First News
Volume:7, Number:44
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COVER STORY
THIS WEEK

The Growth Boosters

| Shova Rahman |

The Bangladesh government has declared a plan to become a middle-income country by 2021 and a developed one by 2041. To make the dream come true, the country is establishing a more liberalized trade and investment environment in order to attract large-scale foreign investment.

According to the plan, the government is proceeding rapidly with the development of economic zones across the country that will bolster economic growth by boosting exports and creating employment opportunities. The government has taken initiatives to construct by 2030, 100 special economic zones all across the country, on 75,000 acres of land, to spur planned industrial development. Authorities hope the economic zones will create jobs for 10 million people and produce goods and services worth USD40 billion, if the work can be completed within the stipulated time.

To provide all types of support to investors in the economic zones, the government formed the Bangladesh Economic Zones Authority (BEZA) in 2010. The aim of the organization is to increase trade and investment, create more jobs, and ensure effective administration. Following its inception, BEZA has already introduced financially liberal policies to encourage businesses to set up industries in the economic zones. These policies typically relate to investment, taxation, trading, quotas, and customs and labor regulations.

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Paban Chowdhury Executive chairman of Bangladesh Economic Zones Authority (BEZA)

BEZA has already set a target of establishing 100 Economic Zones along four corridors of the country over the next 15 years, selecting 77 sites for establishing, private, G2G and public-private economic zones. It could be a major driver of economic growth and job creation, as well as a major factor in lifting Bangladesh to middleincome country status by 2021. So, we are committed to ensuring inclusive economic growth in Bangladesh through providing one-stop services and competitive incentive packages to local and foreign investors. On behalf of the Government of Bangladesh and as the chief executive of BEZA, I have invited national and foreign investors to invest in economic zones and share the benefits of mutual growth and prosperity.

The Economic Zones

An economic zone is a designated area in a country with special economic regulations that differ from the rest of the country. An entrepreneur can enjoy various benefits, including tax incentives from the authorities, by setting up an industrial unit in an economic zone.

According to BEZA rules, any organization or country can apply for an economic zone in Bangladesh. However, to gain approval for the EZ, the organization or the country has to follow some procedures. The BEZA vision document, which mentions the requirements and procedures of the application for private economic zones, points out that an enterprise should submit the first-stage application for a pre-qualification letter, followed by an application for a license under Article 6 within 12 months from the date of issuance of the pre-qualification letter. After scrutinizing the application, the authorities can either provide the final license or cancel the pre-qualification certificate. According to Bangladesh Economic Zone Bill 2010, which was passed by parliament on July 20, 2010, there are several types of economic zones as outlined below.

1. PPP economic zones, established through public and private partnership (PPP) by local or foreign individuals, bodies, or organizations. 2. Private economic zones established individually or jointly by local, non-resident Bangladeshis or foreign investor bodies, business organizations, or groups. 3. Government economic zones established and owned by the government. 4. Special economic zones, established privately or as a public-private partnership, or by a government initiative, for establishing any kind of specialized industry or commercial organization. 5. G2G economic zones, established upon initiative by the government of a foreign country or the government of Bangladesh and/or in partnership between the two governments.

Incentives for Economic Zones

Aiming to establish economic zones in all the potential areas of the country, Bangladesh Economic Zones Authority (BEZA) was formed under the Bangladesh Economic Zones Act, 2010. The primary objective of BEZA is to act as a change agent for faster economic growth by creating an investment-friendly environment in the country. Reducing lead time and cost of doing business are the pivotal objectives of BEZA.

According to the BEZA report, the government plans to provide the same fiscal and financial incentives to industrial units as those provided to industrial units under the Bangladesh Export Processing Zones Authority Act, 1980, and the Bangladesh Private Export Processing Zone Act, 1996. Other than infrastructure, BEZA will provide multiple incentives to the developer of an economic zone and investors in a particular industrial unit. These will include fiscal benefits, such as tax exemption and exemption from customs/excise duties, as well as nonfiscal incentives such as no FDI ceiling, work permits and citizenship, according to BEZA’s vision document. The BEZA vision document also expresses incentive package information for both developers and unit investors. For developers, income tax would be exempted for 12 years. For unit investors, income tax would be exempted for 10 years. Moreover, developers would enjoy an exemption from stamp duty and registration fees for land registration. Unit investors can enjoy 100 percent backward linkage of raw materials and get to sell accessories for submitting Expressions of Interest (EOI) in Domestic Tariff Area (DTA).

