How Do Bangladesh’s SEZs Really Lure Foreign Direct Investment (FDI)?

Bangladesh has become an attractive destination for foreign investors in recent years, immense thanks to the country’s successful implementation of special economic zones (SEZs). These designated areas offer a range of benefits to investors, including tax breaks, streamlined regulations, and improved infrastructure. As a result, Bangladesh has seen a significant increase in foreign direct investment (FDI) in recent years, with many investors choosing to establish their operations within the SEZs. In this article, we will delve into why SEZs in Bangladesh are so effective at luring foreign direct investment, examining the various factors contributing to their success and exploring their impact on the country’s economy. Whether the investor is looking to explore new opportunities or is simply interested in the economic development of Bangladesh, this article provides valuable insights into the benefits of SEZs and their potential for future growth.

Introduction

In its first 50 years of independence, Bangladesh has made significant progress. Since its independence, Bangladesh has experienced remarkable economic growth and social progress, steadily reducing poverty and enhancing living conditions. This extended period of steady economic development failed by the COVID-19 pandemic, which exacerbated some prior vulnerabilities. Continued challenges include stagnant employment growth, growing inequality, sluggish poverty reduction: low revenues, and persistently significant financial sector vulnerabilities. To reach upper-middle income status by 2031, significant investments in infrastructure, human capital, and climate resilience are necessary.

Bangladesh as a Destination for foreign direct investment (FDI)

In Bangladesh, manufacturing and service sector activities rebound led to solid growth in FY21 and the first half of FY22. Over the next few years, GDP growth is likely to stay strong. Headline inflation rose to 6.2 percent in February 2022, driven by food and non-food prices. The war in Ukraine and associated sanctions may lead to a higher current account deficit and rising inflation as global commodity prices surge. Public debt remains sustainable, and the March 2022 joint World Bank-IMF Debt Sustainability Analysis assessed that Bangladesh remained at low risk of external and public debt distress.

Bangladesh is one of the top investment destinations for many foreign investors due to its low wages, competitive production costs, training resources, energy availability, and sizable domestic market. In 2022, Bangladesh’s gross national product climbed to 31520.93 BDT billion from 12821.19 BDT billion in 2021.

In its World Investment Report for 2022, UNCTAD reports that FDI in Bangladesh increased by 13 percent to $2.9 billion in 2021. In 2020, the JETRO Survey on Business Conditions of Japanese Companies Operating Overseas (Asia and Oceania) will demonstrate the favorable impact of reforms in Bangladesh’s trading environment.

Bangladesh is creating immense economic opportunities. Nearly 60 percent of the population is economically active, and almost one million graduates enter the workforce each year.

Furthermore, Bangladesh’s geostrategic proximity to China and India lends credence to the claim that the nation’s economy will advance in the future. Bangladesh’s installed capacity currently stands at 25,514 MW as of March 2022, and the government is importing LPG and LNG through private initiatives. Bangladesh has already achieved lower-middle-income status and aims to achieve middle-income status by 2021 and developed nation status by 2041.

What exactly is a Special Economic Zone?

The Bangladesh Economic Zones Authority (BEZA) has taken initiatives to establish 100 Special Economic Zones (EZ) on 30,000 hectares of land to generate ten million laborers and sustainable industrialization to expand and diversify the industries. EZ are industrial parks/zones that will foster the growth of domestic and foreign sectors. Public-private partnership, private, and government ownership models construct EZ. Investors can lease land or industrial spaces at a competitive rate within EZ. The government offers numerous financial incentives to investors who intend to establish factories and plants in the Economic Zones. Due to close government ties and sponsorship, these Economic Zones will be hassle-free preferred locations for foreign investors wishing to develop factories and plants in Bangladesh.

Diverse Fiscal Incentives in Special Economic Zones for foreign direct investment (FDI)

BEZA would provide a variety of incentives, not just to the people who developed Economic Zones but also to those who invested in industrial units. The zone developer may reap benefits such as increased income tax exemptions and decreased capital expenditures. The incentive system for investment includes tax exemptions, exemptions from customs and excise charges, and non-financial benefits, such as having no limit on foreign direct investment, issuing work permits, and recommending residents for citizenship or resident ship.

Conclusion

Bangladesh is a popular place to relocate labor-intensive industries. The government has implemented several policies to create a more open and competitive environment for foreign and domestic private investment. The government encourages rapid economic growth by expanding and diversifying industries, employment, production, and export. The Special Economic Zones offer foreign investors a secure, financially attractive, and convenient environment. The incentives and services provided in the EZs are pretty enough to attract the attention of foreign investors with the right mindset who are willing to relocate to or establish a new business in Bangladesh.

In conclusion, special economic zones (SEZs) have proven to be a successful strategy for attracting foreign direct investment (FDI) to Bangladesh. With tax incentives, streamlined regulations, and improved infrastructure, SEZs offer a range of benefits to investors that make Bangladesh an attractive destination for FDI. As a result, the country has seen a significant increase in FDI in recent years, with many investors establishing their operations within the SEZs. The impact of these zones on the economy has been significant, and their potential for future growth remains high. For those interested in investing in Bangladesh or learning more about the country’s economic development, SEZs and their effectiveness in luring FDI are certainly worth exploring.