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SEZs for foreign investors -- tapping the prospects in a befitting manner

Wasi Ahmed | Tuesday, 28 June 2022


Attracting foreign investment as a key mechanism of augmenting the economy with the multifarious gains -- from employment generation to technology transfer to developing backward linkage -- has led many countries to not only make the investment climate congenial but also to devise ways for freedom of operation for foreign investors. This has further opened up the scope of exclusive economic zones (EEZs) for foreigners which, however, is a different concept altogether in that a state's exclusive economic zone starts at the seaward edge of its territorial sea and extends outward to a distance of 200 nmi (370 km) from the baseline. The exclusive economic zone stretches much further into sea than the territorial waters. With the resolution of the territorial waters, it may not be too distant a reality for Bangladesh to go for EEZs.

At the moment, what is important for Bangladesh is to offer a truly investment-friendly environment for foreign investment within the scope of special economic zones (SEZs). Against the backdrop of stagnating investment scenario in the country, the government has no choice but to explore all potential avenues to attract investment, that too on a large-scale-- both domestic and foreign. It is clear that the export processing zones (EPZs) which came with a bang decades ago are not the best possible investment augmenting avenues. The focus being on export with easy operational practices, the premise was not particularly beneficial for others except local and foreign firms. In order to make some headway, the government then embarked on having special economic zones (SEZs). SEZs were meant to precisely facilitate investment and generate employment while providing safe and secure atmosphere for investors from home and abroad.

The emphasis on special economic zones, a similar but wider concept not necessarily confined to manufacturing for exports (as in the case of EPZs) has received attention in many countries. In our region, India is a pioneer in setting up special economic zones (SEZs) with adequate facilities and has been deriving gainfully from the successes of the zones in export growth, increased sourcing of local materials and a boost in job creation. SEZs in India initially functioned under the provisions of the country's foreign trade policy, and fiscal incentives were made effective through the provisions of relevant statutes.  The idea of making SEZs an engine of economic growth is integrally linked to quality infrastructure complemented by an attractive fiscal package, with the minimum possible regulations. One key requirement is the operational rules which, among others are to envisage:

⦿ Simplified procedures for development, operation, and maintenance of the zones and for setting up units and conducting business

⦿ Single window clearance for setting up a unit in a SEZ

⦿ Simplified compliance procedures and documentation with emphasis, as far as practicable, on self certification

Understandably, these are all about facilitations required to attract investment so that investing firms can operate in a congenial atmosphere, and more importantly, find the destination of their investment more suitable than in other countries. In other words, while investors, particularly foreign investors, are in the look out for better facilities, countries like Bangladesh are keen to provide more and more facilities in terms of infrastructure, financial, fiscal and scores of operational mechanisms. It is in this context that country-specific economic zones are the latest addition.

Evidently, significant positive impacts of large-scale FDI, particularly in manufacturing, include transfer of technology, and development of backward linkage industries, besides employment generation.

Months ago, we came to know that an economic zone named Japanese Economic Zone is set to go into operation by the next year. The 1,000-acre economic zone to be exclusively used by Japanese firms is being developed in Araihazar upazila of Narayanganj, which is Bangladesh's first ever economic zone under the government-to-government initiative. This indeed is a remarkable move to attract investment from a booming industrial economy like Japan. Given the massive development projects undertaken in the country by Japan, it is expected that both government would find it a good opportunity to work together in the years to come. Some of the major development projects under Japanese cooperation include the Bay of Bengal Industrial Growth Belt initiative, the Mass Rapid Transit project (Metro rail), expansion of Hazrat Shahjalal International Airport, and Moheshkhali-Matarbari Integrated Infrastructure Development Initiative (MIDI).

The government, reportedly, has assured that potential investors from Japan will be given full cooperation in a bid to boost Japanese investments. In a virtual meeting last week, Japanese envoy to Bangladesh also expressed his optimism about the good prospect of the economic zone. He also referred to the prospect of relocating some vital manufacturing units to this zone, if things move in the desired direction. He said the automotive industry of Bangladesh could be a good source of investment. Japan's Mitsubishi has completed their feasibility study and they will take decision on investment in Bangladesh next year. In this context, it may be recalled that the government has finalised drafting the automotive policy with an eye to attract foreign investment. In the virtual meeting, the chief of Bangladesh Investment Development Authority (BIDA) informed that currently over 300 Japanese companies operate in Bangladesh. In a 2019 survey, it was found that 70.3 per cent of Japanese companies are willing to expand their operations in Bangladesh, not only in trading but also in manufacturing.

The Bangladesh Bank has taken up a move that, many believe, would facilitate business transactions between local and foreign business counterparts. The central bank announced that all banks and non-banking institutions can now extend financial support to foreign companies against their overseas guarantees. Likewise, the bill-of-entry process was also simplified through automation. This and other facilitating initiatives are most likely to add more comfort for foreign firms willing to invest in the country.

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