Myanmar Special Economic Zones, Part I and II

23 October 2014 | Josh Wood | New Mandala


Since the first sod was turned in 2008, the Dawei Special Economic Zone has been mired in controversy. Reports of corruption, land grabs and environmental degradation have turned public opinion against the scheme, and, since the withdrawal of the Italian Thai Development Company in 2012, financial backing has yet to be secured. Until a new private investor can be found to continue the zone’s construction, the project survives on life-support from the Thai and Myanmar governments. It remains unclear whether the project will ever be completed.

Considering the controversy, it’s surprising that the flimsy economic credentials of the Dawei SEZ have yet to enter the conversation. Debate has generally centred upon the social and environmental costs of the project outweighing the economic benefits, as if such benefits were somehow assured. Yet SEZs often end up costing governments more in infrastructure spending than can ever be recouped through foreign investment. The small number of successful SEZs, such as Malaysia’s Penang and China’s Shenzhen, are exceptions to the rule.

Unlike Kyuakphyu and Thilawa, Myanmar’s other SEZs, Dawei’s economic prospects are bleak. Putting aside potential social and environmental costs, there are four major reasons why the site should never have been chosen in the first place.

Firstly, Dawei’s location in remote Taninthayri Division offers few natural advantages. The sparsely populated region sits in the country’s south-eastern corner, nestled between the Tenarasim Hills, which demarcate the border with Thailand, and the picturesque Andaman Sea. The region’s industrial base is extremely primitive and only the most basic financial, legal and business services are currently available.

Taninthayri’s economic isolation is compounded by its poor infrastructure and connectivity. Road and rail links with the rest of Myanmar have only recently been completed, port facilities can service only small-scale vessels and connections with Thailand are limited to a single dirt-road crossing. Though peaceful and pristine, the region is a back-water, ill-suited to industry.

Secondly, Dawei sits adrift of the most significant trade-routes of the region. Proximity to trade corridors, where logistics are cheap, cluster-effects are possible and supply-chains can develop, characterise many of East Asia’s most successful SEZs. Considering that the vast majority of Myanmar’s imports and exports come overland via the Chinese border in the north or through the ports of Yangon, Dawei is a poor choice indeed. At the very least, Myanmar could adhere to the advice of the ADB and develop SEZs near high-potential trade routes linking Myanmar to North-east India in the west or the greater Mekong Sub-region, to the east.

Thirdly, the specific parcel of land put aside for the Dawei SEZ is poorly chosen. Located 90 bumpy minutes north of the town centre, the arid moonscape has none of the requisite infrastructure and services. Power plants, roads, reservoirs, housing and sewage will all need to be built from scratch. Machinery, building materials, food and other necessities will all need to be transported in or contracted out, as no township currently exists to service the site. Even the deep-sea port, a key factor in Dawei being chosen as a SEZ location, requires significant deepening, the dredging of an approach channel and construction of complementary breakwaters before even the first tanker can dock.

Finally, Dawei Township and its surrounds lack the adequate labour supply for large-scale industrial expansion. Like much of rural Myanmar, the under-resourced education system has failed to produce the adequate number of skilled tradespeople and technicians that industry requires. Unique to Dawei, however, is the allure of higher wages in neighbouring Thailand. Thousands of working-age men and women have already emigrated, leaving only a very small pool of potential labour for enterprises in the SEZ. In order to maintain local workers, wages will need to be competitive with Thai equivalents.

Because of these reasons, the expected economic benefits of the Dawei SEZ are unlikely to eventuate. The high costs of construction, poor location and poorer investment prospects cannot justify the billions of taxpayer dollars required to build and administer the zone. Although huge sums of financial and political capital have already spent on the project, the time has clearly come to put this white elephant out to pasture.

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 Australian National University.


Myanmar Special Economic Zones, Part II
24 October 2014 | Josh Wood | New Mandala


On a little-known island in Myanmar’s Rakhine State, construction is soon set to begin on a deep-sea port, dozens of factories, roads, reservoirs and a power plant to support large-scale industrial activity. Alongside similar projects in Dawei and Thilawa, the Kyaukphyu Special Economic Zone is one of Myanmar’s most ambitious and expensive development strategies.

