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

Uttara University

DEPARTMENT OF BUSINESS ADMINISTRATION UNIVERSITY OF UTTARA JANUARY 2009

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

Uttara University

Submitted To

Submitted By

Mamun Abdul Kayeum Md.Ashraful Kabir Asst. Professor & Coordinator BBA Program ID No. M20611131021 School of Business EMBA (Major In Marketing) Uttara University Batch no. 9th Dept. of Business Administration Uttara University

Dedicated
To my parents Mr. Enamul Kabir And Mrs. Samsun Nehar

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.AshrafulKabir Department of Business Administration Uttara University Dhaka.

Content
Acknowledgement Executive Summary List of Abbreviations and Acronyms List of Figures

Chapter One : Introductory Part

1. 2. 3. 4. 5. Introduction Background of the study Objective of the report Significance of the study Methodology 1.1 Source of data 1.2 Primary data 1.3 Secondary data 1.4 Limitation of the report Historical Background Objectives About EPZ Organogram Economic Profile 1.1 Industry 1.2 Agriculture 1.3 Services 1.4 Investment & Savings 01 02 02 02 02 02 03 03 03 04 04 04 05 06 06 06 06 07 08 09 09 09 10 11 11 11 11 12 12 13 13 13

Chapter Two : Organization Part

1. 2. 3. 4. 5.

Chapter Three : Export Performance and Product Line

1. Export Performance 1.1 Textile 1.1.1 Sector Highlight 1.1.2 Industry Background and Status 1.1.3 Industry Outlook 1.1.4 Investment Opportunities 1.2 Frozen Foods 1.2.1 Sector Highlight 1.2.2 Industry Situation 1.3 Information Technology 1.3.1 Sector Highlight 1.3.2 Industry Status 1.4 Ceramic 1.4.1 Sector Highlight 5

1.4.2

Industry Status

13 15 15 17 18 19 19 19 21 23 23 23 24 26 27 28 28 28 29 30 30 31 33 35 36 36 36 37 37 38 39 39 40 41

Chapter Four : Export Diversification in EPZ

1. Product wise Export During pro-liberation period 1.1 Major Primary Commodities 1.2 Major Manufacture Commodities 2. EPZs of Bangladesh 2.1 Theory of EPZ 3. Economic Rationale for a better export performance of Zone 3.1 Mode of Investment 3.2 Investment 4. Comparative Analysis on Investment 4.1 National 4.2 International 5. Export 6. Productivity Performance of EPZ Workers 7. Export Performance on Investment 8. Brand Product 9. Diversification of Export 10. Development of Linkage Industries in DTA 11. Cumulative Performance 12. Performance Factor 12.1 Infrastructure Facilities 12.2 Why Infrastructure Needed 13. Public Sector Investment in Development of EPZs

Chapter Five : Prospects & Constraint of EPZs

1. Prospect & Constraint 2. Policy Concessions 1.1 Incentives (Fiscal) 1.2 Incentives (Non-Fiscal) 1.3 Regulatory Streamline 1.4 Technology Transfer 1.5 Skill Transfer 2. Economic Contribution 2.1 Annual Economic Benefit 3. Special Economic Zone

Chapter Six : Conclusion & Comments

LIST OF FIGURE
Figure 1: Figure 2: Figure 3: Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure 4: 5: 6: 6 (a) : 7: 8: 9: 10: 11: 12: 13: 14: 15: 16: 17: 18: 19: 20: 21: 22: Contribution of broad sector in GDP of 2004-05 Bangladesh Export by major products Growth of RMS Exports from Bangladesh (1981-82 to 200405) Frozen food Exports from Bangladesh Growth of Ceramic Tableware Exported from Bangladesh Primary commodities- Export from Bangladesh Primary commodities- Export Growth (Million US$) Manufactured commodities export from Bangladesh Manufactured commodities-Export Growth (Million US$) Year-wise Export During pro-liberation period Type of Industries EPZs of Bangladesh Extended Sectoral Distribution of FDI during 2004 Total cumulative investment and employment and growth rates in 1983-2003 BEPZAs contribution towards total national Export Productivity performance 2004-2005 Export Performance on Investment Performance of EPZ Zone-wise aggregate performance Cost of establishment of EPZs up to June, 1998 Fiscal incentives provided by BEPZA Non-Fiscal incentives provided by BEPZA Annual Economic benefit for the years 2003-2004 and 20042005

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 sectionsInvestment 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, 8

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.

