Myanmar’s Special Economic Zones: Jumpstarting an Economy in a Rut

Myanmar’s Special Economic Zone Law, enacted in 2014, states that the goal of developing special economic zones (SEZ) is to improve the socioeconomic status of the country and communities by providing job opportunities for locals – but many citizens remain doubtful they will see the supposed economic prosperity from the new SEZs.

It is unsurprising that the Myanmar people, having lived for more than half a century in a closed economy under an authoritarian regime, are not optimistic about the new development initiatives led by the quasi-democratic government. Land grabs remain a central issue in the development of SEZs and fuel citizen distrust of the government. For example, locals relocated from residential areas for the development of Thilawa SEZ testify they are yet to receive the ‘fair compensation’ promised in the SEZ law, which requires companies to compensate residents for land and crops, and to provide a standard of living that is not lower than that enjoyed prior to their relocation.

Currently, Myanmar is developing three special economic zones: Thilawa, Dawei, and Kyaukphyu. Despite differences in geographic location and purpose, the three SEZs have one thing in common: the fact that the development process has been anything but smooth and developers continue to face challenges around every corner.

Below is a general overview of the three SEZs and some of the challenges they face. Later articles will take an in depth look at each of SEZ’s problems and look at the future trajectory for success, or failure.

Thilawa SEZ

Thilawa SEZ, located 20 kilometers southeast of Yangon, is a joint venture development project between the Myanmar and Japanese governments and private consortiums, which form the Myanmar-Japan Thilawa Development Limited company. The Myanmar government owns 10 percent through the Thilawa SEZ Management Committee, the Japanese government owns 10 percent through JICA, a Myanmar private consortium owns 41 percent through the Myanmar Thilawa SEZ Holdings Public Limited, and a Japanese private consortium owns 29 percent through MMS Thilawa Development Co Limited.

In May 2014, MTSH purchased 978 acres area for the first phase of the project, followed by a strategic environment assessment (SEA) on the 4,942 acres secured for the second phase.

Thilawa SEZ, which has made relatively more progress compared to the other two SEZs, continues to deal with allegations that it failed to institute international standards in developing the first phase. The issue of compensation is also a major problem with escalating confrontations between developers and local residents. In order to avoid a repeat of the same problems, the government avoided residential areas in choosing the area for the second phase of the project.

However, local farmers continue to worry about losing their livelihoods and having to find other means to economically support their family before the SEZ is operational.

Kyaukphyu SEZ

Unlike Myanmar’s other SEZs, where the government is heavily involved, Kyaukphyu is a business-to-business venture. The Kyaukphyu SEZ, which is setup to provide a direct channel connecting China, India and the ASEAN countries, will be developed in three phases, with the expected completion date to be sometime in 2015.

The SEZ was first planned to be developed four miles away from the town of Kyaukphyu, but was later moved to a site near Thittaw and Simaw villages in Kyaukphyu township due to the discovery of a clay volcano at the original site. The project area was also expanded to more than 4,000 acres.

In addition to Rakhine state being a conflict zone, displacement of residents is an ever-present problem. The expansion of the SEZ resulted in a plan that places the construction of residential zone in the sea area, exposing residents to frequent typhoons, strong storms and flooding typical of Rakhine state. Displacement of residents is quickly becoming an issue in the development of the SEZ. Residents that currently reside in the areas set for development doubt the benefits afforded by an SEZ will impact their socioeconomic prospects. With residents having to sell and give up their land and livelihoods now, it could be decades before these individuals feel the economic benefits of the project.

Further complicating matters is anti-Chinese sentiment, which has become a growing national trend. During the building of the Shwe Gas Pipeline, and now the development of Kyaukphyu Kunming Railway Project, residents are forced to give increasingly large amounts of land. Additionally, the negative response to Chinese investment in the Myitsone Dam project and the Letpadaung copper mine, continue to contribute to a negative view of China’s presence in communities.

Kyaukphyu SEZ consists of three components,which includes the development of a deep-sea port, industrial park and an integrated residential area. The first phase of the tender process was kicked off in early July with an invitation for Expression of Interests. The second phase of the tender process will be carried out on September 15, when select companies will submit project plans that will help determine the bid winner by February 2015.

Dawei Deep Seaport SEZ

The building of Dawei SEZ commenced in 2008, led by Italian-Thai Development Co Pcl, but was suspended in November 2013 due to inadequate funding. Because ITD was unable to fulfill their obligations, the development of Dawei SEZ was transferred to Dawei SEZ Development Company (DSDC) – a Thai registered company – and is a 50-50 venture between the Myanmar and Thailand governments.

To aid in jumpstarting the stalled special economic zone, DSDC is in talks with Japan to become a partner in the project. The governments of Myanmar, Thailand and Japan are expected to meet in September to discuss this partnership as well as the tender process to invite interested international companies to push the project forward, Dawei SEZ Management Committee Chair Thura U Thaung Lwin said.

Japan is also considering investing in Dawei SEZ, which if realised, will provide many benefits for the SEZ, said U Set Aung, the chair of Dawei SEZ legal and procedural coordination sub-committee.

“Japan has participated as an observer in every negotiation between Myanmar and Thailand. They have technology that is far more advanced than that of both of the countries. They follow superior principles in precision and environmental conservation. So they will bring many benefits,” he said.

Despite cooperation with other countries, the right to regulate the process will remain with the Myanmar government, U Set Aung said. It is highly likely Japan will join the partnership, but it hasn’t made an official announcement as of yet. When Japan joins the partnership, the agreements and frameworks with Thailand will be revised to included refined specifications. A meeting between the governments of Myanmar, Thailand and Japan is expected to be held in late September, U Set Aung said.

The first phase of the project is expected to include the construction of the Myanmar-Thai highway, a deep-sea port, industrial parks, factories, business facilities, a hospital, school and market place.

This year, German-based Roland Berger Strategy Consultants was chosen through an international tender process to develop the initial infrastructure, which includes a two-lane road from Dawei to the Thai border, a small port, industrial park, power plant, residential area, a water supply system, and communications facilities. Phase one was supposed to be completed in late 2015; however, with the project currently suspended, construction has severely fallen behind. It remains to be seen if the project can catch up and deliver on its initial commitment.

Long-term benefits

Despite concerns regarding the SEZ’s many issues, public interest remains high with demand exceeding many times the number of shares allotted to be sold when Thilawa SEZ company went public.

“I am interested to invest in the first SEZ of Myanmar. I plan to invest in all of the phases,” said a shareholder of Thilawa SEZ public company.

Even though public’s understanding of the SEZ law remains limited, it is generally accepted that the development of SEZs will help jumpstart Myanmar’s economic recovery process, which has severely fallen behind other countries in the region.

The potential for technology transfers and training programs on behalf of foreign companies is attracting young people in Myanmar. Even though concerns remain and future bumps in the road should be expected, the public generally accepts the development of SEZs, but continues to doubt the authorities in charge of the projects.

By complying with the SEZ law and by-laws, the people at the helm of the development of the SEZs should work to provide viable solutions for all stakeholders including the public, government and foreign investors.

Source: Myanmar BUSINESS TODAY

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