The SEZ as a national strategy
Myanmar opened up its economy, exerted efforts to integrate it with the global community and hoped to move from a least developed country (LDC) to a middle income country (MIC) by the year 2030. Towards this end, the government has drafted a blue- print, the National Comprehensive Development Plan (NCDP) that spelled out how the country will graduate from its present condition to a more improved status. The blueprint stipulated the concentration of re- sources in developing selected growth centers from where growth corridors will radiate and cover the rest of the country.
One of the main elements of the growth centers are special economic zones (SEZ). It is considered as an excellent model for bringing in foreign direct investments and helps improve the economy of a developing country. It is an exclusive enclave where foreign companies enjoy the benefits of government support, incentives and protection. The government generates income from taxes and provides employment to its citizens. In theory, it is a win-win situation and beneficial to both parties, but it may not be the case in reality.
Companies locating their operations in the SEZ take advantage of cheap labor and other factors that lower their production cost. To attract locators, the government has to pass investor friendly policies. It has to have dependable power supply, telecom connection, roads that will connect to transport hubs like ports and airports and seamless processing center for government processes such as permits, taxes, customs and other regulatory requirements. Other than the production related infrastructures, facilities that would cater to the needs of foreign executives and workers are provided as sweeteners, like housing, recreation, health services and even school for children. Building a special economic zone therefore requires investment which does not come cheap.
In the case of Myanmar, the government offered an incentive package that includes five year tax holiday and customs duty exemptions, income tax incentives and long- term (30 years) land leases. In principle, the government will spend for the development of the zones, but will not earn for the first several years of operation.
The SEZ pioneers
At present there are three SEZ in various stages of development. These pioneers has the support of several countries particularly Japan, China and neighbouring Thailand.
The first SEZ is Thilawa, within the Yangon area. It has the support of the Japan Inter- national Cooperation Agency (JICA) who committed to shoulder the development cost of the zone. The most promising among the SEZ, several big Japanese companies are slated to locate at the zone.
Another SEZ is Dawei at the south-east- ern part of the country in the Taninthary Region. The narrow strip of land extending southward is shared with Thailand. With the long coastline facing the Andaman Sea, the proposed seaport will give Thai compa- nies a shorter distance to markets in Europe and Middle East instead of the circuitous Strait of Malacca.
The third is the Kyaukphyu SEZ, which is the port outlet of the oil and gas pipeline that goes directly to the western part of Chi- na. The parallel transport access offered by the pipeline makes the Kyaukphyu SEZ a favorite among Chinese companies.
Issues and apprehensions
The main question raised is the relevance of the having special economic zones in Myanmar and its impact on the economy of the country. Who benefits most, the country of the companies?
- Will the government earn?
The cost of development means not only providing the basic infrastructure in the zone. Connectivity to the market is crucial for the companies that will locate to the zones. This means ” ensuring that roads, railways, seaports and airports are at par with international standards to service logistic requirements and ensure connectivity. The development cost of the zones itself may have been shouldered by the main investors, JICA in Thilawa, Italian-Thailand group in Dawei, and Chinese companies in Khyaukphyu, but the government still has a share in the overall development cost.
Another crucial factor is the continuous supply of power, which at present cannot cope with demand. As the country continue to experience growth, the energy needs also gets bigger. Ad- dressing the power needs require high investments which will be costly for the government.
The cost of upfront investment in development may not immediately be recovered considering that the locators are given the privilege of tax holidays and other incentives which limit the income-generating opportunity of the government.
- Will employment be sustainable?
One of the supposed economic benefits is employment for local people. Cheap labor is considered as one of the main attractions offered by Myanmar, with its wage rate being competitive com- pared to other developing countries in the region like Cambodia, Vietnam and the neighbouring country of Bangla- desh. But being cheap is not the only factor. Instead, the workforce has to exhibit capacity to do technical job that requires skills competency. Ability to communicate and the attitude of being trainable are among the qualities being looked upon by locators. English competency may be needed at present but the development of zones designed for Chinese companies may also re- quire competency in their language. Developing the workforce to cater to international companies is another development cost that will have to be shouldered by the government.
The “cheap labor advantage” may be relevant as of this moment, but there is no assurance it will remain static.
Workers are becoming restless and are demanding a fair share of the fruits brought about by the opening up of the economy. The country may lose its competitive advantage if the workers push hard with their demands for better pay. The integration of the ASEAN economy is another factor that may affect wage rates in the country as it promotes free movement of goods and services within the region.
- Who will compensate for the social costs?
One of the social costs of the project is the land problems. Cases of displacements, land grabbing and underpayment hound the zones. Speculation drove people to take advantage of small land owners and divest them of their lands. This results to negative development as people become marginalized with the dispossession of their lands. The resulting poverty due to displacement and dispossession runs counter to the main aim of bringing improvement to the lives of the people.
A coping mechanism or safety nets for those that will not absorbed by the companies will be an added cost to the government.
- Addressing environmental concerns
Another social cost is the environmental degradation affecting the areas around the zones. It is not only about turning an area into a sprawling concrete complex, but more of the capacity to manage waste from the companies doing production inside the zones.
Both the Dawei and the Khyaukphyu SEZ are along the coast which may endanger the ecological balance in the area. Short-term benefts may not offset the long-term effects that will be left behind by the companies.
The main purpose of the creating SEZ is to contribute to the economic development of the country. The question remains, will it beneft the country? Is there an alternative, or are we stuck with it?