List of Abbreviations And Acronyms

BEPZA EPZ GDP EPB IT GSP EU MFA RMG BOI FDI DTA SEZ Bangladesh Export Processing Zones Authority. Export Processing Zone. Gross Domestic Product. Export Promotion Bureau. Information Technology. Generalized System of Preference. European Union. Multi Fiber Arrangement. Ready Made Garments. Board of Investment. Foreign Direct Investment. Domestic Tariff Area. 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

11

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 15

4. Organogram:

ORGANOGRAM Bangladesh Export Processing Zones Authority (BEPZA)

Executive Chairman

Member (Engineer)

Member (Finance)

Member (IP)

Secretary

GM (Security)

GM (MIS)

GM (DEPZ, CEPZ) A Class EPZ

GM (ComEPZ, AEPZ, KEPZ) B Class EPZ

GM (IEPZ, MonEPZ, UEPZ) C 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%). 17

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 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$]

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 lowcost 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.

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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 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. 21

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 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$]

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.

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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 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.

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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:

1972-73 1. Raw Jute 2. Tea 3. Frozen Food 4. Fish 5. Shark fins & Fish maws 6. Agricultural products 7. Animal Feed 8. Animal casings 9. Crude fertilizer 10. Other primary com. Total Primary Com. 1977-78 133.841 9.688 3.061 1.414 .021 .713 .032 .011 .201 .678 149.775 1982-83 96.933 45.270 19.448 .306 .724 3.865 1.326 .118 .391 1.686 170.072 1987-88 109.813 46.575 72.054 .894 .747 7.016 2.384 .191 .399 3.090 243.164 1992-93 80.534 38.953 139.651 3.717 1.494 19.094 .117 .066 2.465 286.690 (Value in Million US$) 1997-98 2004-05 74.326 107.767 96.185 41.143 47.467 15.843 165.340 293.836 420.744 5.687 6.510 7.840 3.667 2.378 .006 14.528 39.137 82.468 .092 .154 .002 1.623 .072 7.502 4.597 25.201 313.908 501.917 648.290

Fig 6: Primary commodities export from Bangladesh

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Figure 6(a) :

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 1. Jute Goods 2. Leather 3. Leather goods 4. Petroleum by Products 5. Readymade garments 6. Knitwear 7. Chemical products 8. Paper and allied products 9. Handicrafts 10. Engineering products 11. Specialized textile and Household linen 12. Molasses 13. Electronics 14. Stainless steel cutlery 15. Handloom products 16. Glass Sheet 17. Other mfd. commodities Total mfd. Commodities 1977-78 179.257 16.182 .018 .006 .06 3.054 .039 .024 198.642 1982-83 249.006 45.378 .001 11.656 .069 .231 8.668 1.761 .161 .642 .001 6.274 323.669 1987-88 319.692 58.456 .001 30.833 10.842 11.680 4.628 2.479 2.492 .625 .631 .034 2 1 1.037 443.432 1992-93 302.415 147.170 11.975 433.924 26.527 11.873 3.756 2.809 .679 .745 2.620 944.511 1997-98 292.370 147.906 10.724 36.806 1240.481 204.545 55.005 2.631 5.431 17.512 29.008 .226 849 .291 25.300 2068.985 2004-05 281.425 190.260 48.106 10.927 2843.327 940.307 74.176 .042 5.995 19.643 76.325 3299 .434 159.976 4659.285 307.477 220.933 35.080 3598.205 2819.472 197.185 5.125 85.020 220.932 .087 22.400 482.882 8006.234

Fig 7: Manufactured commodities export from Bangladesh

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1972-73 Total Primary Commodities (A) Total Manufacture d Commodities (B) Grand Total (A+B)

197778 149.77 5 198.64 2

198283 170.07 2 323.66 9

1987-88 243.16 4 443.43 2 286.690 944.511

(Value in Million US$) 1992-93 1997-98 2004-05 313.908 2068.98 5 501.917 4659.28 5 648.290 8654.520

348.41 7

493.74 1

686.59 6

1231.20 1

2382.89 3

5161.20 2

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

29

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 30.58 1995-1996 1996-1997 53.90 1997-1998 68.83 1998-1999 71.61 1999-2000 34.98 2000-2001 48.41 2001-2002 55.61 2002-2003 102.63 2003-2004 115.04 2004-2005 118.52 2005-2006 112.89 2006-2007 152.37 2007-2008 302.19 2008-2009 52.90 (Oct,08)
TOTAL ACTUAL INVESTMENT= $ 1487.35 m

