Publish : 03 Jan 2022, 07:17 PMUpdate : 03 Jan 2022, 10:53 PM
The government has an ambitious plan to construct 100 economic zones in the country.
In this article I argue that trying to build 100 economic zones may not be the proper strategy.
Instead, going for a smaller number of well-designed and properly implemented zones may be a better option, at least for the next five years.
The economic zones program is one of the most important programs of the government with the potential to trigger transformative change in our world of manufacturing and exports.
To realize that potential, the program must be implemented in a strategic manner, underpinned by a vision of where we would like to see our manufacturing sector a decade from now.
Let us start by looking at the origins of this ambitious program.
By the early years of the new century, it was clear that scarcity of serviced industrial land was becoming a serious constraint.
In 2007, the World Bank published an investment climate assessment for Bangladesh, the second in a series that had started in 2002.
Four of the top five business constraints identified by businesses were common to both the 2002 and 2007 assessments.
What was new this time was the access to land constraint.
In 2002, just under 30% of the respondents had identified this as a major or severe constraint. Now the proportion was almost 50%.
Land-scarcity, a long-standing problem, was compounded by weaknesses in land recording and titling.
Land ownership disputes were ubiquitous.
It was difficult to obtain unencumbered and serviced industrial land, with good access to infrastructure and utilities.
Rapid industrialization had also harmed the environment. In the absence of a good zoning policy, entrepreneurs had set up factories indiscriminately.
Inadequate planning for industrial growth had led to inefficient use of scarce land.
Aware of these concerns, a team within the World Bank Group started thinking about a transformative agenda to address the problem of serviced industrial land.
The vision was that of organized and environmentally sustainable industrialization. Economic zones were to be a core part of the strategy to achieve this.
The six operational export processing zones existing then were reasonably well-run but were, by definition, all export oriented.
The total area of available plots in these zones was also limited. Investors catering largely to the domestic market had started to complain.
The 60 or so industrial parks scattered all over the country were in bad shape.
Run by an inefficient and resource-starved Bangladesh Small and Cottage Industries Corporation, most lacked good infrastructure and utilities, and some were in locations that made little economic sense.
Demand was rising for increasing the supply of serviced industrial land through the establishment of more zones, including those accessible by domestic businesses.
Vision
In a 2007 report, Bangladesh: Piloting Reform through the Development and Management of Economic Zones, the World Bank Group articulated a vision for future development of economic zones in the country.
Drawing upon global good practices with economic zones, it made several recommendations, the most significant of which was a move away from the purely public sector model of zone development and management prevalent in Bangladesh.
A bold idea for a country long used to a public sector economic zones regime.
The report argued for allowing varying degrees of private sector participation, such as purely private zones where the private sector both develops and manages the zones, and PPP zones which may be publicly developed but managed by the private sector.
It advocated the creation of an enabling environment for this to happen.
The report also suggested developing some large-scale regional economic zones, covering an entire district or more and having, within them, smaller economic zones and complementary facilities, such as housing and logistic zones.
If designed and managed well, economic zones can be very powerful tools.
By providing an assured supply of infrastructure and a hassle-free regulatory environment within a reasonably short period, economic zones can attract a critical mass of investors unwilling to wait for country-wide infrastructural and regulatory improvements.
Bangladesh’s ambitious economic zones program is a move towards a new regime of economic zones, consistent with global good practices, applying commercial principles and providing a role for private developers.
Progress
Considerable progress has been made towards achieving that goal.
The Bangladesh Economic Zones Authority (Beza) was set up through a gazette notification in November 2010, tasked with the mandate to regulate private investment in zone development and design and develop zones in the public sector.
A High-Tech Park Authority has also been established to oversee economic zones dedicated to the IT industry.
One of Beza’s first tasks was to develop rules and regulations to make the act effective.
In 2014, the government issued the Private Economic Zone Policy to clarify the rules of the game for private economic zones.
