Export Processing Zone

Introduction:

The Bangladesh Export Processing Zone Authority (BEPZA) is an agency of the Government of
Bangladesh and is administered out of the Prime Minister's Office. Its objective is to manage the
various export processing zones in Bangladesh.

The Government provides numerous incentives for investors for opening factories in EPZs. For
example, new factories enjoy tax holidays for 5 years. Also, labor unions and other activities that
are often viewed detrimental to productivity, are banned inside the EPZs.

EPZ is the acronym for Export Processing Zone. According to the United Nations Industrial
Development Organization, “An export processing zone (EPZ) is defined as a territorial or
economic enclave in which goods may be imported and manufactured and reshipped with a
reduction in duties / and/or minimal intervention by custom officials”.

However, an Export Processing Zone is an industrial area that constitutes an enclave with regard
to customs’ tariffs and the commercial code in force in the host country.

History of EPZ in Bangladesh:

After the independence the stagnant economy of the war ravaged country was desperately
seeking private capital, technical knowhow to facilitate the industrialization process to achieve
economic growth. During the initial years it could not happen. However, a visit by the than
World Bank Vice President Mr. Robert McNamara in the early eighties to Bangladesh
transmitted the concept of EPZs to us. Since then EPZs, in tune with the liberal industrial policy
of the government along with investment friendly legal & institutional framework like Foreign
Private Investment (Promotion and Protection) Act’1980, have made significant progress.
Pioneer EPZ of the country Chittagong EPZ started functioning in the year 1983 in the Port city
of Chittagong, seeing its unprecedented success the second one came into being in 1991in
Dhaka. Presently there are as many as eight operational EPZs and two proposed EPZs in
different locations of the country contributing to the overall economic development process of
Bangladesh through promotion of export and FDI (Foreign Direct Investment), generation of
employment, transfer of technology, and development of forward and backward linkage
industries and so on.

About BEPZA:

In order to stimulate rapid economic growth of the country, particularly through industrialization,
the government has adopted an 'Open Door Policy' to attract foreign investment to Bangladesh.
The Bangladesh Export Processing Zones Authority (BEPZA) is the official organ of the
government to promote, attract and facilitate foreign investment in the Export Processing Zones.
The primary objectives of an EPZ are to provide special areas where potential investors would
find a congenial investment climate, free from cumbersome procedures.

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 Export Processing Zone

Objects of EPZ in Bangladesh:

The objective of setting up EPZs was to provide investors with a congenial investment climate
free from excessive procedural complications. The main objectives are given below;

- Promotion of foreign (FDI) & local investment

- Diversifications of export
- Development of backward & forward linkages
- Generation of employment
- Transfer of technology
- Upgradation of skill
- Development of management

Types of EPZ:

EPZ can be three types. They are given below;

1. Manufacturing
2. Warehousing.
3. Combination of both.

EPZs of Bangladesh are of manufacturing type. Currently around 900 Export Processing Zones
throughout the world enable manufacturers, assemblers, importers or exporters to benefit from a
variety of privileged facilities.

Investors Types of EPZ in Bangladesh:

Category - A: 100% Foreign ownership 174 (60%)

Category - B: Joint venture 39 (16%)

Category - C: 100% local venture 70 (24%)

24% 100% Foreign

ownership

16% 60% Joint venture

100% Local venture

Fig: Percentage ratio of Investors types

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 Export Processing Zone

Lists if country invested in Bangladesh:

South Korea Switzerland

Bangladesh Belgium
Japan Denmark
China France
Malaysia Thailand
Taiwan Sri-Lanka
U.S.A Indonesia
U.K Australia
Italy Nepal
Canada Mauritius
Netherland Ireland
Germany U.A.E.
BR. Turkey
India Ukraine
Sweden Marshal Island
Singapore
Pakistan
Panama

Brand products made in Bangladesh EPZ:

NIKE, OSPIG ADIDAS, MILES

REEBOK, (GERMANY), FALCON( (GERMANY),
LAFUMA, MOTHER USA), AMERICAN
H&M CARE (UK), EDIE EAGLE,
(SWEDEN), LEE, BAUYER, HI-TECH
GAP, WRANGLER, EAGLE, (UK),
BROUKS, DOCKERS, RELEIGH PHILLIP-
J.C. PENNY, NBA, (UK), MAURICE
WALMART, TOMMY, EMMILEE, (UK),
KMART, HILFIGER, FREE WINS MORE,
SPIRIL DECATHLON.
(UK),

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 Export Processing Zone

EPZ of Bangladesh:

1. EPZ- CHITTAGONG
2. EPZ- DHAKA
3. EPZ- MONGLA
4. EPZ- ISHWARDI
5. EPZ- COMILLA
6. EPZ- UTTARA
7. EPZ- ADAMJEE
8. EPZ- KARNAPHULI

Reason to invest in Bangladesh EPZ:

There are some reasons which are important for the investors to invest in Bangladesh EPZ. They
are given below;

