Export Processing Zones (EPZs) recorded their lowest Foreign Direct Investment (FDI) in three years in 2023, despite offering various incentives such as tax holidays, bonded area status, and one-stop service (OSS).
The central bank’s "Foreign Direct Investment and External Debt" report for July-December 2023 indicated that the EPZs secured $390.81 million in investments in 2023, a decrease of 3.14 per cent year-on-year and 0.86 per cent lower than the $394.2 million recorded in 2021.
Bangladesh received $3 billion in FDI in 2023, which is 13.7 per cent lower year-on-year. Of this total, 13 per cent of net FDI inflows were in EPZ areas, central bank data further showed.
Additionally, in FY23 (July-June), export earnings from EPZ factories dropped by 6.33 per cent year-on-year to $6.46 billion. The contribution of EPZs to total export earnings also declined, from 14.8 per cent in FY19 to 11.6 per cent in FY23, according to the Bangladesh Bank (BB) data.
Export Promotion Bureau (EPB) data indicates that the country earned $55.56 billion in FY23, $52.08 billion in FY22, $38.75 billion in FY21, $33.67 billion in FY20, and $40.53 billion in FY19 through merchandise exports.
EPZs contributed 11.63 per cent to overall exports in FY23, down from 13.25 per cent in FY22, 13.7 per cent in FY21, 14.67 per cent in FY20, and 14.88 per cent in FY19.
The data indicates a steady decline in EPZs’ share of total exports.
However, the Bangladesh Export Processing Zone Authority (BEPZA), which oversees the creation, development, operation, and management of the EPZs, maintains that they are still in a favourable position compared to the country’s total FDI.
BEPZA officials are optimistic about an increase in FDI this year, citing a substantial amount of investments already received and more expected. They have identified limited land availability as a key factor in the decline of FDI in EPZs.
BEPZA Executive Director (Public Relations) Abu Syeed Md Anwar Parvez told The Business Post, “Our existing EPZs are out of capacity to allocate lands. But we allocated some plots in the Mongla EPZ, and the investment figure will be reflected in the 2024 FDI data.
“We are setting up the BEPZA EZ and investors will be able to invest there,” he added.
FDI distribution in Bangladesh's EPZs
To attract FDI, local investments, industrialisation, export growth, and employment generation, the Bangladesh government established the BEPZA under Act 36 of 1980. EPZs were set up in various parts of the country.
BEPZA, operating under the Prime Minister's Office, aims to significantly contribute to Bangladesh's economic development. The primary objective of EPZs is to provide investors with a favourable investment environment, free from complex procedures.
According to BEPZA, there are three types of factories in EPZs — 100 per cent foreign ownership, joint ventures between Bangladesh and foreign investors (with no equity share limit), and 100 per cent Bangladeshi ownership.
In 1983, BEPZA established the Chittagong Export Processing Zone (CEPZ), the first of nine EPZs in Bangladesh, with eight currently operational and one in the process of being developed with land allocated.
To date, EPZs have secured over $6.6 billion in investments and employed over 500,000 workers, including nearly 2,000 foreign employees.
The highest net FDI inflows in 2023 were in Chittagong EPZ at $122.18 million, followed by Dhaka EPZ with $97.18 million, Uttara EPZ with $82.28 million, and Karnaphuli EPZ with $39.76 million. These four EPZs accounted for 87.4 per cent of the total FDI.
Among the remaining FDI, Adamjee EPZ received $24.17 million, Cumilla EPZ got $20.51 million, Mongla EPZ received $4.7 million and Ishwardi EPZ secured $0.04 million.
EPZ facilities
Every EPZ in Bangladesh is fully export-oriented and offers more facilities to investors than other factories, as they are also fully bonded areas.
The government provided a tax holiday for industries established before January 1, 2012. This included a 100 per cent holiday for the first three years, 50 per cent for the next three years, and 25 per cent for the following year. The same tax holiday was available for industries in Mongla, Ishwardi and Uttara EPZs.
For factories set up after January 1, 2012, in Chattogram, Dhaka, Cumilla, Adamjee, and Karnaphuli EPZs, the tax holiday is 100 per cent for the first two years, 50 per cent for the next two years, and 25 per cent for the following years.
All factories under BEPZA enjoy duty-free imports of construction materials, machinery, office equipment, spare parts, and raw materials. They benefit from relief from double taxation and exemption from dividend tax.
Additional facilities include no requirement for Utilisation Declaration (UD), Import Registration Certificate (IRC), Export Registration Certificate (ERC), and renewal of bond licences. Work permits are issued by BEPZA and the zones are secured and protected bonded areas.
Offshore banking is available, and import on a Documentary Acceptance (DA) basis is allowed, as well as import and export on a Cost and Freight (CM) basis. Import from the Domestic Tariff Area (DTA) is permitted and there is an allowance for 10 per cent sales to the DTA.
Customs clearance can be done at the factory site, with simplified sanction procedures. Sub-contracting with export-oriented industries inside and outside EPZs is allowed, as well as relocation facilities for foreign industries. One-window same-day service and simplified procedures are also available.
