Special economic zones (SEZs) emerge when a country wants to reboot its manufacturing sector. A. Agarwal, Mombert Hope, and Peter Walkenhorst examined South Asia to see if they were “industrial islands,” that is, fulfilling a geographical or industrial coordination function, or serving as the country’s “vehicle of diversification” (World Bank report). Other observers also suggest how they can play a “catch-up” catalytic role for late-industrialising countries, or serve as a “jump-start” mechanism for a sagging economy that was once vibrant. Designed, by definition, to attract investors, both domestic and foreign, their emergence also implies privileged incentives not offered to players in the larger economy, but also the presence of constraints on the national economy which only incentives could overcome. Those “privileged incentives” could take the form of tax concessions, appealing particularly to foreign investors, while those “constraints” could point to a protectionist rather than liberal orientation with scattered exceptions. Both also imply an economically active government, meaning that even liberalised transactions can expect intervention and be scrupulously monitored. Special economic zones are not established by a faint-hearted government, but since they have been proliferating globally of late, something in some economies must actually be too faint to survive. Bangladesh got into the SEZ action in the 1980s (although scattered industrial activities were moving in this direction from as early as 1979). Ever since, the country’s SEZ experiences paradoxically show a little bit of all of the above arguments: the SEZ advent has rubbed shoulders with the creation of, or allocation to create, industrial parks (such as Savar for leather and, hopefully, Munshiganj for pharmaceuticals); seems poised to slide into diversification (as in Rajshahi’s SEZ where the Bangladesh Small and Cottage Industries Corporation’s Industrial Estate is venturing to establish an automobile factory, though the dominant production would still be ready-made garments); offers tax holidays for up to 10 years, with three years on dividend taxes, duty-free imports, VAT (value-added tax) exemptions, up to 10 per cent profit repatriation; and are premised upon an interventionist government (allocating SEZ land, for instance). Moving backwards analytically, these privatised outfits began in the public sector through the 1980 Bangladesh Export Processing Zone Act (BEPZA), and Principles and Procedures Act of 1981, until, in 1986, similar legislations were enacted for the private sector, after which followed an expansionary phase capped by 100 units the current government wants to have by 2030 to generate $40 billion of income. We actually have three types of SEZ varieties, not two: one is 100 per cent foreign-owned, a second is domestically-owned, and a third captures the space in between with joint ventures. The BEPZA breed differs from its SEZ counterpart: it is far older, therefore with more experiences, and in fact, a rather high reputation, since the Chittagong Export Processing Zone was voted the third-best world-wide in cost competition and fourth-best world-wide in economic potential in 2010-11 by Financial Times. Other BEPZA zones can be found in Adamjee in Naraynganj, Comilla, Dhaka, Ishwardi, Karnafuli, Mongla, and Uttara in Nilphamari, with size varying between 108 and 361 acres. Zaara Zain Hussain’s study of these zones show that, by 2012, 37 countries from all over the world have invested over $2.4 billion for 403 industries, employing just under 400,000 people (Institute of South Asian Studies, National University of Singapore, Report, November 2013). As a result right now, there seems to be emerging a public-private balance across Bangladesh. So far, 27 of the anticipated 100 SEZ units remain in public hands (even though the government may trade them to attractive private buyers), while 10 remain in private hands. Of the 10 whose information is available, the largest five (in terms of size), belong to the government: Mirersari Economic Zone (13,117.78 acres), Sabrana Cox’s Tourism Park (1,027.56), Shihata (352.12 acres), and Mongla (205 acres). The other five in private hands include Abdul Momen in Munshiganj (325.95 acres), A.K. Khan (200 acres), Amra (150 acres), Meghna (72.02 acres), Meghna Industrial (21.69), and Bay in Gazipur (65). Accordingly, the average customs duty has collapsed, from about 350 per cent in 1992 (a typical import-substitution degree of protection) to 25 per cent today, business turnover of more than Tk 2.0 million face a 15 per cent VAT hurdle, while those below that amount face a 4.0 per cent counterpart. Agarwal, Hope, and Walkenhorse also confirm how Bangladesh has been more open than India through their calculation of SEZ export proportions against total export values. In 1985, for instance, our SEZ exports were only 1.5 per cent of total exports, the corresponding Indian figure being 4.86 per cent. By 1990, ours had more than doubled to 3.5 per cent while India’s fell to 4.23 per cent. After that we simply raced ahead of a now-liberalised India: our 9.9 per cent more than doubled India’s 4.07 per cent in 1995, 17.9 per cent in 2000 was more than tripled India’s 5.4 per cent, and so forth. In the meanwhile, Sri Lanka displayed the true entrepôt role: its SEZ export share was 27.8 per cent in 1985, climbing to 33.2 per cent in 2003. The point is clear, though: the more incentives given, the more foreign takers; and exclusively for us, the more such incentives, the more domestic entrepreneurs entered the fold like they never had before. It was revolutionary for us, streamlining the RMG growth. Crucial to the data is that the land may still be in the process of acquisition. This is what generated part of the problem with the Korean Export Processing Zone (KEPZ, a different category than the SEZ breed), in Chittagong. It was not only the first such venture in the country, but the government briefly confiscated 2,000 of the 2,400-odd acres allocated; registration took forever (prompting LG and Samsung to leave), thus halting construction; then emerged complaints of not filling the requirements and, thereby, land confiscation, until the very recent restoration. It was an embarrassing streak all along, setting the wrong tone to the wrong sector at a wrong time. It could haunt our future reputation. Nevertheless, India has been allocated three plots, in Mirsarai (Chittagong), Keraniganj (Dhaka), and Bheramera (Mongla); as one can see, the allocations have been from the government units. Given the government’s race to climb the middle-income ladder, notch $50 billion in exports, and become a developed country, we should not be surprised if “privileged incentives” expand in size and benefits. With efforts to attract foreign investors while so huge amounts have been allocated to infrastructure-building, China’s call is awaited, while Japan has plunged into its sea-port and coal-plant projects in Matarbari. Meanwhile, the visiting Kuwaiti prime minister was urged to take a similar step, and our Commerce Minister, Tofail Ahmed, has been urging Saudi Arabia to pick up its slot, and numerous other feelers have been signalled elsewhere. Persistence pays. If our problem is the slow-moving foreign investment machine, we could do well to engage other countries like the ones just mentioned, who also face a constraint or two we might help compromise: Kuwait and Saudi Arabia from falling oil prices and urgency to diversify their economies; and China, India, Japan, and perhaps Korea to feed into their regional competition interests. Only by strengthening these links can we project a stronger profile in the west, and thereby make the 2030 BEZA goals more realistic.
