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An Internship Report

On

Diversification of Export and Significance Role of Export Processing Zones

(EPZ) in Bangladesh.

The study report is submitted to the Department of Business Administration,

University of Uttara, in partial fulfillment of the requirements for the

Degree of Master of Business Administration (Major in Marketing)

Md. Ashraful Kabir

DEPARTMENT OF BUSINESS ADMINISTRATION

UNIVERSITY OF UTTARA

JANUARY 2009

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An Internship ReportOn

Diversification of Export and Significance Role of Export Processing Zones

(EPZ) in Bangladesh.

The study report is submitted to the Department of Business Administration,

University of Uttara, in partial fulfillment of the requirements for the

Degree of Master of Business Administration (Major in Marketing)

Md. Ashraful Kabir

Submitted To Submitted ByMamun Abdul Kayeum Md.Ashraful Kabir

Asst. Professor & Coordinator BBA Program ID No. M20611131021School of Business EMBA (Major In Marketing)Uttara University Batch no. 9th

Dept. of Business AdministrationUttara University

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Dedicated

To my parentsMr. Enamul Kabir

AndMrs. Samsun Nehar

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Acknowledgement

Glory to be to Allah the almighty for his innumerable mercies at all time. I would

like to extent my sincere gratitude to the school of business, Uttara University for

providing a congenial working environment that made this internship report possible. I

acknowledgement indbtness to Momun Abdul Kayeum, Assistant Professor and

coordinator BBA program at the school of Business for his constructive comments and

unwavering guidance that made the compilation of this internship report possible. I am

indebted to my teachers at the Uttara University for their suggestion encouragement

regarding the writing of this internship report.I am thankful to all BEPZA officials of

Adamjee Export processing Zone (AEPZ) for furnishing me with necessary information,

data and reports etc, which were inevitable to complete my report. I owe special thanks to

my respectable Executive Chairman of BEPZA Br. Gen. Jamil Ahmed Khan, ndc, psc

whose moral support and encouragement provided a major service of inspiration to me

throughout the study.

Finally, I would like to bear responsibility of all errors, mistakes and lack of

Judgments that I have committed Unintentionally.

Md. Ashraful KabirMd. Ashraful Kabir

Department of Business AdministrationUttara UniversityDhaka.

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Content

Acknowledgement

Executive Summary

List of Abbreviations and Acronyms

List of Figures

Chapter One : Introductory Part

1. Introduction 01

2. Background of the study 02

3. Objective of the report 02

4. Significance of the study 02

5. Methodology1.1 Source of data1.2 Primary data1.3 Secondary data1.4 Limitation of the report

0202030303

Chapter Two : Organization Part

1. Historical Background 04

2. Objectives 04

3. About EPZ 04

4. Organogram 05

5. Economic Profile

1.1 Industry1.2 Agriculture1.3 Services1.4 Investment & Savings

06

06060607

Chapter Three : Export Performance and Product Line

1. Export Performance1.1 Textile

1.1.1 Sector Highlight1.1.2 Industry Background and Status1.1.3 Industry Outlook1.1.4 Investment Opportunities

1.2 Frozen Foods1.2.1 Sector Highlight1.2.2 Industry Situation

1.3 Information Technology1.3.1 Sector Highlight1.3.2 Industry Status

1.4 Ceramic1.4.1 Sector Highlight

080909091011

1111111212131313

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1.4.2 Industry Status 13

Chapter Four : Export Diversification in EPZ

1. Product wise Export During pro-liberation period1.1 Major Primary Commodities1.2 Major Manufacture Commodities

151517

2. EPZs of Bangladesh2.1 Theory of EPZ

1819

3. Economic Rationale for a better export performance of Zone3.1 Mode of Investment3.2 Investment

191921

4. Comparative Analysis on Investment4.1 National4.2 International

232323

5. Export 24

6. Productivity Performance of EPZ Workers 26

7. Export Performance on Investment 27

8. Brand Product 28

9. Diversification of Export 28

10. Development of Linkage Industries in DTA 28

11. Cumulative Performance 29

12. Performance Factor12.1 Infrastructure Facilities12.2 Why Infrastructure Needed

303031

13. Public Sector Investment in Development of EPZs 33

Chapter Five : Prospects & Constraint of EPZs1. Prospect & Constraint 35

2. Policy Concessions1.1 Incentives (Fiscal)1.2 Incentives (Non-Fiscal)1.3 Regulatory Streamline1.4 Technology Transfer1.5 Skill Transfer

363636373738

2. Economic Contribution2.1 Annual Economic Benefit

3939

3. Special Economic Zone 40Chapter Six : Conclusion & Comments 41

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LIST OF FIGURELIST OF FIGURE

Figure 1: Contribution of broad sector in GDP of 2004-05

Figure 2: Bangladesh Export by major products

Figure 3: Growth of RMS Exports from Bangladesh (1981-82 to 2004-05)

Figure 4: Frozen food Exports from Bangladesh

Figure 5: Growth of Ceramic Tableware Exported from Bangladesh

Figure 6: Primary commodities- Export from Bangladesh

Figure 6 (a) : Primary commodities- Export Growth (Million US$)

Figure 7: Manufactured commodities export from Bangladesh

Figure 8: Manufactured commodities-Export Growth (Million US$)

Figure 9: Year-wise Export During pro-liberation period

Figure 10: Type of Industries

Figure 11: EPZs of BangladeshFigure 12: Extended Sectoral Distribution of FDI during 2004

Figure 13: Total cumulative investment and employment and growth

rates in 1983-2003

Figure 14: BEPZAs contribution towards total national Export

Figure 15: Productivity performance 2004-2005

Figure 16: Export Performance on Investment

Figure 17: Performance of EPZ

Figure 18: Zone-wise aggregate performance

Figure 19: Cost of establishment of EPZs up to June, 1998

Figure 20: Fiscal incentives provided by BEPZA

Figure 21: Non-Fiscal incentives provided by BEPZA

Figure 22: Annual Economic benefit for the years 2003-2004 and 2004-

2005

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Executive Summery

Zoning system industrialization in the developing world such as Bangladesh is

very effective. The performance of Export Processing Zones, specific geographical areas

that have economic laws different from and more liberal than a country's typical

economic laws to attract foreign direct investment (FDI) in Bangladesh is satisfactory.

