Infrastructure development work at the country’s private economic zones is moving slowly due to a lack of funds, holding back new job creation and export growth. To break this deadlock, the Private Economic Zones Association of Bangladesh (PEZAB) has proposed an initial special refinancing fund of 5,000 crore taka, with its size potentially expanded up to 10,000 crore taka later based on demand and project progress. PEZAB President A.S.M. Mainuddin Monem made the case for launching this special fund in a letter recently sent to Finance Division Secretary Dr. Md. Khairuzzaman Mazumder. The information was learned from Finance Ministry sources.
The letter states that setting up a private economic zone requires a huge amount of long-term investment from the very start, while cash flow builds up only gradually after factories become operational. Relying on high-interest short-term commercial loans drives up infrastructure costs excessively and delays completion of the work, causing domestic and foreign investors to lose interest.
Under the proposed structure, interest on loans to eligible developers would be capped at a maximum of 4.5%, with participating banks receiving refinancing at a maximum 1% interest rate. The loan term would be capped at 15 years (up to 20 years for large, long-term infrastructure), with a four-year grace period.
PEZAB said that while government projects receive various forms of state support and budget allocation, private entrepreneurs build this infrastructure mainly relying on their own capital and commercial loans. The proposed structure calls for a maximum 70% loan and at least 30% of the developer’s own capital.
Funds from the proposed facility could be spent on land development, connecting roads, drainage, water and sewerage systems, STPs, CETPs, electricity, renewable energy, fire safety and IT logistics sector development.
To prevent misuse of the fund, the organization has proposed strict evaluation and monitoring through participating banks, with funds disbursed in installments based on physical progress. It has called for priority to be given to projects that have already seen significant equity investment and have commitments from foreign investors.
PEZAB is hopeful this initiative will not create any additional commercial risk for the government, and will instead play an important role in accelerating industrialization, job creation and exports. The organization has requested a quick meeting involving Bangladesh Bank, the Financial Institutions Division and other relevant stakeholders to finalize the matter.
Md. Abdul Kader Khan, adviser to the Private Economic Zones Association of Bangladesh (PEZAB), said, “Bangladesh’s private economic zones are making an extremely important contribution to the country’s industrialization, investment growth, export expansion and job creation. Currently, 13 private economic zones have received licenses, with several more projects in the approval process. These zones have already attracted about $4 billion in investment, with another roughly $5 billion in potential investment expected in the future. These zones have already created direct and indirect employment for about 40,000 people. Once the planned industries and infrastructure are fully operational, it is expected to create job opportunities for more than 700,000 people.”
Industrial and production activities are currently underway at various stages in the Abdul Monem Economic Zone, Meghna Economic Zone, Aman Economic Zone, Bay Economic Zone, City Economic Zone, Meghna Industrial Economic Zone, Karnaphuli Dry Dock Special Economic Zone Limited, Cumilla Economic Zone, East-West Special Economic Zone and Hossendi Economic Zone. Meanwhile, the Sirajganj Economic Zone Limited, Kishoreganj Economic Zone Limited and Purbagaon Economic Zone remain under development. Expansion and infrastructure development is also proceeding in phases at several operating zones, including the Abdul Monem Economic Zone. Several industrial groups, including Citigroup, have invested substantial sums in private economic zones and are now facing a funding crunch.
While government and private economic zones, export processing zones (EPZs) and hi-tech parks share the same core goal, there is a major disparity in their financing models. Government projects receive state investment, budget allocation and easy-term loan facilities, while private entrepreneurs must build long-term infrastructure through their own capital and high-interest commercial loans. As a result, private developers face severe structural financing disparity despite working toward the same national economic goals, said A.S.M. Mainuddin Monem, president of the Private Economic Zones Association of Bangladesh (PEZAB). This is why the organization has applied for this fund.