Report on Impact of EPZ on National Economy

EPZs in Bangladesh play a important role to help  and attract foreign investment as well as in involving local  investment, which equally contribute to overall increase in the countries economy of exports and in its earnings of foreign currency. The focus discussion of this report is to explain Promotion of Export and Promotion of Diversification of Export also Generation of employment with development of backward and forward linkage. Finally describe transfer of technology and upgrade of skill to improve EPZ.

Introduction

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.

Two fully operating  EPZs, one in Chittagong and the other near Dhaka have attacted a wide range of investors. Another four EPZs, one at Mongla, a southern port city of Bangladesh, one at Comilla, and 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 have already started operation. Other two EPZs Adamjee near Dhaka and karnaphuli in Chittagong are progressing fast for allotment of plot to investors.

According to BEPZA Act, the objectives of BEPZA are: (i) to foster and generate economic development of Bangladesh by encouraging  and promoting foreign  investments in a zones:  (ii) to diversity the sources of foreign exchange earnings by increasing export of  Bangladesh through a zone : (iii) to encourage and foster the establishment and development of  industries and commercial enterprises in a zone in order to widen and strengthen the economic base of Bangladesh, and (iv) to  generate productive employment opportunity and to upgrade labor and management skills through acquisition of advanced technology (GOB 1994). Meanwhile, Chittagong Export Processing Zone (CEPZ) and Dhaka Export  Processing Zone (DEPZ) were established which started functioning in 1983/84 and respectively. Currently, Bangladesh has been promoting EPZ program more vigorously with the creation of four more EPZs in Mongla, Comilla, Ishwardi and Uttara (Nilphamari) with a heavy claim on scarce   national resources  inviting a serious study and debate, It  is important to see whether further replication of the EPZs is worthwhile in terms of the national resources deployed and the role the existing EPZs play in expediting the process of industrialization in Bangladesh

Objectives of  the study

The objective of the present paper is to examine whether the EPZs have been successful in achieving the desired goals as laid down in the, BEPZA Act and has contributed to the industrialization process of the country. Promotion of FDI & Local Investment

• Promotion of Export
• Promotion of Diversification of Export
• Generation of employment
• Development of Backward and Forward Linkage
• Transfer of Technology.
• Upgrade of Skill
• Development of Management
• Promotion of International Marketing.

Literature Review :

• Bangladesh Economic Survey
• Bangladesh Institute of Development  Studies
• Board of Investment
• The survey  of BEPZA
• The Survey  of BGMEA
• Bangladesh Economic Survey
• Bureau of Bangladesh  Statistics

Methodology :

The research paper is prepared by completely depending on secondary   source that includes research report, review of books, journals and other secondary materials.

INVESTMENT CLIMATE

General Features

Bangladesh offers an unparalleled conductive investment climate compared to the  other South Asian economics. Bangladesh is a largely homogenous society with  no major internal or external tensions and a population with  great resilience in  the face of  adversity (e.g. natural calamities). Bangladesh  is a liberal democracy and  mostly a one race and one religion country. The population of this  country irrespective of race and religion have been living  in  total harmony and understanding for thousands of  years. It enjoys broad non-partisan political support for maker oriented reform and offers the most investor friendly regulatory regime in South Asia. Bangladesh  owns a trainable, enthusiastic, hardworking and low-cost (even by regional standards) labor force suitable for any labor-intensive industry.

Geographical location of the country is ideal for global trades with very convenient access to international sea and air route. Bangladesh is the bridge between  ASEAN and SAARC nations. Bangladesh is endowed with abundant supply of natural gas, water  and very fertile soil.

Although Bengali is the official  language, English is widely spoken as second language, English is widely spoken as second language. Majority of even moderately educated population can read, write and speak  in  English.

As a result of low per capita GDP present domestic consumption is not significant, However, it may be considered that  there exists a middle class with significant purchasing power. As economic growth picks up, the purchasing power will also grow substantially and in a country of more than 133.4 million people, even a small middle class may constitute a significant market.