The report is expected to reveal that the number of export items has been

diversified and its volume has been enhanced after establishing export processing zones

in Bangladesh and implementing new policy for foreign private investment (Promotion &

Protection).

The concept of EPZ is not new, but it has been initiated in Bangladesh only two

and half decade back. In the mean time, EPZ has remarkably succeeded in diversification

of export. In a word, EPZ is a success story in Bangladesh. As a part of my EMBA

program, I attached to the Investment Promotion department of Bangladesh Export

Processing Zones Authority.

Bangladesh Export Processing Zones Authority, a statutory body of the

government promotes local & foreign direct investment. Investment Promotion is the

core department of the Authority which deals with investment, export, import and other

related activities. For analysis, emphasis has been given on both primary and secondary

data in preparing report, though primary data has been collected through interview in

order to realize the practical view of the procedure. The project analysis has guided to

fulfill the objective of the report.

Investment Promotion department of BEPZA comprises of five sections-

Investment Promotion, Enterprise Services, Commercial Operation, Industrial Relations

and Public Relations. Investment Promotion department accumulates all the information

of investment, export & import and other in a single database with the help of MIS

department. I collected almost information from MIS department. I also collected

information from Bangladesh Bank, Board of Investment and Export Promotion Bureau,

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Bangladesh. In my report, I tried to explain the share of export from EPZs in the national

export and the diversification trend of export after establishment EPZ.

In my findings, I tried to represent my best despite some limitations like shortage

of time, inaccessibility to different concerned Department and Ministries and working

pressure in my office. As a result, there may be some short fall in data collection and so

analysis.

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List of Abbreviations And Acronyms

BEPZA Bangladesh Export Processing Zones Authority.

EPZ Export Processing Zone.

GDP Gross Domestic Product.

EPB Export Promotion Bureau.

IT Information Technology.

GSP Generalized System of Preference.

EU European Union.

MFA Multi Fiber Arrangement.

RMG Ready Made Garments.

BOI Board of Investment.

FDI Foreign Direct Investment.

DTA Domestic Tariff Area.

SEZ Special Economic Zone.

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Chapter One: Introductory Part

1. Introduction:

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 70s 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 80s 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 70s 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

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to the individual businessmen. Bangladesh EZP ensures this institutional support to the

potential business entrepreneurs.

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2. Background of the Study :

This study is made to fulfill the partial requirement of the MBA program. As the internee

assigned in the BEPZA, during the internship period, practical knowledge has been

gathered on the sector and on the roles of EPZs on diversification of export.

3. Objectives of the Report :

The contusive aim of my research is to evaluate the roles of EPZs on diversification of

export in Bangladesh. Regarding this we will observe that how EPZs play the role on

diversification of export companied to the industries established outside of EPZ.

4. Significance of the Study :

No any significant internship report has not been conducted on Diversification of Export

and significance role of Export Processing Zones (EPZ) in Bangladesh. Which has started

in 1980-81 economic years. There are various articles and statement are published in

various newspaper on EPZ but not the over all assessment or internship report on

Diversification of Export and significance role of Export Processing Zones (EPZ) in

Bangladesh Topic. But it is very much essential to evaluate this topic to planning export

policies and export promotion too. So this report is very significant.

5. Methodology :

The proposed study will be constructed through an exploratory research. Various aspects

of research methodology are given below :

5.1 Source of data :

In my research I used both Primary and secondary data to making the report though more

emphasis was given on secondary source of data in order to carry out the objectives of the

report.

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5.2 Primary data :

Primary data has been collected through interviewing the officials of BEPZA, and

customs.

5.3 Secondary data :

For secondary sources of data, www.epzbangladesh.org.bd & infromation for were used.

5.4 Limitation of the Report :

I tried to represent my best despite some limitations like shortage of time,

inaccessibility to different concerned Department and Ministries and working pressure in

my office. As a result, there may be some short fall in data collection and so analysis.

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Chapter Two: Organization Part

1. Historical Background:

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.

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

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 custom officials (World Bank 1999). EPZ Provides:

Plots/factory BLDG in custom bonded area

Infrastructural facilities

Administrative facilities

Fiscal & non-fiscal incentives

EPZ attracts: foreign & local investment

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4. Organogram:ORGANOGRAM

Bangladesh Export Processing

Zones Authority (BEPZA)

ExecutiveChairman

GM(IEPZ, MonE

UEPZ)C Class E

Member(IP)

Member(Engineer)

Member(Finance)

GM (MIS)GM(Security)

ecretary GM(DEPZ, CEPZ)A Class EPZ

GM(ComEPZ,

AEPZ, KEPZ)B Class EPZ

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5.Economic Profile:

It reveals from the Economic Profile of Bangladesh that last years GDP was

recorded at US$ 61.41 billion with 5.40% annual growth.

5.1 Industry:

GDP growth of broad Industry sector was 8.43% in the last year compared to

7.10% in the preceding year. The performance of the industrial sector was mainly based

on the growth in textile and wearing apparel, drugs and pharmaceuticals, fertilizer,

petroleum products, glass products, cement, electronics, footwear, and food and beverage

industries. In the last year the contribution of this sector in national income is 28.44%.

