Export Processing Zone (EPZ)  is a response to international market demand for cheaper goods. It addrsses the national problems like growing trade gap, high unemployment, dearth of capital investment, shortage of foreign currency and lack of technical know-how gas.

As special industrial parks EPZs are located in areas with advantages in terms of communication and access to raw materials and industrial labour. The manifest objectives of EPZs are to attract foreign capital investment and mobilise 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.

Following an Act of Parliament in 1980, the first EPZ of the country was established in chittagong in 1983. The second one started operations in 1993 at savar near Dhaka. Six more are in process of implementation at gazipur, mongla, ishwardi, comilla, saidpur and sirajganj. The government has signed an agreement with the Republic of Korea to establish a Korean EPZ in Chittagong.

Management and monitoring of EPZs in the country lie with the Bangladesh Export Processing Zones Authority (BEPZA). 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 labour 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 neighbouring countries. (See Table 1 for government investment in EPZs and recovery rates)

Table 1 Government's investment (million Taka) and recovery (% of investment)

EPZs are considered as good and secure venues for foreign private investment in Bangladesh. Yet, only 132 out of the 243 enterprises sanctioned up to 30 June 1999 in the two established EPZs (Chittagong EPZ or CEPZ and Dhaka EPZ or DEPZ) had gone into operation. The volume of investment made accounted for $347.35 million, as against the proposed amount of $1,076.56 million (see table 2). Of the sanctioned 243 EPZ enterprises, 125 are of type A (100% foreign investment), 58 are of type B (joint venture) and 60 are of type C (100% local investment). Dhaka and Chittagong EPZs have investment of 21 countries including Bangladesh. The list is dominated by South Korea (61), Bangladesh (60), Japan (25), Hong Kong (18) and USA (18).

Table 2 Investment (million $) in EPZs of Bangladesh (April 1999)

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 till June 1999 was $2,865 million.

The two EPZs provide employment to about 88,000 Bangladeshi workers. As the average family size in the country is 6 members, with only one earning member in a family, these 88,000 workers earn livelihood for more than half a million people. In most cases, foreign investment in EPZs is accompanied by utilisation 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 organised and fast development of infrastructure including roads, electricity, gas, water supply, telecommunication, fire brigade, post office etc. The private sector around the EPZ areas have 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 sets 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.

A sizeable amount of income accrues to support services located in and around EPZ. Such services include 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 about Tk 2.15 billion in wages to local employees in a year and also spend about Tk 5.3 billion in welfare (allowance/arrangement for food, conveyance, transport, healthcare and medicine etc.). Expatriate employees, each earning on average $1,000 per month in EPZs, also 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]