Feb 5, 2013

Myanmar: Economic zone eyed

Asian countries are spearheading a wave of mounting international investor interest in Myanmar’s long-underdeveloped manufacturing industry, as global players move to tap the potential of the region’s rising economic star.

On January 9, the local press reported that the government had reaffirmed its plans to set up a public company to run the Thilawa Special Economic Zone (SEZ), which is earmarked to become the largest industrial complex in South-east Asia.

The reports, which referred to comments made by the deputy minister for National Planning and Economic Development, U Set Aung, followed an announcement in August by the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) that preliminary work had begun to establish a Burmese listed firm to operate the zone. The UMFCCI has a 51% stake in the Thilawa project, with the remaining 49% owned by a consortium of three Japanese firms: Mitsubishi, Sumitomo and Marubeni.

Developments at the zone, which is expected to act as a trailblazer for the country’s new economic model, are being watched with interest. The setting up of a public company is widely viewed as a significant step forward for Myanmar, both financially and symbolically, which will enable the government to broaden the investor base at the zone and allow more Burmese nationals to have a stake in the project.

Located 25 km south of Myanmar’s largest city and commercial capital, Yangon, Thilawa stands adjacent to an existing deep-sea port that will be used to import raw materials and export products made in the 2400-ha SEZ.

Japanese interest runs deep at the zone; the three consortium firms tasked with developing the project jointly with Myanmar also hold investment commitments at the facility, while reports suggest that Japan’s government has offered Myanmar a substantial, low-interest loan to help fund the initiative. Funding could be used to construct infrastructure, including a large gas-fired power plant. The Myanma government is currently seeking bidders for infrastructure contracts at the SEZ.

Establishing a public company to take the UMFCCI’s share of the project will put to rest concerns that the Chamber of Commerce was set to monopolise investment in the zone. Set Aung also gave his own reassurance, saying, “We will limit the number of shares that a person or a company can buy”. An announcement has yet to be made giving details of when and where the shares will be offered, although officials said the sale would take place before the project gets under way this year.

In August 2012, a former minister for National Planning and Economic Development, U David Abel, welcomed the idea of a flotation, describing it as a good way to finance infrastructure construction at the economic zones. Abel acknowledged that growth had previously been hindered by a lack of infrastructure.

While a lack of infrastructure is an issue for Thilawa, investors will be aware of the zone’s positive attractions, which include the availability of raw materials, both domestically and in the wider region, alongside proximity to the Chinese market.

Set Aung also highlighted the zone’s turnaround times, which stand at three hours for company registration and 15 days for investment registration. The SEZ will include a “free zone”, where export-oriented businesses will be able to import and export freely, while paying taxes on sales on the domestic market. A separate “promotion zone” will be established, providing a platform for local companies to export and sell on the domestic market. These companies will pay tax on their raw material inputs, equipment and products. Additionally, plans to establish a “one-stop service centre” should help investors establish connections with a range of potential business associates.

Japanese investment in Thilawa and elsewhere in Myanmar, backed by the Tokyo government, is widely seen as a major vote of confidence in the economy, which is rapidly opening up after years on the sidelines of South-east Asia’s economic success. Japan is already a leading investor in Myanmar’s eastern neighbour Thailand, fuelling international press reports that links will be forged between the South-east Asian countries’ industrial zones and ports to capitalise on regional synergies.

Keen to make the most of Myanmar’s potential, Japan has waived Yangon’s Y303.5bn ($3.42bn) debt, while offering the country development loans. Observers will be watching closely to see if Japan decides to invest in the other economic zones, including the Thai-backed Dawei project on the southern peninsula and Kyaukphyu on the Bay of Bengal.

Set Aung has voiced his confidence that Thilawa’s growth will stimulate migration to the region, which will help provide businesses with a labour pool. The availability of a workforce is likely to further strengthen Myanmar’s appeal to industrial investors, many of whom are keen to explore the new kid on the South-east Asian block following its liberalisation.

Source: Oxford Business Group