Bangladeshi products  other than  armaments enjoy complete duty and quota free access to EU, Japan, Canada, Australia, Norway  and most of the developed countries . However, for apparel  export to USA, Bangladesh has a quota regime which is generally favorable.

Regulatory and Legal Framework

Investment in Bangladesh  is well protected by law and by practice. Major laws related to  foreign  investment are:

• The Foreign Private Investment (Promotion and Protection)Act of 1980
• The Bangladesh Export Processing Zones Authority Act of 1980
• The Investment Board  Act of 1989
• The Companies Act 1994
• The Bangladesh  Private Export  Processing Zones Act of 1996
• The Industrial Policy 1999
• The Import Policy Order 2003-2006

Bilateral Investment Agreements

The  Foreign  Private Investment (Promotion and Protection) Act 1980 induces  a guarantee of fair  and equitable treatment to foreign  private investment. Such national treatment is also provided in bilateral investment treaties (BITs) for the promotion and protection of foreign investment  which was concluded with 24 countries listed below.

 REASONS FOR SETTING EPZ IN BANGLADESH

EPZ set up in Bangladesh due to various reasons Major reason among them is expedites export activities and stimulates rapid economic growth

These reasons are :

• stimulate rapid economic growth
• Enhance industrialization
• Adopted with Open door policy i.e. Globalization
• Attract foreign investment
• Provide special areas where potential investor would get congenial investment climate.
• Smooth export procedure, free from cumbersome procedures
• Development export promotion strategy
• More employment generation
• Development of export oriented industries
• Proper use of domestic available raw materials

THE  BEPZA  ACT- 1980

An Act for the establishment of the Bangladesh Export Processing Zones Authority. Whereas it is expedient to make  provision for the establishment  of the Bangladesh export processing Zones Authority for creation, development,  operation, management and control of Export Processing Zones and for matters connected therewith . It is hereby enacted as follows:

Short title and commencement:

(1) This Act may be called the Bangladesh Export  Processing Zones Authority Act, 1980,

(2) It shall come into force on such date as the Government may, by-notification in the official Gazette, appoint-

Definitions :

In this Act, unless there is anything  repugnant in the subject or context

(a) ‘Authority’ means the Bangladesh Export Processing Zones Authority  established under section 3.

(b) Board means the Board  of Governors of the Authority,

(c)Executive Board means the Executive Board of the Authority

(d) Executive Chairman means the Executive Chairman of the Board.

(e) Prescribed means prescribed by rules made under this Act. and

(f)  Zone means a place or place or places to be specified by the Government under Section  10 as a Export Processing Zone  for the purposes of setting up export- oriented industries .

EPZ AT A GLANCE

Type of Investment

Type- A 100% foreign owned including Bangladeshi  nationals ordinarily resident in Abroad

Type – B  Joint venture between foreign  and Bangladeshi  entrepreneurs resident  in Bangladesh.

Type- C 100% Bangladeshi entrepreneurs resident in Bangladesh.

Mode of Investment

Investment in convertible foreign currencies by foreign investors, Option to establish public/ private Ltd. companies or sole proprietorship/ partnership concerns.

Investment Guarantee

Foreign Private Investment (Promotion and Protection) Act, 1980 secures all foreign investment in Bangladesh. OPIC’s (Overseas Private Investment Corporation, USA) insurance and finance programmes operable. Security and safeguards available under Multilateral investment Guarantee Agency (MIGA)of which Bangladesh is a member. Arbitration facility of the International Center for the Settlement of investment  Dispute (ICSID) available.

Tele-communications

E-mail, internet, Fax ISD, NWD & Cellular services are  abailabe.

BEPZA

-Issues import/Export permits

-Provides infrastructure facilities

-Offers One Window Same Day service

-Potential investors are required to  deal only with BEPZA for investment and  all other operational  purposes.

Work Force

Bangladesh offers a substantial manpower reserve skilled, semi-skilled & un-skilled. BEPZA is vested with the  responsibility  to administer labour matters for  matters for all its enterprises.

Average Monthly wages

Apprentice/ Trainee                      US $ 22.00

Unskilled                                        US $ 38.00

Semi-skilled                                   US $ 45.00

Skilled                                             US $ 63.00

Other benefits include Conveyance Allowance, House Rent, Medical Allowance, Maternity Benefit, Festival Bonus and Overtime Benefit.

