the
central bureaucratic system, which is not based on strict performance appraisal and in
some cases is utterly anomalous. Also, BEPZA employees receive regular government
pay scale package (Evans and Rauch were not able to establish a clear relation between
competitive salary and effective bureaucracy), which is less competitive than the private
sector. Since improvement in service quality has a considerable impact on future
increases in foreign investment – which has ample benefits for local economies and also
effects considerable increases in BEPZA’s earnings – the introduction of a competitive
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package, linked with effective performance appraisal, could increase the productivity of
BEPZA employees and therefore enhance the institutional performance noticeably.
Fig 2.1 Governance structure of BEPZASource: IPPG, Briefing Paper, No. 10, 2007. ippg.org.uk (Adopted)
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2.5 Organogram:ORGANOGRAM
Bangladesh Export Processing Zones Authority (BEPZA)
Executive Chairman
GM(IEPZ, MEPZ,
UEPZ)“C” Class EPZ
Member (IP)
Member (Engg.)
Member (Finance)
GM (MIS)GM (Security)
Secretary GM(DEPZ, CEPZ)“A” Class EPZ
GM(ComEPZ,
AEPZ, KEPZ)“B” Class EPZ
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2.6. Economic Rationale for a better export performance of the zones:
EPZs are special enclaves, separated from the Domestic Tariff Area (DTA) by fiscal
barriers and are intended to provide an internationally competitive duty free environment
for export production at low cost. EPZs are benefited usually from the following:
Modern and efficient infrastructure
General fiscal and non fiscal concessions to firms
Better governance due to single window facilities to ensure corruption &
red tape free business environment.
2.6.1 Mode of Investment
BEPZA pursues an open door policy in matters of foreign investment in its EPZs.
Bangladesh Export Processing Zones Authority is a statutory body but very different
from other autonomous organization. It enjoys complete freedom of action in its decision
making process independently of any Administrative Ministry.
Investment with 100% foreign ownership (Type - ‘ A ' )
Joint ventures (Type-‘B’) with no limit to the extent of equity sharing by
the foreign partner
100% Bangladeshi ownership (Type-C) is allowed in the EPZs.
2.6.2 Types of Investment (Up to July, 2012)
A 100% Foreign Ownership 230 57%
B Joint Venture 62 15%
C 100% Local Venture 115 28%
In Operation 407 100%
Under Implementation (La)62
Sanctioned Industry77
Total546
Source: BEPZA
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Fig 2.2: Type of Industries (Up to July, 2012)
The first zone in Bangladesh was set up in South Halishahar in Chittagong in 1983.
Following the tremendous success of the Chittagong EPZ, the government decided to
establish the country’s second EPZ at Savar near Dhaka a decade later in 1993. In view
of the growing demand of the investors the government has established 4 new EPZs one
at Mongla, a southern port city of Bangladesh, one at Comilla, situated in a unique place
between Dhaka and Chittagong, one at Ishwardi near the Jamuna Bridge and the fourth
one at Nilphamari named Uttara EPZ near Syedpur Airport. The Authority has already
allotted plots for setting up industrial unit in those EPZs and 3 EPZs have already started
operation. 50% concession on rent of plot and factory building at EPZs of Mongla,
Ishwardi & Uttara (Nilphamari).
Recently, two EPZs has been created; one at Adamjee Jute Mills area (Adamjee EPZ)
and the other at Chittagong Steel Mills area (Karnaphuli EPZ).
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Fig 2.3: EPZs of Bangladesh
2.7 Major Functions of BEPZA
Fig 2.4 graphically demonstrates the functions that are being performed by BEPZA.
These can be divided into four broad categories: (a) functions related to infrastructure,
basic services (electricity, gas, water, telephone, banking etc.) and customs- related
support; (b) assistance in performing the procedures for setting up industries and also the
setting up of principles for preferential industries; (c) undertaking promotional steps to
attract foreign, as well as local, investment; and (d) to work with companies to reform
and readjust the services as necessary. However, after the labor unrest in mid-2006,
BEPZA has increased vigilance on whether foreign investors are following the labor
standards, including the desirable wage rate, and for this purpose has appointed labor-
conciliators in each of the EPZs, to whom laborers can lodge complaints and express
grievances regarding wage rate and follows the regular promotional system, like the
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central bureaucratic system, which is not based on strict performance appraisal and in
some cases is utterly anomalous.
Fig 2.4: Functions and Responsibilities of BEPZA in a Glimpse Source: IPPG, Briefing Paper, No. 10, 2007. ippg.org.uk (Adopted)
Also, BEPZA employees receive regular government pay scale package (Evans and
Rauch were not able to establish a clear relation between competitive salary and effective
bureaucracy), which is less competitive than the private sector. Since improvement in
service quality has a considerable impact on future increases in foreign investment –
which other compliance issues.
For functions related to (a) and (b) above, BEPZA exercises its superior authority to
facilitate the timely completion of projects and to make sure that investors receive the
necessary services, without any bureaucratic obstructions.
BEPZA never advertises its functions to the foreign investors, rather acknowledging the
presence of obstacles and overcoming them through formal and informal exertions of
power.
To convince the foreign investors, and to promote Bangladesh EPZs as a safe and
profitable destination for labor intensive industries, functions related to category (c) are
undertaken by the Executive Chairman of BEPZA who accompanies the Prime Minister
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on foreign visits. He conducts information sessions about the benefits and incentives for
foreign investors in Bangladesh; and actively encourages foreign businesses to invest.
Since Bangladesh’s image regarding investment climate is not particularly good, due to
political turmoil and poor governance of infrastructures like the Chittagong port, the
promotional task of BEPZA has been daunting.
In this BEPZA has pursued a ‘seeing is believing’ strategy. For example, each year a
large number of foreign delegates visit EPZs, at the invitation of BEPZA, to witness the
infrastructural facilities and working environment of the industries operating within
different EPZs.
