Economic Zone (EZ) plays an important role in the quest for economic growth with a view to national development, having primary objectives to attract Foreign Direct Investment (FDI) and local investment. It gears up the production of daily needed commodities to meet the market consumption (domestic, global), generate employment opportunities and share the policy reform activities. The EZs have already achieved success stories in the different global countries with multiple lessons: (i) how to attract companies that create jobs; (ii) how to ensure positive externalities; (iii) catalyzing economic reforms; (iv) upgrading structural transformation; and (v) ensuring sustainability from institutional, social, energy and environmental perspectives.
The Bangladesh EZ Act-2010 has led to the creation of semi-autonomous agency, the Bangladesh Economic Zones Authority (BEZA), tasked with overseeing the establishment of 100 EZs by 2030, for creating 10 million job opportunities and generating additional US$40 billion of export earnings, with the aim to transform Bangladesh into a middle-income country and free from economic disparities. Earlier, similar to BEZA, Bangladesh Export Processing Zones Authority (BEPZA) was established, aimed at spurring trade and industrialization by creating employment and attracting foreign investment. But the government is now moving away from the EPZ model to EZ due to its weaker domestic linkage, instead to bring more private participation in the country. BEZA is different in terms of ownership structure. At present, it has already got approval to establish 97 EZs countrywide, of which 68 are government-owned, and 29 privately owned.
EZ can be a useful model in tackling regional disparities and promoting regional development. Bangladesh has taken several steps towards bridging regional disparities and its own economic development. A number of EZs have already been established and inaugurated, and in operational activities. Among them, 6 government (BSMSN, Srihatta, Jamalpur, Feni, Dhaka-Keranigonj, Moheshkhali-Dhalghata), 11 private (Sirajganj, Monem, Aman, Bay, City, MEZ, MIEZ, Cumilla, Karnafuli-Special, East-West-Special, Kishoreganj), 5 G2G (Chinese, Japanese-Araihazar, Indian-Mirsarai, Indian-Mongla, Indian-Kushtia), 2 PPP (Mongla, Mirsarai-II), and 3 Special Tourism Parks (Sonadia, Naf-Jaliardwip, Sabrang). These EZs are expected to mobilize investments from both domestic and foreign sources.
EZ is an appealing one for regional development to confront a trade-off with balanced spatial distribution of economic activities and industrial production. The “new economic geography” thought by Nobel-Winner Paul Krugman is a clustering-force to generate balancing between the economic disparities. The present perception is that the socio-economic conditions in northern districts of Bangladesh are lagging behind from southern parts, as “north-south” (or, “east-west”) divided by some social and economic characteristics.
The economic growth is stimulated by productivity increases, which are driven by industrialization, and exhibit higher income opportunities. Bangladesh is a good example, where EZs are the main source of industrialization and urbanization, concentrating growth-centers for making regional balance, national security and political gains. Bangladesh has started an ambitious journey for industrial development and economic growth and has already earned remarkable progress in EZ activities. The development of EZs in Bangladesh is a priority project.
Bangladesh EZs - Development Activities
The increased agricultural productivity in the 1990s prompted millions of agricultural workers to move into manufacturing and services sectors in the urban cities, but a shortage of land for greenfield investments challenged this transformation. The government looked to economic zones for its industrial growth and to create more employment. Safety issues also became a high policy priority after a series of factory disasters including fire and building collapses in 2010-2012 that killed and injured thousands of workers. The shortages and tragedies both generated an urgent need for stronger mechanisms to promote socially and environmentally responsible industrial growth in Bangladesh and expedite the establishment of EZs.
There are some partner organizations that came forward to assist in EZ development. The World Bank financed “Private Sector Development Support Project (PSDSP 2011-2021)” facilitated about US$ 3.9 billion (received credits US$ 170 million from IDA) to direct private investment and creation of 41,000 employments. It supported the regulatory reform process, helped the establishment of BEZA with the approach of industrial capacity building and infrastructure development including the issuance of license, development of 1,500 acres land, 14 km embankments, 26 km roads, 8 bridges, 3 electric sub-stations and 2 water-reservoirs.
The other partners, the UK-DFID/Foreign, Commonwealth and Development Office (FCDO) granted more than US$20 million to finance development works and technical assistance, focusing on planning, investment promotion and skill development. DFID/FCDO also financed BICF-IFC to provide technical assistance to BEZA, BIDA, BEPZA, BHTPA, BGMEA, and BKMEA. BEZA is working now aiming to establish economic zones in all potential, backward and underdeveloped or lagging behind regions.