5.2 Agriculture:

Agriculture still holds an important position in the national economy creating

employment and increasing national income as a consequence. In the last year the

contribution of this sector in national income is about 21.91%. Growth in agriculture has

increased to 2.41%, which was 3.29% in the preceding year. Fish production in the last

year has increased by 5.03% and 3.6% in the preceding year. Food production during the

last year was about 30.05 million tons compared to 27.90 million tons in the preceding

year.

5.3 Services:

The service sector continued to the largest contributor to the countrys real GDP

growth in 2004-2005. The sector grew by 5.7% during the year, compared to 5.4% in

2003-2004 and contributed 49.65% to GDP growth. All sub-sectors shared in the overall

growth of the services sector activities, but relatively higher growth rates were registered

by education (7.66%), transport, storage and communication (6.64%), hotel and

restaurant (7.29%), financial services (6.77%), public administration and defense

(5.75%).

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5.4 Investment and savings:

Gross national savings during the year 2004-05 was 26.50% of GDP compared to

25.40% during the previous year. In the FY 2004-05 the rate of total investment was

23.14% of GDP in which the shares of public and private sector were 5.90% and 18.50%

respectively. Total investment registered by BOI was US$ 19,992 million out of which

US$ 8763 million was foreign investment. Investment registered with BEPZA was US$

987 million.

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Chapter Three: Export Performance and Product Line

1. Export Performance:

During 2004-05 export performance of Bangladesh raised upto US$ 8654.52

million (13.83% growth). Most contributors to the exportable items are RMG (Woven

Garments and Knitwear), Frozen food, Home textile, Computer Service, bicycle and

ceramic. Sector highlights of major exportable commodities are given hereunder:

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1.1 Textile:

Ready Made Garments, Textiles and Composite Textiles

1

2 1.1.1 Sector Highlights

The Ready Made Garment industry in Bangladesh accounts for more than 75% of

total exports.

Bangladesh is best placed in the region for textiles and garments because of low-

cost labor, preferential trade status and advantageous global market access.

Government incentives for the spinning and weaving industries include a 15%

cash subsidy of the fabric cost to exporters sourcing fabrics locally.

There is a huge fabric demand supply gap in the RMG industry which is being

met by imports. Thus, the potential for backward linkage industry is enormous.

3

4 1.1.2 Industry Background and Status

The phenomenal growth in RMG was experienced in the last decade. With about

2,600 factories and a workforce of 1.4 million, RMG jointly with knitwear accounted for

more than 70% of total investments in the manufacturing sector during the first half of

the 1990s. At present, number of RMG factories exceeded 3,000, employing over 50%

of the industrial workforce and having 75% of the total exports earning of the country.

FIG-2 shows the growth of RMG exports from Bangladesh since 1981-82.

[In million US$]

1

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1.1.3. Industry Outlook

Multi-Fiber Arrangement (MFA) and Generalized System of Preference

(GSP) of the EU are the main actors behind acquainting Bangladesh RMG

products to global market ensuring assured market access. Bangladesh is now a

significant RMG supplier to North America and Europe. Due to phasing out of

MFA, many are doubtful about Bangladeshs ability to maintain the fast growth

of the recent years in this sector. However, on a more positive note, Bangladesh is

expected to maintain its tariff-free access to EU under the European GSP, since

the GSP is not covered by the Uruguay Round Agreement. Recently, Canada has

also provided tariff-free access of all the items from Bangladesh.

Meantime, Bangladesh RMG industry has earned strong competitiveness as a

global standard RMG source. Marketing network has been spread over the

economics of the continents. End users could well recognize and differentiate the

products confidently.

Till today, Bangladesh RMG industry largely depends on the importedyarns and fabrics. Bangladesh produces only 10% of export-quality cloth used by

the garments industry. The need for establishment of backward-linkage industry

has become an immediate concern to the government and the exporters. There are

enormous opportunities in setting up composite textiles industry combining

textile, yarn and garments.

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1.1.4. Investment Opportunities

RMG and textile sectors have enormous investment opportunities.

Government provides highly favorable policy framework for investment in these

sectors. Investors have the following choices:

Establishment of new textile/RMG mill in the private sector.

Joint ventures with the existing textile / RMG mill.

Acquisition of public sector textile mills that are being privatized.

Indirect investment through financial services and /or leasing.

1.2 Frozen Foods

Frozen Shrimp, Frozen Fish, Other Items

1.2.1. Sector Highlights

Government is promoting semi-intensive shrimp farming.

Fish and prawn exports registered a modest growth in past decade.

Shrimp processing and export industry is largely dominated by the smaller

unorganized sector.

15% cash incentive is given to shrimp export amount.

1

2 1.2.2. Industry Situation

The frozen foods export is the second largest export sector of the country.

After some initial difficulties in terms of quality achievement, exporters have

earned credibility and trustworthiness in the global market. Assurance of reliable

and continued product quality is a major challenge in this sector. Technology

orientation, marketing perceptions, and quality improvement aspects invite

foreign investment in this sector.[In million US$]

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Fig 4: Frozen food Exports from Bangladesh

1.3. Information Technology

Data Processing, Software Development, Hardware Manufacturing

1 1.3.1. Sector Highlights

To instigate the IT industry robustly, deregulation of the telephone has

been decided and executed by mid 2003.

The extensive growth of mobile telephony resulted in significant

opportunities.

The industry is at its introductory stage and has opportunity of capitalizing

the potential.

Bangladesh has a well-educated, skilled, dedicated and growing IT

workforce.

There is a fast growing domestic market and export demand.

Strong research assistance from the universities and research institutionsare available.

Government is keen in establishing IT related infrastructure for the

development of the industry.

Connectivity with the information highway through submarine cable.