The program has been moving on two tracks, one comprising purely private economic zones and the other consisting of zones established through public-private partnerships (PPPs).
Under the PPP model, Beza acquires large tracts of land on which it does some preliminary land development work, such as filling in land where needed, and putting in place the basic infrastructure such as roads, and electricity and water distribution network.
It then leases blocks of land to private developers.
The first such leasing of public land plots through an open competitive bidding process to developers happened in the Mongla Economic Zone in December 2015, and in the Mirsarai Economic Zone in December 2017.
Crème de la crème
The jewel in the crown for the economic zones program is a huge zone being developed on the Feni-Chittagong corridor in the south-east of the country.
Spread over two districts (Feni and Mirsarai) and named after the founder of the country, the Bangabandhu Sheikh Mujib Shilpa Nagar (BSMSN) covers an area of about 30,000 acres.
To put this into perspective, the total land area in the nine export processing zones managed by BEPZA is only around 2,000 acres.
Some zones within BSMSN will be dedicated to investors from specific countries and developed through a combination of G2G and PPP models.
For example, the Bangladesh government may reach an agreement with another government where a certain amount of land will be allocated to build a zone reserved for investors from that country.
Private developers from that country may be contracted by its government to develop the zone and market it to potential investors.
Such an approach may also be followed in other parts of the country, i.e., outside the BSMSN.
An example is the 1000-acre Japanese Economic Zones being developed at Araihazar in Narayanganj.
The first full license for a private economic zone to be developed by a local private company on its own land was awarded in 2016 to the Meghna Group of Industries, a leading conglomerate of Bangladesh.
This pioneering zone, the Meghna Economic Zone (MEZ), is being built on 245 acres of land in Sonargaon, on the banks of the Meghna river.
Sonargaon, a symbol of the past, has now become the harbinger of the future.
Another nine licenses were given for development of private zones during 2017-2019.
All these are impressive developments and have helped generate considerable investor interest.
According to Beza data, more than $3.7 billion worth of private investments have been attracted so far and there is a possible pipeline of more than $20 billion.
To put this in perspective, the total stock of FDI in Bangladesh as of June 30, 2020, i.e., the accumulation of all FDI flows since independence minus outflows, was a little more than $18 billion.
The pipeline is thus impressive.
Challenges
But the real challenge is in turning the prospective investment into real investment.
It is also important to ensure that the investment that comes in truly helps diversify our exports and lays the basis for a skill-based manufacturing sector that will compete globally based on knowledge, not cheap labour.
The economic zones are providing very valuable assets such as land and good quality infrastructure.
It will be a shame if such scarce resources are used to produce traditional goods, such as jeans and shirts, that do not help achieve the objectives of diversification and a move towards more complex products, such as electronics.
The economic zones program will thus have to be implemented in a strategic manner keeping these goals in mind.
A mad rush to build 100 economic zones may divert attention from such strategic thinking.
The website of the Beza states: “Beza has till now got approval to establish 88 economic zones countrywide comprising 59 government and 29 private economic zones. Feasibility studies, land acquisition and identifying area specific social and environmental initiatives are underway for these approved EZs.”
But it is not clear how much strategic thought has gone into such approvals.
The time has come to rethink the scope of the program.
The declared intention of setting up 100 economic zones in the country may have helped trigger the nation’s imagination about zones, provided a powerful signal to investors, and a message to government officials that this agenda has the blessings of the top leadership and hence its implementation should be top priority.
However, implementing zones on such a large scale faces several challenges including that of land acquisition, funding, and attracting an adequate number of tenants.
Beza is provided government loans to acquire land and develop these into zones.
The ability of Beza to service these loans will depend on the commercial viability of the zones.
It is time that we took a hard look at the viability of such a large number of zones.
It may be prudent to scale down our ambitions and focus on a smaller number of well-developed and commercially viable zones.
The focus for now should be on quality, not quantity.