Regarding the functions related to category (d), BEPZA’s success is noteworthy. Foreign
investors have been able to strengthen their position through successful lobbying to
which BEPZA was responsive in amending various regulations and modernizing the
services. For example, at the very beginning, 100% of foreign-owned companies had to
maintain 5% of their total export income in local currency until the end of the respective
financial year. Investors had argued against this and BEPZA was able to act and
removing this restriction in 1989. In another instance, BEPZA enabled the EPZ
companies to sell up to 10% of their total product in Bangladesh markets. This resolution
enabled companies to test marketing strategies in the local climate before initiating global
exports, as well as allowing less successful industries to achieve economies of scale.
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Chapter –03
CITIZEN CHARTER & RESPONSIBILITIES
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Bangladesh Export Processing Zones Authority (BEPZA) has many departments to
provide service to the investors. BEPZA pursues an open door policy in regards to
foreign or local investment in its EPZs. The major functions of key departments are as
follows:
i) Investment Promotion Division
Responsibilities in this department
a) Project sanctioning & plot/SFB allotment:
Letter addressed to Executive Chairman.
Filled in Project Proposal for investment in EPZ(s).
Pro-forma invoice of machinery and equipment to be imported.
Bank solvency certificates of the sponsors.
Copy of Money Receipt.
Memorandum & Articles of Association.
Joint Venture Agreement
Passport Copies
b) Execution of agreements for plot & SFB:
Submission of application
TR Challan of applicable amount
Security deposit against SFB/Plots
BEPZA registration fees
c) Project Revision:
Application along with revised Project Proposal (PP)
BEPZA dues clearance documents
d) Share transfer Approval & change of company status
The company is required to clear all the outstanding dues of the Authority
Claims with regard to workers' wages and benefits need to settled first Certificate
from the customs Authority regarding bond clearance is required
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The Article of Association and Memorandum of Understandings in regard to
share transfer duly authorized by the Register of Joint Stock of Companies and
Firms is required to be submitted to the Authority prior to taking final permission.
BEPZA dues clearance doc
e) Permission to export on CM/CMP/CMT basis:
Application along with Manufacturing Agreement on non-judicial stamp
BEPZA dues clearance doc
f) Issuance of Sub-Contract permission:
Application along with sub-contract agreement on non judicial stamp
BEPZA dues clearance doc
g) Issuance of NOC for creation of charge on asset and properties:
Application, status report from the concerned zone with comments
Bank Guarantee (for 1st charge) BEPZA dues payment statement
h) Bond to bond transfer (inter zone) of machinery and materials:
Application along with invoice of the machinery/materials
BEPZA dues payment statement
i) Recommendation for disposal of old/used/scrap machine:
Application along with invoice
Deed of sales agreement
Respective import documents including bill of entry
Invoices, Survey Report
BEPZA dues payment statement
j) Permission to import duty free vehicle:
Application along with invoice BEPZA dues payment statement
Status report from Zones
ii) Enterprise Service Division
Responsibilities in this department
a) Recommendation letter (RL) for issuance of different type of Visas:
Forwarding letter from the company along with appoint letter
ID pages of Passports and copy of paper advertisement
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b) Work permits (WP) Issuance:
Forwarding letter from the company to Concern Zone with 7 (seven) sets of filled
in prescribed form of WP
Appoint letter, Relevant pages of Passport, Paper Advertisement
Work Permit Fees Tk. 5000
Recommendation from concerned Zone
c) RL for Security Clearance/Visa recommendation to Ministry of Home/DG
Immigration:
Approval of the standing committee meeting
d) Renewal of Work Permit:
Forwarding letter from the company to Concern Zone along with copy of work
permit
Copies of passport, Income tax paid certificate
Security clearance and renewal fees Tk. 5000 and Recommendation from
concerned Zone
e) Cancellation of Work Permit:
Forwarding letter from the company to Concern Zone along with original work
permit
Income tax paid certificate, security clearance
Recommendation from concerned Zone
f) Settlement of worker grievances:
Grievances along with supporting papers ( if any)
g) Approval of WA Constitution:
Draft constitution received through concerned zones
h) Workers' Association Registration & issuance of certificate:
Proposal from Conveners of WA through concerned Zones received by EC Desk
i) Approval of WA Committee:
Proposal for approval of WA Committee received from concerned Zones
j) Training program for WA, WRWC and General Workers:
Proposal for the program received from concerned Zones
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iii) Engineering & Maintenance Division
Responsibilities in this department
a) Opening & evaluation of tender
b) Issuance of NOA
c) Refund of Tender Security
d) Processing of running bill
e) As-built drawing and quantities approval
f) Processing of Final bill
g) Approval of S.T item
h) Refund of Performance security
i) Investors Letter/application
j) Time extension
k) Revised estimate & drawing
l) Changing location drawing
In addition to these departments, other departments of BEPZA for providing services are:
i) Accounts and Finance
ii) Administration
iii) Public Relations (PR)
iv) Management Information Service (MIS)
v) Security & Intelligence
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Chapter –04
STATUS OF FDI IN BANGLADESH
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Defining FDI
FDI is defined as an investment involving a long-term relationship and reflecting a
lasting interest and control by a resident entity in one economy (foreign direct investor or
parent enterprise) in an enterprise resident in an economy other than that of the foreign
direct investor (FDI enterprise or affiliate enterprise or foreign affiliate). FDI implies that
the investor exerts a significant degree of influence on the management of the enterprise
resident in the other economy. Such investment involves both the initial transaction
between the two entities and all subsequent transactions between them and among foreign
affiliates, both incorporated and unincorporated. FDI may be undertaken by individuals
as well as business entities. Flows of FDI comprise capital provided (either directly or
through other related enterprises) by a foreign direct investor to an FDI enterprise, or
capital received from an FDI enterprise by a foreign direct investor. FDI has three
components: equity capital, reinvested earnings and intra-company loans.