1. Law & order situation

2. Infrastructure facilities
3. Reduction of lead time
4. Cost of doing business
5. Friendly policy of government
6. Incentives
7. Signatory of MIGA (Multilateral Investment Guarantee Agency)
8. Signatory of ICSID (International Centre For Settlement Of
Investment Dispute)
9. Member of WIPO (World Intellectual Property Organization)
10. Member of OPIC (Overseas Private Investment Corporation)
11. Asia's low cost production base

Incentives and Facilities of EPZ in Bangladesh:

In the EPZ of Bangladesh, there are various facilities for the investor countries to attract them to
invest in our country. They are given below;

Fiscal Incentives

- 10 years tax holiday

- Duty free import of construction materials
- Duty free import of machineries, office equipment & spare parts etc.
- Duty free import and export of raw materials and finished goods

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 Export Processing Zone

- Relief from double taxation

- Exemption from dividend tax
- GSP facility available
- Accelerated depreciation on machinery or plant allowed
- Remittance of royalty, technical and consultancy fees allowed
- Duty & quota free access to EU, Canada, Norway, Australia etc.

Non – Fiscal Incentives;

- 100% foreign ownership permissible

- Enjoy MFN (most favored nation) status
- No ceiling on foreign and local investment
- Full repatriation of capital & dividend
- Foreign Currency loan from abroad under direct automatic route
- Non-resident Foreign Currency Deposit (NFCD) Account permitted
- Operation of FC account by 'B' and 'C' type Industries allowed.

Facilities;

- No UD, IRC, ERC and renewal of Bond license

- Work permits issued by BEPZA
- Secured and protected bonded area
- Off-Shore banking available
- Import on Documentary Acceptance (DA) basic allowed
- Bank of Back L/C
- Import and Export on CM basis allowed
- Import from DTA (Domestic Tariff Area)
- 10% sale to DTA (Domestic Tariff Area)
- Customs clearance at factory site
- Simplified sanction procedure
- Sub-contracting with export oriented Industries inside and outside EPZ
allowed
- Relocation of foreign industries allowed
- Accords Residentship and Citizenship
- One Window same day service and simplified procedure.

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 Export Processing Zone

Infrastructure & Support Services:

Infrastructure

- Basic Infrastructure: Electricity, Water, &Gas

- Fully serviced plots available
- Factory building available on rental basis
- Enclave for workers Dormitory & Day Care Centre
- Warehouse/Godown-available

Support Services

- Business: Bank, Courier, Post office, C&F Agent, Shipping Agent,

MTO etc.
- Administrative: Customs Office, Police Station, In-house Security,
Fire Station, Public Transport, Medical Centre etc.
- Others: Restaurant, Health Club, Investors Club, Recreation Centre,
School and College, Sports Complex, Exclusive Telephone Exchange,
Electricity Sub Station, Business Centre, Anglers Club etc.

Investment Guarantee:

- Foreign Private Investment (Promotion and Protection) Act, 1980

secures all foreign investment in Bangladesh.
- OPIC's (Overseas Investment Corporation, USA) insurance and
finance programmes operable.
- Security and safeguards available under Multilateral Investment
Guarantee Agency (MIGA) of which Bangladesh is a member.
- Arbitration facility of the International Center for the Settlement of
Investment Dispute (ICSID) available.

EPZs growing contribution to Investment, Export & Employment:

Foreign Direct Investment (FDI) the acquisition of managerial control by a citizen or

corporation of a home nation over a corporation of some other host nation. Corporations that

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 Export Processing Zone

widely engage in FDI are called multinational companies, multinational enterprises, or

transnational corporations. FDI traditionally implies export of real capital from home to the host
nation, but even when economic investment results from FDI, capital may not be transferred
from the home nation to the host one. Rather, multinational corporation may acquire/utilise real
capital from local (or a third-nation) sources. On the demand side, however, Bangladesh invites
FDI for industrial growth, in particular welcoming establishment of manufacturing firms and
service sector enterprises that would sell their products within the country and also export
outside it.

Diversification & Generation Employment, Absorption of huge unskilled and skilled

workforce in the export driven labor intensive manufacturing sector of EPZs have facilitated
rapid industrialization process and accelerated the real economic growth. Increasing FDI in the
manufacturing activity has important bearing on the development of market access skill and
transfer of technology. Vibrant economic activities of EPZs are inducing domestic economy
through expansion of tertiary businesses, increased domestic consumption, outsourcing of goods
and services from tariff area. Simultaneously with the primary objective of employment
generation, EPZs have also facilitated diversification of the product base by adding new sectors
like electronic, shoes, engineering products other than RMG. Backward integration to textile is
taking place in EPZs to backup RMG sector in the competing global market.

