Economic zones in Bangladesh

Ferdaus Ara Begum The concept of special economic zones (SEZs) is not new in the world. In 1980 China established SEZs, which have gained worldwide popularity in recent years. Bangladesh is a late starter while countries that have already become successful by utilising the economic zones are India, the Philippines, Kenya, Singapore, and the Dominican Republic, among others. An estimated 66 million people are currently working in 3,500 zones in more than 130 countries, generating US$ 200b of exports and accounting for 1.0 per cent of total employment, according to a recent research. Economic zones (EZ) in different forms are found in different parts of the world such as, Free Trade Zones, Export Processing Zones, Free Ports, IT Parks, Foreign Trade Zones and Special Economic Zones. Different countries based on their economic conditions have taken different strategies to establish free trade zones to attract investments. The EZ have relatively broader coverage allowing sales both in the local and markets abroad for foreign and domestic investors. These zones are established based on the needs of the specific country to attract and promote investments. However, it is not automatic and have both challenges and opportunities, while successes depend on how efficiently a country can address the relevant issues like appropriate regulations, manpower, institutional skills, capacities of industrial promotion companies, zone development etc. The benefits are many: It ensures easy access to land for industry or commerce where land is scarce. A dynamic and commercially successful zone can open the door for the private sector. An EZ is a geographical region having economic and other laws that are more free-market-oriented than the country's national laws. Inside an economic zone there could be special laws for labour and tax. Economic zone is an integral part of the open door policy of a government and can greatly accelerate FDI inflows and upgrade exports if they succeed in establishing investment environment superior to what is available in the country. Bangladesh wants to create employment and attract investment. Mobilisation of private sector for industrial development through private economic zones could foster exports, help technology transfer and efficiencies in the provisions of infrastructure. Since Bangladesh Export Processing Zones have so many successes, speakers at a recent seminar questioned the necessity of a new concept when eight EPZs in the country are doing well. Of course, it is true that EZ has some additional benefits which in some cases are not possible through EPZ. But unless some relaxed rules and flexible tax regimes are in place China-like success is not possible. There are some basic differences between SEZ or EZ and EPZ. While EPZs are specially for export-oriented industries, depend heavily on fiscal incentives, have limited linkages with the local market, focus on labour-intensive industries with little value addition, focus on production and assembly and primarily dependent on foreign investors. EZ allow both sales at local and international markets, prioritise for a well-functioning investment climate not fiscal incentives, and is linked with the local market. In addition EZ can attract a broad range of industries and activities including services, trans-shipment, repackaging for both domestic and foreign investors. The government has taken a decision that a total of seven SEZs will be set up in seven divisions of the country step by step to boost local as well as foreign investments. In order to encourage private sector of the country as a whole and with an intention to give a break to the rigidity of the existing EPZ regime, Bangladesh Economic Zones Act 2010 commonly known as EZ Act 2010 has been enacted. It is expected that establishment of SEZs will help overcome the shortcomings experienced on account of the multiplicity of controls and clearances; attaining world-class infrastructure, and addressing an unstable fiscal regime and eventually attracting larger foreign investments in Bangladesh. According to the Act, there will be four types of economic zones - economic zone for local or foreign companies, private economic zone for local or expatriate Bangladeshis or foreigners, government economic zones and specialised economic zones for specialised industries with private or public-private partnership or government initiative. Some suitable places have already been identified in Kaliakoir, Narsingdi, Comilla, and Chittagong. The government is going to form an independent authority and a governing body for facilitating the establishment of the SEZs. It was also informed that an SEZ is also planned in Sirajganj near Jamuna river and Meersharai in Chittagong. The government has taken a decision that the EPZs will not be expanded further. It was also informed that already there are fifty applications in the hands of the government. Some private sector export processing zones are operating in the country. Korean Export Processing Zone in Chittagong is one such example. The world's largest shoe factory which is worth $110 million is expected to be completed in the Korean EPZ within this year. The EPZ is expected to attract $ 1.3 billion from all over the world. It can benefit the entire economy through economic linkages and creation of jobs and development of infrastructure facilities. It seeks to promote large-scale integrated operations. BEPZA has attracted FDI, but those are mostly in labour-intensive and first-generation industries while BSCIC industrial estates are not maintained and managed efficiently suitable for FDI or large domestic investments. Economic zones will certainly help support a broad range of activities and even services which may help diversify economic activities of the country. The new Act has opened up a window and will allow the private sector to own, develop and manage economic zones and establish infrastructure and services for the companies in the zones as a separate business and will also permit the companies located in the zones to sell to the local market. Economic zones are tools to support economic growth, no doubt but it needs to be supported by complementary policies including land use, zoning, small-scale industries, infrastructure, transportation, etc. Some problems must be resolved to be successful in the Economic zone regime. These are: efficiency in land acquisition, political stability, reduced crime rate and corruption and administrative burdens, avoid administrative delays, developing backward linkages, supportive utilities and infrastructure, adequate hard and soft infrastructure, administrative discipline and transparency at the same time avoiding policy inconsistencies and frequent changes etc. Speakers at a recent seminar on EZ highlighted its possible strengths and identified some weaknesses. Location advantage is one of the important aspects, with this other ingredients like water, power, health care and other logistical support is also important. While on site Customs services, special credit facilities, investment policies, efficiencies of ports are considerable matter for its success. In case of Bangladesh, while labour is one of the important advantages, infrastructure and land has got limitations. So policies must support the EZ, the government has to ensure level playing field by increasing port facilities. We need to identify the competitive benchmarks to set the required parameters to support SEZs in Bangladesh. While one of the important aspects for industrialisation is suitable land and location, one may think what would be the decision for the country- whether we will protect our land for better agriculture, or for infrastructure for industry or for services. It is true that as a concept of SEZ is a very good prescription and effective for a country like Bangladesh but we also need to analyse the situation of the country, context and capacities of the public sector to extend support and respond to the new policies. Industries already established cannot close or shift overnight, huge number of jobs have been created through these industries while EZ practices is totally new and will take time for taking off. Need for skilled staff, formation of inter-ministerial committee, adequate rules and regulation to send right signals to the investors were underscored in the session. RMG sector has shown its resilience, we should start working hard to take care of our already achieved successes. Establishment of SEZs can help Bangladesh to explore a new horizon for growth of private sector by attracting more local and foreign investments. And for this we need integrated efforts so that a well coordinated investment environment prevails in the country. The writer is additional secretary (R&P), DCCI, and can be reached at email: nothing_man2000@yahoo.com