Fig 4.1: Categories of FDI inflow in Bangladesh
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i)Equity Capital
Equity capital refers that an investor can buy share of an enterprise in a foreign country,
i.e. other than the home country. Equity capital touched its highest amount in FY 2007-08
at USD 545.69 million. However, in next two successive fiscal years, this amount
becomes USD 535.42 million and USD 515.14 million. Under the business as usual
scenario the amount of equity capital might increase to USD 280.15 million in FY 2014-
15.
ii)Reinvested Earning
Reinvested earnings imply the investor's share of earning from the direct participation.
Reinvestment earning is increasing at a decreasing rate over the years. In FY 2010-11, the
amount of reinvested earnings totals USD 445.19 million. If the flow of reinvestment
earning continues, the amount of reinvestment earning might reach at USD 523.57
million in FY2014-15.
iii)Intra-Company Loan
Intra-Company loan means short and long term lending and borrowing between foreign
investor and affiliated company. There is no regular shape in the flow of intra-company
borrowing loans. In FY 2009-10, this amount was USD 66.78million but in FY 2010-11,
this amount increased to USD 83.9million. Continuation of the current trend suggests that
this amount might reach at USD 85.24 million in FY 2014-15.
4.1 Sectoral Distribution of FDI
There have been several shifts globally in the concentration and composition of FDI
among sectors. Consequently, the country has also witnessed a huge shift in sector-wise
and country-wise flow of FDI in the current decade. The first major compositional shift
was within manufacturing from import-substitutes to export oriented manufacturing. A
more recent shift of FDI has been seen towards services.
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Fig 4.2: Sectoral Distribution of FDI in Bangladesh
4.2 Reporting Status of FDI Enterprises:
Low labor cost is often cited as the most important factor by the private as well as the
public sectors in Bangladesh. In 1983, the Bangladesh has established first Export
Processing Zone (EPZ) in Chittagong to provide friendly business environment. For
export oriented activities, the government has set eight Export Processing Zones (EPZs).
The advantages of EPZs include facilitation services and a variety of fiscal and non-fiscal
incentives. However, the inflow of FDI in EPZs has not increased yet in comparison to
non-EPZs. In FY 2008-09, FDI in non-EPZ areas reached its maximum amount at USD
831.25 million against USD 129.34 million of EPZs. FDI in non-EPZ areas does not
create as much employment opportunities that are created in EPZ areas. Until August
2011, total investment in EPZ areas is USD 53.18 million and total local employment is
1782. In FY 2010-11, non-EPZ areas received USD 597.59 million that is 76.71 percent
of total FDI and 21.57 percent less than that of the FY 2009-10. USD 181.45 million was
invested in EPZ areas in FY 2010-11 that is 20.08 percent more than that of the previous
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fiscal year and only 23.29 percent of total FDI. Under the business as usual scenario, FDI
in EPZ areas might increase to only USD 217.54 million in FY 2014-15, which will be
Fig 4.3: FDI Inflows in EPZs and Non-EPZs
only 24.47 percent of total FDI. At the same time, FDI in non-EPZ areas might increase
to only USD 671.61 million that will about 75.48 percent of total FDI. In recent years,
FDI in non-EPZ areas increases more than that of EPZ areas. However, foreign investors
are enjoying the following benefits:
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Fig 4.4 FDI Inflows of EPZ area by Components (January-June, 2010)Source: Bangladesh Bank
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Fig 4.5 FDI Inflows of Non-EPZ area by Components (January-June, 2010)Source: Bangladesh Bank
Table 4.1: FDI inflows by Areas and Components
Source: Bangladesh Bank
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Chapter –05
EPZS OF BANGLADESH: A STORY OF SUCCESS
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Bangladesh has made a remarkable progress in multiple sector of social, political, cultural
and economic emancipation of the mass. Number of steps has also been taken to attract
Foreign Direct Investment (FDI) and facilitate further industrialization in order to boost
up economic development the country. Bangladesh Export Processing Zones Authority
(BEPZA) is the only government organization responsible for creation, operation and
development of Export Processing Zones (EPZ) in the country.
Attractive and competitive packages offer incentives, physical, infrastructure facilities of
Zones along with abundance of skilled manpower at a competitive rate have placed
Bangladesh’s EPZs in a comparative advantageous position over other competing EPZs
of neighboring countries. Apart from the manufacturing sectors EPZs are now inviting
investments into infrastructure, power & utility and environment management projects
which have made the Zones truly attractive investment destination for investors who look
to the future.
EPZs are designed to further integrate Bangladesh into the global supply chain and attract
export-oriented investments in the zones, thus achieving its economic objectives of job
creation, diversification and expansion of exports, increasing productive investments,
technology transfer and creation of backward linkages between the zones and the
domestic economy.
5.1 Investment in the EPZs
The investors from 37 countries like Japan, South Korea, USA, UK, China, Hong Kong,
Singapore, Malaysia, Indonesia, Taiwan, Sri Lanka, Mauritius, Thailand, Spain, Panama,
Germany, France, Denmark, Belgium, Sweden, Australia, Ireland, Netherlands Canada,
Italy, Switzerland, Ukraine, UAE, India, Pakistan, Nepal, Portugal, Turkey, Kuwait,
Rumania, Malta and host Bangladesh have already invested in the EPZs of Bangladesh.
During last 30 years BEPZA crossed US $ 2,478.90 million investment.