Despite repeated assurances from policy-makers in Naypyidaw and Beijing, the economic justification of the Kyuakphyu SEZ is coming under increased scrutiny. Located in Rakhine State, one of the poorest and least developed regions in Myanmar, Kyaukphyu Township is a sleepy provincial centre. Home to only 60,000 people, many of which rely on fishing and agriculture for their livelihoods, there is, as of yet, no industrial infrastructure of note. Yet a tract of land several miles from the town centre is set to receive unique legal status, billions in infrastructure spending and, if all goes according to plan, large flows of job-creating investment. While the area has some notable natural assets such as large gas deposits and a well-protected harbour, the zone’s prospects of success are poor.

So why was Kyaukphyu chosen over more established ports such as Pathein and Moulmein? Essentially it is the strategic concerns of the previous government which are to blame. Strategy hawks in Beijing, fearful of an embargo in the Malacca Straits, desired an alternative route for Middle-Eastern oil and gas to supply Chinese industries. Thus in order to open up the “western seaboard” of China, a 741km long Sino-Burmese oil and gas pipeline was proposed alongside a Kunming-Kyuakphyu railway. These investments, along with China’s strong influence in Naypyidaw, prompted the establishment of a SEZ at the pipeline’s origin where petrochemical and related energy processing could take place before being transported to China.

Since 2011, however, the geopolitical environment has changed considerably. Myanmar has transitioned to a quasi-civilian government, normalised relations with the West and experienced a boom in non-Chinese foreign investment. Because of these developments, a SEZ at Kyaukphyu now makes little economic sense when locations in other cities would be cheaper to build and more attractive to investors. There are four major reasons why Kyuakphyu’s SEZ is likely to fail.

To begin with, the Kyuakphyu Township will be unable to provide essential business services for foreign investors. At present, only the most basic financial, legal and logistical expertise is currently available, shortages which will drive up costs and cause unnecessary delays. Complementary services will hopefully develop in coming years, but for now there is little support for potential first-movers.

Secondly, Rakhine State is a powder-keg of unrest and instability. Long-simmering tensions between the predominantly Buddhist majority and Islamic minority culminated in 2012, resulting in arson attacks and episodes of communal violence causing hundreds of deaths. Tragically, the Islamic quarter of Kyuakphyu Township itself was burnt down and the town’s remaining Muslim inhabitants now reside in military-protected camps. While anti-Islamic sentiment and violence is in evidence throughout Myanmar, recent conflict has been concentrated in Rakhine State and the current situation remains extremely volatile.

Thirdly, like Dawei, Kyuakphyu is isolated and disconnected. The near-impassable Arakan Mountains and tropical climate make the windy dirt-road connections with the interior slow and unreliable. Flights are infrequent, telecommunications limited and qualified tradespeople are increasingly difficult to find. Due to the town’s limited resources, supplies of water, electricity and roads will all need to be increased as a result of the SEZ, outlays which will increase the costs of the scheme dramatically.

Finally, the Chinese contribution to Kyuakphyu is in serious doubt. Having lost much of its leverage over Naypyidaw, China may reassess some of its earlier infrastructure and investment promises of the pre-reform era, greatly reducing the zone’s likelihood of success. According to one Myanmar official, the Kunming to Kyaukphyu railway has been “cancelled” after three years of inaction, a claim hotly disputed by the Chinese ambassador. The oil and gas pipeline’s long-term future is equally unclear. Recent protests in Yunnan Province have led the construction of new oil refineries to be delayed until at least 2016.

Because of these reasons the Kyuakphyu SEZ is unlikely to succeed and the spending of more taxpayer dollars simply cannot be justified. While a small number of firms may find reason to invest once construction is complete, the number is unlikely to be sufficient to justify the enormous costs of transforming a rural township into an industrial city.

Myanmar Special Economic Zones, Part III
25 October 2014 | Josh Wood | New Mandala



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.