13 June 2014edge review

Photo: Construction at the first phase of the Thilawa special economic zone, in suburban Yangon (Christopher Ian Smith).

Japanese-backed industrial project at Thilawa takes root, despite some misgivings

Rajah’s house, a modest bamboo shack without power or running water, used to stand in the paddy fields adjacent to the main road cutting through the Thilawa industrial zone, some 20 kilometres south of Yangon, Myanmar’s commercial capital.

He claims that, as punishment for his advocacy of farmers’ rights, local administrators – backed up by firefighters, police and plainclothes thugs – tore his home down on June 3, along with houses belonging to his two brothers just down the road. They tried to take the ward administrator to court, but were sternly rebuked by the judge. “[She] said that we could not sue the local administrative officer because he had permission from his superiors,” he said.

The brothers’ old neighbourhood is at the centre of Myanmar’s newfound push to attract foreign investment. Their experience underscores the complexity of land issues in Myanmar, where uneven application of the rule of law in property disputes favours the rich and powerful.

The existing deep-water port and industrial zone at Thilawa, established by the former military junta in the mid-1990s, is undergoing a profound transformation and expansion into a Special Economic Zone (SEZ), a development that has enticed foreign investors with special tax and customs breaks and transformed it into the country’s premier manufacturing hub.

Aside from Thilawa – which is set to open by the middle of next year – the Myanmar government has established two other SEZs at Kyaukphyu in Rakhine State and a Thai-backed project at Dawei in the south, which has suffered financing woes over the past few years.

Construction on the 400-hectare “Class A” first phase of the Thilawa project began last December, with 51 per cent of the financing provided by the Myanmar government, a consortium of nine local companies, and shareholders who purchased equity on the open market.

The remaining 49 per cent is split among three Japanese industrial giants – Marubeni, Mitsubishi, and Sumitomo – and the Japan International Cooperation Agency (JICA), Tokyo’s overseas development organisation, which holds a 10 per cent stake. The government estimates that 300,000 jobs will be created when both phases of the project are completed.

For foreign investors wary of making large-scale capital investments, the project serves as a haven within the country’s decidedly risky operating environment. “To be perfectly frank, it’s Japanese involvement that makes Thilawa different,” says Rachel Calvert, of consulting firm IHS. “The Japanese have a track record of building efficient, well managed industrial parks and SEZs in emerging countries of Southeast Asia that often lack infrastructure and have complex regulatory regimes.”

The state-run daily New Light of Myanmar reported in early June that land will cost US$70 per square metre for a “long-term lease,” significantly undercutting costs elsewhere in the city. Rampant speculation, exacerbated by a tendency for the rich to invest heavily in property owing to a lack of confidence in the formal banking system, has made Yangon’s industrial land among the most expensive in Southeast Asia.

In a country notorious for power cuts, Thilawa promises manufacturers a steady supply of 24-hour electricity and potable water. American packaging company Ball and Japanese auto parts manufacturer Koyo signed leases on plots earlier this month, making them the SEZ’s first confirmed tenants. Yanai Takashi, the head of the Japanese consortium developing the zone, told the media last week that 45 firms from 11 countries have submitted investment proposals.

“Thilawa is the first project where investors can enjoy international-standard infrastructure,” says Masahiko Tanaka, JICA’s chief representative in Burma. “[It] is the first project [in Myanmar] where… social considerations [were] conducted in accordance with international guidelines.”

JICA has provided the government with technical assistance on all aspects of the project, from upgrading the old port to ensuring that resettlement is in line with “international standards.” But for now, JICA’s oversight only goes so far. Rajah, the farmer evicted by local authorities without compensation, lived in what will become the 2,000-hectare “Class B” phase of the project, construction on which has not yet begun.

Tanaka claimed that, despite JICA’s equity stake in the SEZ, responsibility for resettlement lies exclusively with Myanmar’s government. “This Thilawa relocation is one of the biggest challenges this government [faces],” he said. “I think the government, until now, has been doing very well.”Last year, the government resettled 68 families to Myaing Thar Yar, a new village roughly 5 kilometres away from the project site, paving the way for the Class A zone’s construction. Up to 4,500 people will have to be resettled as construction continues.

The displaced families were given two compensation options: a pre-built house on a 25-by-50-square-footlot, or a vacant plot and 2.5 million kyats (US$2,500) to construct a new home. These packages also included one-time assistance payments amounting to roughly US$200 per person, and compensation for loss of agricultural inputs.

Although the villagers are generally supportive of the project and eager to work in the SEZ, many feel their compensation has been insufficient. A group of villagers backed by Japanese NGO Mekong Watch submitted a formal complaint to JICA’s headquarters in Tokyo in May, claiming the agency has not lived up to its own social and environmental impact guidelines. They cited the village’s poor drainage, water supply, transport links, and lack of employment opportunities, and demanded monetary compensation more in line with market values.

Although he acknowledged that their water supply was not up to standard, and claimed JICA was working with the government to improve it, Tanaka was largely dismissive of their concerns. “They [the villagers] want to be richer than before,” he said. “Much richer… of course, their livelihood should be improved, but some of the farmers are being greedy.”

The latest resettlements follow an earlier wave of displacement conducted by the military at gunpoint in the mid-1990s. The area around the industrial zone is littered with villages settled by the displaced, whose residents received compensation of 20,000 kyats per acre (US$120, accounting for inflation) for their land. Unlike their counterparts in Myaing Thar Yar, the villagers have no access to the electrical grid; despite the government’s electrification efforts in the industrial zone itself, they still rely on diesel generators for power.

The fact that foreign companies investing in Thilawa will be building on land of questionable provenance concerns Tanaka little. “It is not our concern: it all depends on Myanmar laws and regulations,” he said. “We are not in the position to [decide] whether the military government’s decision was right or not.”

While the government’s meticulous preparation has been duly rewarded by investor interest, there can be no guarantee this will translate into long-term confidence in Myanmar as a manufacturing destination. “The government will have to capitalize on its success with detailed, funded plans,” Calvert said. “If they do not, Thilawa will become be perceived as a safe investment island in a risky country.”

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