5.2 Investment Climate in the EPZs
(1) Geo-regional location
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The comparative advantages of the EPZ in Bangladesh are it’s homogenously, large
number of potential human resources, competitive wage level, and its ‘geo-regional
location’. Bangladesh is situated in close proximity to the Bay of Bengal, which has
given the country with an easy access to the world through sea-way and also by air in
terms of import and export. As a result, the foreign investors are always keen to take
those strategic advantages.
Fig 5.1 Infrastructures of Bangladesh Facilitating EPZs
(2) Human Resources
The main attraction of investment in Bangladesh is the most inexpensive, productive,
abundant and easily trainable workforce. Today Bangladesh has a growing number of
managers, engineers, technicians and skilled labor force. The minimum wage of the
workers in the EPZs is one of the lowest in Asia. Changing economic and political
conditions in the Asian region are prompting many international investors to reassess
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their investment strategies and plan for relocating their investments in Bangladesh. Those
changes are producing higher opportunities for Bangladesh to attract higher levels of
FDI. China, Thailand, Sri Lanka, Cambodia, Philippines and even Vietnam, Indonesia &
Malaysia are experiencing wages increase and rising production costs that are making
them more expensive resulting the EPZs of Bangladesh have become a new field and
place for foreign investment.
Fig 5.2 Comparative Monthly Minimum Wages
(3) One Window Service
BEPZA has been providing “ONE WINDOW SERVICE’ to its investors. Operational
and documentation procedures have been framed to make them easy and simple with
minimum formalities. Investors need only to deal with BEPZA for all of their investment
and operational requirements. BEPZA assists the investors with everything like import,
export, and subcontract permits etc. Apart from that, by providing on-site services such as
customs clearance, logistics, international couriers, and offshore banking facilities,
BEPZA provides its investors with the chance to further simplify business processes,
34
resulting in a reduction in lead time. BEPZA also provides same-day services to the
investors.
(4) Protection of Foreign investment
Foreign investors are enjoying multiple protections in BEPZA. The Foreign Private
Investment (Promotion and Protection) Act secures all foreign investment in Bangladesh.
As a member, OPIC’s (Overseas Private Investment Corporation, USA) insurance and
finance programs operable in Bangladesh as well as in the EPZs. Bangladesh is a member
of Multilateral Investment Guarantee Agency (MIGA) which provides safeguards and
security under international law. The International Centre for the Settlement of
Investment Dispute (ICSID) also provides an additional means of remedy, whilst
copyright interests are protected through World Intellectual Property Organization
(WIPO). The World Bank has ranked Bangladesh 20th out of 187 nations for investors’
protection, making it as the best in South Asian Region (Doing Business, 2010).
(5)Flexibility
BEPZA offers investment opportunities in convertible foreign currencies, providing
investors with the flexibility of repatriating of both profit and capital. The investors also
enjoy GSP facility in EU countries, USA, Australia, Japan, Norway and duty and quota
free access to Canada.
(6) Infrastructure Facilities
BEPZA provides infrastructure facilities for the investors. BEPZA provides fully
serviced plots and standard factory buildings for setting up manufacturing industry.
Investor can use these plots under a 30 years lease which is renewable. Apart from these
plots, an investor may also take lease of Standard Factory Building (SFB) owned by
BEPZA. All the utility connections such as electricity, water, internet &
telecommunication are readily connected in the enterprises of the EPZs. BEPZA has also
allowed setting up of hi-tech infrastructure facilities like Central Effluent Treatment
Plant, Water Treatment Plant, Inland Container Deport (ICD), Internet service, Power
Generation Plant as service oriented industries in the EPZs.
35
(7) Support Facilities
BEPZA has allowed setting up of support service business facilities for the investors such
as local and foreign banks, Off Shore Banking Units (OBU), insurance companies, C & F
agents, freight forwarder and courier service in the EPZs. Other administrative facilities,
such as Customs Office, Police Station, BEPZA’s Security, Fire Station, Public
Transport, Medical centers etc are available in the EPZs.
(8) Fiscal and Non fiscal Incentives
The fiscal incentives include:
– 10 years tax holiday for the Industries established before 1st January, 2012 and
Industries to set up after 31st December, 2011 tax holiday period will be:
Tax exemption period Rate of tax exemption
First 02 years (1st and 2nd Year) 100% Next 02 years (3rd and 4th Year) 50% Next 01
years (5th Year) 25%
– Income tax exemption of salaries of foreign technician for three years (For the projects
approved before March 22, 2009).
– Duty free import of machinery, equipment, construction materials.
– Duty free import of raw materials
– Duty free export of finished goods.
– Relief from double taxation.
– Exemption from dividend tax for tax holiday period.
– Duty free import of two/three duty free vehicles for A & B type industries subject to
certain conditions (For the projects approved before March 22, 2009).
– Full repatriation of profit, capital & establishment.
The non-fiscal incentives include:
– Investment protected under the Foreign Private Investment (Promotion and Protection)
Act.
– BEPZA is a signatory of MIGA (Multilateral Investment Guarantee Agency) and
ICSID (International Centre for Settlement of Investment Dispute)
36
– BEPZA is a Member of WIPO (World Intellectual Property Organization) and OPIC
(Overseas Private Investment Corporation)
– 100% foreign ownership permissible.
– Enjoy GSP benefits in EU countries, Japan, Australia, USA, Canada, Norway etc.
– No ceiling on foreign investment.
– Foreign currency loan from abroad under direct automatic route (OBU facilities).
– Non-resident Foreign Currency Deposit (NFCD) allowed for ‘A’ type industries.
– Operation of FC account by ‘B’ and ‘C’ type industries allowed.
– Resident ship / Citizenship granted for foreign investors.
– 100% backward linkage raw materials, accessories are allowed to sell to export oriented
industries inside and outside EPZs.
– Taking and offering subcontracting are allowed both inside and outside EPZ.
– 10% sale of finished products except garments.
– 10% sale of defective finished goods.
