Japan incentivizing its companies to shift manufacturing facilities out of China and adding Bangladesh to a list of preferred destinations for relocating the factories might give the nation’s economy a boost.
“As the COVID-19 pandemic started in China, Japanese companies needed to diversify” their supply chains further, Japanese Ambassador to Bangladesh Naoki Ito said in an interview. “This will provide an opportunity for Bangladesh.”
Japan’s nudge to relocate companies comes at a time when a special economic zone (SEZ) is being developed in Bangladesh to attract Japanese firms’ production facilities.
The industrial zone sprawling on 405 hectares in the Araihazar sub-district, 32km from the capital Dhaka, is expected to bring in US$20 billion in Japanese investment, the Bangladesh Economic Zones Authority said.
For years, Japanese manufacturers have sought lower labor costs and supply-chain diversification by moving some output out of China, as wages rose and infrastructure in countries like Vietnam and Bangladesh improved.
Over the past 10 years, the number of Japanese companies operating in Bangladesh has tripled to about 300, Ito said.
Japan has allocated US$350 million in special loans to set up the US$1 billion industrial zone, making it the largest such assistance for an SEZ in Asia, Ito added.
The Araihazar Industrial Park, which is to be operational by next year, is seeking to draw new investments from automakers, such as Suzuki Motor Corp and Mitsubishi Corp, Ito said.
Japan Tobacco Inc and Honda Motor Co are so far among the largest Japanese investors in Bangladesh.
The nation occupies a geographically strategic location linking South Asia and Southeast Asia, and Japan is planning a 177.77 billion taka (US$2.1 billion) deep-sea port on Matarbari Island.
One of the world’s most populous countries, Bangladesh has 160 million people residing in a land area that is about 40 percent of Japan.
Bangladesh’s economy, which grew an estimated 5.2 percent in the year ended in June last year, is expected to expand 7.4 percent in the current financial year.
While that is slower than the 8.2 percent pace previously forecast, it still puts the nation ahead of regional peers on the growth metric.
The country nestled between India and the Bay of Bengal is a destination with “good and strong” prospects for Japanese companies, Ito said.
“The pace of recovery is faster in Bangladesh, compared with neighboring countries,” Ito added.
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