Furthermore, the governing body has also approved a draft of the One Stop Service Act, 2016, to provide investors with investment-related services from a single platform. Once the law is enacted, investors will not face the hassles of going from one office to another to get their job done. BEZA has also taken the initiative to draft a policy for constituting Bangladesh Economic Zones (creation and operation of Economic Zones Welfare Fund), including a proposal for a new tariff regime for land in the special economic zones. It has also decided to provide land to investors at a competitive price, taking the present global investment scenario into consideration. “The government has already formulated the necessary laws and regulations to remove all regulatory barriers and provide the necessary policies and financial and utility support, including ensuring the supply of gas, water, and electricity under a one stop service plan to offer investors a harassment-free environment”, said Dr. Dewan M Humayun Kabir, director of administration at the Prime Minister’s Office. For attracting investments in EZs, Kabir said the government has declared various incentives and benefits, including an exemption from income tax, VAT on electricity and local purchases, customs duty, stamp duty, dividend tax, and income tax.

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Md Nojibur Rahman Chairman of National Board of Revenue (NBR

National Board of Revenue (NBR) is providing all sorts of support to BEZA in formulating an investment- friendly tax pattern for investors to develop the economic zones. We have already issued the Bangladesh Economic Zones Warehousing Station Rules, 2015, for declaring all economic zones as bonded warehousing stations. Under this system, unit investors will import raw materials free of import duties and VAT. The NBR has issued an SRO so that developers or unit investors can enjoy a tax holiday of different margins up to the first 12 years, and 10 years from the beginning of their business activities in the economic zones. The zone developers will also get the benefit of payable import tax and VAT exemptions for importing construction materials.

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Suraiya Begum Senior secretary at Prime Minister's Office (PMO)

Both the sixth and the seventh Five-Year Plans considered establishing new economic zones as a cornerstone to strengthening the manufacturing sector and promoting efficient use of skilled labor, land, and other resources. By the plan, the government is taking all sorts of initiatives to attract Foreign Direct Investment (FDI), promote exports, create employment through the establishment of economic zones, and making the zones engines of economic growth in Bangladesh. The government is urging business personalities to invest in economic zones and is assuring the provisioning of utility s ervices in economic zones at competitive rates. Location, connectivity, and utility services are three significant attributes to determine the success or failure of an economic z one. So, the presence of sea, air, or land ports, a well-developed road network, telecommunication system, etc., were considered thoroughly in approving the zones so that they could offer producers easy access to local and global markets.

Present Scenario of Economic Zones

Work is moving at a quick pace to implement the government's aim of setting up 100 economic zones (EZs) across the country to make Bangladesh an investment hub and around BDT1.30 billion. While talking about the progress of the Mirsarai Economic Zone, BEZA executive chairman Paban Chowdhury said the development activities of the zone would take place in three phases at a cost of USD187.05 million and it would be completed by 2028. “We are expecting to hand over industrial plots at the Mirsarai Economic Zone to prospective entrepreneurs from both home and abroad by the end of this year or first quarter of next year” he added.

Along with the Mirsarai Economic Zone, a PPP based economic zone in Mongla is set to start production within a couple of months. Initially, it is preparing to start its production with few arrangements in the running year, and full production will begin next year, a BEZA source said. While the Mirsarai Economic Zone is developing in full swing, the rest of the private sector economic zones are growing at a relatively slow pace. Apart from the four public sector economic zones, Beza has awarded prequalification licenses to 10 local private companies so far to set up 13 economic zones: one each to AK Khan and Company, the Abdul Momen Group, Bay Group, Aman Group, Maisha Group, United Group, Unique Group, and the Akij Group. Two licenses have been awarded to the Bashundhara Group and three to the Meghna Group.

The 13 private EZs are AK Khan and Companies Ltd in Narsingdi (200 acres); Abdul Momen in Munshiganj (325.95 acres); Meghna Industrial Economic Zone at Sonagaon in Narayaganj (21.69 acres); Meghna Economic Zone at Sonagaon in Narayaganj (72.02 acres); Meghna Group of Industries Economic zone in Comilla (102 acres); Aman Economic Zone at Sonargaon in Narayaganj (150 acres); Bay Economic Zone at Konabari in Gazipur (65 acres), Bashundhara Special Economic Zone in Keraniganj (56 acres); and the East West Special Economic Zone in Keraniganj (53.87 acres). Others are Maisha Group’s Arisha Economic Zone at Bosila in Dhaka (150 acres); United City IT Park at Bhatara in Dhaka (2.5 acres); Unique Group’s Sonargaon Economic Zone in Narayaganj (55 acres); and Akij Economic Zone at Trishal in Mymensingh (100 acres). On January 5, the governing council of BEZA also approved four new private economic zones to be established in Madaripur, Faridpur, Noakhali, and Kishoreganj. Of the 13, three private organizations have got final licenses to establish economic zones. At two of them, the Meghna Group and the Aman Group economic zones, some factories have already initiated production of cement, paper, packaging goods, as well as shipbuilding. Furthermore, the Abdul Momen Group has started to lease out plots to investors.