– 10% sale of surplus raw materials
Support Service Facilities include:
– Work permits issued by BEPZA.
– IP & EP issued within the same day.
– No UD (Utilization Declaration), IRC (Import Registration Certificate), ERC (Export
Registration Certificate) & renewal of bond license required
– Customs clearance at factory site.
– Intra / inter zone sub-contracting & transfer of goods allowed.
– Easily available and trainable workforce.
37
Chapter –06
INVESTMENT, EXPORT AND EMPLOYMENT- THE ROLE OF BEPZA
38
That foreign direct investment (FDI), especially when it is export-oriented, plays a key
role in the economic development of a country is a cliché. In fact, investment, export and
employment are among the major indicators of economic growth and the one
organization in Bangladesh that is conspicuously facilitating FDI as well as promoting
export and creating employment is Bangladesh Export Processing Zones Authority
(BEPZA).
6.1EPZs Growing Contribution to Investment, Export and Employment
6.1.1 Investment
The total amount of actual investment in BEPZA in 2011-2012 financial year stands at
US$339.26 million, which is 8.31% higher than the actual investment made (US$ 313.23
million) in the previous financial year. The actual investment made this financial year is
the highest ever in the history of BEPZA.
Moreover, during the last 03 financial years (2009-2012) US$ 874.48 million actual
investment has been made in BEPZA. There has been a 45.12% growth compared to the
actual investment of the previous 03 financial years (2006-2009) which was US$602.58
million.
Despite worldwide recession FDI has increased in the EPZs during the last 48 months. In
June, 2001 the cumulative investment in EPZs was US$ 475.20 million but up to July,
2012 the investment stands at US$ 2,478.90 million. The Detailed picture of cumulative
investment has been mentioned below:
YEAR INV ($m)
1994-1995 35.93
1995-1996 30.58
1996-1997 53.90
1997-1998 68.83
1998-1999 71.61
1999-2000 34.98
2000-2001 48.41
2001-2002 55.61
39
2002-2003 102.63
2003-2004 115.04
2004-2005 118.52
2005-2006 112.89
2006-2007 152.37
2007-2008 302.19
2008-2009 148.03
2009-2010 221.99
2010-2011 313.23
2011-2012 339.26
2012-2013(July,12)
21.95
Fig5.1 Investment up to July, 2012 in EPZs in BangladeshSource: BEPZA
6.1.2 Export
Bangladesh has achieved phenomenal export success through the EPZs. In the total
foreign exchange earnings of the country through exports, the share of EPZs increased from a
microscopic low of 0.02% in 1983-84 to a spectacular high of 17.24% in 2012-13(July,2012).
The enterprises of EPZs have exported goods worth of US$ 30,000.78 million up to July, 12. The
share of EPZs in the foreign exchange earnings through the exports of manufactured goods also
shows the same trend over the corresponding period reflecting fast decline in the relative share of
the DTA in both total exports and the exports of manufactured goods and the resulting foreign
exchange earnings of the country. Annual trend rate of growth of export earnings of the EPZs has
been more than six times higher than that of total national export earnings and more than four
times higher than that of total national export earnings from manufactured goods. It means that
export performance of the EPZs is much more impressive than that of the country as a whole.
40
Subject: Total export figure of EPZ
Fig6.2 Export up to July, 2012 in EPZs in BangladeshSource: BEPZA
Table 6.1: BEPZA’s contribution towards total national Export
YEAR EXP ($m)
1994-1995 228.26
1995-1996 337.02
1996-1997 462.77
1997-1998 636.05
1998-1999 711.69
1999-2000 890.81
2000-2001 1067.87
2001-2002 1077.02
2002-2003 1200.00
2003-2004 1354.00
2004-2005 1548.68
2005-2006 1836.18
2006-2007 2063.67
2007-2008 2429.58
2008-2009 2581.70
2009-2010 2822.54
2010-2011 3697.62
2011-2012 4210.80
2012-2013(July, 12)
433.05
41
YEAR TOTAL EXPORT OF BANGLADESH (US$m)
TOTAL EXPORT OF EPZs (US$m)
BEPZA’s CONTRIBUTION (%)
1995-1996 3882 337 8.68
1996-1997 4418 463 10.48
1997-1998 5161 636 12.32
1998-1999 5313 712 13.40
1999-2000 5752 891 15.49
2000-2001 6467 1068 16.51
2001-2002 5986 1077 18.00
2002-2003 6548 1200 18.33
2003-2004 7603 1354 17.80
2004-2005 8655 1549 17.90
2005-2006 10526 1836 17.44
2006-2007 12178 2064 17.00
2007-2008 14111 2429 17.22
2008-2009 15560 2582 16.60
2009-2010 16250 2822 17.36
2010-2011 22924 3698 16.13
2011-2012 24,41 0 4210 17.24
6.1.2 Employment
Presently 407 enterprises are carrying out their operational activities in the EPZs. The
export from EPZs has also grown steadily which is now 17.24% of the country’s total
national export and the same has exceeded four billion marks during the last financial
year. The direct employment opportunities for more than three hundred thousand
Bangladeshi nationals have also been created in the EPZ units constituting 64% of the
42
total work force from female category. Total employment for these enterprises are
3,41,344 nos up to July, 12.