The author is an economist, previously with an international development agency
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OP-ED: Do we really need 100 economic zones?
The government has an ambitious plan to construct 100 economic zones in the country.
In this article I argue that trying to build 100 economic zones may not be the proper strategy.
Instead, going for a smaller number of well-designed and properly implemented zones may be a better option, at least for the next five years.
The economic zones program is one of the most important programs of the government with the potential to trigger transformative change in our world of manufacturing and exports.
To realize that potential, the program must be implemented in a strategic manner, underpinned by a vision of where we would like to see our manufacturing sector a decade from now.
Let us start by looking at the origins of this ambitious program.
By the early years of the new century, it was clear that scarcity of serviced industrial land was becoming a serious constraint.
In 2007, the World Bank published an investment climate assessment for Bangladesh, the second in a series that had started in 2002.
Four of the top five business constraints identified by businesses were common to both the 2002 and 2007 assessments.
What was new this time was the access to land constraint.
In 2002, just under 30% of the respondents had identified this as a major or severe constraint. Now the proportion was almost 50%.
Land-scarcity, a long-standing problem, was compounded by weaknesses in land recording and titling.
Land ownership disputes were ubiquitous.
It was difficult to obtain unencumbered and serviced industrial land, with good access to infrastructure and utilities.
Rapid industrialization had also harmed the environment. In the absence of a good zoning policy, entrepreneurs had set up factories indiscriminately.
Inadequate planning for industrial growth had led to inefficient use of scarce land.
Aware of these concerns, a team within the World Bank Group started thinking about a transformative agenda to address the problem of serviced industrial land.
The vision was that of organized and environmentally sustainable industrialization. Economic zones were to be a core part of the strategy to achieve this.
The six operational export processing zones existing then were reasonably well-run but were, by definition, all export oriented.
The total area of available plots in these zones was also limited. Investors catering largely to the domestic market had started to complain.
The 60 or so industrial parks scattered all over the country were in bad shape.
Run by an inefficient and resource-starved Bangladesh Small and Cottage Industries Corporation, most lacked good infrastructure and utilities, and some were in locations that made little economic sense.
Demand was rising for increasing the supply of serviced industrial land through the establishment of more zones, including those accessible by domestic businesses.
Vision
In a 2007 report, Bangladesh: Piloting Reform through the Development and Management of Economic Zones, the World Bank Group articulated a vision for future development of economic zones in the country.
Drawing upon global good practices with economic zones, it made several recommendations, the most significant of which was a move away from the purely public sector model of zone development and management prevalent in Bangladesh.
A bold idea for a country long used to a public sector economic zones regime.
The report argued for allowing varying degrees of private sector participation, such as purely private zones where the private sector both develops and manages the zones, and PPP zones which may be publicly developed but managed by the private sector.
It advocated the creation of an enabling environment for this to happen.
The report also suggested developing some large-scale regional economic zones, covering an entire district or more and having, within them, smaller economic zones and complementary facilities, such as housing and logistic zones.
If designed and managed well, economic zones can be very powerful tools.
By providing an assured supply of infrastructure and a hassle-free regulatory environment within a reasonably short period, economic zones can attract a critical mass of investors unwilling to wait for country-wide infrastructural and regulatory improvements.
Bangladesh’s ambitious economic zones program is a move towards a new regime of economic zones, consistent with global good practices, applying commercial principles and providing a role for private developers.
Progress
Considerable progress has been made towards achieving that goal.
The Bangladesh Economic Zones Authority (Beza) was set up through a gazette notification in November 2010, tasked with the mandate to regulate private investment in zone development and design and develop zones in the public sector.
A High-Tech Park Authority has also been established to oversee economic zones dedicated to the IT industry.
One of Beza’s first tasks was to develop rules and regulations to make the act effective.
In 2014, the government issued the Private Economic Zone Policy to clarify the rules of the game for private economic zones.
