Can Myanmar’s Special Economic Zones be successful?
Mr. Khin Maung Soe
International Program of Environment, Development and Sustainability, Chulalongkorn University.
Final paper for Development: History, Theory, Policy and Practice. Course number: 2023605
Date: December 1, 2017
Word count: 3181 words
2. SEZs Development and their Current Statements in Myanmar…………………4
3. Strengths of Myanmar Special Economic Zones…………………………………..5
4. Challenges of Special Economic Zones in Myanmar……………………………..7
5. Factors to Succes in SEZs and Analysis ……………………………………………8
1.1. Present Statements of Myanmar Special Economic Zones
There are three Special Economic Zones (SEZs) in Myanmar. The first one is Dawei Special Economic Zone which is located in Tanintharyi Region. The second one is Thilawa Special Economic Zone which is located in Yangon. The third one is Kyaukphyu Special Economic Zone which is located in Rakhaing state. The three projects have been operated and considered as an important step in the content of investment, industrialization, and liberalization.
To attract the activities such as trading, distribution, logistics, and manufacturing, SEZs have been established and utilized in both developed and developing countries. In Myanmar, the so-called democratic government made a reformation for the purpose of increasing the country’s participation in the global economy, in 2010. One of the objectives of the reformation is to create Special Economic Zones that facilitate foreign direct investment, exports, and import processes. As an implementation of the objective, Special Economic Zone law and Special Economic Zones rules were enacted. And then, three SEZs are being developed in Myanmar.
1.2. Conceptual framework
Special Economic Zone model emphasizes on a specialization of economic development and there may have some impacts on the environment which lead to conflicts. Therefore, this model is similar to “world factory model”. Some activities of this development project model follow the “Washington consensus economic policy” because this model works with moderate tax rates and competitive exchange rates between investors and the host country. It liberalizes export and import processes between countries. It is easier access to FDI regimes, and privatization process is included in this model. So this development model is closely relevant to “neoliberalism and the Washington consensus”.
In this paper, I will discuss “can Myanmar’s Special Economic Zones be successful?” The remainder of my paper is organized into five sections. Section (2) focus on Myanmar Special Economic Zones development and their current statements, section (3) examines the strengths of Myanmar SEZs, section (4) presents the challenges of Myanmar Special Economic Zones, section (5) factors to success in SEZs and analysing on Myanmar SEZs and in final section, section (6), concludes my paper with my argument about Special Economic Zones in Myanmar cannot be successful due to the current unfavourable situations.
2. SEZs Development and their Current Statements in Myanmar
Myanmar Government made a change for the economic and political issues in late 2000. The USDP, Government enacted Special Economic Zone law in 2014 and the Special Economic Zone rules in 2015. The Government made an enhancement for SEZs development. And also, the NLD, the present government, has made a commitment to SEZs; Dawei SEZ, Thilawa SEZ, and Kyakphyu SEZ.
2.1. Special Economic Zones’ statements
There are three Special Economic Zones which are in operating stages in Myanmar. They are as follows.
2.1.1. Thilawa Special Economic Zone (TSEZ)
Thilawa SEZ is located in Thanhlin, about 25 kilometers south of Yangon. The project was established by Myanmar and Japanese governments to proceed the development. For phase A, the target factories are light industries and manufacturing of consumer goods in Thilawa SEZ. It is quite close to Yangon, the biggest market demand city in Myanmar. It is preferable for labor-intensive factories because Yangon has enough labor force to support TSEZ.
The One Stop Service Center (OSSC) was established by Thilawa SEZ according to the section 11 (L) of the Myanmar SEZ law. The investors can get all necessary services and the approvals range from company incorporation to visa application, export, import and labour registration, etc.
2.1.2. Dawei Special Economic Zone (DSEZ)
Dawei SEZ is located in the Tanintharyi region that is in the southern narrow parts of Myanmar. It The purpose of this SEZ is to develop local businesses, to provide local employment opportunities and to stimulate the infrastructure constructions. If the project was completed, it will become the largest economic zone in ASEAN. It was started in 2015 and the project is expected to completed by 2022. In the initial phase, the DSEZ targets to produce the labour-intensive industries such as food processing and garment manufacturing factories. After that, it plans to install heavy, chemical industries including automotive and electronics. The deep-sea port plan is the strength of DSEZ. But, its nearby areas are poor in infrastructures. Even though the DSEZ was the first conceived by the government, the progress of the project is minimal.
