export diversification and role of export processing zones (epz) in
TRANSCRIPT
Export Diversification and Role of Export Processing Zones (EPZ) in Bangladesh
(Text Document)
Prepared By
BRIG GEN MD. ZAKIR HOSSAIN psc, G (Retd) Executive Chairman
Bangladesh EPZ Authority, BEPZA
Export Diversification and Role of Export Processing Zones (EPZ) in Bangladesh
Prior to liberation of Bangladesh all the major industries of our country belonged to West
Pakistani entrepreneurs. Just after liberation all the medium and big size industries were
nationalized with a view to back up socialistic economic order, consequently the process of
creating individual industrial entrepreneurs came to a halt. In late 70’s the economic theme of
Bangladesh started to revert back from state ownership to individual ownership. But the
process of transition to new economic system was not backed up by specific rules and
regulations, institutional arrangement and state sponsorship. As a result, the process of
growing individual entrepreneurship could not be accelerated. Till the middle of 80’s maximum
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 disinvestment 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.
2. In late 70’s when individual ownership economy revived in our country EPZ was created to
attract capital investment, employment generation and rapid industrialization. As a matter of
fact the main objective of setting up EPZ is to create individual industrial entrepreneurs and
thereby to achieve the other objectives. The economy of Bangladesh is basically agro-based.
The habitants of agro-based economy are generally remains habituated in a riskless life. In
other way, business investment particularly industrial investment brings solvency and
dynamism in human life but it is risky and hazardous. Therefore, to create industrial
entrepreneurs some institutional support must be extended to the individual businessmen.
Bangladesh EZP ensures this institutional support to the potential business entrepreneurs.
Economic Profile: 3. It reveals from the Economic Profile of Bangladesh that last year’s GDP was recorded at
US$61.41 billion with 5.40% annual growth.
4. 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
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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. Agriculture:
Agriculture still holds an important position in our national economy in creating
employment and increasing national income. In the last year the contribution of this sector in
national income is about 21.91%. Growth in agriculture has increased to 2.41%. Growth during
the year preceding year was 3.29%. Fish production in the last year has increased by 5.03%.
Growth in the sector during the preceding year was 3.6%. Food production during the last year
was about 30.05 million tons compared to 27.90 million tons in the year preceding year.
6. Services:
The service sector continued to the largest contributor to the country’s 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%).
Service, 49.65%
Agriculture, 21.91%
Industry, 28.44%
Fig 1: Contribution of Broad Sector in GDP of 2004-05
7. 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 made by in the EPZs was US$ 987 million.
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Export Policy: 8. Export policy has been liberalized by the Government of the People’s Republic of Bangladesh
in order to keep pace with the present globalization system under WTO rules. The objectives of
the Export Policy are:
Capacity building of export related institutions like EPB (through its reorganization to
enhance institutional efficiency), BEPZA, Customs department, Land and Seaports,
Fisheries department, BSTI, Tea board and Trade bodies;
Product diversification;
Develop product quality and design and production of high value products;
Adopt new strategies for expanding export products, ensure good use of IT or computer
technology, E-commerce and other technologies;
Develop necessary infrastructures and in required cases backward and forward linkage
industries to ensure production of maximum volume of exportable items;
Create new exporters and provide all assistance to existing exporters and develop a
business friendly environment;
Develop expert manpower on trade; and
Equip trade bodies, businessmen and concerned people with necessary knowledge on
systems of world trading.
9. Use of Foreign Currency:
The exporters can deposit a certain amount of their export earning in foreign currency
under a retention quota in their foreign currency account in the form of US dollar, Pound,
Sterling, Japanese yen or Euro. The amount of retention (in terms of percentage) will be fixed
by the government/Bangladesh Bank. This foreign currency can be used to fulfill real business
needs like business trips abroad, participation in export fair or seminars in foreign countries,
import of raw materials and spare parts and setting up office abroad. Presently 10% has been
fixed for lower value added products (like RMG, petroleum by products, Naphtha, furnace oil
etc.) and 50% for high value added products (like Computer software and data entry/processing
service etc.)
GSP
10. Generalized System of Preferences (GSP) is a preferential treatment of tariff facilities (by
way of reduced or duty free tariff rates) which is granted by the industrially Developed
countries to the eligible products imported from Developing or Least Developed Countries. In
fact this is an international trade instrument of the developed countries to promote the
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development of developing and least developed countries. The scheme is non-reciprocal and
non-discriminatory system of preferences. The objectives of the GSP scheme are:
a. To increase export earnings of the preference receiving countries;
b. To promote their industrialization and
c. To accelerate their economic growth.
