The private sector in several discussions with the government has highlighted the issue of allotment of plots for industries to be located in Special Economic Zones (SEZs).
The idea of SEZs was initiated with the formation of the Bangladesh Export Processing Zones Authority (BEZA) and the enactment of the SEZ Act in 2010. SEZ can be a suitable location for foreign and domestic investors and its products can be exported abroad or sold within the country maintaining all customs procedures.
The first SEZ was established in Puerto Rico in 1947. Ireland and Taiwan set up SEZs in 1960. The most successful one, the Shenzhen SEZ, was established in China in 1979.
Inspired by the successful examples of 10 Export Processing Zones (EPZs) in Bangladesh - eight EPZs run by the Bangladesh Export Processing Zones Authority (BEPZA) and two by the private sector), the government has targeted to establish 100 SEZs all over the country by 2030. So far 36,016 hectares (almost 89,000 acres) of land has been made available for the private sector in 76 EZs. In the SEZs, all the benefits of a cluster are found.
Political commitment and willingness of the present government may go a long way in creating a new generation of investors in the country in several non-traditional sectors.
It is worth noting the differences between SEZs and EPZs which have been illustrated in the Table.
SEZ can play an important role in attracting investment, one of the primary requirements of Bangladesh to graduate from lower middle income country (LMIC) to middle-income country (MIC) status. Private investment is not coming up at a required level, even though public sector investment is increasing.
Bangladesh has several targets to achieve MIC status. Some of these are: at least 7.4 per cent gross domestic product (GDP) growth on an average, 21 per cent contribution of manufacturing sector to GDP, 34 per cent of GDP from investment, 26.6 per cent private investment and $9.6 billion foreign direct investment (FDI). To achieve the targeted GDP and investment, SEZ could play a great role.
It is said that 76 SEZs have already been identified. About 36,016 acres of land has been acquired by the government which are in the process of development. It's really encouraging that about 20 private zones have been approved to which 13 prequalification licenses have been awarded. The BEZA has so far awarded prequalification licenses to four private companies to set up five economic zones. Fifteen EZs are under development, while US$912 million has been invested by developers through which about 4,000 jobs have been created. It seems that SEZ would bring a momentum in the investment perspective of Bangladesh.
The BEZA is the highest authority to ensure establishment of SEZs in Bangladesh. An attached agency of the Prime Minister's Office (PMO), it is mandated to establish, license, operate, manage, and control economic zones in the country. The BEZA's objective is to generate 10 million jobs and earning US$ 40 billion from exports.
A seminar organised recently by the think tank Policy Research Institute of Bangladesh (PRI) discussed the issues in detail. Concerns were raised as to whether the government has the capacity to complete this huge work in time. Land-related issue was another critical area. Land purchase and acquisition are very difficult tasks.
Land ownership in the country is a complex one. Land acquisition policy is needed to be simplified. The private sector has proposed that if 50 per cent land is purchased, 20 per cent would need to be acquisitioned. Without strong support of the government, land possession and making the land suitable for use are very problematic.
Full operation of SEZ requires two types of development. Offsite development consists of building of approach road, utility supply, container depot, river port development, etc., and outside SEZ, the government is responsible to conduct and ensure such development. Onsite development is related to infrastructure inside the EZ like establishment of road, factory, captive power station, etc. Developers are responsible to ensure onsite development of SEZ.
The government has included some G2G zones. One of these is a Chinese zone (CEPZ) in Anwara, Chittagong. The government is getting land free while the private sector has to buy it. This will make private SEZ weak from the beginning.
The BEZA offers multiple incentives for development of the SEZs. These range from fiscal incentives, such as exemption of taxes, customs/excise duties to non-fiscal incentives, such as no ceiling for FDI, work permits and recommendation for residentship/ citizenship, etc. The private sector feels that the incentive package should be like those of countries like Vietnam, China and Singapore which have been successful making the incentives lucrative.
Unfortunately, the operational progress or growth of SEZs in Bangladesh has not yet been satisfactory. A number of SEZs have been announced by the government since last two years but none is yet operational. Private Economic Zone owners are facing lots of problems in land acquisition. There is also a lack of skilled manpower to run the otherwise huge operation. Seven years have already passed without any successful operation of any SEZ.
There are 11 SEZs in China and all these are located in the coastal areas. Their contribution to the national economy is huge - 11.1 per cent of China's total GDP, accounting for 19 million jobs, utilising 9.5 per cent of China's total FDI, making up 37 per cent of China's total merchandise exports, contributing to 60 per cent of total exports and 33 per cent of national high-tech output.
It is not possible for Bangladesh to go up to the level of China shortly, but there could be some positive gains. There would be an increased number of foreign investors willing to invest in several new diversified sectors and make those operational. It is believed that SEZs have close relation with local investment also. Policymakers should frame some active fast-track policies and go for their implementation.
The writer is CEO, Business Initiative Leading Development (BUILD), a partnership organization of DCCI, MCCI and CCI.
