Foreign investment suffers blow as BEPZA suspends land allotment to 14 companies

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Sheikh Shahariar Zaman
Foreign investment in Bangladesh suffered a big blow after the authorities have ordered investors to suspend construction of plants in a 60-acre of land at the country's newest Karnaphuli Export Processing Zone.
The order issued late last month by the Bangladesh Export Processing Zones Authority (BEPZA) has left 14 foreign investors in a state of shock and created uncertainty over an investment of around $181 million.
It also sent a 'negative signal' to foreign investors who have been queuing in Bangladesh to relocate their factories at a time when the need for overseas investment is at its highest to stave off effect of the global economic recession.
"BEPZA informed us on March 28 to stop all construction work on the land and cancel import order of machinery," Golam Rahman Chowdhury, assistant managing director of Taiwan-based Tai Sheng furniture company told the FE.
"We have already invested a substantial amount on new plants and have even ordered import of machinery for our $32 million state-of-the-art furniture plant," he said.
In the letter, the BEPZA has cited 'unavoidable circumstances' for the suspension order, although sources blamed the food ministry's 'dogged demand to reclaim its lost property' behind the cancellation of land allotment.
The letter was sent after the BEPZA board of governors led by Prime Minister Sheikh Hasina on March 22 decided to return the land, formerly used as a central storage depot (CSD), back to the food ministry.
The sudden decision has affected nine investors from Taiwan, two from South Korea, one each from India, Sri Lanka and China, with most now threatening to pull out their investment.
Affected investors said the plants they were going to build at the transformed CSD land in Halishahar, Chittagong would have created jobs for at least 24,000 people by 2010 and export goods worth over half a billion dollar.
Chowdhury said his furniture company alone would have appointed about 7,000 people. "The company has planned to start its construction work next month but now everything becomes totally uncertain."
Another foreign investor said they are monitoring the situation and in close contact with BEPZA, ministries and trade bodies.
"We sent letters to Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), Metropolitan Chamber, American Chamber, foreign and industries ministries and Taiwan Trade Centre," he said.
"We have sought audience of the prime minister thrice, but could not get any appointment."
A senior official of BEPZA admitted that a crisis is brewing as six out of 14 companies affected by the government decision have already sought about $100 million worth of compensation.
"The total amount will be much higher and it will be extremely difficult for the government to pay the compensation," he said, adding the image of the country would be 'seriously tainted' if the companies withdraw their investment.
"Plots have been allotted and construction work has been started. At this stage if the government changes its decision to cancel the agreements, it will badly damage the credibility of the government," he explained.
"Foreign investors maintain good network and potential investors always seek information from existing investors, embassies or investment promotion bodies of their countries."
If the news is circulated, it would badly damage the prospect of wooing new foreign investment in the country, he added.
Eight of the companies are shoe or shoe accessories manufacturers who have brought in superior technology in footwear sector and each has long term agreement with top global footwear retailers.
"They have long term agreements with top global brands. Now if the deals are cancelled, they will face adverse impact in the future," said the BEPZA official.
The Halishahar CSD and along with 78 buildings and 60 acres of land was handed over to BEPZA in December 2006 to transform the area into an EPZ. The CSD had the capacity to store 85,000 tonnes of foodgrain but had rarely been used before the handover.
BEPZA demolished 68 unusable buildings and have spent Tk 33 million for infrastructure and another Tk 247 million development work is still going on.
It started signing lease agreements with foreign companies in 2008 and so far collected $0.23 million as security money and Tk 2 million as stamp duty from the investors.
A committee headed by industries secretary suggested in 2008 that it was not possible to return the land to the food ministry and advised the government to set up a food warehouse with 15,000 tonnes of capacity at Dewanghat in Chittagong.
To compensate the food ministry, the finance ministry has taken away Tk 3.00 billion from BEPZA's fund and earmarked the money for construction of a food warehouse at Dewanghat.