2.1.3. Kyaukphyu Special Economic Zone (KSEZ)
Kyaukphyu Special Economic Zone is in Rakhine State. The initial stage of the SEZ was started by the joint-venture project between Myanmar and the Chinese government. It has made a transition to the private developers. The project is accessible to the SHWE gas field from the Bay of Bengal. The first phase construction of the SEZ is started in 2016 and it is expected to complete by 2038. In those Zone, the targets industries are regional logistics, food processing, oil and gas, footwear and garments manufacturing industries. The KSEZ has the deep-sea port plan and oil and gas resource to the SEZ. It is located far from existing operating industrial area. The KSEZ expected to accelerate to completed before 2038.
2.2. Legal framework for Special Economic Zones
Including relief and exemptions on the commercial taxes and import taxes, a legal framework is provided by the Special Economic Zone Law in 2014. The SEZs are governed by zone committee. The process in the management committee differs from the Myanmar Investment Committee. And the SEZ adopts the application system that is intended to create a more business-friendly environment and shorten the review process for the foreign investors.
3. Strengths of Myanmar Special Economic Zones
Technologies development, expansion of the infrastructures and currency exchange in SEZs will produce the benefits to the country and it will also attract more foreign investments. There are some motives for attraction to investments are special law and regulations, preservation for the environment, the special regulation for a transaction to home countries, long-term work permit for foreigner and executive residential visa and duty-free tax for import goods and income tax expansion in SEZs.
Do Myanmar Special Economic Zones need more strengths to be successful zones?
3.1. Strengths of TSEZ
Because TSEZ is located near Yangon, it has an access to adequate labour force which is the fundamental needs to be a successful SEZ. Yangon has seaports and airport that are the gateway to international markets. It has also main international seaport called Myanmar International Terminal Thilawa port. It can also be available for the public transportation such as train and bus which make a convenience for the workers from the metropolitan area.
It has good access telecommunication, internet access, fresh and putrifies water supply, electricity, and location in the zone is confirmed investment permit is issued. For the environmental issue, industrial waste management, services for solid waste and liquid waste are also available readily. The investors have also a good chance for air cargos. In the TSEZ, green areas and workers’ dominators, recreation centers, medical centers, school, shopping centres, banks, residential apartments and offices, villas and condominiums are located. As the Incentives, there are diversified tax expansions available to proponents of Thilawa SEZ. According to Special Economic Zone Law, there has some tax the exemptions for corporate tax the first 7 or 5 years. And some also extra tax expansion is available. In the Front office of One Stop Service Centre of Thilawa SEZ, applications for all services ranging from an application for investment permit to a location for company registration, stay permit, multiple entry visas, tax registration, declaration of export and import can be made.
3.2 Strengths of DSEZ
Dawei SEZ is least developed project among three SEZs in Myanmar. Dawei SEZ is located near to Thailand and the project plan also includes the road-link to Thailand from DSEZ. If the plan completed, the investors can trade with ASEAN and other countries pass through the Indian ocean via from its deep-sea port. There has a good water supply in DSEZ. It unlikes to Thilawa SEZ, there have only a little aspects of strengths in DSEZ.
3.3 Strengths of KSEZ
In case of Kyaukphu SEZ, it has also the deep-sea port plan like to DSEZ. And it can access the electricity from the SHWE oil and gas fields. It is also trying to become a good place for investors to invest.
I already revealed the strengths of each Special Economic Zone in Myanmar. Although each SEZ has their own strengths, they will need more infrastructures, physical needs, and Environmental Management Plans. The Thilawa SEZ has most favorable incentives for investors with enough infrastructures. In the first paragraph of this section, I have already explained about incentives for the foreign investors. To become a successful SEZ, there will need more aspects of incentives and more attractions for foreign investments in all SEZs in Myanmar.
4. Challenges of Special Economic Zones in Myanmar
How can the conflicts and weakness of SEZs effect on development?
