Japanese ODA Loan

Ex-Ante Evaluation (for Japanese ODA Loan)
1. Name of the ProjectCountry: The People’s Republic of Bangladesh
Project: Foreign Direct Investment Promotion Project (II)Loan Agreement: May 29, 2019
2. Background and Necessity of the Project(1) Current State and Issues of the Private Sector and the Priority of the Projectin Bangladesh
Bangladesh has achieved an average of over 6% economic growth in recent
years and become one of the low- and middle-income countries in 2015
according to the World Bank income classification by country. The growth driverof the country is the garment industry, which accounts for about 80% of exports.
However, in order to achieve sustainable economic growth, it is necessary tobreak away from the dependence on exports of garment products and foster
industries with high export competitiveness by increasing the added value ofindustries other than the garment industry, such as the manufacturing industry,etc. To do so, it is effective to promote Foreign Direct Investment (hereinafterreferred to as “FDI”).
The Government of Bangladesh has promoted industrial development byestablishing the Export Processing Zone (hereinafter referred to as the “EPZ”)and promoting FDI since the 1980s. However, in principle, only export-oriented
companies that import raw materials and process the materials at low labor costs
are allowed to enter the EPZ. So the linkage with domestic industries locatedoutside the EPZ is small and it is difficult to strengthen the competitiveness of thewhole industry. As a result, the Government of Bangladesh has changed thepolicy to establish Economic Zones (hereinafter referred to as “EZs”) where
export-oriented companies as well as companies targeting the domestic market
can also enter, instead of the EPZ. After the establishment of the Bangladesh
Economic Zones Act in 2010, the Bangladesh Economic Zones Authority(hereinafter referred to as “BEZA”) was established in 2011 to work on EZs
development. Against this background, the Government of Bangladesh decided
to establish the EZ for Japanese companies in the suburbs of Dhaka to attract
more investment from Japanese companies in particular.
The Foreign Direct Investment Promotion Project (II) (hereinafter referred toas the “Project”) develops the EZ for Japanese companies in Araihazar,

Narayanganj District, a suburb of Dhaka. The Project is positioned as a projectfor the diversification of the manufacturing industry, strengthening the exportindustry, and employment promotion, which are priority areas of the Seventh
Five-Year Plan (FY2016–FY2020) of the Government of Bangladesh. In addition,
the National Industrial Policy (2016) sets the strengthening of industrial
competitiveness through promoting FDI and diversified industries as the basis
for economic growth. The Project is, therefore, consistent with the plan andpolicy.
(2) Japan and JICA’s Cooperation Policy and Operations in the Private Sector
The JICA Country Analysis Paper for Bangladesh (March 2019) analyzes asfollows: with the basic policy to become a middle-income country by realizing
high-quality economic growth and overcoming poverty, it is necessary tostrengthen industrial competitiveness and provide high-quality employment
opportunities by developing competitive industries, especially the export industry
and supporting industries. In addition, Japan's Country Assistance Program for
Bangladesh (February 2018) identifies one of Bangladesh’s priority targets andsectors as being to accelerate economic growth so that everyone can benefit as
Bangladesh strives to become a middle-income country. The Project is,therefore, consistent with the policy and analysis. By promoting investment andlocal employment in Bangladesh, the Project can contribute to SDGs goal 8,“Promote sustained, inclusive, and sustainable economic growth, full andproductive employment, and decent work for all,” and SDGs goal 9, “Build
resilient infrastructure, promote inclusive and sustainable industrialization, andfoster innovation.”
To date, JICA has selected candidate sites for the EZ through the technicalcooperation for development planning called the Project for Development Studyand Capacity Enhancement of Bangladesh Economic Zone Development PlanAuthority (2015–2017), and has supported the introduction of one-stop service(hereinafter referred to as the “OSS”) for issuing permits and licenses in the EZ,intended for the Bangladesh Investment Development Authority (hereinafterreferred to as “BIDA”), BEZA, and the Ministry of Industry, through the technicalassistance related to ODA loan called the Project for Promoting Investment andEnhancing Industrial Competitiveness (2017–2022).
(3) Other Donors’ Activities
In conjunction with the establishment of BEZA, the World Bank has been
implementing the Private Sector Development Support Project since August