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2 1.3.2. Industry Status

IT & Hardware Import Policy

Export of Software, data processing, transcription etc.

1.4. Ceramic

Tableware, Sanitary ware, Insulator

1 1.4.1. Sector Highlights

Global market of ceramic tableware is about US$10 billion.

Bangladesh Ceramic tableware has a good reputation to the international

market like North America and EU countries.

Bangladesh has achieved technical expertise on ceramic tableware

manufacturing.

Historically, tableware industry is labor-intensive and Bangladesh has a

skilled manpower in ceramic industry.

Sanitary ware and insulator has also a domestic and international market

demand.

The clean gas reserve required for firing is a great competitive advantage

for Bangladesh.

1 1.4.2. Industry Status

A few ceramic table ware manufacturers dominate the industry producing

high quality products for the international brands. A pool of skilled manpower has

been developed. The latest technological advancements in ceramic are also

acquainted. Bangladesh produces high quality Bone China transferring the

technology from Japan. The domestic market is also attractive. Some low-quality

tableware are imported from mainly China to cater the demand of lower segment

of the domestic market.

[In million US$]

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Chapter Four: Export Diversification in EPZ

Since the economy of Bangladesh is agro-based, its export base was set on

primary commodities like raw jute, tea, frozen food, agro product etc.

1.Product-wise Export During pro-liberation Period:

1.1. Major Primary Commodities:

(Value in Million US$)

1972-73 1977-78 1982-83 1987-88 1992-93 1997-98 2004-05

1. Raw Jute 133.841 96.933 109.813 80.534 74.326 107.767 96.185

2. Tea 9.688 45.270 46.575 38.953 41.143 47.467 15.843

3. Frozen Food 3.061 19.448 72.054 139.651 165.340 293.836 420.744

4. Fish 1.414 .306 .894 3.717 5.687 6.510 7.840

5. Shark fins & Fish maws .021 .724 .747 1.494 3.667 2.378 .006

6. Agricultural products .713 3.865 7.016 19.094 14.528 39.137 82.468

7. Animal Feed .032 1.326 2.384 - - - -

8. Animal casings .011 .118 .191 .117 .092 .154 .002

9. Crude fertilizer .201 .391 .399 .066 1.623 .072 -

10. Other primary com. .678 1.686 3.090 2.465 7.502 4.597 25.201

Total Primary Com. 149.775 170.072 243.164 286.690 313.908 501.917 648.290

Fig 6: Primary commodities export from Bangladesh

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During last 33 years, average annual growth rate of primary commodity export

stands around 14% per annum. Prior to 1981-82, countrys major exportable

manufactured commodities were jute goods and leather. Since independence, average

annual growth rate of traditional jute goods comes at 2.62% and leather goods stands at

5.42%.

In late 70s, Bangladesh economy was opened for private sector investment.

Consequently, from 1981-82 Bangladesh started exporting Ready Made Garments

(RMG). At present, this item accounts for more than 75% of total export. During the last

24 years average annual growth rate of RMG product export comes at 268%. Moreover,

presently the country is exporting innumerable items under 27 major commodity head to

almost 200 countries of the world.

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1.2 Major Manufactured Commodities:(Value in Million US$)

1972-73 1977-78 1982-83 1987-88 1992-93 1997-98 2004-05

1. Jute Goods 179.257 249.006 319.692 302.415 292.370 281.425 307.477

2. Leather 16.182 45.378 58.456 147.170 147.906 190.260 220.933

3. Leather goods .018 .001 .001 - 10.724 48.106 -

4. Petroleum by Products - 11.656 30.833 11.975 36.806 10.927 35.080

5. Readymade garments - .069 10.842 433.924 1240.481 2843.327 3598.205

6. Knitwear .006 - - - 204.545 940.307 2819.472

7. Chemical products .06 .231 11.680 26.527 55.005 74.176 197.185

8. Paper and alliedproducts

3.054 8.668 4.628 11.873 2.631 .042 -

9. Handicrafts .039 1.761 2.479 3.756 5.431 5.995 5.125

10. Engineering products - .161 2.492 2.809 17.512 19.643 85.020

11. Specialized textile andHousehold linen

- - .625 .679 29.008 76.325 220.932

12. Molasses - .642 .631 .745 .226 - .087

13. Electronics - - - - 849 3299 22.400

14. Stainless steel cutlery - .001 .034 - .291 .434 -

15. Handloom products - - 2 - - - -

16. Glass Sheet - - 1 - - - -

17. Other mfd.commodities

.024 6.274 1.037 2.620 25.300 159.976 482.882

Total mfd. Commodities 198.642 323.669 443.432 944.511 2068.985 4659.285 8006.234

Fig 7: Manufactured commodities export from Bangladesh

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(Value in Million US$)

1972-73 1977-78

1982-83

1987-88 1992-93 1997-98 2004-05

Total PrimaryCommodities

(A)

149.775

170.072

243.164

286.690 313.908 501.917 648.290

TotalManufacture

dCommodities

(B)

198.642

323.669

443.432

944.511 2068.985

4659.285

8654.520

Grand Total(A+B)

348.417

493.741

686.596

1231.201

2382.893

5161.202

8654.524

Fig 9: Year-wise Export During pro-liberation Period

2.EPZs of Bangladesh:

18. In late 70s Bangladesh EPZ has emerged to attract capital investment in EPZ.

The manifested target to set up EPZ has been fixed up at rapid industrialization,

employment of human resources, transfer of technology and foreign exchange earning by

boosting up export. With this end in view, some targeted efforts have been taken to

attract foreign investment and promotion of exports through creation of special

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infrastructures and support service facilities, giving fiscal and non-fiscal incentives and

ensure free trade environment with the EPZ.