4.Comparative Analysis on Investment 33

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 BOI Registered In million US$ BEPZA In million US$ Financial Inst. In million US$ Total In million US$ BEPZA Share %

a. Manufacturing
Textile Chemical Leather & Rubber Agro-based Food & Allied Glass & Ceramics Printing & Publications Misc/NEC b. Service Telecommunications Energy & Power Power Generation Oil, Gas, & Coal Other Services Financial Institutions Others c. Engineering Total (a+b+c)`

55.676
14.995 19.681 8.666 7.284 3.212 1.28 0.558 374.252 237.41 133.045 15.676 117.369 3.797 3.797 0.771 430.699

151.146
101.893 27.642 10.026 1.752 9.833 0.354 0.354 0.354 12.089 163.589

66.518 66.518 66.518 66.518

206.822
116.888 47.323 18.692 9.036 3.212 1.28 0.558 9.833 441.124 237.41 133.045 15.676 117.369 70.669 66.518 4.151 12.86 660.806

73.08
87.17 58.41 53.64 19.39 100 0.08 0.5 8.53 94 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 1978 1983 1988 1993 1998 2003

Bangladesh 20.9 0.9 17.2 (362.2) 131.0 (132.3) 391.8 (39.8) 749.1 (18.2)

50.4 (28.2) 100.2 (19.7) 221.6 (24.3) 261.2 (3.6) 292.3 (2.4)

Sri Bangladesh India Lanka 5876 3300 24093 624 13000 (62.0) (58.8) 69.9 46104 4207 25625 (18.0) (114.8) (19.4) 84058 26336 45885 (16.5) (105.2) (15.8) 223.8 91404 84074 77795 (22.0) (1.7) (43.8) (13.9) 388.0 104237 144147 88977 (14.7) (2.8) (14.3) (2.9)

India

*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

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 YEAR 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 (Oct,08) EXP ($m) 228.26 337.02 462.77 636.05 711.69 890.81 1067.87 1077.02 1200.00 1354.00 1548.68 1836.18 2063.67 2429.58 878.57

TOTAL EXPORT: $17,211.62 m

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Subject: BEPZAs contribution towards total national Export

Year 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 Total export of Bangladesh (m US$) 3473 3882 4418 5161 5313 5752 6467 5986 6548 7603 8654 10526 12178 14111 Total export of EPZs (m US$) 228 337 463 636 712 891 1068 1077 1200 1354 1548 1836 2064 2429 % of BEPZAs contribution (m US$) 6.56 8.68 10.48 12.32 13.40 15.49 16.51 18.00 18.33 17.80 17.88 17.44 17.00 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.) TEXTILE CLUSTER 18,00,00 0 Total Export:

EXPORT US$ m 5195.59 5

EXP/ EMPL US$

EMPL (NOS.)

EXPORT US$ m

EXP/ EMPL US$ 9952.00

2886.43

1,40,18 7 8.654 1.548 5.195 1.395

1395.195

Bangladesh EPZ

RMG & Knit Export:

Bangladesh EPZ

$ b $ b $ b $ b

100% 17.88% 100% 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 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 PRODUCT GARMENTS TEXTILE TERRY TOWEL KNIT & OTHER TEXTILE GARMENTS ACCS. CAPS TENT ELEC & ELECTRONICS FOOTWARE & LEATHER METAL PRODUCT PLASTIC GOODS PAPER PRODUCT FISHING REAL & GOLF ROPE SERVICE ORIENTED INDUSTRIES AGRO PRODUCT MISCELLANEOUS Gr. Total UNIT 42 26 15 19 25 7 4 12 12 11 12 2 1 2 4 10 17 221 INVEST M US$ 222.921 212.262 27.749 73.915 60.096 37.548 21.71 48.807 50.08 18.287 19.384 0.776 31.07 5.913 4.567 Export US$ 698.15 314.12 39.21 106.99 81.86 99.67 55.22 45.58 46.67 13.95 12.54 0.84 10.07 5.39 1.81 Exp Per M US$ Inv. 3.13 1.48 1.41 1.45 1.36 2.65 2.54 0.93 0.93 0.76 0.65 1.08 0.32 0.91 0.40 2.56 0.31 1.79

2.786 7.12 29.139 8.94 867.01 1548.13

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$) 2004-2005 1541 AMOUN T 75 12 23 54

PERFORMANCE EXPORT PARTICULARS OF EXP. WAGES RENTAL UTILITY SV. CHARGE

2002-03 1200 AMOUN T 77 12 22 52

20032004 1304 % EXP. 6.41 1 1.83 4.33

% EXP. 5.75 0.92 1.76 4.14

AMOUN T 91 13 24 65

% EXP.