Subject: Total Employment figure of EPZ
YEAR No of EMPL
1994-1995 6,141
1995-1996 10,706
1996-1997 12,773
1997-1998 14,049
1998-1999 14,059
1999-2000 9,890
2000-2001 16,020
2001-2002 8,764
2002-2003 10,167
2003-2004 10,071
2004-2005 15,802
2005-2006 23,021
2006-2007 23,360
2007-2008 17,130
2008-2009 16,394
2009-2010 28,064
2010-2011 43,666
2011-2012 33,598
2012-2013
(July, 12)
1,323
FemaleMale
43
Fig5.3: Employment up to July, 2012 in EPZs in BangladeshSource: BEPZA
6.2 Brand Products
Investment is made to produce world famous brand products like Nike, Reebok, Lafuma,
H & M (Sweden), GAP, J.C. Penny, Wal-Mart, Kmart, OSPIG (Germany), Mother Care
(UK), Lee, Wrangler, Dockers, NBA, Tommy Hilfiger, Out Door, Adidas, Falcon (USA),
Edie Bauyer, Eagle, Releigh (UK), Emmilee, Free Spiril (UK), Miles (Germany), Brouks,
American Eagle, Hi-Tech (UK), Decathlon, Phillip- Maurice (UK), Federated, Styles Co,
SAG Harbour (USA), Wins More, H & M (SWEDEN), LL Bean, Target, Autica, Disley,
Vans, Vftnfcamera Lens (IO Parts) Konika, Minolta, Golf Shafts, Abu Garcia, Mobile
Parts of Sony, Automobile Parts of Nissan, Mitsubishi & Hino.
6.3 Product Wise Investment and Employment (Up to July, 12)
Diversification of Bangladeshi export was started with RMG product in early 80’s. With the
influx of FDI in EPZs, RMG sector gives a fresh thrust in boosting FDI. RMG and textile
cluster alone represents 53.54% of EPZ Investment and 68.51% Employment in 2012-13.
Moreover, BEPZA could attract substantial amount of FDI for Tent, Camera parts, Golf
Shaft, Bi-cycle, Zipper manufacturing plant. There is no single manufacturing unit of this
kind outside EPZ. BEPZA is expecting big investment particularly FDI in composite textile,
home textile and Ceramics in near future. Obviously, more investment will lead to
diversification of country’s export basket.
Table 6.2: Product Wise Enterprises (Upto July, 12)
Source: BEPZA
Sl Product Enterprise
(Nos.)
Investment
(Us$ M)
Employment
(Nos.)
1 Garments 101 816.800 1,94,489
2 Garments Accs. 70 297.533 16,784
44
3 Knit & Other Textile 44 212.840 38,512
4 Textile 41 480.811 22,583
5 Elec & Electronics 17 92.174 4,464
6 Footwear & Leather 25 141.609 19,840
7 Caps 5 50.031 7,826
8 Tent 8 50.850 8,260
9 Terry Towel 18 62.727 7,063
10 Metal Product 13 28.726 1,283
11 Plastic Goods 11 27.170 2,873
12 Paper Product 2 1.316 100
13 Fishing Reel & Golf 1 32.419 607
14 Rope 2 6.476 565
15 Service Oriented Industries 6 32.950 916
16 Agro Product 7 2.624 309
17 Furniture 3 28.560 1,613
18 Power Industry 2 45.124 99
19 Chemical 5 3.367 73
20 Sports Goods 1 1.245 319
21 Miscellaneous 25 63.061 12,566
Gr. Total 407 2,478.90 3,41,344
6.4 Cumulative Performance
45
The following shows the cumulative performance of all the EPZs of Bangladesh up to
July, 2012. It reveals from the record total number of industries in EPZs rose up to 407
with cumulative investment of US$ 2,478.90 million, export US$ 30,078.74 million and
employment up to 3, 41,344
. Table 6.3: Zone-wise aggregate performance
EPZ Industry Investment
(US$ m)
Export
(US$ m)
Employment
(No.) In Op.
(No.)
U/Impl.
(No.)
CEPZ 167 12 968.421 15,272.73 1,76,993
DEPZ 102 09 866.063 12,729.37 84,503
AEPZ 36 31 168.945 580.41 21,381
COM EPZ 32 29 157.231 726.67 12,820
KEPZ 38 16 221.001 520.11 27,637
IEPZ 11 17 68.027 87.86 7,958
MEPZ 12 16 5.362 134.95 1,522
UEPZ 09 09 23.85 26.65 8,530
Total 407 139 2,478.90 30,078.74 3, 41,344
6.5 Country Wise Performance
The investors from 37 countries have already invested in the EPZs of Bangladesh. During
last 30 years BEPZA crossed US $ 2,478.90 million investment. Host Bangladesh is in
top position in Investment and S. Korea is in 2nd position. In employment, S. Korea is in
highest position followed by host Bangladesh and China (including Hong Kong).
Table 6.4: Country Wise Enterprises (Up to July, 12)
SL Country Enterprise Investment Employment
46
(Nos.) (US$m) (Nos.)
1 BANGLADESH 115 578.333 74,012
2 S. KOREA 69 526.815 84,204
3 CHINA * 45 315.799 55,959
4 JAPAN 26 223.497 9,445
5 TAIWAN, CHINA 25 191.016 14,303
6 INDIA 20 41.900 9,927
7 U.S.A 15 70.873 15,645
8 UK 15 71.912 18,263
9 MALAYSIA 11 121.964 4,884
10 PAKISTAN 7 9.860 2,563
11 GERMANY 6 20.736 5,345
12 CANADA 5 39.042 3,913
13 NETHERLAND 6 56.881 4,511
14 SRILANKA 8 50.671 13,109
15 BR. VERGIN IS. 4 39.940 6,641
16 ITALY 5 35.948 3,172
17 SWEDEN 1 13.303 4,668
18 INDONESIA 2 8.342 1,918
19 SWITZERLAND 1 6.546 81
20 SINGAPORE 3 8.202 1,965
21 BELGIUM 2 5.041 452
22 UKRAINE 1 4.288 528
23 DENMARK 3 3.339 1,134
24 PANAMA 1 2.886 2,357
47
25 SPAIN 1 2.395 150
26 MARSHAL ISLAND 1 20.305 433
27 IRELAND 1 2.295 29
28 THAILAND 1 0.258 408
29 UAE 1 0.590 296
30 AUSTRALIA 1 0.026 62
31 OTHERS 1 5.900 967
TOTAL 407 2,478.90 3,41,344
6.6 Comparative Analysis of EPZs in Neighboring Countries
Attractive packages of incentives, physical industrial facilities of Zones along with
abundance of skilled manpower at a competitive rate have placed Bangladesh’s EPZs in a
comparative advantageous position over other competing EPZs of neighboring countries.