2011. The project has supported EZ feasibility studies (F/S) in candidate sites,such as Mirasarai in the suburbs of Chittagong, etc., and the construction ofoff-site infrastructure. The International Finance Corporation (IFC) has provided
support to BIDA and other organizations for improving the investment
environment through technical assistance by the Bangladesh Investment
Environment Fund.
3. Project Description(1) Project Objective(s)The objective of the project is to accelerate economic development ofBangladesh by promoting private sector investment in Bangladesh andFDI from Japan through the implementation of development projects suchas the development of EZs and/or other industrial parks/estates, etc., andthe smooth flow of financing for those enterprises doing business in suchzones with enhanced financial intermediary functions.
(2) Project Site / Target Area: Throughout the country(3) Project Component(s):1) Two Step Loan (hereinafter referred to as “TSL”)
To provide short-term, medium-and and long-term loans to foreign
investors mainly for Japanese enterprises and related Bangladeshi
enterprises
2) Equity Back Finance (hereinafter referred to as “EBF”)
To provide equity back finance for the Government of Bangladesh todevelop EZs and construct large-scale infrastructure, thereby promoting
PPP between the Government of Japan and Bangladesh3) Project Sector Loan (hereinafter referred to as “PSL”)
To provide loans to develop off-site infrastructure for the EZs including
access road, power infrastructures and gas pipeline so that foreign
enterprises will be benefit
4) Consulting services
To provide assistance in management, monitoring and capacity
development of implementing agencies and also provide assistance indrafting basic design and supervising the implementation of sub-projects
under PSL
(4) Estimated Project Cost (Loan Amount)
79,110 million Yen（Loan Amount for the Project: 21,147 million Yen）

(5) Schedule: December 2015 - April 2025 (113 months) (The completion of TSL
is recognized as termination of the Project)(6) Project Implementation Structure1) Borrower: The Government of the People’s Republic of Bangladesh
2) Guarantor: None in particular
3)

4)

Executing Agency:
Financial Institutions Division, Ministry of Finance (TSL)
Prime Minister’s Office (EBF and PSL)
Implementing Agency:
Bangladesh Bank (TSL)
Bangladesh Economic Zones Authority (EBF and PSL)
Operation and Maintenance System
Bangladesh Bank and BEZA will oversee the Project. As for monitoring
PSL, land development and retention pond and retention canal will be
managed by BEZA and access road will be maintained by Local
Governance Engineering Division and Roads and Highways Division.
Bangladesh Power Development Board, Titas Gas Transmission andDistribution Company Limited and Bangladesh Telecommunications
Company Limited will take responsibility of management for power

infrastructures, gas pipeline and telecommunication respectively. SPC will
be in charge of construction and monitoring of on-site infrastructure insideEZs.
(7) Cooperation and Sharing of Roles with Other Donors
1)

Japan’s Activity: The Project take advantages of achievements of theadvisor for investment climate improvement (2015-2017), the cooperationfor establishing OSS by the Project for Promoting Investment andEnhancing Industrial Competitiveness (2017-2022) as well as the seriesof cooperation for capacity enhancement of BEZA.

2) Other Donors’ Activity: None in particular(8) Environmental and Social Consideration / Poverty Reduction / SocialDevelopment
1) Environmental and Social Consideration① Category: FI② Reason for Categorization: The Project as a whole is classified as
Category FI according to the JICA Guidelines for Environmental andSocial Considerations (Published in April 2010), because its sub-projects

cannot be specified prior to JICA’s approval of funding and because those
sub-projects are expected to have a potential impact on the environment.
As scopes of land development, access road, retention pond andretention canal, telecommunication and power infrastructures and gas
pipeline in the PSL component have already been specified, the categoryof those construction turn out to be Category A.
③ Environmental Permit:
The Environmental Impact Assessment (EIA) report on landdevelopment, development of access roads, retention canal and retention
pond, and telecommunication line was approved by the Department ofEnvironment (hereinafter referred to as “DoE”), Ministry of Environment
and Forests of Bangladesh in May 2018. In addition, the EIA report on
the gas pipeline and power infrastructures (power plant, power
sub-station, and transmission line), which are additional scopes for thePSL project, was prepared and approved by DoE in February 2019.
④ Anti-Pollution Measures:
During the land and embankment development and the access roadconstruction, negative impacts on air quality, water quality, noise, andvibration are expected. Under the supervision of BEZA, the executing
agency, the contractor will take measures for reducing the impacts, suchas using vehicle covers before driving, regular water sprinkling, regular
maintenance of work vehicles and heavy equipment, prohibition of workin rainy weather, using low noise/vibration equipment, restrictions onnighttime construction, installation of temporary sound insulation walls,etc. After opening, exhaust gases and dust will be discharged by tenantcompanies and surface water and groundwater will be contaminated bycorporate activities, but their impacts will be minimized by taking
mitigation measures, such as establishing buffer zones, composite
wastewater treatment by tenant companies and Special Purpose
Company (hereinafter referred to as “SPC”), etc. Both during construction
and after opening, mitigation measures will be taken and monitoring will
be conducted to ensure compliance with environmental standards ofBangladesh and international standards such as the IFC EHS guidelines.
In addition, BEZA will consider waste disposal methods and site
options that take into account the amount of waste discharged, treatment
costs, transportation costs, and treatment capacity, processing

