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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,

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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

1. http//www.epzbangladesh.org.bd2. http//www.bizbangladesh.com3. http//bangladesheconomy.wordpress.com4. http//www.exectimes.com5. http//www.bangladesh-bank.org

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