The original six member states of the EEC implemented the first full-fledged GSP scheme in
July, 1971. Norway introduced the GSP scheme in October, 1971. Japan followed it a month
later. Denmark, Finland, Ireland, New Zealand & Sweden implemented the scheme in January,
1972. Switzerland & Austria followed shortly thereafter. USA as late entrant to the scheme
implemented the same in 1976. As on today 36 developed countries are offering GSP facilities
to all the developing and LDC countries of the world. Bangladesh being a beneficiary of the
scheme has been enjoying this facility since the inception of all the schemes.
The current GSP scheme of EU is in effect since 1995. Bangladesh as an LDC is enjoying
the GSP facilities. 36 countries including European Union members are providing GSP facilities
to Bangladesh.
New GSP Scheme of EU:
With a view to encourage greater co-operation, EU member-states have recently adopted the
new preferential market access system, which is the new GSP scheme.
The reform of the GSP scheme will make the EU’s system of preferential market access
simpler and fairer then before. The new GSP scheme as a whole will be in operation from 1st
January, 2006. The application of the new GSP plus incentive system will grant additional
preferences to vulnerable developing and LDC countries that pursue good governance and
sustainable economic development policies will be on fast track.
Export Performance: 11. 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:
5
11.22%
0.21%
46.53%
28.25%
5.13%
3.24%
2.78%
1.59%
1.05%
Woven garmentsKnitwearFrozen foodJute goodsLeatherChemical productsRaw juteTeaOthers
Fig 2: Bangladesh Export by Major Products
12. Textile:
Ready Made Garments, Textiles and Composite Textiles
a. 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.
b. 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
1990’s. 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$]
6
64185787
7131
1064
25473001
3783 40204352
4860 4584 4912
0
1000
2000
3000
4000
5000
6000
7000
1981
/82
1985
/86
1991
/92
1995
/96
1996
/97
1997
/98
1998
/99
1999
/200
0
2000
/01
2001
/02
2002
/03
2003
-04
2004
-05
Fig 3: Growth of RMS Exports from Bangladesh (1981-82 to 2004-05)
c. Industry Outlook
Multi-Fiber Agreement (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 Bangladesh’s 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 imported yarns 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.
d. Investment Opportunities
7
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.
13. Frozen Foods
Frozen Shrimp, Frozen Fish, Other Items
a. 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.
b. 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$]
1991/92 1995/96 1999/2000 2000/01 2001/02 2002/03 2003/04 2004/05
142 314 344 363 276 322 383 421
8
Fig 4: Frozen food Exports from Bangladesh
14. Information Technology
Data Processing, Software Development, Hardware Manufacturing
a. 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 institutions are
available.
Government is keen in establishing IT related infrastructure for the development
of the industry.
Connectivity with the information highway through submarine cable.
b. Industry Status
IT Hardware Import Policy
Export of Software, data processing, transcription etc.
15. Ceramic
Tableware, Sanitary ware, Insulator
a. Sector Highlights
Global market of ceramic tableware is about US$10 billion.
Bangladesh Ceramic tableware has a good reputation to the international market
like North America and EU countries.
Bangladesh has achieved technical expertise on ceramic tableware
manufacturing.
Historically, tableware industry is labor-intensive and Bangladesh has a skilled
manpower in ceramic industry.
Sanitary ware and insulator has also a domestic and international market
demand.
The clean gas reserve required for firing is a great competitive advantage for
Bangladesh.
b. Industry Status
9
A few ceramic table ware manufacturers dominate the industry producing high quality
products for the international brands. A pool of skilled manpower has been developed.
The latest technological advancements in ceramic are also acquainted. Bangladesh
produces high quality Bone China transferring the technology from Japan. The domestic
market is also attractive. Some low-quality tableware are imported from mainly China
to cater the demand of lower segment of the domestic market.
[In million US$]
29.47
23.65
18.8217.519.07
9.4610.0210.86
14.2111.32
8.49
0
5
10
15
20
25
30
35
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/200
0
2000
/01
2001
/02
2002
/03
2003
/04
2004
/05
Fig 5: Growth of Ceramic Tableware Exported from Bangladesh
Export Diversification: 16. 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.