2.1 Theory of EPZ

An Export Processing zone is an industrial area that constitutes an enclave with

regard to customs tariffs and the commercial code in force in the host country.

3. 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.

3.1 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.

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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 thecountrys 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 an 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

started allotment of 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).

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Recently, two new EPZs has been declared; one at Adamjee Jute Mills area and

the other at Karnaphuli Steel Mills area.

3.2 Investment:

Despite world wide 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 October 2008 the investment stands at US$ 1487.35 million. The Detailed picture of

cumulative investment has been mentioned below:

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Cumulative investment up to October 2008 in EPZs in Bangladesh:

YEAR INV

($m)

1994-1995 35.93

Investment

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 55.612002-2003 102.63

2003-2004 115.04

2004-2005 118.52

2005-2006 112.89

2006-2007 152.37

2007-2008 302.19

2008-2009

(Oct,08)

52.90

TOTAL ACTUAL INVESTMENT= $ 1487.35 m

4.Comparative Analysis on Investment

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4.1 National

BOI conducted one FDI inflow survey during 2004 where it is revealed that

BEPZA alone shares 73.08% of total manufacturing FDI inflow in Bangladesh.

FDI Component BOIRegisteredIn million

US$

BEPZAIn million

US$

FinancialInst.

In millionUS$

TotalIn million

US$

BEPZAShare %

a.

Manufacturing

55.676 151.146 - 206.822 73.08

Textile 14.995 101.893 - 116.888 87.17

Chemical 19.681 27.642 - 47.323 58.41

Leather & Rubber 8.666 10.026 - 18.692 53.64

Agro-based 7.284 1.752 - 9.036 19.39

Food & Allied 3.212 - - 3.212 -Glass & Ceramics 1.28 - - 1.28 -

Printing & Publications 0.558 - - 0.558 -

Misc/NEC - 9.833 - 9.833 100

b. Service 374.252 0.354 66.518 441.124 0.08

Telecommunications 237.41 - - 237.41 -

Energy & Power 133.045 - - 133.045 -

Power Generation 15.676 - - 15.676 -

Oil, Gas, & Coal 117.369 - - 117.369 -

Other Services 3.797 0.354 66.518 70.669 0.5

Financial Institutions - - 66.518 66.518 -

Others 3.797 0.354 - 4.151 8.53

c. Engineering 0.771 12.089 - 12.86 94Total (a+b+c)` 430.699 163.589 66.518 660.806 24.76

Fig 12: Extended Sectoral Distribution of FDI during 2004

4.2 International:

Indian council for Research on International Economic Relations, Conducted a

study on comparative performance of EPZs in Bangladesh, India and Srilanka. This

working paper clearly reflects Bangladeshi EPZs is on the top in attraction of investment

and creation of employment.

Year Investment (Million $) Employment (Number)

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Sri Lanka Bangladesh India SriLanka

Bangladesh India

1978 20.9 5876 3300

1983 50.4(28.2)

0.9 24093(62.0)

624 13000(58.8)

1988 100.2

(19.7)

17.2

(362.2)

69.9 46104

(18.0)

4207

(114.8)

25625

(19.4)1993 221.6

(24.3)131.0

(132.3)84058(16.5)

26336(105.2)

45885(15.8)

1998 261.2(3.6)

391.8(39.8)

223.8(22.0)

91404(1.7)

84074(43.8)

77795(13.9)

2003 292.3(2.4)

749.1(18.2)

388.0(14.7)

104237(2.8)

144147(14.3)

88977(2.9)

*Source: Ministry of Commerce, Government of India; Mondel (2002).Bangladesh EPZ is on the top in attracting Investment and creation ofEmployment.

Fig 13: Total cumulative investment and employment and growth rates in 1983-2003

5. 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 17.88% in 2004-05. 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.

25. The enterprises of EPZs have exported goods worth of US$ 10,003.62 million up to June, 05

and it was US$ 4823.79 million till June 2001. During the last 4 years the export volume

increases to about US$ 5179.83 million. This shows an increase of 107.38%. The export earnings

from EPZs crosses billion dollar mark in the last four years. BEPZA represents average 18% of

total national export during the last four years.

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Subject: Total export figure of EPZ

TOTAL EXPORT: $17,211.62

m

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 1354.002004-2005 1548.68

2005-2006 1836.18

2006-2007 2063.67

2007-2008 2429.58

2008-2009

(Oct,08)

878.57

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Subject: BEPZAs contribution towards total national Export

Year Total export ofBangladesh (m US$)

Total export ofEPZs (m US$)

% of BEPZAscontribution (m US$)

1994-1995 3473 228 6.56

1995-1996 3882 337 8.681996-1997 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 8654 1548 17.88

2005-2006 10526 1836 17.44

2006-2007 12178 2064 17.00

2007-2008 14111 2429 17.22

Fig 14: BEPZAs contribution towards total national Export

6. Productivity Performance of EPZ Workers :

During 2004-2005 the export performance of EPZ workers in textile cluster

stands US $ 9952.00 per worker whereas export performance of one DTA worker in the

same sector recorded US $ 2886.43. Therefore, EPZ workers productivity performance

is 3.5 times than the DTA workers.

SECTOR DTA EPZ

EMPL(NOS.)

EXPORTUS$ m

EXP/EMPLUS$

EMPL(NOS.)

EXPORTUS$ m

EXP/EMPLUS$

TEXTILE CLUSTER 18,00,000

5195.595

2886.43 1,40,187

1395.195 9952.00

Total Export: Bangladesh $ 8.654b

100%

EPZ $ 1.548b

17.88%

RMG & Knit Export: Bangladesh $ 5.195b

100%

EPZ $ 1.395b

26.86%

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Fig 15: Productivity performance 2004-2005

* TEXTILE CLUSTER INCLUDES GARMENTS, KNIT & OTHER TEXTILE,

TEXTILE, TERRY TOWEL, GARMENTS ACCESSORIES, CAP, TENT

7. Export Performance on Investment:

EPZ enterprises derives highest dividend in terms of their investment. During

2004-2005 fiscal, average export performance of enterprises stands around 1.79 times of

their actual investment.