Working Hours

48 hours week in a factory

39 hours week in an office

Employees Leave

• 10 days casual leave in a year
• 17 days Earned leave in a year
• 14 days sick leave in a year
• 10 days Festival holiday in a year

Package of Incentives

FISCAL

1. 10 years tax holiday
2. Duty free import of construction materials
3. Duty free import of machineries, office equipment & spare parts etc.
4. Duty free import and export of raw materials and finished goods
5. Relief from double taxation
6. Exemption from dividend tax
7. GSP facility available
8. Duty free import of 2/3 vehicles
9. Expatriates exempted from income tax for three years
10. Accelerated depreciation on Machinery or plant allowed
11. Remittance of Royalty, Technical and Consultancy Fees allowed
12. Duty and Quota Free Access to EU, Canada, Norway, Australia etc.

NON-Fiscal

1. 100% foreign ownership permissible
2. Enjoy MFN status
3. No ceiling on foreign and local investment
4. Full repatriation of capital and dividend
5. Foreign currency loan from abroad under direct automatic route
6. Non-resident Foreign Currency Deposit (NFCD) Account permitted
7. Operation of FC account by `B’ and `C’ type industries allowed

Facilities

1. No UD. IRC and renewal of bond license
2. Work permits issued by BEPZA
3. Secured and protected bonded area
4. Off –shore banking available
5. Freedom from import and export  policy restrictions
6. Import on Documentary Acceptance (DA) basis
7. Back to Back L/C
8. Import and export on CM basis allowed
9. Import form DTA (Domestic Tariff Area)
10. 10% sale to DTA (Domestic Tariff Area)
11. Customs clearance at factory site
12. Simplified and hassle-free sanction procedure
13. Sub-comtracting with export oriented industries inside and outside EPZ allowed
14. Relocation of foreign industries allowed
15. Resident ship and Citizenship

Infrastructure

1. Basic infrastructure : electricity, water & gas
2. Fully serviced plots available
3. Factory building available  on rental basis
4. Enclave for workers Dormitory and Day Care Centre
5. Warehouse/ godown available.

Support Services

Business : Courier, Fire Station, Post Office, C&F Agent, Shipping Agent, MTO etc.

Administrative : Commissariat, investors Club, Medical Centre, School and College, Public Transport etc.

 Others : Customs Office, Police Station, Banks Restaurant, Health Club, Recreation Centre, Centre, In- house Security, Sports Complex, Exclusive Telephone Exchange, Electricity Sub-station .

Indicative List of Industries

Garments and Garments Accessories, Textiles Agro-based industries, Chemicals Backward and Forward linkage industries, Electrical equipment  and components  Electronic products, Software, optical goods, Woven and knitted fabrics, Engineering products, Leather products and Foot-wear, Toys Medical and Biological instruments, Pharmaceutical products, Plastic molded, products Industries based on new uses of jute, Cutting / Polishing  of precious and  semi   precious stones, Household fittings and equipment, Head-wear Jeweler Homological instruments, Scientific measuring instruments, Aircraft instruments Laboratory ware, Printing and Publishing, Printing and copying equipment and accessories.

Chittagong  Export Processing  Zone

Location

South Halishahar 3.10 kms from the Sea Prot, 5.50 kms from the main business center, 7.21 kms from the  Chittagong  international Airport

Profile of Zone 

Zone area : 183.37 hectares (453 acres)

Number of Industrial Polts. 428 Size of each plot : 2000 sqm

* Tariff : US$2.00/sqm/ year.

Space of Standard Factory  building  : 58244.98 sqm

* Tariff :  US$ 2.50 sqm/ month.

Space of Warehouse : 2667.79 sqm

*  Tariff :  US$ 2.50/ sqm/ month

* Utility Service

Water Supply : From chittagong WASA Storage  capacity : 7.26 million liters/ day

* Tariff : TK. 17.71/cu-m

* Gas Supply : From Bakhrabad Gas System Ltd.