The program has been moving on two tracks, one comprising purely private economic zones and the other consisting of zones established through public-private partnerships (PPPs).
Under the PPP model, Beza acquires large tracts of land on which it does some preliminary land development work, such as filling in land where needed, and putting in place the basic infrastructure such as roads, and electricity and water distribution network.
It then leases blocks of land to private developers.
The first such leasing of public land plots through an open competitive bidding process to developers happened in the Mongla Economic Zone in December 2015, and in the Mirsarai Economic Zone in December 2017.
Crème de la crème
The jewel in the crown for the economic zones program is a huge zone being developed on the Feni-Chittagong corridor in the south-east of the country.
Spread over two districts (Feni and Mirsarai) and named after the founder of the country, the Bangabandhu Sheikh Mujib Shilpa Nagar (BSMSN) covers an area of about 30,000 acres.
To put this into perspective, the total land area in the nine export processing zones managed by BEPZA is only around 2,000 acres.
Some zones within BSMSN will be dedicated to investors from specific countries and developed through a combination of G2G and PPP models.
For example, the Bangladesh government may reach an agreement with another government where a certain amount of land will be allocated to build a zone reserved for investors from that country.
Private developers from that country may be contracted by its government to develop the zone and market it to potential investors.
Such an approach may also be followed in other parts of the country, i.e., outside the BSMSN.
An example is the 1000-acre Japanese Economic Zones being developed at Araihazar in Narayanganj.
The first full license for a private economic zone to be developed by a local private company on its own land was awarded in 2016 to the Meghna Group of Industries, a leading conglomerate of Bangladesh.
This pioneering zone, the Meghna Economic Zone (MEZ), is being built on 245 acres of land in Sonargaon, on the banks of the Meghna river.
Sonargaon, a symbol of the past, has now become the harbinger of the future.
Another nine licenses were given for development of private zones during 2017-2019.
All these are impressive developments and have helped generate considerable investor interest.
According to Beza data, more than $3.7 billion worth of private investments have been attracted so far and there is a possible pipeline of more than $20 billion.
To put this in perspective, the total stock of FDI in Bangladesh as of June 30, 2020, i.e., the accumulation of all FDI flows since independence minus outflows, was a little more than $18 billion.
The pipeline is thus impressive.
Challenges
But the real challenge is in turning the prospective investment into real investment.
It is also important to ensure that the investment that comes in truly helps diversify our exports and lays the basis for a skill-based manufacturing sector that will compete globally based on knowledge, not cheap labour.
The economic zones are providing very valuable assets such as land and good quality infrastructure.
It will be a shame if such scarce resources are used to produce traditional goods, such as jeans and shirts, that do not help achieve the objectives of diversification and a move towards more complex products, such as electronics.
The economic zones program will thus have to be implemented in a strategic manner keeping these goals in mind.
A mad rush to build 100 economic zones may divert attention from such strategic thinking.
The website of the Beza states: “Beza has till now got approval to establish 88 economic zones countrywide comprising 59 government and 29 private economic zones. Feasibility studies, land acquisition and identifying area specific social and environmental initiatives are underway for these approved EZs.”
But it is not clear how much strategic thought has gone into such approvals.
The time has come to rethink the scope of the program.
The declared intention of setting up 100 economic zones in the country may have helped trigger the nation’s imagination about zones, provided a powerful signal to investors, and a message to government officials that this agenda has the blessings of the top leadership and hence its implementation should be top priority.
However, implementing zones on such a large scale faces several challenges including that of land acquisition, funding, and attracting an adequate number of tenants.
Beza is provided government loans to acquire land and develop these into zones.
The ability of Beza to service these loans will depend on the commercial viability of the zones.
It is time that we took a hard look at the viability of such a large number of zones.
It may be prudent to scale down our ambitions and focus on a smaller number of well-developed and commercially viable zones.
The focus for now should be on quality, not quantity.
The author is an economist, previously with an international development agency