Myanmar, Japan see promise, problems in economic zone – Nikkei Asian Review

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http://asia.nikkei.com/Business/Trends/Myanmar-Japan-see-promise-problems-in-economic-zone

At the Thilawa SEZ site office (Photo: Simon Roughneen)

At the Thilawa SEZ site office (Photo: Simon Roughneen)

THILAWA, Myanmar — The Thilawa Special Economic Zone might be just a 45-minute drive from downtown Yangon, Myanmar’s biggest city and commercial hub, but the Japanese presence is unmissable.

Outside the site offices — an island of prefabricated shelters surrounded by acres of upturned earth — a row of six flags dries in the breeze after a short downpour. The yellow, green and red of Myanmar alternates with Japan’s unmistakable red sun on a white background.

“A monumental project strongly supported by both Myanmar and Japan government,” reads a brochure handed out by Myanmar Thilawa SEZ Holdings, which comprises nine local companies and is the project’s largest shareholder.

Inside, local and Japanese staff share desk space. The men and women working on the early stages of the mammoth 2,400-hectare industrial estate are just as likely to be heard speaking Japanese as they are the Myanmar language.

The economic zone is intended as an orderly and affordable oasis for manufacturers interested in operating in Myanmar but put off by the country’s poor infrastructure and lingering political uncertainty after a long history of military rule.

Sumitomo Corp., one of the three Japanese companies involved in setting up the park along with Mitsubishi Corp. and Marubeni Corp., predicted that “once developed, the industrial complex will serve as an entry point for Japanese and other foreign companies seeking to invest in Myanmar, thereby contributing to the country’s industrialization and economic development.”

U.S. manufacturer Ball and Japanese autoparts maker Koyo Radiator recently signed agreements to open factories there, while more than 40 other companies from eight countries have expressed varying degrees of interest. The first 400-hectare section of the area is currently under construction, evidenced by the proliferation of digging machines and trucks rolling along temporary gravel roads laid over the sodden turf.

With basic infrastructure still being built, the monsoon season presents problems of its own for local workers (Photo by Steve Tickner)
“Light industry is showing an interest so far — footwear, garments, autoparts,” Winston Set Aung, a member of the Thilawa SEZ management committee, told an investor presentation in Yangon.

Set Aung, who is also a deputy governor of Myanmar’s Central Bank, pitched Thilawa as “a level playing field” where “there is no distinction between local and foreign investment.”

In the zone

In January, Myanmar enacted a law designed to cover the establishment of three special economic zones along the country’s west coast: a Chinese-dominated project at Kyaukphyu in the northwest, a possible Thai-driven venture at Dawei in the south, and the Thilawa project.

The law allows for various tax and customs exemptions for companies operating in the zones. Regulations based on the law are due to be discussed in Myanmar’s parliament in the current session and will likely pass this year.

But construction at Thilawa is already racing ahead. As torrential rain beat down on the office roof at the muddy construction site, project officials flipped through PowerPoint displays outlining the industrial park’s layout and terms and conditions for operating there. Afterward, they fielded an array of questions from business representatives from Asia, Europe and North America.

Getting answers to questions about land costs and power is crucial for foreign companies sizing up Myanmar as a possible low-wage factory site. The government is working with donors, lending agencies and multinationals, such as GE, to revamp a grid that supplies electricity to only about 30% of the population at most. For now, companies investing in Myanmar have to pay for expensive generators to cover the frequent brownouts.

“Electricity here is like a luxury we can take for granted elsewhere,” said Malaysian Fong Teng Ho, who is considering building a packaging factory at Thilawa.

In the last few years, speculators have pushed up land prices in Myanmar. In 2013, when the go-ahead was given for a new international airport just north of Yangon, property prices in the area shot up as speculators tried to cash in on the likely spike in value.

Thilawa is meant to provide an attractive alternative by offering affordable plots to manufacturers.

“Land (in Thilawa) will be $70-75 per square meter,” said Thurane Aung, vice president of Myanmar Japan Thilawa Development, the joint body set up to oversee the project, at a recent presentation to potential investors. Thurane Aung’s words sparked whispers among those gathered, all asking each other how that price compares with those elsewhere in Myanmar. In crowded Yangon, it is a sellers’ market for property, with prices anywhere between 100,000 kyat ($103) and 300,000 kyat per square foot — far higher than the Thilawa figure.

Relocation rift

But high costs are not the only land-related concern. For the first phase of the project, a 400-hectare core zone, 81 families living in the area were offered compensation and asked to relocate. However, some are now complaining about the terms offered.

“Although I gave in to the pressure from local authorities and complied with the relocation, I’ve lost my job as a mechanic,” said Khine Win, one of the residents who relocated. Khine Win was speaking at a Tokyo press conference organized by Mekong Watch, a Japanese nongovernmental organization that monitors Japanese development and investment projects in Southeast Asia.

Despite receiving compensation of up to $29,000 per family, the complainants recently delivered a letter to the Japan International Cooperation Agency, Tokyo’s official overseas aid agency, which has a 10% stake in the Thilawa project. The complainants have accused JICA of breaching its own rules that resettlement should not result in a lowering of living standards for people affected by projects it backs. Even the partly state-owned newspaper The New Light of Myanmar, once a North Korea-style mouthpiece for the old military junta, has featured the displaced villagers’ plight on the front page.

Since the ostensibly civilian administration of President Thein Sein took office in early 2011, the sweeping extent of land grabbing in Myanmar has come to light. A commission set up by parliamentarians found 745 cases of land grabs across the country in recent years, covering over 500,000 acres. Citizens whose farms were expropriated under the junta by the military and its business clients, and were too afraid to complain before 2011, are now voicing their grievances, with perhaps the best-known case involving a vast Chinese-backed copper mine at Letpadaung in north-central Myanmar.

With land inside Thilawa to be priced at a minimum of $70 per square meter, that would entitle a family holding just one acre to almost $300,000 compensation if compensation had been awarded based on land value.

And while those who claim they were evicted did not expect to receive so much money, they clearly feel shortchanged. The letter delivered to JICA headquarters cited such damages as “loss of farmland and access to farmland, loss of livelihood opportunities, impoverishment, loss of educational opportunities for the villagers’ children, substandard housing and basic infrastructure in the Myaing Tha Yar resettlement site and loss of access to clean water.”

There could be more recriminations down the line, as completing the full 2,400-hectare site means asking another 1,000 families to move.

“As far as I know, they are still negotiating with the residents about the other 2,000 hectares,” Thurane Aung told the Nikkei Asian Review. “Relocation is the responsibility of the government.”

The Myanmar government hopes that relocation will go smoothly, as it wants Thilawa to be a catalyst for manufacturing-focused foreign direct investment. Such investment jumped from $1.4 billion in the fiscal year through March 2013 to over $4 billion the following fiscal year.

That trend needs to be sustained if Myanmar is to achieve economic liftoff and a hoped-for quadrupling of the economy by 2030.

Officials worry that would-be investors are too cautious. They are also critical of businesses who come for a look but hedge their bets on investing. Thilawa is meant as an additional inducement.

“You cannot cross the sea by standing and looking at the ocean,” said Aung Tun Thet, a senior member of the President’s advisory council on economic reform. His advice for reluctant investors scoping out Myanmar? “Take the plunge.”

Thilawa SEZ officials give presentation to would  be investors (Photo: Simon Roughneen)

Thilawa SEZ officials give presentation to would be investors (Photo: Simon Roughneen)

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