Photo: K M Asas / World Bank
Authors: Veronica Michel Gutierrez and Mike Dawe
Bangladesh and the World Bank have partnered for more than a decade on Special Economic Zones (SEZs) to propel economic diversification and create more modern jobs. The most recent collaboration – the Private Investment and Digital Entrepreneurship (PRIDE) project – recognizes that transformational change requires stronger local workforce development, particularly for women, to reach new industries and value chains. With practical guidance and knowledge built through the Supporting Effective Jobs Lending at Scale (SEJLS) program, PRIDE is launching a catalytic fund for skills formation and other support to improve job outcomes, firms’ competitiveness and secure socioeconomic impacts from the SEZ investments.
The transformative promise of Special Economic Zones in Bangladesh
The Government of Bangladesh has committed to make SEZs an anchor of economic transformation, aiming to establish 100 SEZs and generate 10 million direct and indirect jobs by 2030. The Bangladesh Economic Zones Authority (BEZA), formed in 2010, defines the incentives for firms to localize production and manages the establishment of SEZs, many of which are licensed to private operators. The model responds to gaps in the earlier industrialization process which, despite significant headway, led to poor FDI spillovers, and exports overwhelmingly concentrated in the Ready-Made Garment sector (over 80 percent) and in growth-restraining low-complexity products. The objective of SEZs is to reinvigorate industrialization by leveraging private capital and by targeting industries that elevate the value-added and strengthen backward and forward linkages with the domestic economy.
The World Bank has supported BEZA since 2011, with its first ten-year project laying the policy and institutional foundations for SEZs, developing the land and investment pipeline, and helping to initiate the first economic zones in 2016. The World Bank’s PRIDE project started in 2021 to consolidate the SEZ model and boost results in private investment, job creation and environmental sustainability. With a US $500 million credit from the International Development Association, BEZA aims to attract US$3.7 billion in direct private investment and create 150,000 direct jobs, including 20% for women, during the project’s five years.
A skilled workforce is the fulcrum of a new chapter of economic transformation
The SEZs under PRIDE are set to diversify production and raise competitiveness by attracting investors that develop high-value business models, with upgraded processes and a higher product complexity. But attempts to run higher value-added business where zones lack sufficient skills to generate and/or absorb new knowledge might fall flat, as a World Bank review of SEZs identified. A move from limited to advanced manufacturing and services needs a new paradigm from competitive labor costs to supplying quality technical and managerial skills. In a country with an oversupply of low-skilled workers, this is a transformative change that needs planning; passive reliance on organic change is not a winning strategy.
But there is an inherent challenge: higher value business models and the skills that support them change fast, and that rate of change is increasing. Centralized, linear approaches to skills planning and development are not nimble enough to respond. Demand-driven workforce development is needed to not only bolster but also reap the rewards of a more intricate economic landscape.
Building the knowledge base for market-responsive skills development
To support its ambitious job goals and to address the zones’ skills needs, PRIDE received a grant from the SEJLS program, funded by the Jobs Umbrella Multi-Donor Trust Fund. With this SEJLS grant, PRIDE developed a series of analytical studies to assess the zones’ jobs potential, shed light on critical jobs challenges, and align the intervention design with its job-centric objectives.
Strengthening the skills of local workers is a critical challenge confronting SEZ investors according to both a Training Needs Assessment (TNA) and a Jobs Survey. The TNA identified hard-to-fill job roles and called for Bangladesh to align its occupational standards framework to global needs. The Jobs Survey was conducted in the surroundings of a large multi-industry cluster of SEZs that aims to generate 85,000 jobs. It found that over 80% of workers have no more than lower secondary education, and local women’s workforce participation is only 5% compared to 37% nationwide. This highlights the need to take specific measures to upskill workers and include more women.
The potential for PRIDE to create jobs and promote structural transformation was analyzed through a Jobs Impacts Assessment . It estimated that the investments materialized during PRIDE could help create over 1 million direct and indirect jobs, but 60% would remain low-skilled and only 30% would be held by women. The upshot once more is that for SEZs to spur economy-wide transformation, PRIDE must focus on upgrading skills for both men and women and cover SME suppliers, which currently tend to employ low-skilled workers.
Using these findings, PRIDE designed a catalytic fund for skills formation. The fund operates through a voucher program to finance training based on results including completion and job placement, allowing innovation in how results are achieved while maintaining control of quality. A specialized agency will operate the program and provide labor market intelligence, HR planning and recruitment support, quality assurance of training providers, and promotion of a more gender-balanced talent pipeline for the zones.
The skills voucher program:
- Encourages a marketplace for skills development services in which SEZ firms use subsidized vouchers to buy training from service providers in a competitive environment.
- Provides needed skills to firms, improving their returns and enabling innovation and competitiveness.
- Covers smaller firms in the supply chain, increasing spillovers.
- Creates learning and career paths linked to opportunities brought by regional economic growth, emphasizing access for women.
As part of supporting transformative change and catalyzing a market for demand-driven training services, SEJL funded a concept study to identify a suitable Labor Market Information System for the SEZs that is decentralized and adopts international best practices to inform decisions on skills investments by firms, workers and training providers. Finally, the M&E framework provides a theory of change that links measurable results in economic diversification and value addition with skills improvements and better jobs, tracking outcomes for the project and toward accelerating jobs and economic development in Bangladesh.
This is part of a series of blogs sharing insights from activities funded by SEJLS to support WBG operations in maximizing their impact on jobs.