Special Economic Zones (SEZs) play an important role in the quest for economic growth. Their primary objective is attracting foreign direct investment (FDIs), generating employment, implementing economic reforms, and experimenting with new policies. The actual number of economic zones in Bangladesh is in contention. However, as per data from Bangladesh Economic Zones Authority (BEZA), at present, there are a total of 88 economic zones across the country, of which 59 are government-owned and 29 are privately owned.
China is often cited as the most successful country in making an export-led growth strategy work through SEZs. However, SEZs are often criticized for not uniformly distributing the benefits of economic growth across the country. In essence, their role in addressing regional disparities is now a topic of contention. As Bangladesh ramps up its development agenda, SEZs will soar in prominence as the government has announced its plans to establish a total of 100 SEZs by the year 2025.
Economy of Bangladesh
|GDP Growth Rate (FY2018-19)||8.13%||Investment Contribution to GDP (FY2018-19)||31.23%|
|GDP Per Capita Income||$1,827||FDI Inflows (2018)||$3.61|
|Inflation Rate||5.6%||Remittance Inflows (FY2018-19)||$16.42 billion|
The Bangladesh Export Processing Zone Act of 1980 was aimed at spurring trade and industrialization by creating employment and attracting investment from overseas. It led to the creation of the semi-autonomous Bangladesh Export Processing Zones Authority (BEPZA). The Authority leases land to industrial tenants across the country, the bulk of which are from the apparel industry, otherwise known as the Ready-Made Garment (RMG) sector. The zones offer various benefits to investors such as tax holidays, duty-free imports, and tax-exempt dividends. The zones also offer additional support to investors which helps them navigate through the local bureaucracy when it comes to doing business. According to BEPZA, in the two decades until 2017, EPZs brought in $4.3 billion of investment and contributed $59.4 billion to export earnings (19 percent of the total export revenue in 2017). The government is now planning to move away from the EPZ model due to its weaker domestic linkages. Instead, the current goal is to bring in more private participation within developing regions.
The Bangladesh Economic Zone Act and Hi-Tech Park Act of 2010 led to the creation of two semi-autonomous agencies–the Bangladesh Economic Zone Authority (BEZA) and the Bangladesh Hi-Tech Park Authority (BHTPA). With overlapping mandates, these two authorities have been tasked with overseeing the expansion of special economic zones and hi-tech parks respectively. They operate under different regulations from that of BEPZA and promote production that is aimed both at domestic and foreign markets. BEZA has been tasked with overseeing the establishment of 100 economic zones by 2025. BEZA also differs from BEPZA in terms of its ownership structure. Whereas EPZs are owned publicly, BEZA and BHTPA would rely primarily on private capital and expertise to both build and operate these new zones.
A number of reasons can drive regional disparities. Differing socio-economic outcomes by region can be predicated upon the historical legacy, the availability of natural resources, vulnerability to natural disasters, the state of human capital, and the condition of the local political economy. Two leading explanations behind regional disparities include “the backwash effect” proposed by Swedish economist Gunnar Myrdal and “the new economic geography” model developed by Nobel Memorial Prize-winning American economist Paul Krugman.
Special Economic Zones can be a useful tool in tackling regional disparities and promoting regional development via what is known as the “spread effect”. Establishing SEZs in lagging regions–which are primarily from the western parts of Bangladesh–is an important first step toward bridging regional disparities. However, the benefits offered by SEZs in these lagging regions should be sufficiently more attractive than elsewhere to investors in order to overcome any locational disadvantages endemic to the area. Bangladesh’s policy aims to add another $40 billion of exports from the SEZs. However, based on simulations by The Asia Foundation, these export earnings will concentrate in the better-off Dhaka and Chittagong regions. Additionally, their simulations also suggest that SEZs in lagging regions will have strong impacts on employment generation, especially for women.
24 new economic zones are set to be established of which 11 were inaugurated by the Prime Minister earlier this year. These new zones fall under 65 new uplift schemes designed to further boost economic output in the country. The 11 inaugurated zones include Mongla Economic Zone at Mongla in Bagerhat district, Meghna Economic Zone and Meghna Economic Industrial Economic Zone at Sonargaon in Narayanganj, Abdul Monem Economic Zone at Gazaria in Munshiganj, Bay Economic Zone at Gazipur Sadar in Gazipur, Aman Economic Zone at Sonargaon in Narayanganj, City Economic Zone at Rupganj in Narayanganj, Kishoreganj Economic Zone at Pakundia in Kishoreganj, East-West Special Economic Zone at Keraniganj in Dhaka, Karnaphuli Dry Dock Special Economic Zone at Anwara in Chittagong, and Sreehatta Economic Zone at Moulvibazar Sadar in Moulvibazar.
Of particular interest is the Mirsarai Economic Zone, which is currently under construction. This is set to be the largest industrial enclave in Bangladesh, aiming to bring in employment for 1.5 million people within the next 15 years and generate $15 billion of export earnings. In addition to being the largest industrial enclave, it is also the first multi-sector economic zone in the country.
A number of major local and foreign enterprises have expressed their eagerness to invest in the economic zone. Of note is BGMEA (Bangladesh Garment Manufacturers and Exporters Association), who have proposed to invest $2 billion to set RMG accessories factories at this park in order to generate employment for 500,000 people. Kunming Iron & Steel Holding Company Limited, a state-owned Chinese company, is planning on investing $2.13 billion in order to set up the Iron and Steel Industries Park.
Despite the benefits they offer, SEZs and EPZs also pose some challenges that need to be overcome to fully utilize the potential these industrial enclaves offer. Some of the major challenges include the following:
While there are certainly issues that need to be addressed if SEZs are to play the role they are meant in the context of the national economy, a number of key steps must be taken to address these points as well as build upon the existing positives. These steps can be enacted through sound policy-making and efficient legislation.
Special Economic Zones have established themselves as a stepping stone for economic prosperity and a cornerstone in the larger scheme of Bangladesh’s development agenda. While there exists much to be desired in terms of their role in addressing regional disparities, their role in boosting the economy cannot be denied. In order to further solidify their role in promoting economic growth, SEZs should focus on a few key things: focusing on developing strong and up-to-date infrastructure should be a major priority; in addition, SEZs should pay attention to improvements in business technology and infrastructure across other SEZs in the nation; all SEZs should be sufficiently equipped with appropriate technical capabilities.
Also, the zones need to be connected to efficient sea and land ports. Port infrastructure plays a vital role in ensuring SEZs fulfill their objectives. Lastly, SEZs should also place special priority on export diversification, which ties in with a greater strategy to structurally transform the economy and move into producing high-value goods. If these points are addressed, Special Economic Zones should be well poised to set Bangladesh on a trajectory of rapid economic growth and into an ever more prosperous future.
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