Sub: Export Performance on Investment:

SL PRODUCT UNIT INVESTM US$

ExportUS$

Exp PerM US$

Inv.

1 GARMENTS 42 222.921 698.15 3.13

2 TEXTILE 26 212.262 314.12 1.48

3 TERRY TOWEL 15 27.749 39.21 1.41

4 KNIT & OTHER TEXTILE 19 73.915 106.99 1.45

5 GARMENTS ACCS. 25 60.096 81.86 1.36

6 CAPS 7 37.548 99.67 2.65

7 TENT 4 21.71 55.22 2.54

8 ELEC & ELECTRONICS 12 48.807 45.58 0.93

9 FOOTWARE & LEATHER 12 50.08 46.67 0.93

10 METAL PRODUCT 11 18.287 13.95 0.76

11 PLASTIC GOODS 12 19.384 12.54 0.65

12 PAPER PRODUCT 2 0.776 0.84 1.08

13 FISHING REAL & GOLF 1 31.07 10.07 0.32

14 ROPE 2 5.913 5.39 0.91

15 SERVICE ORIENTEDINDUSTRIES

4 4.567 1.81 0.40

16 AGRO PRODUCT 10 2.786 7.12 2.56

17 MISCELLANEOUS 17 29.139 8.94 0.31

Gr. Total 221 867.01 1548.13 1.79

Fig 16: Export Performance on Investment

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8. Brand Products:

The enterprise are exporting world famous brand products like Nike, Reebok,

Lafuma, H & M (Sweden), GAP, J.C. Penny, Walmart, 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.

9. Diversification of Export:

Diversification of Bangladeshi export was started with RMG product in early 80s.

With the influx of FDI in EPZs, RMG sector gives a fresh thrust in boosting national export.

RMG and textile cluster alone represents 90% of EPZ export and 26% of national RMG

export in 2004-05. 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 countrys export basket. During the last four years

BEPZA has been maintaining a steady growth rate of national export.

10. Development of linkage industries in DTA:

One of the major activities of setting up EPZ is to encourage linkage industries

outside EPZ which will expedite establishment of industrial base in the DTA. EPZ

manufacturing units prompted establishment of multiple number of linkage industries in

DTA. During 2004-05 fiscal EPZ enterprises made export and import transaction with

DTA enterprises to tune of US $ 528.310 million. This huge volume of transaction with

DTA industries marked about 26% of export earnings by the EPZ enterprises during

2004-05.

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Apart from manufacturing activities private sector enterprises participation in

Banking, Insurance, C&F agent, courier, catering, sub-contracting, transporting,

container handling, cell phone operator, shopping mall, medical center, school, college

are being made in different EPZ.

It is expected that BEPZA will be able to attract private sector investment in

power, water generation and distribution, effluent treatment, telecom operator and

dormitory in EPZs.

(Value in Million US$)

PERFORMANCE 2002-03 2003-

2004

2004-2005

EXPORT 1200 1304 1541

PARTICULARS OF EXP. AMOUNT

%EXP.

AMOUNT

%EXP.

AMOUNT

%EXP.

WAGES 77 6.41 75 5.75 91 5.91

RENTAL 12 1 12 0.92 13 0.84

UTILITY 22 1.83 23 1.76 24 1.56

SV. CHARGE 52 4.33 54 4.14 65 4.22

DTA GOODS 315 26.25 360 27.60 392 25.44

ADMN. EXP. 33 2.75 33 2.53 42 2.73

TELE COM. 9 0.75 10 0.76 12 0.78

SURPLUS RETAINED BYLOCAL INVESTORS

17 1.42 18 1.38 35 2.23

TOTAL 537 44.75 585 44.86 674 43.71

Fig 17: Performance of EPZ

11. Cumulative Performance:

The following shows the cumulative performance of all the EPZs of Bangladesh.

It reveals from the record total number of industries in EPZs rose upto 337 with

cumulative investment of US$ 867.01, export US$ 10003.62 million and employment

upto 154,788.

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Zone-wise Performance (up to June 2005)EPZ Industry Investment (US

$ in M)Export (US $in M)

Employment(No)

In Op. (No) U/Impl.(No)

CTG 123 33 472.86 6028.50 94,419

DHK 76 27 359.41 3943.53 56,280

COM 09 22 30.31 14.91 2,814

MON 11 15 2.87 15.59 205

UTR 01 06 1.50 0.00 1,050

ISD 01 12 0.05 1.09 20

Adamjee - 01 - - -

Total 221 11

6

867.01 10003.62 1,54,788

Fig 18: Zone-wise aggregate performance

12. Performance Factor:

12.1. Infrastructure Facilities

The success stories of EPZs in different countries formed to be closely associated

with the physical facilities provided by them to the potential investors. Therefore, the

provision of creating infrastructure, buildings and ensuring public utilities to the investors

were planned in the early stage of Bangladesh EPZ.

Infrastructure Facilities1. Basic infrastructure: Electricity, gas, water, road, telecom, e-mail etc.

2. Fully serviced plots (Avg. size 2000 sqm)

3. Factory building available on rental basis.

4. Enclave for workers dormitory.

5. Godown available

6. Business support service: courier (DHL, FedEX), Banks, Police station, fire station, postoffice, C&F agent, shipping agent, MTO etc.

7. Administrative support service: shopping center, green area, daycare center, commissariat,health club, investors club, medical center, sports complex, accommodation for expatriates,school and college, public transport etc.

