Special Economic Zones could be key to Myanmar’s growth

The docks at the Myanmar International Terminals at the huge Thilawa industrial zone project near Yangon. (AFP PHOTO / Soe Than WIN)

Ever since the National League for Democracy (NLD) was elected to government at the end of 2015, Myanmar’s economy has been opening up and quietly growing steadily. The elections – the first openly contested elections in Myanmar since 2015 – was emblematic of the transformation that Myanmar is undergoing.

According to a PwC report released in October last year, the new NLD government has been welcoming of foreign businesses. In 2016, the parliament passed a new Banking and Financial Institution Law which saw four foreign banks being given licenses. As a result of reforms taken by the NLD, the United States has removed sanctions on Myanmar. The World Bank reported in January last year that Myanmar are on track to becoming one of the world’s fastest growing economies, with an expected 7.1% growth rate over the next three years. Meanwhile, a Standard Chartered economic outlook report released earlier this year has shown that the economy is forecasted to grow 7.5% this year and a whopping 8.7% in the fiscal year of 2019.

The government in Myanmar has taken various steps in making the country more attractive to investors. The PwC report mentioned that in January last year, Myanmar enacted an investment law that simplifies the investment process and would let the government use incentives to bring in investors to various sectors.

Foreign direct investments (FDIs) into Myanmar also play a major role in developing the economy. PwC data shows that Myanmar received about US$6 billion in FDI during the 11 months up to February 2017.

At the moment, Myanmar is developing three Special Economic Zones which look to increase investments in the country.

“The development of Special Economic Zones (SEZs) enable investors to utilise Myanmar’s most productive assets – land and labour,” wrote Tim Leelaphan of Standard Chartered in his economic outlook report for Myanmar this year.

The three Special Economic Zones (SEZs) which are currently under development are Thilawa, Dawei and Kyaukphyu. The Thilawa SEZ, located 25 kilometres south of Yangon, is Myanmar’s first modern industrial park. So far, only the Thilawa SEZ is open, with the rest still under development. People were initially skeptical of the project when it was announced in 2014, but according to the Myanmar Times in a report from March last year, total FDI in Zone A of the SEZ has reached up to US$1 billion and is 95% occupied. The Myanmar Times also mentioned that 79 firms have decided to open up their factories or logistics hubs in the SEZ. Zone B of the Thilawa SEZ which is said to be 700 hectares is currently undergoing development and is set to complete next year according to The Myanmar Times.

Meanwhile, the Kyaukphyu SEZ located on the Rakhine State will focus more on oil & gas projects as the Shwe gas field in the Bay of Bengal is accessible from the Kyaukphyu SEZ. In the aforementioned PwC report it mentions that Chinese conglomerate CITIC is the main developer of the project, with an 85% stake in the SEZ with the rest belonging to the Myanmar state. According to a Reuters report in June of last year, the project involves a pipeline that pumps oil 770 kilometres across Myanmar to southwest China. The pipeline will be a vital part of Beijing’s Belt and Road Initiative.

The prospects of the Dawei SEZ however doesn’t look great. The project is yet to be completed and has been delayed by various disruptions. If (and when) completed, the Dawei SEZ would be the largest industrial zone in the region. The project was first supposed to be developed by Thailand and Myanmar but has seen companies coming in and then pulling out of it. Lack of funding for the project has also been an issue according to Myanmar news website, The Irrawaddy. While Myanmar and Thailand are still keen to develop the Dawei SEZ, the future of the project still hangs in the balance.

In addition to that, the SEZ’s being developed in Myanmar have been mired in controversy. Myanmar local media has highlighted the various protests by locals in the area against such developments. The Irrawady wrote in May last year that fishermen in Kyaukphyu seaport have voiced concerns about their livelihoods being jeopardized in the area. The development in Dawei has also seen a similar backlash in the past. The Democratic Voice of Burma wrote about a report by the Tavoyan Women’s Union in 2014 that claimed the project was destroying the local economy. The report revealed that the development would cause a loss in income and an increase in food insecurity in the area.

The Myanmar government needs to be aware of the situation as it could scare off investors from the SEZ. That being said, the SEZ’s are important if Myanmar wants to keep growing as an economy. These projects would open Myanmar up to the world and create a robust domestic economy too. Mahok Mangal, a project manager at the International Growth Centre wrote in the Myanmar Times that the SEZ’s are crucial for Myanmar if they want to compete in the region.

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