Types of EZs: (a) public-private partnership, established jointly; (b) private-EZ, developed individually or jointly by local, NRB, or foreign investors; (c) government-EZ owned by GoB; (d) government-to-government (G2G) zone, established by foreign government countries in partnership with GoB; (e) specialized-EZ for certain kinds of special sectors/industries (e.g. tourism, agro); and (f) EZ in partnership with other GoB organizations (e.g. BEPZA).
BEZA is to provide elaborate incentive packages for companies located in EZs and to developers, ranging from income-tax exemptions to reductions in capital expenditure, no restrictions on the promotion of investment generated by FDI, duty-free imports of raw-materials, etc. The process of EZ development can be evaluated using the status on 4 key milestones: (i) land acquisition; (ii) preparation stages for feasibility study; (iii) infrastructural development; and (iv) investment in production units. The overall-work on delivering the EZ for industrial production is growing fast, but it seems that the development in the north-west and south-east region is slower.
Sectors of EZ: LPG, LNG, Power, LNG-Terminal and Petro-chemical plants, Chemicals, Textile, Garments, Shipbuilding, Steel-Rerolling, Light-Engineering, Pharmaceuticals, IT-Telecommunication, Jute, Leather, Agro-Fish processing, etc.
EZ-Incentive Packages: There are various incentive options: one stop services on license, government approval, clearance, NOC, e.g. exemption on tax, import duty, SD-Vat, electricity, gas, work-permit and remittance facilities for foreigners, etc.
Bangladesh - Key Environment for Investment: (i) Access of market by developed and neighboring countries; (ii) Policy support (liberal FDI policy, treaties, industry oriented); (iii) Young workforce (demographic dividend, talented, qualified); (iv) Macro-economic parameters (trend of GDP growth 6.3%, increase in per-capita, rising FDI/foreign trade, no ceiling); (v) Strategic location (between India-China, well-connected with S-SE Asia, access to waterways, turn to big Trade-Hub); and (vi) low-cost business (among developing and S-SE-Asian countries).
EZ: The Challenges
(1) The most government regulatory offices have overlapping conditions that make difficulties for investors (foreign, domestic) to navigate through a reluctant type bureaucratic and regulatory environment that turns to worsen regulatory barriers.
(2) Political interference in site-selection poses a threat to investment decisions.
(3) Climate change and natural disasters, along with poor safety standards (e.g. fire, social, traffic, road-infrastructure, political), treat as a threat to EZ, mainly to riverside zones.
(4) The inadequate infrastructure and shortage of accessible land, discourages green-field investment and industries.
(5) The BEZA, BHTP, BEPZA and BIDA have overlapping mandates, and need to perform similar/duplicate efforts in doing business.
The Way Forward
(1) The challenges need to be addressed, a number of key steps must be taken, that can be enacted through sound policies and efficient regulations.
(2) A Task Force to review the regulatory agencies (BEZA, BEPZA, BIDA, BHTPA, etc.) and to minimize the barriers/harassment by taking "prompt action-tool mechanism”.
(3) The regulatory environment needs to reform, and to create synergies between the public departments (to operate by methodical-guidelines and to avoid any duplication or complexity).
(4) The incentive-package needs to standardize to create an attractive environment, furnishing with more benefits and would step forward, or expedite the EZ policy targets.
(5) It is most important to make a Standard Integrated Safety Preparedness Plan (linked with the safety agencies, e.g. FSCD, Factory Establishment, Boilers, Explosives, Environment, etc.), to focus on fire, social, traffic, irregular road infrastructures, political and climate-natural hazards.
(6) The integrated plan needs to be tailored with national sustainable goals and vision-2041 to build better infrastructure, a well-connected efficient sea and land ports, facilitate advanced technology and skill-workforce.
(7) To fix-up the priority, we need to focus on the exports of products, to move for quality goods, the level of country image and trust to participate in the regional competitive markets. Also needs to minimize any complexity while importing raw-materials for industries in the EZs. The government develops necessary infrastructures, and provides quick services by OSS in response-to delaying or complicated processes by some government agencies.
MGI Economic Zone - A Success Story
Meghna Group of Industries-MGI, one of the country's leading industrial conglomerates, playing an important role in sharing the quest for economic growth, engaged in attracting FDI, generating employment, and economic reforms activities by investing of 50 industries, located in its own 3 Private Economic Zones to meet the consumers daily basic needs, almost 30% of total food consumption of the country. The industries are using advanced technologies with cogeneration schemes, energy efficient, clean and automated mechanisms that make the green-environment and produce efficient healthy products.
The Meghna Economic Zone-MEZ, a concern of MGI with 68 acres of land, is the first private economic zone of Bangladesh, situated on the bank of river Meghna in Sonargaon Upazila of Narayangonj district. MEZ has at present 12 industries with 18,000 employment, and US$ 1.2 billion investment.