* Tariff : TK 5.76/cu-m

Power Supply : 11 kv. 3phase, 50 cycles/sec

* Tariff : TK  3.98/kwh

Dhak Export Processing Zone

Location

Ganakbari, Savar, 5 kms from Dhaka city center, 25 kms from Zia International Airport 304 kms from chittagong sea port.

Profile of Zone

Zone area : 143.70 hectares (346.51acres).

Number of Industrial  Plots : 388 size of each plot : 2000 sqm

*Tariff : US $ 2.00/ sqm/ year

Space of standard Factory Building: 79843.19 sqm

• Tariff : US $2.50/ sqm/month
• Space of Warehouse : 2356 sqm
• Tariff : US$ 2.50 sqm/month

Utility services

Water supply : Own water supply system

• Tafiff : TK. 17.71 / cu-m
• Gas supply : From Titas gas Field
• Tariff : TK. 5.76 /cu-m
• power Supply : 11 kv,3 phase, 50 cycles/sec
• Tariff : Tk. 4.18/ kwh
• Tariffs are subject to change from time to time .

MONGLA EXPORT PROCESSING ZONE

Location

Mongla port area, Bagerhat, 105 kms from Jessore Airport, 397 kms from Dhaka  and 664 kms from  chittagong Sea Port

Profile of Zone

Zone area : 186.21 hectares (460 acres) Number of industrial Plots :  162 (first phase) size of each plot : 2000 sqm

Tariff : US $ 1.00/sqm/year.

Space of standard Factory Building : 18000 sqm

• Tariff : US $ 1.25/ sqm/month
• Utility Service
• Water Supply : Sweet water from public Health Engineering Department and own supply network.
• Tariff : TK. 17.71/ cu-m
• Gas Supply : From Shahabajpur Gas Field ( Proposed)
• Tariff : TK. 5.76 / cu-m
• Power Supply : 11kv. 3 phase, 50 cycles/sec
• Tariff : TK. 4.18 /kwh

COMILLA EXPORT PROCESSING ZONE

Location

Comilla old Airport area. 167 kms from  Chittagong Sea Port, 97 kms from Dhaka

Profile  of Zone :

Zone area : 104.44 hectares (258 acres) Number of industrial Plots :  208 (first phase) size of each plot : 2000 sqm

Tariff : US $ 1.00/sqm/ year.

Space of standard Factory Building : 18000 sqm

• Tariff : US $ 1.25/ sqm/month

Utility Service

• Water Supply : own water supply system
• Tariff : TK. 17.71/ cu-m
• Gas Supply : From Bakhrabad Gas System Ltd.
• Tariff : TK. 5.76 / cu-m
• Power Supply : 11kv. 3 phase, 50 cycles/sec
• Tariff : TK. 4.18 /kwh

ISHWARDI EXPORT PROCESSING ZONE

Location

Pakshi, Pabna Pakshi Bridge through by pass road 3.7 kms, 10.60kms,  from ishwardiAirport, 130 kms from Jamuna Bridge  280 kms from Dhaka  255 kms from Mongla Port, 110 kms  from Rajshahi Airport and 412 kms from  chitt agong  Sea Port.

Profile of Zone

• Zone Area :124.99 hectares(308.77 acres)
• Number of Industrial Plots : 2000 sqm
• Tariff : US $ 1.00/ sqm / year
• Space of Standard Factory Building : 18000sqm
• Tariff :US $1.25 /sqm /month

Utility Services

• Water Supply :Own water supply system
• Tarrif:17.71 /cu-m
• Gas Supply :From Gas Transmission Company Ltd.
• Tariff : 5.76 / cu-m
• Power Supply : 11 kv, 3phase,  50 cycles/ second

UTTARA EXPORT PROCESSING ZONE

Location

Shongalshi, Nilphamari, 18 kms from syedpur Airport, 401 kms from Dhaka, 650 kms from Chittangong  Sea Prot. 586 kms from Mongla Prot.