Furthermore, seven industry units of two economic zones in Narayangonj have already started production. In spite of the government’s various efforts, some industrialists from home and abroad who have invested in these economic zones, are disappointed because of the unavailability of power and gas connections. While talking about investor frustration with gas and power shortages, energy and mineral resources secretary, Nazimuddin Chowdhury said, “The gas and electricity crisis will not remain like this one and a half years from now. Presently, there is a daily deficit of 500-550 million cubic feet of gas. But one billion cubic feet LNG will be imported daily, so there will be no gas crisis.”

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Md Siddiqur Rahman President of Bangladesh Garments Manufacturing and Exporters Association (BGMEA)

Bangladesh has set an ambitious goal to become a developed country by 2041. In this regard, the government has laid out a series of development targets including setting up economic zones across the country. Nobody will deny that the government’s aim to encourage domestic and foreign investment in the SEZs by introducing more relaxed regulations in these areas is far-sighted. But it is urgent to ensure infrastructural development, uninterrupted electricity, gas and industrial water supplies and security. If we cannot ensure such facilities in this economic zone, all investors -- foreign and local -- would be frustrated. To achieve their development targets, the government should provide funds to help develop private economic zones. The development of economic zones with consistent support from the private sector will provide the necessary impetus for achieving an even higher growth rate in GDP.

Land Tariffs in Economic Zones

Fixing tariffs for lands which are developed or being developed under the authority and supervision of BEZA in economic zones, prior to allocation to entrepreneurs for setting up industrial units, is very crucial. To set the land tariffs for the economic zones, a five-member committee convened by the senior secretary of the Finance Division, was formed in August last year.

After a couple of meetings, the government finalized the tariffs for leasing lands to investors in 17 economic zones across the country. The Bangladesh Economic Zone Authority (BEZA), that reports to the PMO, got the approval for land tariffs on January 5 in its fifth governing committee meeting, held with prime minister Sheikh Hasina in the chair. With the fixation of land tariffs, BEZA can now allocate land to investors. Under the rate chart, land tariffs will range between USD0.80 and USD0.27 per square feet per annum in three categories: developed, undeveloped, and specialized. Of the 17 economic zones, six zones were included in category ‘A’. Those are Mirsarai Economic Zone, Feni Economic Zone, Srihatta Economic Zone, Dhaka Economic Zone, Araihazar-2 Economic Zone,and Gazaria Economic Zone.

For the economic zones under category ‘A’, the land tariff has been fixed at USD0.80 per square feet for developed land and USD0.40 for undeveloped land. However, the land tariff would be USD0.70 per square feet for developed land and USD0.35 for undeveloped land in the economic zones under category ‘B’. Ten economic zones under category ‘B’ include the Cox’s Bazar Exclusive Economic Zone, Moheshkhali Economic Zone-1, Moheshkhali Economic Zone-2, Moheshkhali Economic Zone-3, Moheshkhali Special Economic Zone- 4, Moheshkhali Exclusive Economic Zone, Moheshkhali Economic Zone, Sabrang Tourism Park, Naf Tourism Park, and Mongla Economic Zone. In order to foster industrialization in the country’s north, special tariffs have been set for the Nilphamari Economic Zone, which falls under category ‘C’. Investors will pay only USD0.54 per square feet for developed land and USD0.27 per square feet for undeveloped land in the lone economic zone under category ‘C’.

The validity of the lease contracts will remain for 50 years. For category ‘A’ and ‘B’, investors will have to pay five percent of the total lease price as security payment while it is three percent for the Nilphamari Economic Zone. In addition to the tariffs, the BEZA governing committee meeting also approved service charge and regulatory permit fees for the economic zones. The service charge has been set at 5 percent, instead of a proposed 10 percent, of the amount of any utility bills such as gas, electricity, water, recycling, purification and effluent treatment. Terming the move as a major step forward to establishing 100 economic zones in the country, the BEZA executive chairman Paban Chowdhury said they will observe the interest of investors over the next couple of months to assess the real scenario.

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Professor Mustafizur Rahman Distinguished fellow of Center for Policy Dialogue (CPD)

The inflow of foreign direct investment, which is vital to a country’s infrastructure development, has not been increasing despite good incentives being offered by Bangladesh to investors from abroad. There are a number of reasons behind a poor FDI inflow into Bangladesh. These include scarcity of land, infrastructure, gas, and electricity, a delay in giving services, uncertainty in policy continuation, unclear dispute settlement procedures, and unexpected delays in formulating rules and regulations for the economic zones. Setting up special economic zones (SEZs) has become very important for Bangladesh to meet foreign investor demand for land. The government should allocate funds in the budget to develop these zones as soon as possible. China, India, and Vietnam have developed hundreds of economic zones, also known as industrial parks, to accommodate both foreign and local investors. The move has brought a huge amount of FDI into these countries. Unfortunately, Bangladesh has failed to formulate rules to operate the economic zones even after four years of the enactment of a law in 2012. If Bangladesh cannot address these constraints, it will not get the expected FDI even after offering tax benefits.

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