technology, and treatment ability of the receiving side for both
non-hazardous waste and hazardous waste, and will decide where toaccept waste discharged from the zones before the start of landdevelopment scheduled in September 2019.
⑤ Natural Environment:This project site does not fall under protected areas, such as nationalparks, etc., or important habitats. On the other hand, 1,055 trees will be
cut down in the project target area, but BEZA plans to carry out alternativeplanting based on the planting guidelines set by the Department of Forestof Bangladesh. In addition, as sediment used for land development will becollected in the nearby Meghna River, there is a concern that sedimentdredging may affect river dolphins. In response to this, BEZA plans totake mitigation measures, such as using low noise/vibration equipment,
restrictions on lighting, etc., and conduct monitoring in accordance withthe monitoring plan.
⑥ Social Environment:
The Project is expected to involve land acquisition of approximately
220 ha and resettlement of 55 residents from 11 households among
6,343 affected residents from 1,714 households. It also involves landacquisition of approximately 4 ha and temporary land requisition ofapproximately 4 ha at the site where the gas pipeline will be constructed,
which is expected to result in the resettlement of 45 residents from 12households. The land acquisition and resettlement of residents willproceed according to Bangladesh’s domestic laws and the resettlement
action plan, which was formulated based on the JICA Guidelines forEnvironmental and Social Considerations. As a result of the residents'
consultation on the Project, no particular objection to the Project has been
made by affected residents.
⑦ Other / Monitoring:
In the Project, the contractor will monitor the progress of sedimentdredging and land development work, under the supervision of BEZA.
During construction, the contractor will monitor the zones under thesupervision of SPC and BEZA and off-site infrastructures under thesupervision of BEZA and related ministries and agencies. After opening,SPC will monitor roads and shared facilities in the zones under thesupervision of BEZA, and tenant companies will monitor factories in thezones under the supervision of SPC and BEZA. Related ministries and2)
3)

agencies and state enterprises will monitor other off-site infrastructures
under the supervision of BEZA.
Cross-Cutting Issues: None in particularCategory of Gender: Not applicable<Reason for Classification> The nature of the Project makes it difficult toinclude gender initiatives.
(9) Other Important issues: None in particular
4. Targeted Outcomes(1) Quantitative Effects
1) Performance Indicators (Operation and Effect Indicators)
Indicator

Target (2027)
Baseline【Expected value 2 years（Actual Value in 2014）
after project completion】

FDI for Araihazar EZ (MillionUSD)

0130

Number of enterprises inAraihazar EZ

030

TSL: Volume of production of thebenefited Japanese Enterprises(Million Tk)

Increase from baseline

TSL: Profit of the benefited
Bangladesh Enterprises relatedwith Japanese Investment
Record at the timing of(Million Tk)
disbursement of TSL

Increase from baseline

TSL: Number of Employment by
the Japanese enterprises andBangladesh enterprises relatedwith Japanese Investment(Million Tk)

Increase from baseline(2) Qualitative Effects
Value addition, diversification and competitiveness of industry andeconomic development of Bangladesh

(3) Internal Rate of Return
Based on the following assumptions, the Economic Internal Rate of Return(EIRR) for the Project (EBF and PSL projects) is 10.8%, and the Equity
Internal Rate of Return (Equity IRR) for the EZ development project (EBFproject) is 15.5%. The rates for the TSL project will not be calculated, because
no sub-projects are identified. In addition, since a large part of the PSL projectis land development work with a strong nature of public works, and there is noincome from the work, the Financial Internal Rate of Return (FIRR) will not becalculated.
[EIRR]
Cost: Project costs, maintenance/operation costs, and costs for agricultural
production equipment (excluding tax)
Benefit: Targeted outcomes by EZ project activities (including increase in theadded value of the manufacturing industry)
Project Life: 40years[Equity IRR]
Cost: Project costs and maintenance/operation costs
Benefit: Land sales costs, maintenance costs, security costs, water andsewage costs, etc. to be collected from tenant companies
Project Life: 50 years (period of granting of project rights by the Governmentof Bangladesh to SPC)
5. Preconditions / External Conditions(1) Preconditions: None in particular(2) External conditions: None in particular
6. Lessons Learned from Past Projects
The results of the ex-post evaluation of similar types of previous project inMyanmar revealed that introduction of mitigation measures to reduce businessrisk and installment of off-site infrastructure is evitable for investment promotion
by enterprises. Following this, the Project has been formulated to reduce the riskby providing financial support for Government of Bangladesh through EBF as
well as support for construction and development of off-site infrastructure.

7. Evaluation Results
The Project is consistent with Bangladesh’s development issues and policies
and with the cooperation policies and analyses of the Government of Japan andJICA. Through the promotion of investment, the Project will contribute to theeconomic growth, the strengthening of industrial competitiveness, and theemployment promotion of Bangladesh, thereby contributing to SDGs goal 8,“Promote sustained, inclusive, and sustainable economic growth, full andproductive employment, and decent work for all,” and SDGs goal 9, “Buildresilient infrastructure, promote inclusive and sustainable industrialization, andfoster innovation.” Thus, the necessity for JICA to support the Project issubstantial.
8. Plan for Future Evaluation(1) Indicators to be Used
As indicated in sections 4. (1) to (3).
(2) Timing
Ex-post evaluation: Two years after the project completion