Product-wise Export During pro-liberation Period:
A. Major Primary Commodities:
(Value in Million US$)
1972-73
1977-78
1982-83
1987-88
1992-93
1997-98
2004-05
1. Raw Jute 133.841 96.933 109.813 80.534 74.326 107.767 96.185
2. Tea 9.688 45.270 46.575 38.953 41.143 47.467 15.843
3. Frozen Food 3.061 19.448 72.054 139.651 165.340 293.836 420.744
4. Fish 1.414 .306 .894 3.717 5.687 6.510 7.840
5. Shark fins & Fish maws .021 .724 .747 1.494 3.667 2.378 .006
10
6. Agricultural products .713 3.865 7.016 19.094 14.528 39.137 82.468
7. Animal Feed .032 1.326 2.384 - - - -
8. Animal casings .011 .118 .191 .117 .092 .154 .002
9. Crude fertilizer .201 .391 .399 .066 1.623 .072 -
10. Other primary com. .678 1.686 3.090 2.465 7.502 4.597 25.201
Total Primary Com. 149.775 170.072 243.164 286.690 313.908 501.917 648.290
Fig 6: Primary commodities export from Bangladesh
648.29
501.917
313.908286.69
243.164
170.072149.775
0
100
200
300
400
500
600
700
1972-73 1977-78 1982-83 1987-88 1992-93 1997-98 2004-05
Fig 7: Primary commodities – Export Growth (Million US$)
During last 33 years, average annual growth rate of primary commodity export stands
around 14% per annum. Prior to 1981-82, country’s 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%.
17. In late 70’s, 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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B. Major Manufactured Commodities:
(Value in Million US$)
1972-73
1977-78
1982-83
1987-88
1992-93
1997-98
2004-05
1. Jute Goods 179.257 249.006 319.692 302.415 292.370 281.425 307.477
2. Leather 16.182 45.378 58.456 147.170 147.906 190.260 220.933
3. Leather goods .018 .001 .001 - 10.724 48.106 -
4. Petroleum by
Products - 11.656 30.833 11.975 36.806 10.927 35.080
5. Readymade
garments - .069 10.842 433.924 1240.481 2843.327 3598.205
6. Knitwear .006 - - - 204.545 940.307 2819.472
7. Chemical products .06 .231 11.680 26.527 55.005 74.176 197.185
8. Paper and allied
products 3.054 8.668 4.628 11.873 2.631 .042 -
9. Handicrafts .039 1.761 2.479 3.756 5.431 5.995 5.125
10. Engineering
products - .161 2.492 2.809 17.512 19.643 85.020
11. Specialized textile
and Household linen
- - .625 .679 29.008 76.325 220.932
12. Molasses - .642 .631 .745 .226 - .087
13. Electronics - - - - 849 3299 22.400
14. Stainless steel
cutlery
- .001 .034 - .291 .434 -
15. Handloom
products
- - 2 - - - -
16. Glass Sheet - - 1 - - - -
17. Other mfd.
commodities
.024 6.274 1.037 2.620 25.300 159.976 482.882
Total mfd.
Commodities 198.642 323.669 443.432 944.511 2068.985 4659.285
8006.234
Fig 7: Manufactured commodities export from Bangladesh
12
8006.234
4659.285
2068.985
944.511443.432323.669198.642
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1972-73 1977-78 1982-83 1987-88 1992-93 1997-98 2004-05
Fig 8: Manufactured Commodities – Export Growth (Million US$)
(Value in Million US$)
1972-73
1977-78
1982-83
1987-88
1992-93
1997-98
2004-05
Total Primary
Commodities (A) 149.775 170.072 243.164 286.690 313.908 501.917 648.290
Total Manufactured
Commodities (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
EPZs of Bangladesh: 18. In late 70’s 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 infrastructures and support service facilities,
giving fiscal and non-fiscal incentives and ensure free trade environment with the EPZ.
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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.
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 and red tape free
business environment.
19. 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) are allowed in the EPZs.
Type - B
Type - C
Type - A
Fig 10: Type of Industries
20. 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 has decided to establish the
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country’s second EPZ at Savar near Dhaka a decade later in 1993. In view of the growing
demand of the investors the government has established 4 new EPZs one at Mongla, a southern
port city of Bangladesh, one at Comilla, situated in 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).