The Meghna Industrial Economic Zone-MIEZ (the 2nd EZ of MGI) with 123 acres of land, situated at Mograpara under Sonargaon Upazila of Narayangonj district. MIEZ has 22 domestic and 12 foreign industries, with 20,000 employment and US$2.2 billion investment. The foreign investors in MIEZ are: Siegwerk BD, CHT BD Pvt, MV Solution (Germany), Sun Pharmaceuticals (India), Jotun BD Ltd (Norway), Sika BD Ltd (Switzerland), Sakata Ltd, DIC BD Ltd (Japan), TIC Manufacturing, TIC Industry Pvt Ltd (Australia), Ismarta Technology BD Ltd (China).
The Cumilla Economic Zone-CUZ, the 3rd and newly set-up of MGI EZ with 246 acres of land, is situated beside Meghna river in the Meghna Upazila of Cumilla district. CUZ is under process for more domestic and foreign industrial investment, with 50,000 employment opportunities, and has already US$550 million investment, with more US$2.5 billion to be invested.
The MGI EZs are equipped with all necessary utility facilities, such as electricity from own captive power plant, natural gas from Titas and underground pipelines, set-up with WTP, WMT, CSTP, ETP facilities, necessary fire extinguishing facilities, abundant skilled workforce, dedicated security services and other competitive advantages, to ensure environmental compliances. The CEZ is designed by Som Bury Khalifa, the world renowned architect company, for a model of EZ in the world, where reserved for natural water-bodies, fixed for separate green-zone with adequate open-space, park, roadside green and solar plants to contribute the net-zero carbon economy environment. MGI is now a part of the most growing private sector in the country, shared with the various socio-economic development activities, in terms of reducing unemployment, saving valuable foreign currency, reducing import dependencies and earning foreign currencies through exporting of its quality products to more than 25 countries.
Recommendations
(1) It is important that the provision of serviced industrial land infrastructure and reliable supply of power and energy sources have a significant impact on the success of EZ. Therefore, to make an attractive investment in the EZs, an appropriate, adequate, and well-functioning infrastructure with the availability of basic facilities (e.g. power, energy, water, transport, telecommunication). EZs should be well-connected to major urban-centers and ports, cost-effective transportation, linked with national and regional economic corridors (e.g. highways, rails, water, and air-linkage).
(2) A development strategy to address regional, socio-economic variations (e.g. north vs. south, east vs. west, or any lagging-parts), to get attractive incentives, opportunities and to develop appropriate, adequate and well-functioning infrastructures (including energy and power), industries with well-connectivity for a balanced-economy and to avoid a poor choice of location.
(3) Coordination is needed to ensure the efficient delivery of incentive packages and support systems declared by BEZA and BSCIC, e.g. cash assistance for export, supporting product development and standards, and exporting promotional measures abroad.
(4) The one-stop service (OSS) system should be developed in dynamic means, to align the incentives and practices across the coordinating agencies promptly and efficiently.
(5) To ensure a fair access of entrepreneurs/investors to EZs including small and medium-sized industries, the ambitious projects by a less-financed, or a less-sound business investor must be avoided.
(6) A need for “quality data” on a regular basis to analyze the overall EZ development activities for better policy options.
Conclusions
Bangladesh has undertaken an ambitious and challenging vision of setting up 100 Economic Zones (already have success stories), despite a mixed success in the other developing countries. The EZ-based industrialization strategy can thus accelerate our economic growth, employment generation and poverty reduction. The EZ is a policy tool for developing the lagging behind regions, incorporated with the national development plans. A proactive policy option will mean attracting these dynamic investments.
The options for understanding challenges to achieve the EZ strategy, there is a need for making simplification of policy guidelines and OSS facilities effectively. The valuable cross-country experiences and best practices are to be carefully reviewed and followed lessons and appropriate policy measures may be taken into consideration in Bangladesh.
The EZ works as a “stepping stone” for economic growth and prosperity, a “corner stone” for the sustainable development goals and boosting the employment opportunity in Bangladesh. A courageous, strategic and innovative blueprint is required to achieve the vision and plans. A sound and efficient regulatory framework (without administrative barriers) can help make a healthy-investment environment in EZ development activities. BEZA can develop a “quality data bank” for reviewing EZ projects, and take better steps for further scope in the country.
(Sources: BEZA Report-2022, World Bank-2021, Razzaque-2018, Ahsan-Lightcastle-2019)
AKM Monowar Hossain Akhand, Former Additional Secretary, BERC, & Ministry of Public Administration-MOPA.
