Despite generous incentives, foreign investors sidestep industrial enclaves
Investors are placing more money in non-industrial areas, although Bangladesh now has more than two dozen export processing zones (EPZs) and economic zones (EZs) meant to anchor planned industrialisation.
These enclaves offer a long list of incentives, yet the flow of foreign investment remains thin.
For all latest news, follow The Daily Star's Google News channel. During the January-June period of this year, Bangladesh welcomed $1.09 billion in foreign direct investment (FDI), up from $676 million a year ago.
Of that sum, 18 economic zones secured only $6.6 million, and eight EPZs attracted $137 million, according to the Bangladesh Bank.
By contrast, investment in non-EPZ areas reached $948 million, nearly seven times higher than the combined inflow to the industrial enclaves.
This raises a key question: why do investors prefer locations outside zones that offer fiscal benefits?
Entrepreneurs cite incomplete infrastructure and shortages of industrial gas, water and power supplies.
Economists say much of the foreign inflow is reinvestment by existing firms rather than new factories, while sectoral data show capital moving towards energy, telecoms and finance, which do not require industrial land.
Nearly ten years ago, the authorities announced a plan to set up 100 economic zones to bring scattered industrial activity under a more structured framework.
These include government-run, foreign-developed and private zones with incentives such as income tax holidays and VAT exemptions.
A total of 18 EZs are now operational across the country. Of them, 13 are privately managed, while the Bangladesh Economic Zones Authority (Beza) oversees five.
While both foreign and local investors can invest in EPZs and EZs, EPZs are reserved for export-focused industries. But EZ based firms may sell into the domestic market.
Currently, there are eight EPZs nationwide, while the Bangladesh Export Processing Zones Authority (Bepza) looks after them.
Syed Akhtar Mahmood, who helped shape early plans for Beza, said the EZs were meant to spur export diversification by guaranteeing plots at a time when land scarcity hampered factory development.
He said there had been a vision to attract major overseas investors, along with their vendor networks, to the EZs.
Following the political changeover in August last year, the interim government scaled back the ambitious plan of 100 EZs and chose to operate five government-run sites with a focus on quality investment rather than expanding the footprint.
These EZs are the National Special Economic Zone in Chattogram, Moheshkhali Economic Zone in Cox's Bazar, Bangladesh Specialised Economic Zone at Araihazar in Narayanganj, Shreehatta Economic Zone in Habiganj and Jamalpur Economic Zone.
Despite reducing the EZ number for quality investment, several zones are still unable to meet basic industrial requirements, such as gas supply.
The shortage is so acute that the country's first electric vehicle plant is lying idle in the Chattogram zone, recording losses of up to Tk 8 crore each month.
Private EZs, however, face fewer utility constraints, according to officials and investors.
UTILITIES DELAY INVESTMENTS
At the National Special Economic Zone, Bangladesh Auto Industries Ltd (BAIL) has invested Tk 1,440 crore in a large-scale EV plant.
Construction finished in June this year, but the facility sits idle due to a delay in gas connection.
Mir Masud Kabir, managing director of BAIL, said the company needs 1,333 cubic metres of gas an hour to begin operations.
"We applied for the gas connection through Karnaphuli Gas Distribution Company Ltd, following Beza's recommendation. The site inspection is complete, but the connection has yet to be provided," said Kabir.
According to the company, ten banks have provided Tk 790 crore in loans, while the remainder came from company equity. With the factory idle, the firm is meeting interest payments, salaries and upkeep of machinery, including remuneration for 50 foreign specialists.
The overheads amount to Tk 7 to Tk 8 crore a month.
"We have been incurring this loss since June," Kabir told The Daily Star.
The company first applied for a gas connection in 2021. Technical studies were finalised in April 2025, and two other firms in the zone have been approved ahead of BAIL.
The launch date has already slipped due to currency devaluation, rising material costs, import delays and political uncertainties. As a result, Kabir said construction costs have climbed by 36 percent.
He said service agencies do not respond in line with Beza's commitments to investors, which discourages new entrants to the zone.
At the same site, leading steelmaker BSRM is facing water shortages.
Tapan Sengupta, deputy managing director of BSRM, said its $200 million expansion could move faster once gas and water are available.
He said the company has already built boundary walls and developed land, and expects Beza to deliver gas by the time the project proceeds.
POLITICAL UNCERTAINTY COOLS EXPANSION PLANS
Berger Paints Bangladesh Ltd is investing Tk 1,300 crore in a third factory in the Narayanganj Special Economic Zone.
The plant is scheduled to begin production in April 2027 and will make water-based paints. Berger's piling work for the factory and boundary walls is complete.
Mohsin Habib Chowdhury, chief operating officer of Berger Paints Bangladesh, said the investment is a reinvestment by an existing foreign-controlled company.
According to him, despite growing interest, FDI in private zones is moving slowly due to weak infrastructure and patchy utility services.
Besides, he added that political uncertainty ahead of elections has led many firms to delay expansion. He said confidence may return once the stability improves.
Fahmida Khatun, executive director of local think tank Centre for Policy Dialogue (CPD), said economic zones reflect the wider challenges facing the economy.
"Bangladesh has rarely attracted FDI worth even 1 percent of GDP," she said. "Political uncertainty, fragile law and order, inflation and exchange rate instability are weighing on long-term investors."
The economist said structural problems such as poor infrastructure, shortages of skilled workers, bureaucracy and corruption further raise business costs.
Preferring anonymity, an executive member of Beza said the EZs are not solely designed to attract foreign capital. The primary aim is to build import-substituting industries and reduce reliance on overseas purchases.
The official said Beza is prioritising joint ventures over fully foreign-owned companies to encourage technology transfer and long-term commitment.
M Masrur Reaz, chairman and CEO of Policy Exchange Bangladesh, said EZs are underperforming due mainly to slow implementation and inadequate readiness.
He highlighted delays in infrastructure and regulatory arrangements, the absence of essential production facilities despite investor interest, and weak reinvestment from existing firms that still prefer established non-EZ areas with better supply chains and skilled labour.
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