Recently, two new EPZs has been declared; one at Adamjee Jute Mills area and the
other at Karnaphuli Steel Mills area.
Fig 11: EPZs of Bangladesh
Investment: 21. 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 June-2005 the
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investment stands at US$ 867.01 million. The volume of investment has increased to US$ 391.81
million with a growth ratio of 82.45%.
Comparative Analysis on Investment
22. 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 BOI Registered
In million US$
BEPZA
In million US$
Financial Inst.
In million US$
Total
In million US$ BEPZA Share %
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 94
Total (a+b+c)` 430.699 163.589 66.518 660.806 24.76
Fig 12: Extended Sectoral Distribution of FDI during 2004
16
23. 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.
Investment (Million $) Employment (Number)
Year Sri Lanka Bangladesh India Sri Lanka Bangladesh India
1978 20.9 5876 3300 1983 50.4
(28.2) 0.9 24093 (62.0) 624 13000
(58.8) 1988 100.2
(19.7) 17.2
(362.2) 69.9 46104 (18.0)
4207 (114.8)
25625 (19.4)
1993 221.6 (24.3)
131.0 (132.3) 84058
(16.5) 26336 (105.2)
45885 (15.8)
1998 261.2 (3.6)
391.8 (39.8)
223.8 (22.0)
91404 (1.7)
84074 (43.8)
77795 (13.9)
2003 292.3 (2.4)
749.1 (18.2)
388.0 (14.7)
104237 (2.8)
144147 (14.3)
88977 (2.9)
*Source: Ministry of Commerce, Government of India; Mondel (2002). Bangladesh EPZ is on the top in attracting Investment and creation of Employment.
Fig 13: Total cumulative investment and employment and growth rates in 1983-2003
Export:
24. Bangladesh has achieved phenomenal export success through the EPZs. In the total foreign
exchange earnings of the country through exports, the share of EPZs increased from a
microscopic low of 0.02% in 1983-84 to a spectacular high of 17.88% in 2004-05. The share of
EPZs in the foreign exchange earnings through the exports of manufactured goods also shows
the same trend over the corresponding period reflecting fast decline in the relative share of
the DTA in both total exports and the exports of manufactured goods and the resulting foreign
exchange earnings of the country. Annual trend rate of growth of export earnings of the EPZs
has been more than six times higher than that of total national export earnings and more than
four times higher than that of total national export earnings from manufactured goods. It
means that export performance of the EPZs is much more impressive than that of the country
as a whole.
17
25. The enterprises of EPZs have exported goods worth of US$ 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.
Year Total export of
Bangladesh (m US$)
Total export of EPZs
(m US$)
% of BEPZA’s
contribution (m US$)
1994-1995 3473 228 6.56
1995-1996 3882 337 8.68
1996-1997 4418 463 10.48
1997-1998 5161 636 12.32
1998-1999 5313 712 13.40
1999-2000 5752 891 15.49
2000-2001 6467 1068 16.51
2001-2002 5986 1077 18.00
2002-2003 6548 1200 18.33
2003-2004 7603 1354 17.80
2004-2005 8654 1548 17.88
Fig 14: BEPZA’s contribution towards total national Export
18
26. 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 worker’s productivity performance is 3.5 times than the DTA workers.
DTA EPZ
SECTOR EMPL
(NOS.)
EXPORT
US$ m
EXP/
EMPL
US$
EMPL
(NOS.)
EXPORT
US$ m
EXP/
EMPL
US$
TEXTILE
CLUSTER 18,00,000 5195.595 2886.43 1,40,187 1395.195 9952.00
Bangladesh $ 8.654 b 100% Total Export:
EPZ $ 1.548 b 17.88%
Bangladesh $ 5.195 b 100% RMG & Knit Export:
EPZ $ 1.395 b 26.86%
* TEXTILE CLUSTER INCLUDES GARMENTS, KNIT & OTHER TEXTILE, TEXTILE, TERRY TOWEL,
GARMENTS ACCESSORIES, CAP, TENT
Fig 15: Productivity performance 2004-2005
19
27. 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.
SL PRODUCT UNIT INVEST
M US$
Export
US$
Exp Per
M 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 ORIENTED
INDUSTRIES 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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28. 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.