Technology Transfer, The field survey reveals that in a relatively simple industry with
no proprietary technology, such as RMG and footwear, technology transfer takes place readily
both inside and outside the EPZs, though on a very limited scale. The transfer is from foreign
technicians and managers working together on factory floors, from foreign buyers to local firms,
and through consultants, movement of employees, visits to plants abroad, and so forth. But in
industries, such as electronic components, with internationally established firms resist
challenging, fast-changing, and largely proprietary technology, transfer of technology to
Bangladesh is very limited. In any case, firms in Bangladesh are not capable of mounting a
competitive challenge without a lot of help. In such industries, the direct transfer of product and
process technologies through the EPZs has been very small, except in simple industries, such as
RMG.

Skill Transfer: Technology transfer is intertwined with skill transfer. The field survey
reveals that skill transfer to the rest of the economy occurs mainly through the movement of
people who have received training in foreign and joint-venture firms in the EPZs and through
learning by locally owned firms there. Interviews with a number of factory managers in the EPZs
indicate that the factories in the EPZs contribute significantly to workers’ technical production
and factory management skills even though the acquisition of broader management capability or
marketing skills is very slow.

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 Export Processing Zone

Year wise Employment of EPZs in Bangladesh:

Table: Year wise local employment of EPZ in Bangladesh

Year Local Employment in Total

Current Cumulative
2004-05 15802 154,788
2005-06 23,021 177,809
2006-07 23,360 201,169
2007-08 17,130 218,299
2008-09 16,394 234,693
2009-10 28,064 262,757
2010-2011 (NOV,2010) 10,707 273464

Year wise Export of EPZs in Bangladesh:

Table: Year wise Export of EPZ in Bangladesh

Year Export in Million US Dollar

Current Cumulative
2004-05 1548.68 10003.62
2005-06 1836.18 11839.80
2006-07 2063.67 2063.67
2007-08 2429.58 16333.04
2008-09 2581.70 18914.74
2009-10 2822.54 21737.28
2010-2011 1309.55 23046.82
(NOV,2010)

Year wise Investment of EPZs in Bangladesh:

Table: Year wise Investment of EPZ in Bangladesh

Year Investment in Million US Dollar

Current Cumulative
2004-05 118.52 867.01
2005-06 112.89 979.89
2006-07 152.37 1132.26
2007-08 302.19 1434.45
2008-09 148.03 1582.47
2009-10 221.99 1804.46
2010-2011 87.58 1892.21
(NOV,2010)

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 Export Processing Zone

Product wise Enterprise:

Table: Product wise enterprise of EPZ in Bangladesh

EPZs contribution to the national economy:

Apart from export earning objectives employment pattern shows that EPZs have been making
significant contribution to the gradual empowerment of women which supports the objective of
Millennium Development Goal (MDG).This financial and social empowerment of women has
far reaching effect on the country’s poverty reduction initiatives as the increasing number of
young girls and woman are joining the productive workforce of EPZs migrating from poverty
prone remote rural areas of Bangladesh linking the rural economy with industrialization process.
BEPZA has also accelerated the privatization effort of the government successfully by
converting two loss making State Own Enterprises (SOEs) of the country namely Chittagong
Steel Mills and Adamjee Jute Mills Ltd in to EPZs. Once abandoned projects are now vibrating
with activities. Mention may also be made that investors from thirty three countries have already
invested in the EPZs of Bangladesh. The leading nations among them include South Korea,
Japan, China and the host Bangladesh.

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 Export Processing Zone

36%

Female 1,28,677
64%
Male 72,381

Fig: Percentage ratio of employment

Challenges of EPZ of Bangladesh:

BEPZA has been striving hard to upgrade its operational efficiency to a level which would cater
the diversified needs of the investors. To achieve this objective challenges ahead for BEPZA
would be:

a. Development of improved physical infrastructures, integrated environment and water

management, power generation, commercial complex on Public Private Partnership (PPP) basis.

b. Development of a productive and sound industrial relation environment. Compliant

industrialization and full right of workers union as per international best practice benchmarking.

c. Achieve organizational excellence by developing online capabilities and automation to

ensure quality and expeditious delivery of services to the investors. Ensure full implementation
of E-governance in all EPZs.

d. Create more zones in the strategically located sites to accommodate the increasing
demand of the existing investors.

Conclusion:

With the changing global business and investment scenario the EPZs of Bangladesh have revised
its expansion strategy and in tune with the varied needs of the present day businesses,
Bangladesh EPZ Authority (BEPZA) is customizing its investment incentives and facilities.
Opening up of new sectors of investment have provided an excellent opportunity to prospective
investors. New zones in strategically located places with state of art industrial facilities and pro-
investment institutional frame work providing the right kind of environment to grow. BEPZA
believes that investors from all around the globe would find the EPZs of Bangladesh as a truly
attractive investment destination. For better export performance international market access of
Bangladeshi product is of prime important. Bangladesh has got huge potential in respect of
natural resources, skilled manpower and investment friendly atmosphere. Development partners
should come forward to find market for Bangladeshi products in the developed countries.

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