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By Simon Roughneen / Yangon – Japanese Prime Minister Shinzo Abe’s recent visit to Myanmar signaled that Asia’s second-largest economy is intent on taking a leading role in investing in the region’s latest emerging market, with Abe announcing a 51 billion yen (US$504 million) loan package to Myanmar.
The Japanese government also announced it would write off US$1.74 billion in debt arrears owed to it by Myanmar, in part as a reward for the country’s continued push toward political and economic reform.
At the core of Japan’s investment focus in Myanmar is the country’s infrastructure needs and the requirement to build modern manufacturing capabilities. Of the 51 billion yen loan package, 17 billion yen is targeted at infrastructure spending.
“Infrastructure construction in Myanmar remains at a lower level than other ASEAN nations and infrastructure construction in rural areas has become an urgent task in particular,” the Japanese government said in a statement.
“For now, there is a lack of infrastructure in Myanmar. Power shortages make it difficult to establish large-scale manufacturing for now, but we are hoping these issues can be solved,” added Masaki Takahara, director of JETRO, Japan’s overseas trade mission in Yangon.
In a sign of the extent to which Japanese businesses are eying opportunities in Myanmar, Takahara said his Yangon office hosts an average of 500 visiting business delegations a month, and although large-scale Japanese manufacturing operations have yet to come to this Southeast Asian country, Japanese businesses see an untapped consumer goods market and want to establish a foothold ahead of Western competitors.
“More and more are thinking of entering the market in Myanmar and establishing a dominant position ahead of everyone else,” Takahara said. Manufacturing will come later, after Myanmar’s infrastructure is upgraded, he added.
The proposed Thilawa Special Economic Zone, a 2,400-hectare proposed industrial hub and port, is key to Japan’s commercial courtship of Myanmar. “Construction should start in the fall this year at Thilawa. We hope that it will be operational by early 2015,” Takahara said.
During her April trip to Japan, Myanmar opposition leader Aung San Suu Kyi worried aloud that Japanese investment in Myanmar could be stillborn unless her country upgrades its road and telecommunications networks. It appears The Lady turned heads in Tokyo. Prior to Abe’s arrival in Myanmar May 24, Japanese firms announced several investments in Myanmar, including one high-profile infrastructure deal—with Japan’s Sumitomo and NEC saying they would work on improving Myanmar’s telecommunications network.
Yuki Akimoto, director of BurmaInfo Japan, a Tokyo advocacy group that is calling on Japan to push for reforms in Myanmar, said Japan’s courtship of Myanmar is an attempt “to make up for lost time,” after Japanese investment stalled in the latter years of military rule in Myanmar. As of 2012, Japan was only the 11th largest foreign investor in Myanmar, far behind China and Thailand, which are number one and two, respectively.
Chinese investment has largely been in Myanmar’s natural resources, sectors that do not provide large-scale employment.
Last year foreign investment in Myanmar jumped almost five-fold compared with 2011, President Thein Sein said recently, with much of the increase in the job-intensive garment sector. With high youth unemployment in a population of some 50-60 million, politicians such as Suu Kyi feel that the country needs to attract investment that provides jobs – such as labor-intensive Japanese factories. For Japanese firms, Myanmar’s low wages – the region’s lowest, according to a recent JETRO study – make it an attractive investment destination.
Tokyo can possibly steal a march on Beijing, not only by creating jobs in Myanmar, but by pushing back against Chinese influence in a country that until recently was increasingly looking like a Chinese satellite state. With Japan and China at odds over disputed islands in the East China Sea, and associated nationalist and historical tensions flaring between them, Myanmar is likely to become a focus of commercial and strategic competition between Asia’s two biggest economies.
The United States appears to have similar unspoken ambitions in Myanmar – as part of a wider regional effort to curtail China’s growing influence – and the recent thaw in relations between the U.S. and Myanmar has given Japan the go-ahead to move into Myanmar, Akimoto said.
“During military rule, however, the Japanese government felt it had to suppress that desire because it was under pressure from the U.S. government and it wanted, to a certain degree, to go along with the sanctions regime. Now it is like a dam broken,” Akimoto said.
Japan’s drive to invest in Myanmar is being watched closely in neighbouring Thailand, where Japanese auto-manufacturers are a mainstay of an economy which also relies on Myanmar’s gas for power generation and on 2-3 million low-wage Myanmar workers living in Thailand. Thailand also wants to develop a US$8.5billion Special Economic Zone at Dawei on Myanmar’s south coast, which will link to Thailand’s capital Bangkok via a new highway. Thai Prime Minister Yingluck Shinawatra sought financial backers for the project during a visit to Japan last week, while her brother, former Prime Minister Thaksin Shinawatra, recently visited Myanmar, spending the Buddhist New Year with Army chief General Min Aung Hlaing, prompting speculation that Dawei was one of the issues discussed.
However, the focus by Japan on Thilawa has likely increased concerns in Thailand about the fate of Dawei, a project for which Thailand is seeking large-scale Japanese and other private funding. “Thailand keeps coming up empty on Dawei,” said Thitinan Pongsudhirak, a professor at Bangkok’s Chulalongkorn University. “It began as a Thai private sector concession but now the Yingluck government has taken up the baton and staked much of Thailand’s future lifeline on its development.” Unless Bangkok can find backers elsewhere, Dawei looks doomed, given that Japan and Myanmar are focused on Thilawa.
“Dawei looks and feels out of reach without a big financier, and the Yingluck government is not in a conducive financing position owing to its contingent fiscal liabilities and huge infrastructure spending at home,” said Thitinan, who is also Director of the Institute for Security and International Studies (ISIS).