In the establishment of a Special Economic Zone, there have some limitation facts that can create long-term impacts on the environment. Corporate Social Responsibility, human right, and environmental issues need to be taken account in every step of establishing Special Economic Zones. The key factors to be considered when the government establishes SEZ are Law and regulations, consistency and stability of the government, government policies that may affect on the projects, services and management, a cost for investment, skill labour, macroeconomics of the country, supports for industrial investment and zone’s location advantages. Without taking account the above fundamental criteria, an SEZ may not be successful in along-term. Especially in Dawei SEZ and Kyaukphyu SEZ projects, Myanmar SEZs have so many disturbances.
4.1. Social conflicts
All social conflicts are the interference of the development in SEZs developing. Most types of investments might face the social conflicts such as land use problems, compensations, etc. In Dawei SEZ, the strong civil society organizations are opposed to the project. They do not like the DSEZ because the project could make the environmental degradation and environmental pollutions. There also have the oppositions from the local people who allege insufficient compensation for their confiscated farmlands, denial of the right to sufficient food, for the adequate housing, forced evictions and land seizure. The local communities feared of pollutions from the SEZ Development that may cause their health problems. In the name of land grabbing and compensation, there has some other reports concern with the DSEZone. So many social conflicts are continuing.
In Thilawa SEZ, there has also some land use conflicts concerned with the land grabbed and compensations. The households which are already lived in this area were relocated and then, problems began. Now it became almost settlements in TSEZ.
In the case of Kyaukphyu SEZ, there has some social conflicts between-Buddhist groups and muslin groups and have been made some risks to the Kyaukphyu SEZ. Some Rakhaing local people, Civil Society, poor farmers and fishermen in this region also made a disruption to the Kyaukphyu SEZ significantly. The landowners requested to SEZ compensation for land as much as four times. There may be incomprehensible factors between local peoples, Civil Societies and KSEZ.
4.2 Human rights
Myanmar SEZ law and rules are not comfortable to the human right issue. The legal framework and rules of laws for Myanmar SEZ should be made some amendments and adjustments to conform the state international law obligations to protect human rights. The abased people from the three SEZs could be avoided from their abasement by human rights.
Such kinds of opponents and problems can disturb the development of the SEZs. For example, Millions dollars investments Dawei SEZ may be abased due to the against of Civil Societies. In the environmental point of view, the actions of CSOs against the development project may be decent. But, for the economic development purpose, the time and money for the investment are immersive. As a result, the foreign investments are appalled to invest in this zones because they are not robust zone to make an investment. If there does not have any guarantee for the investors, it is sure that they will never invest in the zone. These inconvenience of the SEZs could lead to failure themselves.
5. Factors to Success in SEZs and Analysis
I will discuss the factors to the success of SEZs in the section. This case study is about Mae Sot SEZ, Thailand.
5.1. Why is Mae Sot SEZ successful one?
In Thailand, Mae Sot Border Trade Zone was established in Tak provenance. It is the most active border trade zone in Thailand. It has been operated for agro-processing and labor-intensive industries since the 1990s. There have some major factors to be successful like that. There has also good transportation to Thailand. They do not need to worry about the labors force. Most of the labors in this zones are Myanmar migrant workers and some are from Myanmar refugee camp. On the other bank of the border, Myanmar Border Trade Zone was established in Myawaddy. After one year later, Special Economic Zone was approved by the Thailand Government at Mae Sot. After 2012, Myawaddy-Mae Sot zone was collaborated to promote and support cross-border trade. Now a day, Mae Sot SEZ become a successful one.
In 2016, the Mae Sot SEZ was conducted for a business survey. 100 firms in Mae Sot SEZ were conducted. The results showed 98% of the firms in the zones are owned by domestically. The question about an overall business environment in Mae Sot SEZ was responded by 100 firms as the generally positive assessment. why? The results revealed that electricity, water, internet access, and waste disposal infrastructures were average good. There is no social conflict concerned with the Mae Sot SEZ.