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Profile Of zone:

Zone area: 143.84 hectares (346.51 acres)

Number of industrial plots: 388

Size of each plot: 2000 sqm.

Tariff: US $ 2.20 /sqm /year.

Space of Standard Factory Building: 79843.19 sqm.

Tariff: US $ 2.75 /sqm /month.

Space of Warehouse: 2356 sqm.

Tariff: US $ 2.75 /sqm /month.

Fig: Partial Infrastructural view of Dhaka EPZ

Profile of Zone:

Zone area: 183.37 hectares (453 acres)

Number of industrial plots: 454

Size of each plot: 2000 sqm.

Tariff: US $ 2.20 / sqm / year.

Space of Standard Factory Building: 60912.77 sqm.

Tariff: US $ 2.75 / sqm / month.

Space of Warehouse: 2667.79 sqm.

Tariff: US $ 2.75 / sqm / month.

Fig: Partial Infrastructural view of Chittagong EPZ

12.2. Why infrastructure needed:

Bangladesh is a small country with huge population, where per capita land holding is

very minimal. Land title, acquisition and registration are cumbersome. Except costal area

and hilly land it is very difficult to get huge chunk of industrial land. Moreover,

investment friendly infrastructure for industrial operation is absent in the wider economy.

Considering these limitations the theory of EPZ was evolved in Bangladesh.

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If an entrepreneur wants to set up an industry around Dhaka or Chittagong city,

first of all he will have to find out some suitable Industrial land adjacent to that particular

city. Even if he does get the land of his choice then possibly he will have to negotiate the

purchase with more than one owner and thereby the cumbersome process begins.

Suppose, on completion of all formalities he managed to buy the land within one year

from the date of planning. Then he will have to wait for another year for the construction

of factory building and other infrastructures. Still, he will have to look for electricity,

water, gas or Telephone line connections. Before the utility connections given he will not

be able to start production. After long three years when he starts production possibly he

will find that his arranged market is lost. The present trend of global market economy is

changeable; therefore, the demand for any particular product in the market is very much

flexible. In this circumstances, only a very few lucky entrepreneurs can set up their

industries in conformity with the market demand. But major portion of intended

entrepreneurs lost their enterprising ability during the gap of planning and

implementation of the project. EPZ is an ideal place for these sorts of entrepreneurs. In

every EPZ there are fully serviced plots, ready made factory buildings, infrastructural

facilities and utility connections to meet the demand of every prospective investor.

Accordingly as per the theory of economics any production process involves four factors

viz land, labour, capital and entrepreneurship. Among these factors 1st three are almost

readily available in EPZs. In every EPZ plots are ready to be leased out, skilled and semi-

skilled laborers are very much available in EPZ area, the third one is banking facilities for

providing capital. Now only an entrepreneur having knowledge of business and

enterprising ability can set up production unit in EPZs with a shortest possible time.

Beyond creation of infrastructural facilities, BEPZA provides space to local and

foreign bankers, insurers, C&F agents, Freight Forwarder and Courier services to give

financial help and support services to the investors. Although, BEPZA has been

exempted from operation of number of Acts and ordinances, the authority of relevant

functionaries is applied by BEPZA in rational and adaptable ways. BEPZA officials

ensure smooth commercial, manufacturing and operational activities within the zone.

Investors clubs are also created within the zone for recreation of executives and

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expatriates. The Industrial Relation Department of every zone remains vigilant all around

to clench labour-management feud within the zone. EPZs in Bangladesh house mostly

labour-intensive industries with a view to employing unemployed manpower. The

Chemicals of all processing industries pose environmental hazards if not disposed of

properly. In two different EPZs of Chittagong and Dhaka, there is provision for disposal

of industrial waste. These would give more cost-effective options to the manufacturers

for recycling or remarking industrial by-product than those available to isolated plants.

In developing EPZs, BEPZA is totally dependent on Government fund to create

basic infrastructure like land purchase/development, construction of factory and service

buildings, road, drain etc. But due to resource constraint, Government normally does not

invest in hi-tech infrastructure like Central Effluent Treatment Plant, Water treatment

Plant, Electric Sub-station, Overpass, Digital ID Card etc. To enable healthy investment

climate in different EPZ, BEPZA have to create these infrastructure on priority basis.

Meanwhile, BEPZA made a request to the Government of Japan to provide financial

assistance for installation of above infrastructures. Japan Government agreed in principle

to provide DRGA Counter Part fund to install 5(Five) central Effluent Treatment Plant,

3(Three) Water Treatment Plant, 2(Two) Electric Sub-station and Female workers

dormitory in different EPZs. If this limited assistance can be lined up, obviously it will

reduce environmental hazard, improve power and water supply in some EPZs. Similar

assistance will be necessary for other EPZs also.

13. Public Sector Investment in development of EPZs :

The direct income of EPZ is negligible in comparison to overall economic benefit

of the country. The scenario of actual cost recovery in terms of investment is far behind

the book standard. Because, the capital recovery factor permits calculating what constant

annual payment would be necessary to repay capital invested over a given period of time

at a presumptive interest rate. But this formula cannot be applied in EPZ due to its

investment peculiarity. In every EPZ infrastructural facilities are made in uniform design

that serves the exclusive purpose of investors. Because of that more than thirty eight

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percent of Government investment in EPZ is made in non-income generating head of

expenditure which gives nil rate of return on investment. A pertinent question that can be

raised here Is whether the existing tariff rates of land or factory building could be raised

in order to bring about quick cost recovery. This can be seen in the light of tariff rates

prevailing in other EPZs of neighboring countries where such rates are reportedly similar

or little bit lower than our tariff rates. In these circumstances, if we try to recover our cost

by enhancing tariff rates, we may loose investment.

