Myanmar Special Economic Zones, Part III

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Special economic zones have been highly successful in several East Asian economies, kick-starting new waves of foreign direct investment, employment and growth. Yet despite the success of Shenzhen and a handful of others, most SEZs throughout Asia have cost governments a fortune to build and brought little economic benefit.

Given their poor track record, it’s refreshing to see that Myanmar’s most developed SEZ, Thilawa, bears strong resemblance to some of the region’s more successful schemes. Indeed, with finance secured, construction begun, and a dozen foreign investors already signed up, there is every reason to believe that Thilawa can provide a substantial boost to Myanmar’s economic development.

In contrast to Dawei and Kyuakphyu, the Thilawa SEZ benefits from its proximity to an urban centre. Located only 20km south of downtown Yangon, Myanmar’s largest city, the site feels worlds apart, with only a smattering of industry breaking up the wide expanse of agricultural plots and untilled grasslands. It’s thus perfectly placed to build and expand whilst simultaneously taking advantage of the goods and services available in the country’s commercial capital.

For instance, qualified tradespeople and experienced firms will be readily available for the construction phase. The requisite heavy equipment, vehicles and materials, if for sale anywhere in Myanmar, will be in downtown Yangon. Labour, both skilled and unskilled, is in abundance throughout the city, ready to work in new plants and factories as foreign investors begin to arrive. Housing, hospitality, conference facilities and temporary accommodation are also in place to support the people involved in the zones construction and development, albeit at inflated prices.

Business services available in Yangon will also support the zone’s development. Financial, legal, shipping and insurance firms, as well as many others, are well established and ready to assist. Internet and telecommunications connections, though patchy, do exist.

Thilawa’s trump card, however, are its ports. Operating 24 hours a day, 7 days a week, the five berths and accompanying infrastructure are ready to export the zone’s future produce. Not only does this well-functioning harbour save significant sums of money in the construction phase, it also provides a skilled and experienced workforce which can be grown gradually as the zone’s activities ramp up.

Thilawa’s other infrastructure needs are equally well provided for. Access roads and connections to the major arterial highways are relatively congestion free, able to avoid the worst of Yangon’s infamous traffic jams. These will undoubtedly require extensions and maintenance, but it’s detachment from the city proper will provide significant logistical windfalls. Yangon’s international airport, the country’s best connected, is only forty five minutes away. The zone’s electricity needs, which are bound to grow rapidly in the next few years, are to be supplied by a new, already funded power plant. So while it isn’t saying much, Thilawa has better access to essential infrastructure than almost anywhere else in the country. Such an endowment will not only be extremely attractive to investors but just as importantly, will save the government huge sums of taxpayer dollars.

A further advantage of Thilawa is the institutional vacuum which in which it is situated. Like Shenzhen pre 1979, there is little physical or human development in the area which will enable swift and responsive decision-making. As trends in trade and manufacturing emerge and business needs evolve, Thilawa’s size and design must too, as foreign investors can easily shift to alternative export processing zones in neighbouring economies.

The commitment of the Japanese government and a host of its largest companies is a further positive. As a source of funding and legitimacy, Japan’s support is crucial to the project’s success. Some of its leading companies such as Mitsubishi have already committed to the site, which will further encourage a cluster of high-end manufacturing to take hold.

Although land disputes and environmental concerns have been frequently reported in the media, managerial incompetence and political interference are the biggest threat to the zone’s success. Building and administering a site of this scale will take great skill, commitment and luck. A new government in 2015, for instance, will bring new challenges and uncertainty to the project which will take the best part of a decade to fully realise its potential.

Despite the challenges, and the weight of history, Thilawa has many of the essential ingredients for a successful special economic zone. And if government can keep faith in the zone, so might foreign capital, nurturing new and far reaching economic opportunities.

Josh Wood was a Visiting Research Fellow at the Myanmar Development Research Institute’s Centre for Economic and Social Development (MDRI-CESD) and is a postgraduate student at the ANU.