Export Processing Zone

Export Processing Zone (EPZ) special industrial park developed in response to international market demand for cheaper goods. The Bangladesh Export Processing Zones Authority (BEPZA, estd 15 April 1981) is the agency of the Government of Bangladesh administered under the jurisdiction of the Prime Minister's Office manages the various export processing zones in Bangladesh and oversees the operations of EPZs of the country. Recently government has announced that in 15 years the government would establish 100 new EPZ and special economic zones (SEZ). The manifest objectives of EPZs are to attract foreign capital investment and mobilize 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.

In June 2010, Bangladesh had EPZs in 8 locations of the country and the statistics of them with investment and employment, as well as their exports are presented in Table 1.

Table 1 EPZs in Bangladesh (June 2010). Figures in parenthesis indicate year of establishment.

Location, Ested. Number of Industry Units Investment in million US$ Export in million US$ Employment (persons)
In operation Under implementation
Chittagong (1983) 157 17 772.64 11511.91 150783
Dhaka (1983) 96 7 713.55 9488.22 74624
Comilla (2000) 23 6 100.31 418.48 6964
Mongla, Khulna (1999) 08 1 4.36 46.58 352
Uttara, Nilphamari (2001) 06 1 4.75 2.31 3543
Iswardi, Pabna (2001) 07 5 28.49 15.39 3028
Adamjee, Dhaka (2006) 17 16 92.63 188.57 11789
Karnaphuli, Chittagong (2006) 19 29 87.73 105.80 11674
Total 333 82 1804.46 21737.28 262757

Source Ministry of Finance, Finance Division, Bangladesh Economic Survey 2010

In a little over a decade after 2009, the some more EPZs had been established and there had been notable increase in the number of industry units in them, in investment and employment, and also in the employment provided by the industry units in EPZs (see Table 2).

Table 2 Export Processing Zones in Bangladesh (February 2020). Number of Enterprises, Investment, Export and Employment in EPZs.

Location Number of Industry Units Investment in million US$ Export in million US$ Employment (persons)
In operation Under implementation
Chittagong EPZ 157 9 1760.85 32869.81 185063
Dhaka EPZ 99 9 1504.16 28391.05 93346
Adamjee EPZ 51 18 548.99 5050.68 59103
Comilla EPZ 47 9 372.35 3274.88 34914
Karnaphuli EPZ 45 6 608.20 6539.26 75838
Iswardi EPZ 20 12 151.83 927.83 12570
Mongla EPZ 34 13 82.43 702.51 5975
Uttara EPZ 21 7 197.58 1270.30 34546
Total 474 83 5226.40 79026.31 501355

Source Ministry of Finance, Finance Division, Bangladesh Economic Survey 2020

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 labor 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 neighboring countries. (See Table 3 for government investment in EPZs and recovery rates during the period between 1974 and 1998).

Table 3 Government's investment (million Taka) and recovery (% of investment).

Year Investment Income Annual recovery
Land Factory building Total Land Factory building
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
1989-98 724.4 78.8 248.4 327.2 10.87 32.30

Source BEPZA.

In 2009, 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. The number of countries operating in EPZs in 2020 stood at 38. Readymade garments manufacturing units account for the largest number of units in the country's EPZs (68 out of the 297 operating in March 2009/135 of 416 in 2020). These are followed by units manufacturing garments accessories (43 in 2009/92 in 2020), knitwear (32 in 2009), terry towel (16 in 2009), electric and electronic goods (15 in 2009/19 in 2020), plastic goods (14 in 2009), footwear and leather products (13 in 2009/27 in 2020), and metal products (12 in 2009). 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 in 2009-10 was $21,737.3 million.

The EPZs provide employment to nearly 500,000 Bangladeshi workers. As the average family size in the country is 6 members, with only one earning member in a family, these 500,000 workers earn livelihood for about 3 million people. In most cases, foreign investment in EPZs is accompanied by utilization 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 organized 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 set 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.

Table 4 below shows comparative figures on investment and exports of EPZs of the different locations of the country during the fiscal years 2010-2011 and 2018-2019.

Table 4 Investment and Export by EPZs (in million US$)

Location of EPZ 2010-2011 2018-2019
Investment Export Investment Export
Dhaka 72.38 1521.78 76.14 2206.31
Chittagong 85.84 1666.88 75.69 2391.69
Mongla 0.77 27.93 10.14 89.44
Comilla 36.26 145.46 31.08 490.76
Uttara 11.98 6.77 31.02 293.76
Iswardi 21.40 25.96 8.18 150.22
Adamjee 37.05 164.68 50.22 826.44
Karnaphuli 47.56 138.16 50.90 1075.52

Source Ministry of Finance, Finance Division, Bangladesh Economic Survey 2020

Industry units in EPZ are sources of income for not only the investors and the government but also for agencies (both government and private) providing support services such as the 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]