Profile of Zone

Zone area : 93.20 hectares (230.21 acres) Number of  Industrial Plots : 155 (first phase Size of each plot : 2000sqm

Tariff : US $ 1.00/sqm/year

Space of Standard Factory Building : 18000 sqm

Utility Service

• Water Supply : Own Water supply system
• Tariff : TK. 17.71/cu-m
• Gas Supply : From Gas Transmission Company Ltd. (Western Zone Project, Proposed).
• Tariff : Tk  5.76/ cu-m
• Power Supply : 11kv, 3 phase, 50 cycles/sec
• Tariff : Tk. 4.18/ kwh.

ADAMJEE  EXPORT PROCESSING ZONE

Location

Adamjee Nagar, Shiddirgonj, Narayanganj.15 kms from Dhaka city center, 40 kms from Zia International Airport, 255 kms from Chittagong Sea Port.

Profile of Zone

• Zone Area :118.62 hectares (293 acres)
• Number of Industrial Plot: 200  (60 in 1^st phase)
• size of each Plot : 2000 sqm
• Tariff : US $ 2.00/ sqm / year
• Space of Standard Factory Building : 42737sqm
• Tariff :US $ 2.50//sqm /month

Utility Services

• Water Supply :Own water supply system
• Tarrif:17.71 /cu-m
• Gas Supply :From Titas Gas Field
• Tarrif:Tk 5.76 /cu-m
• Power Supply : 11 kv, 3 phase, 50 cycles/sec
• Tariff : 3.98/kwh.

KARNAPHULI EXPORT PROCESSING ZONE

Location

Chittagong Steel mill Area, North Patenga. 5.6 kms from Chittagong sea Port, 8 kms from main business centre of chittagong, 4.7 kms from chittagong international Airport.

Profile of Zone

• Zone Area :90.04 hectares (222.42 acres)
• Number of Industrial Plot: 211  (100 in 1^st phase)
• size of each Plot : 2000 sqm
• Tariff : US $ 2.00/ sqm / year
• Space of Standard Factory Building : 2974 sqm
• Tariff : US $ 2.50//sqm /month

Utility Services

• Water Supply :From chittagongWASA & own supply by treatment plant.
• Tarrif:17.71 /cu-m
• Gas Supply :From Bakhrabad Gas system Ltd.
• Tarrif:Tk 5.76 /cu-m
• Power Supply : 11 kv, 3 phase, 50 cycles/sec
• Tariff : 3.98/kwh.

* Tariffs are subject to change from time to time.

PERFORMANCE OF INDUSTRIES UNDER EPZ

Most of the FDI (87%) have been brought  by companies registered  with the Board of  Investment, the balance (13%) have been invested in companies registered with Bangladesh  Export Processing Zones Authority (BEPZA)

Table: FDI Inflow in Bangladesh during 2005-Distribution by Regulatory Agencies (in Million US$)

Source : Bangladesh  Bank Enterprise Survey, 2006.

Performance of Industries under Bangladesh Export Processing Zone Authority (BEPZA)

Table shows the number of industries, investment cost,  manpower and export performance of the seven EPZs at Dhaka, Chittagong, Comilla, Mongla, Uttara, Ishwardi and  Adamjee upto June 2006. 242 industrial units  were operational in these seven zones with a total investment cost of US$ 979.46 million. A total 1,77,809 manpower has been employed  in these industries. Besides, establishment of a total of 133 industrial units (32 in Chittagong EPZ  26 in Dhaka EPZ, 22 in Comilla EPZ, 14 Iswardi EPZ, 18 in Mongla EPZ, 6 in Uttara EPZ, 9 in Adamzee EPZ and 6 Karnaphuli EPZ) is underway . According to the project proposal, another 66.007 jobs will be created, once those industrial units are operationalised. During the FY 2005-06 commodities worth US$ 1830 million were exported from the mills and factories of EPZ, which accounted for 18 percent of national exports.

Table: Industries under Bangladesh Export Processing Zone (EPZ) and their Performance in terms of Investment  and Employment Generations (Up to June 2006)

Source: (BEPZA).

Table: Annual Investment and Exports Status in EPZs located at Dhaka, Chittagong, Mongla, Comilla, Uttara, Ishwardi and Adamjee (1997-98 to 2005-06)

(Million US$)

Source : (BEPZA) June, 2006.