Apart from the manufacturing sectors, EPZs are now inviting investment into
infrastructure, power & utility, and environment management projects which have made
the Zones truly attractive investment destination for the prudent investors who looks to
the future.
Indian council for Research on “International Economic Relations” conducted a study on
comparative performance of EPZs in Bangladesh, India and Srilanka which was
published on March 2005. This working paper clearly reflects Bangladeshi EPZs is on the
top in attraction of investment and creation of employment as shown below:
48
Table 6.3: Total cumulative investment and employment and growth rates in
selected years 1983-2003
(Indian Council for Research on “International Economic Relations” published on March 2005)
Table 5.1 presents accumulated investment figures in selected years at 5-years interval
and the average annual growth rates in accumulated investment in each period. It shows
that in South Asia, Bangladesh zones expanded most rapidly both in terms of investment
and employment. In 1983, the first year of operation, the level of zone employment was
624 in the country in comparison with 24000 in Sri Lanka and 13000 in India in that
year. By 2003, Bangladesh left the other two countries far behind in terms of employment
and investment levels. One must however note that the growth slowed down in the late
1990s despite the fact that four new zones became operational during this period.
Apparently, expansion in the new zones had been comparatively slow.
6.7 Global Ranking 2011-12 by FDI Magazine
EPZs are designed to further integrate Bangladesh into the global supply chain and attract
export-oriented investments in the zones, thus achieving its economic objectives of job
creation, diversification and expansion of exports, increasing productive investments,
technology transfer and creation of backward linkages between the zones and the
domestic economy. Chittagong EPZ is the first Zone established by BEPZA. The
Chittagong EPZ is the pioneer for investors which gradually turned Bangladesh as a
49
“New Horizon for investment”. Observing its astounding success, Dhaka EPZ came into
operation in the year 1993. Afterwards 6(six) new EPZs namely Mongla, Comilla,
Ishwardi, Uttara (Nilphamari), Adamjee & Karnaphuli have been set up and these EPZs
have already started operation.
Recently The Financial Times, a London based FDI magazine, has ranked Chittagong
Export Processing Zone (CEPZ) as the 3rd Best Cost Competitive Zone in the world and
the 4th in the Best Economic Potential for 2010-11.
(FDI Magazine of The Financial Times, London, June-July, 2010 issue).
Fig6.4: Top 10 Free Zone of the Future as per FDI Magazine, June-July, 2010 issue
50
Fig5.5: Top 10 Best Cost Effectiveness as per FDI Magazine, June-July, 2010 issue
Fig6.5: Top 10 Best Economic Potentials as per FDI Magazine, June-July, 2010 issue
51
Chapter –07
PROSPECTS & CONSTRAINTS OF EPZs
52
BEPZA is taking up initiative to develop EPZ, where private sector stimulate industrial
investment and that will ultimately gives a momentum to make thousands of economic
transaction in the society. Now, what happened in Dhaka and Chittagong EPZ is that BEPZA
has invested around US$ 40 million to establish EPZs where private sector industrial
investment accrues US$ 770 million followed by US$ 1500 million infrastructure investment
around these zones. Moreover, there is a clear spillover effect of linkage support industries. It
is mentioned in the foregoing paragraph that during 2012-12 EPZ enterprises made
transactions with domestic industries to the tune of 17.24% of their export earnings.
Due to availability of better infrastructure in Dhaka and Chittagong area, prospective
investors asking more space in the EPZs of these regions. In this connection I may
mention that at present we have developed Adamjee EPZ (near Dhaka City) and
Karnaphuli EPZ (near Chittagong EPZ). Lot of investors from home and abroad are
coming to invest in these two zones although we are not fully ready to allot space to
them. On the other hand there have three EPZ in North and South-West of the country
viz. Mongla, Ishwardi, and Uttara EPZ. In spite of reduced tariff BEPZA couldn’t attract
considerable number of enterprises due to lack of urban facilities, residential
accommodation, educational institutions, hospitals, telecommunication facilities, hotels
and resort centers. Moreover, Export oriented industries outside EPZ enjoy more or less
same incentives still they could not do up to the mark due to lack of proper infrastructure.
Therefore, public sector BEPZA can only establish EPZs with basic infrastructure. Now,
private sector may come up to provide infrastructure related works to enterprises,
transportation, hotel and resort centers, shopping mall, universities and vocational institutes
and other social infrastructures, operation and management of water, effluent disposal,
power, telecommunication, linkage industry and supportive financial infrastructure.
If we sum up investment (FDI and Local) necessity in Bangladesh proper infrastructure is
considered as the main factor for rapid industrialization in the country.
53
7.1 Regulatory Streamlining
To foster and generate investment in the EPZs of Bangladesh, there have specified Acts
like BEPZA Act, Foreign Private Investment Act, Workers Right Act and Conductive
rules on Custom Procedures, credit facilities, Foreign Currency, capital issues and
Income tax. These Acts and rules have more or less simplified the procedure for
establishment and operation of industrial activities in the zone. For better operation of the
zone there should have more regulatory streamlining of existing law of the land.