In this case, I noted that the success of a Mae Sot SEZ is depended on its location advantages, supporting of the government and its active participation, fundamental factors, physical infrastructures such as internet, fresh and clean water supply, efficient electricity, waste disposal infrastructures. Addition to them, the transportation road to the capital city played an important role in being successful SEZ. The skill labors and workers are also played in a crucial role. On the other hand, the products of Mae Sot SEZ have very assuredly markets. They have been transported to Myanmar market and also distributed to the domestic markets. There is no social conflict concerned with the SEZ. All these kinds of strengths make the Mae Sot SEZ be successful.
In Myanmar’s SEZs, especially in Dawei SEZ and Kyaukphyu SEZ, do not have enough infrastructures, physical statements, labor forces. The government supports are spent. The worst factors are that there have some social conflicts in every zone. Having social conflict is a big disturbance for the development of SEZs.
To be a successful SEZ, there are some fundamental factors that I have already mentioned in the former section are need to be taken account. According to these fundamental factors, I would like to make an analysis on Myanmar SEZs, location selection for the Dawei SEZ was a poor decision because the SEZ have to install power plants, reservoirs, households and sewage and building materials. For the physical advantages, all sorts of the fundamental needs are not available; there is not enough electricity supply, telecommunication, and residential houses, putrified and fresh water supply, etc. The conflicts such as land grabbing, compensations, between the SEZ and civil society, etc are the barriers to the development of the project. The DSEZ has a poor location, poor investment prospects and high-cost construction have to be purchased excessively. There has no abiding law and regulations and it cannot attract the furthermore investors into it. Another major key is that this region may not supply the workers and skill labors for intensive industries and others. I would like to conclude that the Dawei SEZ with many prerequisites is far-off being successful.
In case of Thilawa SEZ, it is likely to be successful SEZ because it has mediums infrastructures, a favorable market, good location, quite good physical advantages. Unfortunately, it still has some social conflicts that concerned with land use. Some factors about to the Thilawa are acceptability. The Government sectors need to support Thilawa to be a successful one. Zone B has to be continued where some land use problems may happen. Some infrastructures are sill need to be promoted. Then, more incentives are really needed for foreign investments. Political constituency and stability of Myanmar government and its policies could affect the SEZ development. Skill labors problem is confronting. So, I would like to note that the Thilawa SEZ development could not be recognized as a successful one.
The third one, Kyaukphu SEZ, is facing skill labor requirements. In this zone, social conflicts are also happening. Its location is far from the current operating industrial zones. It has so many limitations and disturbances for the project development. Access to telecommunication, power plants, housing, and sewage, etc are also required. There only have a few foreign investments. The Kyaukphyu SEZ also need to be improved in all sectors to be a successful Special Economic Zone.
To summarize, technologies development, expansion of the infrastructures such as transports, reliable power supply and currency exchange, other financial incentives and tax in SEZs needs to be promoted to attract the foreign investments in all SEZs. Some motives that attract for the investments such as special law and regulations, preservation for the environment, the special regulation for a transition to home countries, long-term work permit for foreigner and executive residential visa, duty-free tax for import goods and income tax expansion need to be improved in Special Economic Zones. The three SEZs in Myanmar are defected in many sectors. They do not have enough experience with SEZ and some social conflicts are happening in each zone. finally, there has no stalwart foreign investments in each respective zone. That is why Myanmar Special Economic Zones cannot be successful.
In conclusion, Special Economic Zones are established for the prosperity of a nation. There have the same objectives that are to attract the foreign investment, to reduce obstacles to the operation, and to promote the investors. Many developing countries have adopted the Special Economic Zones to flourish the countries economy. Some of Special Economic Zones are successful and some are struggling to overcome the obstacles. Myanmar, one of developing countries also adopted three Special Economic Zones. The political mix-up in Myanmar affects the processes of the Special Economic Zones’ development. Social conflicts, Environmental issue and land use problems are majors factors of making impacts on development. The three SEZs in Myanmar are struggling to get enhancement and development. According to the current situations in Myanmar, there are some conflicts between Civil societies, local people and SEZs. These can make reduction the attraction on Special Economic Zones to make an investment. The three SEZs in Myanmar are defected in many sectors. They do not have enough experience with SEZ and some social conflicts are happening in each zone. finally, there have no stalwart foreign investments in each respective zone. That is why Myanmar Special Economic Zones cannot be successful without changing the requirements.
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