EPZ : CONTRIBUTION TO ECONOMY.

Investors from 30 countries :

Types of investment (UPTO June, 2007)

A- 100% Foregn ownership            161     60%

B- Joint Venture                               43        17%

C – 100% Local Venture                 60        23%

Total in op                                         264     100%

U/IMP withla                                     102

Sanctioned ind                                  55

Table: SERVICE CHARGE UTILITIES

RATE INCLUDES  SERVICE CHARGE

Table: Investment

TOTAL INVESTMENT = $ 1132.26m

 Table: Export (up to June 07)

Total Export : $ 13.90: 47m

TOTAL EXPORT  = $ 13,903m

Table: Employment

TOTAL : 2,01,169

Table: BEPZA’s CONTRIBUTION

TOWARDS TOTAL NATIONAL EXPORT towards National Export

 Table: Productivity Performance of EPZ Workers

Table: PRODUCT WISE ENTERPRISES (UP TO JUNE 07)

Table:  ZONE Wise Statistics (Up to June 2007)

Table: ANNUAL ECONOMIC BENEFIT FROM EPZs

2003-04. 2004-05 & 2005-06

RECOMMENDATIONS:

For polices encouraging firms to operate in the EPZs the key factors are :

• A clear foreign investment policy regime
• An open door policy to attract foreign investment
• Restriction-free and duty free access to imported inputs and capital goods
• Rapid and low cost customs clearance for imports and exports
• A Completely liberalized foreign exchange regime
• Speedy response of BEPZA
• Minimum regulatory control of actions and transaction within the EPZ.
• Maintain a satisfactory law and order situation.
• Reduction of lead time.

Conclusion :

EPZs in Bangladesh play a significant role in attracting foreign direct investment as well  as in involving local  investment, which jointly contribute to an overall increase in the countries volume of exports and in its earnings of foreign exchange. Foreign exchange earned through exports by EPZ enterprises reduces deficits in the country balance of payments. A part of it is converted into local currency to be spent on procurement of goods and services from the local economy. BEPZA’s contribution to national export was 2.69% in 1990-91 and 17.44% 2005-2006.

The two EPZs provide employment to about 2,01,169 Bangladeshi  workers. As the average family size  in the country  is 6 members, with only one earning member in a family, these 2,01,169 workers earn livelihood for more than 1.2 milllion people. In most cases, foreign investment in EPZs accompanied by utilisation of advanced technology and provides an opportunity for the local workforce to acquire new skills. The trained workers  also help  expedite transfer of technology.

Areas where EPZs have been established have become special growth centers in the economy of Bangladesh as a result of organized and fast development of infrastructure including roads, electricity gas, water supply, telecommunication, fire brigade, post office etc. The private sector around  the EPZ areas have come up with support investments in shopping centers and market , transport agencies, accommodation and recreation facilities etc, which have accelerated the pace of economic activities. In addition to provision of services to the community associated with EPZs , the private sector has also sets up linkage industries nearby EPZs to cater to the needs of industries within them. Many EPZ enterprises have shifted their manufacturing processes of part of a process outside EPZ under subcontracting.

The EPZs in Bangladesh have been instrumental in creating  salutary direct benefits in terms of flow of foreign investment, employment generation, export and foreign exchange  earnings, and value added. Limited indirect benefits in terms of technology  and skill transfer, and  linkages have taken place. Most important factors affecting the  success of the EPZs in  Bangladesh are : (i) the existing macroeconomic  policies affecting the EPZs (ii) a more or less realistic exchange rate and stable macroeconomic  environment, and (iii) low-cost labor.

A critical limitation of the EPZs is that they accommodate only the light industries with no room for heavy industries, which are the main vehicles of technology and skill transfer. EPZs are essentially an incomplete package in the overall industrialization process underlining the importance of interfacing the EPZ policies with the DTA policies in order to ensure synergic co-existence and growth of ether Wipes and the Data so that they can be made  mutually reinforcing in accelerating industrialization process and maximizing national benefits.