DTA GOODS
ADMN. EXP. TELE COM. SURPLUS RETAINED BY LOCAL INVESTORS TOTAL

315
33 9 17 537

26.25
2.75 0.75 1.42 44.75

360
33 10 18 585

27.60
2.53 0.76 1.38 44.86

392
42 12 35 674

5.91 0.84 1.56 4.22 25.44 2.73 0.78 2.23 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 In Op. (No) CTG DHK COM MON UTR ISD Adamjee Total 123 76 09 11 01 01 221 33 27 22 15 06 12 01 11 6 Investment (US $ in M) U/Impl. (No) 472.86 359.41 30.31 2.87 1.50 0.05 867.01 Export (US $ in M) Employment (No)

6028.50 3943.53 14.91 15.59 0.00 1.09 10003.62

94,419 56,280 2,814 205 1,050 20 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 Facilities
1. 2. 3. 4. 5. 6. 7. Basic infrastructure: Electricity, gas, water, road, telecom, e-mail etc. Fully serviced plots (Avg. size 2000 sqm) Factory building available on rental basis. Enclave for workers dormitory. Godown available Business support service: courier (DHL, FedEX), Banks, Police station, fire station, post office, C&F agent, shipping agent, MTO etc. 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 semiskilled 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

43

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 44

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.
Sl no. Item Direct income generating 1. 2. 3. 4. 5. 6. --------------15.81 Percentage of total investment Non-income generating 1. 2. 3. 4. 5. 6. 25.58 --------------Percentage of total investment Grand Total 11518.00 Roads & drains Office & enterprise service Bldg. Residential Building Investors Club Custom, Police, Fire brigade equipment store, Health centre, Security etc. Others 3.30 0.55 0.45 0.67 0.43 9.77 --------------16.09 --------------38% 7244.00 38% 2.72 0.67 0.74 0.67 1.34 6.14 Land acquisition & Development Factory building Bay-shopping centre Gas distribution network Electricity distribution network Water supply system 9.95 62% 62% 9.53 3.93 0.53 0.26 1.06 0.50 --------------4.09 4.66 0.07 0.52 0.61 CEPZ (in million US$) DEPZ (in million US$)

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

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 nonfiscal incentive scheme in the early stage of EPZ development. Incentives - Fiscal
1. 2. 3. 4. 5. 6. 7. 8. 9. 10 . 11 . Tax holiday for 10 years followed by 50% rebate on export sales. Duty free import of const. materials, machinery/spare parts/equipments. Duty free export and import. Relief from double taxation. Exemption from dividend tax. GSP facility available. Duty free import of 2 vehicles. Expatriates exempted from income tax for 3 years. Accelerated depreciation on machinery or plant allowed. Remittance of royalty, technical and consultancy fees allowed. Duty and quota free access to EU (EBA), Canada, Norway, Australia etc and USA under process.

Fig 20: Fiscal incentives provided by BEPZA 2.2. Incentives: Non-Fiscal

Incentives: Non-Fiscal 1 Investment protected under the Foreign Private Investment (Promotion and . protection) Act 1980 2 . 3 . 4 . 5 . 100% foreign ownership permissible Enjoy MFN status. No ceiling on foreign investment. 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

47

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

48

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

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. 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 EXPORT PARTICULARS OF EXP. WAGES RENTAL UTILITY SV. CHARGE 2002-03 1200 AMOUNT 77 12 22 52 315 33 9 17 537 20032004 1304 % EXP. 6.41 1 1.83 4.33 26.25 2.75 0.75 1.42 44.75 2004-2005 1541 AMOUN T 75 12 23 54 360 33 10 18 585

% EXP. 5.75 0.92 1.76 4.14 27.60 2.53 0.76 1.38 44.86

AMOUN T 91 13 24 65 392 42 12 35 674

% EXP.

DTA GOODS
ADMN. EXP. TELE COM. SURPLUS RETAINED BY LOCAL INVESTORS TOTAL

5.91 0.84 1.56 4.22 25.44 2.73 0.78 2.23 43.71

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

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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, skilled manpower and investment friendly atmosphere. Development partners should come forward to find market for Bangladeshi products in the developed countries. 52