7.2 Technology Transfer
Technology transfer or spillover constitutes one of the most important dynamic effects
expected of foreign investment. The field survey reveals that in a relatively simple
industry with no proprietary technology, such as RMG and footwear, technology transfer
takes place readily both inside and outside the EPZs, though on a very limited scale. The
transfer is from foreign technicians and managers working together on factory floors,
from foreign buyers to local firms, and through consultants, movement of employees,
visits to plants abroad, and so forth. But in industries, such as electronic components,
with internationally established firms resist challenging, fast-changing, and largely
proprietary technology; transfer of technology to Bangladesh is very limited. In any case,
firms in Bangladesh are not capable of mounting a competitive challenge without a lot of
help. In such industries, the direct transfer of product and process technologies through
the EPZs has been very small, except in simple industries, such as RMG
7.3 Skill Transfer
Technology transfer is intertwined with skill transfer. The field survey reveals that skill
transfer to the rest of the economy occurs mainly through the movement of people who
have received training in foreign and joint-venture firms in the EPZs and through
learning by locally owned firms there. Interviews with a number of factory managers in
the EPZs indicate that the factories in the EPZs contribute significantly to workers’
technical production and factory management skills even though the acquisition of
broader management capability or marketing skills is very slow. There are quite many
instances in both CEPZ and DEPZ that technicians and managers who have acquired the
54
ability to compete in the world market have carried this expertise to the rest of the
economy. To foster such mobility and make it more productive, the business environment
outside the EPZs must be rationalized as well, through deregulation and import
liberalization (for healthy competition) and industrial restructuring (for efficient
production). When the business environment outside the zones is not attractive,
technology and skill transfer effects tend not to be fruitful or to contribute much to the
local economy. In such cases, on-the-job training in the foreign firms and joint ventures is
instrumental in transferring skill to the DTA. One cannot avoid the conclusion that the
only feasible way to acquire skills through the EPZs at an early stage of development is
through on-the-job training, not at training centers, in formal courses, or from written
materials. In this context, it may be noted that the relocation of electronics assembly
operations in the EPZs leaves the more skilled jobs involving high technology in their
original locations giving the EPZ firms a truncated occupational structure. Thus the
notion those EPZs could serve as nurseries for the development of industrial skills are not
borne out by experience.
7.4 Special Economic Zone – enlarged version of EPZ
Given the scarcity of land in Bangladesh, its efficient use for industrial purposes is of
utmost importance. Indiscriminate use of land for industrial purposes coupled with poor
environmental practices is causing environmental damage and is emerging as a major
problem in Bangladesh. Poor availability of infrastructural facilities identified as the most
important constraint in investment climate assessment in Bangladesh. Investors, in
particular foreign investors, are also discouraged by property right problems, such as lack
of clean titles, which make access to land difficult. In view of this, our development
partners especially World Bank proposed to Bangladesh Government to set up special
Economic Zones with the following strategy:
Introduction of a broader concept of economic zones, i.e., including
Special Economic Zones (SEZ) which have not been tried in Bangladesh,
and the provision of a broader range of value added services, such as
logistical service in the zone.
55
A greater role for the private sector in the development and operation of
economic zones.
A clear option to establish both export-oriented industries and
manufacturing units for domestic market.
A separation of the regulatory function of Government from its zone
ownership functions.
56
Chapter –08
RECOMMENDATION
57
One of the basic elements critical for attracting FDI is adequate infrastructure especially
Physical infrastructure within the zone like Water, Electricity, Factory & Service
buildings, Warehousing, Transporting, Telecommunication, Police Stations, and Fire
Stations. Outside the zone infrastructure like Port, Roads leading to the zones, transport
facilities to the zone etc. Zones must be supported by Financial Infrastructures (Bank,
Insurance, C&F Agent, Freight forwarder, couriers etc) and Social Infrastructure within
the zone (Residential Complex, School, Hospital, Club, Resort centers etc). Again,
infrastructure within EPZs is generally considered superior to that available in the wider
economy.
A major preferential treatment is essential for development of EPZs units by granting
them the Government policy concessions in the form of fiscal and no-fiscal incentives.
Although it is an ad hoc arrangement, for initial investment attraction incentive scheme
should run parallel.
There should have separate specific rules/regulations for different kind of zones in regard
to Customs, Income Tax, Foreign exchange, VISA/Landing permit etc. EPZs should be
strengthened enough to exercise regulatory functions and to act as an independent
regulatory body. At present BEPZA is exercising some regulatory functions
independently.
58
Chapter –09
CONCLUSION
59
With the changing global business and investment scenario the EPZs of Bangladesh have
revised its expansion strategy and in tune with the varied needs of the present day
business Bangladesh EPZ Authority (BEPZA) is customizing its investment incentives
and facilities.
Opening up of new sectors of investment have provided an excellent opportunity to
prospective investors. New zones in strategically located places with state of art industrial
facilities and pro-investment intuitional frame work providing the right kind of
environment to grow. BEPZA believes that investors from all around the globe would
find the EPZs of Bangladesh as a truly attractive investment destination.
60
Bibliography
Publications
1. Prospects of Foreign Direct Investment in Bangladesh Economy, by:Md.
Tanvir Hasan
2. Export Diversification and Role of Export Processing Zones (EPZ) in
Bangladesh, by Brig Gen Md. Zakir Hossain Psc, G (Retd)
3. A Study of Major Determinants and Hindrances of FDI inflow in
Bangladesh, by Shamima Nasrin, Angathevar Baskaran and Mammo
Muchie
4. Institutions for Facilitating FDI: Issues for BEPZA, Bangladesh, by M.
Abu Eusuf, ABM Omor Faruque & Atiur Rahman
5. Making EPZs more effective, investment-attracting locations, by
Shahiduzzaman Khan, The Financial Express, April 03, 2008
6. Bangladesh Economic Update Foreign Direct Investment (FDI) February
2012, Unnayan Onneshan-The Innovators
7. EPZ History In Bangladesh and its Administration and Legislation for
Economic Enclave, by Md. Zohurul Islam, PhD and Uzma Mukhtar, PhD
Internet
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