29. Diversification of Export:
Diversification of Bangladeshi export was started with RMG product in early 80’s. With
the influx of FDI in EPZs, RMG sector gives a fresh thrust in boosting 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 country’s
export basket. During the last four years BEPZA has been maintaining a steady growth rate of
national export.
30. 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.
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.
21
(Value in Million US$)
PERFORMANCE 2002-03 2003-2004 2004-2005
EXPORT 1200 1304 1541
PARTICULARS OF EXP. AMOUNT % EXP. AMOUNT % EXP. AMOUNT % EXP.
WAGES 77 6.41 75 5.75 91 5.91
RENTAL 12 1 12 0.92 13 0.84
UTILITY 22 1.83 23 1.76 24 1.56
SV. CHARGE 52 4.33 54 4.14 65 4.22
DTA GOODS 315 26.25 360 27.60 392 25.44 ADMN. EXP. 33 2.75 33 2.53 42 2.73
TELE COM. 9 0.75 10 0.76 12 0.78 SURPLUS RETAINED BY
LOCAL INVESTORS 17 1.42 18 1.38 35 2.23
TOTAL 537 44.75 585 44.86 674 43.71
31. Cumulative Performance:
The following shows the cumulative performance of all the EPZs of Bangladesh. It reveals from
the record total number of industries in EPZs rose upto 337 with cumulative investment of US$
867.01, export US$ 10003.62 million and employment upto 154,788.
Zone-wise Performance (up to June 2005) Industry EPZ
In Op. (No) U/Impl. (No)
Investment
(US $ in M)
Export
(US $ in M)
Employment
(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 221 116 867.01 10003.62 1,54,788
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Fig 18: Zone-wise aggregate performance
Performance Factor: 32. 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 Facilities
1.
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, post
office, 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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Fig: Partial Infrastructural view of Dhaka EPZ
24
Fig: Partial Infrastructural view of Chittagong EPZ
33. 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.
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
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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.
34. 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 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.
35. 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
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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.
36. 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 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.
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Sl no. Item CEPZ (in million US$) DEPZ (in million US$)
Direct income generating
1. Land acquisition & Development 9.53 4.09
2. Factory building 3.93 4.66
3. 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 equipment store, 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: Investment in EPZs up to June, 1998
37. Prospect and 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
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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 couldn’t 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.
Policy Concessions: 38. 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 - Fiscal
1.
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.
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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 etc and USA under
process.
Fig 20: Fiscal incentives provided by BEPZA
39. Incentives: Non-Fiscal
Incentives: Non-Fiscal
1. Investment protected under the Foreign Private Investment (Promotion and protection)
Act 1980
2. 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 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.
41. 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
30
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.
42. Technology Transfer:
Technology transfer or spillover constitutes one of the most important dynamic effects
expected of foreign investment. The field survey reveals that in a relatively simple industry
with no proprietary technology, such as RMG and footwear, technology transfer takes place
readily both inside and outside the EPZs, though on a very limited scale. The transfer is from
foreign technicians and managers working together on factory floors, from foreign buyers to
local firms, and through consultants, movement of employees, visits to plants abroad, and so
forth. But in industries, such as electronic components, with internationally established firms
resist challenging, fast-changing, and largely proprietary technology, transfer of technology to
Bangladesh is very limited. In any case, firms in Bangladesh are not capable of mounting a
competitive challenge without a lot of help. In such industries, the direct transfer of product
and process technologies through the EPZs has been very small, except in simple industries,
such as RMG
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
31
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.
Economic Contribution: 44. Annual Economic Benefit
BEPZA contributes as a multiplier of economic activities in Bangladesh. Having identified 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 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 BY
LOCAL INVESTORS 17 1.42 18 1.38 35 2.23
TOTAL 537 44.75 585 44.86 674 43.71
WAGES RENTALUTILITYSV. CHARGEDTA GOODSADMN. EXP.TELE COM.
WAGES RENTALUTILITYSV. CHARGEDTA GOODSADMN. EXP.TELE COM.
32
For year 2003-2004 (Taka in Crore) For year 2004-2005 (Taka in Crore)
Fig 22: Annual Economic benefit for the years 2003-2004 and 2004-2005
Special Economic Zone – enlarged version of EPZ 45. 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.
Conclusion 46. 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.
33
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, skilled
manpower and investment friendly atmosphere. Development partners should come forward to
find market for Bangladeshi products in the developed countries.
------ X ------
34