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Special Economic Zones

Like many things in Myanmar, the rumour mill has spun wildly as to why the current government decided to implement the much publicised economic reforms that have made the country the new darling of Southeast Asia.

Whether it was concern over a too close relationship with China or a genuine desire to improve the lives of its country’s citizens, it is clear that, whatever its initial intentions, the government has seen the benefits of forging closer ties with economic powerhouses like the US, the EU and even Japan, all who see huge potential in Myanmar’s strategic location on the cusp of Southeast Asia, as well as rich natural resources and an abundant – and cheap – workforce.

Those countries, and many others, have pumped much needed foreign investment into a previously stagnant economy, something that has been aided by the government encouraging foreign investment by implementing new laws and inviting business delegations from the world over.

One area that is seen as particularly key in proving the country can attract future foreign investment is in the area of Special Economic Zones.

In its simplest form, a Special Economic Zone (SEZ) is a geographic area that makes laws and practices favourable to the production and export of products, in turn creating new jobs, usually in the dozens of thousands, and pushing the economy further forward.

While other areas are being spoken about around the country, three key SEZs are currently being implemented within Myanmar. In Rakhine State, work has begun on the Kyauk Phyu SEZ, and in the south of the country, Dawei in the Thanintharyi Region, could be key to growing Myanmar’s economy in the future. The third SEZ is that of Thilawa.

In the early days of the reforms, Dawei was seen as the most important SEZ in the country, but that has been beset by major issues from the initial investors and it is now the Thilawa SEZ, located a few hundred miles up the coast from Dawei – and just 20 kilometres from Yangon – that looks likely to be the first major project to go live, with a start date for Phase 1 possible as early as 2015.

Note that it’s had issues of its own to overcome, though. Residents displaced by the project have complained of land grabbing and inadequate compensation by the project’s developers. In January, dozens of the displaced families sent an open letter to the Japan International Cooperation Agency (JICA), which is involved in the project, to tell of their issues with the displacement that has left many without any livelihood in an area where many of the local population are employed in the agricultural sector and practically lost all their assets overnight.

There have been other reports of land grabbing, unpaid compensation and a surge in land prices at both Thilawa and Dawei, an issue intensified by the previous government’s lack of record keeping and complications regarding land ownership.

However, at least on an economic level, Thilawa is seeing much optimism. When Myanmar signed a Memorandum of Understanding with Japan in 2012 regarding the project, the move was met with scepticism that both countries could provide the necessary funds and infrastructure for the project to go ahead – particularly as Myanmar continues to struggle to update its infrastructure to international standards and implement laws that will make the country a truly attractive place to invest for foreign investors.

Announcements in recent months suggest that things could be moving ahead as planned. In January, the Myanmar government implemented a Special Economic Zone law, which allows for tax exemptions for up to seven years for foreign and local investors, and is expected to allow companies interested in investing in the projects to bypass unnecessary bureaucracy – one major issue for potential foreign investors in Myanmar.

Myanmar’s Port Authority will also upgrade Thilawa Port later this year to make way for a deep sea port. Yoma Strategic Holdings, owned by local behemoth Serge Pun, has already opened Star City, a 135 acre residential housing estate located close to the Thilawa site which offers 9,000 residential units.

It was also revealed recently that the Myanmar consortium of the project, Myanmar Thilawa SEZ Holdings Public Ltd, will sell 2.145 million shares at K10,000, in order to raise an expected US$21 million for a project that is expected to fall in the billion dollar figure.

The Myanmar arm owns 51 percent of the project – 41 by nine Myanmar companies and 10 percent by the government – with the other 49 percent owned by a consortium of Japanese companies.

Thein Sein’s government has found common ground with Japan over the last two years, with Japanese companies gaining key contracts as the country opens up, particularly in the area of infrastructure development.

Japanese giants including Toyota, Marubeni, Toshiba and Panasonic are deepening their footprint in Myanmar – in a range of industries – while JICA is involved in key infrastructure developments in the country, most notably an urban development plan for greater Yangon.

Meanwhile, some criticisms have begun to be levied at Japanese companies involved in projects in Myanmar. Some of the companies involved in the Thilawa project have been accused of side stepping issues like land grabbing and compensation, while JICA and other Japanese agencies are seen in some circles to be reluctant to communicate with local communities and the media.

Despite that, Japanese companies are clearly in a strong position in Myanmar at the moment. While Japanese companies still lie 10th in total foreign investment figures, in the 2012-2013 fiscal, Japanese foreign investment in Myanmar leapt tenfold to US$54 million and, if the two governments can maintain close ties, then it is likely that other key contracts will be rewarded to Japanese companies.