The country’s first special economic zone gears up for production

Foreign investment in manufacturing, already strong, is set to accelerate further with the long-awaited launch of Myanmar’s first special economic zone (SEZ), located near the port of Thilawa about 25 km south-east of Yangon. A greenfield project comprising 2342 ha of former farmland, the Thilawa SEZ aims to simplify the process of foreign investment by providing a ready package, with land, utilities, access roads and a nearby port all within a short drive of the country’s business capital. Backed by the Myanmar and Japanese governments, three major Japanese firms, and a coalition of top Myanmar business groups, the SEZ is expected to launch its first phase of 189 ha in 2015.

Territorial Matters

Finding and leasing land suitable for industrial use is one of the bigger challenges foreign investors face. Within cities, especially Yangon, land is in short supply and highly priced. Outside them, it is likely to lack water and electricity. “Myanmar’s problems are that electricity supply is poor, infrastructure in general is poor, transparency is poor,” Nikolas Myint, senior social development specialist at the World Bank, told OBG. “That’s part of what’s driving the SEZ.”

Much of the land available in Myanmar is recently cleared farmland, where investors are likely to face claims from those who used to farm it that they were relocated unfairly or illegally. The SEZ, too, is embroiled in such disputes, but its management company acts as a kind of buffer, handling such political issues so investors can focus on building factories and producing goods.

Ownership

The Thilawa project was initiated and the land partly cleared in the 1990s but made little progress until 2012, when Western sanctions were lifted and the Japanese government agreed to back it. An agreement in 2013 brought in Japanese industrial giants Mitsubishi, Marubeni and Sumitomo, which own a combined 39% stake in the SEZ management firm, Myanmar-Japan Thilawa Development Company (MJTDC). Japan International Cooperation Agency, a state development assistance wing, also owns 10%, as does the Myanmar government through a special state company, Thilawa SEZ Management Committee (TSEZMC). The remaining 41% is owned by a public company, Myanmar Thilawa SEZ Holdings (MTSEZ). MTSEZ in turn is owned by nine Myanmar companies representing major local business groups (5% each), with the other 55% publicly held after a local initial public offering in March 2014. This stake was sold for MMK21.45bn ($21.45m), valuing MTSEZ at MMK39bn ($39m) and by implication valuing MJTDC at MMK95.1bn ($95.1m).

Management

The four key managers at Thilawa are U Set Aung, chairman of TSEZMC and deputy governor of the central bank; U Win Myint, vice-chairman of TSEZMC and construction minister; U Win Aung, chairman of MTSEZ, chairman of the Myanmar Federation of Chambers of Commerce and Industry, and owner of conglomerate Dagon International; and U Serge Pun, vice-chairman of MTSEZ and owner of local conglomerate First Myanmar Holdings and Singapore-listed real estate firm Yoma Strategic Holdings. U Win Aung and U Serge Pun also each have a 5% stake in MTSEZ.

Taking Off

Ball Corporation, a US aluminium can maker, was one of the first two firms to sign on to the SEZ, at a June 2014 ceremony attended by US ambassador Derek Mitchell. Ball will supply cans to Coca-Cola, which opened a joint venture bottling plant in Hmawbi, 45 km north-west of Yangon, in 2013. The other first signer was Japan’s Koyo Radiator, a maker of car parts.

In November 2014 an MTSEZ official reported that, out of 45 companies that had submitted proposals by May, 26 had paid deposits to secure plots: 12 from Japan, four from Taiwan, two each from Thailand and Myanmar, and one each from Singapore, Australia, China, Hong Kong, Sweden and the US. The official also announced a plan to build a 50-MW gas-fired power plant on-site in two separate phases in 2015 and 2016, and that the SEZ had agreed to receive 20 MW of power from the public grid. In October 2014, U Win Aung said that the SEZ’s manufacturers would make steel, building materials, electronics, plastics and garments, with the first factories to start producing in mid-2015.

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