Slno.

Item CEPZ (inmillion US$)

DEPZ (inmillion US$)

Direct income generating

1. Land acquisition & Development 9.53 4.09

2. Factory building 3.93 4.663. Bay-shopping centre 0.53 0.07

4. Gas distribution network 0.26 0.52

5. Electricity distribution network 1.06 0.61

6. Water supply system 0.50

--------------- ---------------

15.81 9.95

Percentage of total investment 62% 62%

Non-income generating

1. Roads & drains 3.30 2.72

2. Office & enterprise service Bldg. 0.55 0.67

3. Residential Building 0.45 0.74

4. Investors Club 0.67 0.67

5. Custom, Police, Fire brigade equipmentstore, Health centre, Security etc.

0.43 1.34

6. Others 9.77 6.14

--------------- ---------------

25.58 16.09

--------------- ---------------

Percentage of total investment 38% 38%

Grand Total 11518.00 7244.00

Fig 19: Cost of establishment of EPZs up to June, 1998

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Chapter Five: Prospects & Constraint of EPZs

1. Prospects & Constraint:

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 2004-05 EPZ enterprises

made transactions with domestic industries to the tune of 26% 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 are developing 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 couldnt attract

considerable number of enterprises due to lack of urban facilities, residential

accommodation, educational institutions, hospitals, telecommunication facilities, hotel

and resort centers. Moreover, Export oriented industries outside EPZ enjoy more or less

same incentives still they could not do upto 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.

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2. Policy Concessions:

2.1 Incentives: Fiscal

To augment investment in EPZs, the government has declared a fiscal and non-

fiscal incentive scheme in the early stage of EPZ development.

Incentives - Fiscal1. Tax holiday for 10 years followed by 50% rebate on export sales.

2. Duty free import of const. materials, machinery/spare parts/equipments.

3. Duty free export and import.

4. Relief from double taxation.

5. Exemption from dividend tax.

6. GSP facility available.

7. Duty free import of 2 vehicles.

8. Expatriates exempted from income tax for 3 years.

9. Accelerated depreciation on machinery or plant allowed.

10.

Remittance of royalty, technical and consultancy fees allowed.

11.

Duty and quota free access to EU (EBA), Canada, Norway, Australia etcand USA under process.

Fig 20: Fiscal incentives provided by BEPZA

2.2. Incentives: Non-FiscalIncentives: Non-Fiscal

1

.

Investment protected under the Foreign Private Investment (Promotion and

protection) Act 19802.

100% foreign ownership permissible

3.

Enjoy MFN status.

4.

No ceiling on foreign investment.

5.

Full repatriation of Capital and dividend.

Fig 21: Non-Fiscal incentives provided by BEPZA

The above incentive scheme may need to be further broadened to compete with

the big industrial giant of far-east and western world. Despite limitations BEPZA has

been following an affirmative policy to nurture investment activities in EPZs. It creates

infrastructural facilities including buildings, utilities and warehouses. The office of

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BEPZA processes the application for setting up of industries, allot plot of land or

building space and sometime the investors are allowed to mortgage the building and

machinery for raising loan from financial institutions. The process of sanctioning takes

minimum span of time. Sometimes the EPZ officials haunt the prospective investors up to

their home countries. Almost every time they receive the investors in Airport and the

whole process from landing to sanction of industries is done by BEPZA officials

believing the doctrine of one window service.

40. Although policy concession is seems to be adhoc arrangement for rapid

industrialization but concessions have good impact on new investment and re-investment

of profit in new venture. Yet policy concession is considered as second agenda for

investment attraction.

2.3. 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.

2.4. 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

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help. In such industries, the direct transfer ofproduct and process technologies through

the EPZs has been very small, except in simple industries, such as RMG

2.5 Skill Transfer:

43. 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

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 that EPZs could serve as nurseries for the development of industrial skills are not

borne out by experience.

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3. Economic Contribution:

3.1. Annual Economic Benefit

BEPZA contributes as a multiplier of economic activities in Bangladesh. Havingidentified the elements relevant for estimation of benefits from EPZs, we have a rough

estimate of economic contribution of US $622.300 million to Bangladesh in 2004-2005

which is around 43.71% of the total export. Thus the foreign currency retention is

43.71%

(Value in Million US$)

PERFORMANCE 2002-03 2003-

2004

2004-2005

EXPORT 1200 1304 1541

PARTICULARS OFEXP.

AMOUNT %EXP.

AMOUNT

%EXP.

AMOUNT

% EXP.

WAGES 77 6.41 75 5.75 91 5.91

RENTAL 12 1 12 0.92 13 0.84

UTILITY 22 1.83 23 1.76 24 1.56

SV. CHARGE 52 4.33 54 4.14 65 4.22

DTA GOODS 315 26.25 360 27.60 392 25.44

ADMN. EXP. 33 2.75 33 2.53 42 2.73

TELE COM. 9 0.75 10 0.76 12 0.78

SURPLUS RETAINEDBY LOCAL

INVESTORS

17 1.42 18 1.38 35 2.23

TOTAL 537 44.75 585 44.86 674 43.71

For year 2003-2004 (Taka inCrore)

For year 2004-2005 (Taka inCrore)

Fig 22: Annual Economic benefit for the years 2003-2004 and 2004-2005

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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.

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.

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Chapter Six: Conclusion & Comments

1.Conclusion & Comments:

One of the basic elements critical for any export activity 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. In spite of same incentive scheme for EPZ enterprises and export oriented

industries of DTA the EPZ enterprises performing well due to adequate planned

infrastructures in EPZ area.

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 adhoc arrangement but 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.

For better export performance international market access of Bangladeshi product

is of prime important Bangladesh has got huge potential in respect of natural resources