Export Processing Zone

Export Processing Zone (EPZ) special industrial park developed in response to international market demand for cheaper goods. The manifest objectives of EPZs are to attract foreign capital investment and mobilise investment for capital formation for rapid industrialisation, to create employment opportunities for the country's manpower, to induce transfer of technology, and to earn foreign exchange by boosting exports. Formation of EPZs in Bangladesh also addresses problems like growing trade gap, high unemployment, dearth of capital investment, shortage of foreign currency and lack of technical know-how.

Table 1  EPZs in Bangladesh (as on 31 March 2009).

Location	Number of units		Investment in miln US $	Export in miln US $	Employment (persons)
	Operating	New
Chittagong	146	35	698.28	9885.86	136276
Dhaka	97	23	643.91	7914.95	72305
Comilla	21	21	79.24	300.81	7417
Mongla, Khulna	08	05	4.37	36.63	207
Uttara, Nilphamari	04	01	3.06	0.37	1847
Iswardi, Pabna	05	19	14.35	7.60	1107
Adamji, Narayanganj	08	37	63.12	67.51	6604
Karnaphuli, Chittagong	08	63	41.16	36.47	4643
Total	297	204	1517.48	18250.20	230406

Following an Act of Parliament in 1980, the first EPZ of the country was established in chittagong in 1983. The second one started operations in 1993 at savar near Dhaka. Six more are now being developed and table 1 presents a summary statistics of the EPZs with the number of industrial units already in operation and those under implementation, the total investment in the operating and the new units, the exports from the EPZ units and the manpower employed in these units.

Table 2 Government's investment (million Taka) and recovery (% of investment).

Year	Investment	Income			Annual recovery
		Land	Factory building	Total	Land	Factory building
CEPZ
1974-85	248.9	1.5	3.4	4.9	0.62	1.35
1985-93	452.6	63.3	136.3	199.6	8.18	17.64
1993-98	360.3	228.1	211.3	439.4	25	30.47
DEPZ
1989-98	724.4	78.8	248.4	327.2	10.87	32.30

Source BEPZA.

Management and monitoring of EPZs in the country lie with the Bangladesh Export Processing Zones Authority (BEPZA). Government functions in EPZs include creation of infrastructure (buildings, utilities, warehouses, roads etc), processing applications for setting up industries, allotment of land or building space, provision of space to local and foreign banks, insurance companies, clearing and forwarding houses, courier services, post offices etc. The government also provides financial help and support to investors, ensures smooth manufacturing and commercial operation of the firms, and remains vigilant about labour management relations within EPZ. The government however, sees EPZ as a place to invest in its establishment and functioning and then recover costs from it directly. The main source of funds for government investment in EPZ comes as loans. A part of capital investment in EPZ comes as depreciation of fixed assets located within it. About 40% of government's investment in EPZ is made in non-income generating heads. The tariff rates for physical facilities (land, buildings etc.) and utilities provided in EPZs are not fixed with objectives of cost recovery. They are rather aligned with rates applicable in EPZs of neighbouring countries. (See Table 2 for government investment in EPZs and recovery rates during the period between 1974 and 1998)

More than 30 countries including Japan, South Korea, Hong Kong, Thailand, Sri Lanka, China, Taiwan, Malaysia, Indonesia, Singapore, USA, UK, Australia, Canada, Germany, France, Italy, Sweden, Netherlands, Switzerland, India, and Pakistan have so far invested in different projects in the EPZs in Bangladesh. Readymade garments manufacturing units account for the largest number of units in the country's EPZs (68 out of the 297 operating in March 2009). These are followed by units manufacturing garments accessories (43), knitwear (32), terry towel (16), electric and electronic goods (15), plastic goods (14), footwear and leather products (13), and metal products (12). Other goods produced in EPZ units of the country are caps, tents, packaging goods, rope, and items of agro-processing industries.

EPZs in Bangladesh play a significant role in attracting foreign direct investment as well as in involving local investment, which jointly contribute to an overall increase in the country's volume of exports and in its earnings of foreign exchange. Foreign exchange earned through exports by EPZ enterprises reduces deficits in the country's balance of payments. A part of it is converted into local currency to be spent on procurement of goods and services from the local economy. BEPZA's contribution to national export was 2.69% in 1990-91 and 12.32% in 1997-98. The total amount of exports from EPZ enterprises till 31 Marc 2009 was $18,250.2 million.

The EPZs provide employment to more than 230,000 Bangladeshi workers. As the average family size in the country is 6 members, with only one earning member in a family, these 230,000 workers earn livelihood for about 1.5 million people. In most cases, foreign investment in EPZs is accompanied by utilisation of advanced technology and provides an opportunity for the local workforce to acquire new skills. The trained workers also help expedite transfer of technology.

Areas where EPZs have been established have become special growth centres in the economy of Bangladesh as a result of organised and fast development of infrastructure including roads, electricity, gas, water supply, telecommunication, fire brigade, post office etc. The private sector around the EPZ areas has come up with support investments in shopping centres and markets, transport agencies, accommodation and recreation facilities etc., which have accelerated the pace of economic activities. In addition to provision of services to the community associated with EPZs, the private sector has also sets up linkage industries nearby EPZs to cater to the needs of industries within them. Many EPZ enterprises have shifted their manufacturing processes or part of a process outside EPZ under subcontracting. The annual value of goods produced by EPZ enterprises and the subcontracting agents outside them is about $10 million.

A sizeable amount of income accrues to support services located in and around EPZ. Such services include banks, insurance companies, C&F agents, container services, courier services, consultants, contractors, auditors etc. These services earn approximately 2% of the total value of exports made by EPZ enterprises. The payments of EPZ enterprises to workers and for electricity, gas, water, telecommunication, stationery and variable material inputs all contribute to local value addition. EPZ enterprises pay wages to local employees and also spend a significant amount of money in welfare (allowance/arrangement for food, conveyance, transport, healthcare and medicine etc.). Expatriate employees, each earning on average $1,000 per month in EPZs contribute to local value addition by spending around 40% of their wage in buying goods and services from the local market. EPZs in Bangladesh are the largest single (group of) consumer of utilities. Yearly utility bills paid by EPZs amounts to Tk 4.2 billion. EPZ enterprises pay about Tk 300 million as telephone and telex bills in a year. A part of the total value addition by EPZ enterprises is accruable to use of domestically produced raw materials and intermediate inputs. Other than industrial inputs, EPZ enterprises procure stationery, furniture, food items, POL and in some cases, small machinery and equipment, which altogether augment economic activity in and around EPZs. [S M Mahfuzur Rahman]