Adamjee re-born

There is one important difference though. The old Adamjee was for long a symbol of the hemorrhage that had plagued Bangladeshi industry -- the crores spent each year to keep afloat state-owned enterprises which had long lost their rationale. The new Adamjee represents the industrial landscape of the future. The enterprises that will be inhabiting the new Adamjee Export Processing Zone will not require subsidies to stay alive. They will compete in the global markets and many will open new niches for Bangladeshi products. It is perhaps fitting that one of the first tenants of the EPZ will be a manufacturer of home textiles, a new product line for Bangladesh.

Three and a half years ago, when Adamjee was shut down I wrote an op-ed in this very page, titled "Goodbye to Adamjee the significance of its closure." That was a time when many mourned the closure, calling it a sign of failure, a symbol of national shame. These reactions were not surprising. As I wrote then, it is "deeply engrained in the Bangladeshi psyche that the closure of a business or the shutting down of an enterprise is a great loss of face, a national disaster almost."

In reality, the closure of the Adamjee Jute Mills was a landmark in the history of economic management, and indeed, of industrial development in Bangladesh. If this statement is not vindicated yet it will soon be as the Adamjee EPZ gets filled up with competitive enterprises which add, not subtract value, which contribute to, not take away from the national exchequer, where the jobs created are real and where future prospects count, not the legacy of the past.

According to newspaper reports, the Bangladesh Export Processing Zones Authority (BEPZA), which has developed the zone and will operate it, expects 50 industrial units to be set up in the zone in the next 18 months with an investment of $400 million. The zone will have 200 plots of which 103 have been developed so far and 37 already handed over to four companies. According to BEPZA, 28 foreign and local investors have submitted proposals to establish units in the EPZ. When the units are fully operational, BEPZA expects annual exports of $750 million from the zone. These are not pipe dreams, if the record of the existing EPZs in Dhaka and Chittagong is any guide.

The most important thing to note is the amount of jobs that will be created. A major concern about closure of state-owned enterprises is the job losses that go with them. It is thus instructive that while about 25,000 jobs were lost when Adamjee Jute Mills were closed, the four companies expected to go into operation soon in the EPZ will alone employ 13,730 people. BEPZA expects a fully-operational EPZ to create one lakh jobs. Even if we discount this by 50 percent, the jobs created in the EPZ will be double those lost by the closure of the jute mill. And, as I mentioned above, these are real jobs which will not require state subsidies to be sustained.

The conversion of the Adamjee Jute Mills to an export processing zone is remarkable for one simple reason, it is a great example of the reallocation of resources which lies at the heart of a dynamic economy. Orderly liquidation of non-viable enterprise is common in developed countries. Many years ago, the great German economist, Joseph Schumpeter, talked about this when he coined the phrase "creative destruction." Schumpeter wrote extensively about how creativity is critical to development; how the innovation of new products and new ways of doing things is key to generating growth. But he was quick to point out that building new things is only half the story. Equally important for development is the less popular task of eliminating and disbanding obsolete industries; creative destruction, as he put it.

As mentioned above, one of the first plants to become operational at the Adamjee EPZ will be manufacturing home textiles, a relatively new product for Bangladesh. It is reported that one of the criterion BEPZA is applying in allocating land at the EPZ is the innovative feature of the company such as the introduction of a new product.

This is important. Bangladesh needs a critical mass of high-performing firms that are, in some sense, trailblazers. These are firms that would make breakthroughs in export markets and help establish "Made in Bangladesh" as a brand in the global sense. They would show that Bangladesh can be the source of high quality products, with firms that can operate in a world where rapid response and quality are key. They would also be a conduit, through which good practices and management, marketing and production techniques can be disseminated to other firms. For this critical mass of dynamic firms to emerge, foreign investment will have to come in a big way, including through joint ventures.

This is where industrial and economic zones become important. While across the board improvements in infrastructure and the regulatory regime are important, these take time to develop. High performing firms, especially foreign investors who have other options, don't want to wait that long. EPZs, SEZs and industrial parks that provide an assured supply of infrastructure and a hassle-free regulatory environment are potentially useful as a means of developing this critical mass of firms in a shorter timeframe, than waiting for the overall economy to improve its performance in regulatory and infrastructure terms.

But it is important to do these economic zones well. A new model of zones is emerging worldwide with emphasis on private sector participation in the development of the zone and in the management of the zone, and in the provision of a wider range of facilities that has been in practice conventionally. There's also an increased emphasis on forging links with firms within the zones and with those outside, so that good practices, technology and other things can be disseminated. And of course, one can also experiment with an enclaved regulatory regime.

This was very successfully done in China, where the five SEZs that were set up in the late 1970s were the basis for experimenting with regulation that China later mainstreamed into the entire economy over 15 or 20 years. The success this has brought is well known. Shenzhen, which used to be a village surrounded by empty land and a very, very long fence, is now something that looks like downtown Manhattan, and has changed the face of the Pearl River delta. So they can be very powerful tools, if well-managed and well-designed. Bangladesh needs to move towards a new regime of economic zones, consistent with global good practices and where there is greater application of commercial principles and a significant role for the private sector in the development and management of the zones.

The shutting down of an enterprise does not symbolize the death of assets, but rather their re-birth. This is what we are now observing in Adamjee as the land is being used to set up new, more viable enterprises and where even some of the old factory buildings have been renovated and are now home to the new units. One can hope that the turn around we are witnessing at Adamjee will forever change our attitude to the closure of non-viable enterprises. By changing our mind-set and helping to create conditions that allow more flexible movement of resources from low-productivity to high-productivity uses, the conversion of Adamjee may indeed be viewed as a landmark in Bangladesh's industrialization. Let us celebrate the re-birth of Adamjee.

Syed Akhtar Mahmood is freelance contributor of The Daily Star.