Special Economic Zones in Bangladesh: Mobilizing private investment and creating better jobs

Challenge

During the 1990s, increases in agricultural productivity prompted millions of agricultural workers to move into manufacturing and services in the cities, but a shortage of land for greenfield investments hindered this structural transformation. The government looked to special economic zones for its industrial growth and to create the desperately needed jobs. Safety had also become a high policy priority after a series of factory disasters, including large fire and building collapses in 2012 and 2013 that killed thousands of workers and injured and displaced many people. This generated an urgent need for stronger mechanisms to promote socially and environmentally responsible industrial growth in Bangladesh.

Approach

To address these challenges, the project combined institutional capacity building and infrastructure development together with firm and employee-level support. This approach facilitated the establishment of the Bangladesh Economic Zone Authority (BEZA) and the Bangladesh High-Tech Park Authority (BHTPA).

The technical assistance provided under the project developed institutional capacity to assess the feasibility of public land for the development of economic zones and high-tech parks, develop economic zones, and issue licenses. In so doing, the project supported the institutions to develop policies, rules, and regulations such as the Private Economic Zones Policy, Bangladesh Economic Zones Workers Welfare Policy, One Stop Services Act, and the Bangladesh economic Zones Fund Management Regulations. The project also helped Bangladesh to develop an investment pipeline through land development and investment promotion and facilitation. This included attracting Bangladesh’s first foreign tier-1 anchor investor in the economic zones’ developer-operator market space; developing the Bangabandhu Sheikh Mujib Shilpa Nagar 1 (BSMSN-1) and the Mongla Economic Zone; bringing those zones to market through a private lease agreement; and developing the land for BSMSN-2.

The project also supported employees of economic zones and software technology parks. The project helped raise compliance with building codes and supported a social and environmental counsellor program in Export Processing Zones, which has served around 500,000 workers. The project has also trained thousands of IT workers and executives and helped firms enhance internal processes and quality of output after obtaining international quality certifications.

Results

During 2011 to 2021, the project facilitated more than $3.9 billion in direct total private investment in economic zones. The project developed 1,500 acres of land and $407 million worth of last-mile off-site infrastructure and on-site facilities including 26 km of roads, a 14 km embankment, eight bridges, three electric substations, and two water reservoirs. The project helped create 41,000 jobs (24 percent of which are held by women) and more than 21,000 trainees (31 percent of whom are women), have benefitted from the project skills enhancement program.

Bank Group Contribution

The project received credits totaling $170 million from the International Development Association (IDA).

Partners

The project partnered with the United Kingdom’s Department for International Development (DFID) / Foreign, Commonwealth, and Development Office (FCDO) to administer a recipient-executed grant of more than $20 million to finance works and technical assistance. This focused on master planning, investment promotion and transaction advisory, and skills development. DFID/FCDO also financed the bank-executed Bangladesh Investment Climate Fund 2, which is managed by the International Finance Corporation (IFC). This enabled the Bank’s project task team to provide high-level support and technical assistance.

The project’s main implementing agencies were BEZA, BHTPA, and the Bangladesh Export Processing Zones Authority (BEPZA). The project closely coordinated with industry associations such as the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), the Bangladesh Association of Call Center and Outsourcing (BACCO), and the Bangladesh Association of Software and Information Services (BASIS).

Moving Forward

The $500 million Private Investment and Digital Entrepreneurship (PRIDE) project, approved on June 19, 2020, will provide continuation to PSDSP. PRIDE will accelerate the country’s economic recovery by promoting job creation, private investment, and environmental sustainability in participating economic zones and software technology parks in Bangladesh. Along with emphasizing sustainable and resilient services, the project incorporates “greening” measures in construction and infrastructure by investing in renewable energy and energy efficiency improvements, as well as encouraging private investment in green production through a grant program.

Beneficiaries

The project has benefited public institutions, private investors, and workers. At the institutional level, the project provided technical assistance to facilitate the institutional establishment of BEZA and BHTPA. Developers and operators of economic zones and software technology parks benefited from access to developed land, better facilities, and cost competitive utility services. Lastly, workers benefited from improved training opportunities and an overall safer work environment.

“Our company has enhanced environmental standards and management and managed to penetrate international markets in Europe. Consequently, we have obtained related environmental certifications, received regional recognition like LCMP gold, and achieved a 9.31 percent emission reduction,”  Mr. Chaminda, Manager, Sustainability, Hop Yick Ltd., Bangladesh.