Thursday, September 24, 2015

Myanmar Opens Japanese-Backed Economic Zone Amid Election Campaign

Thilawa project could help Myanmar President Thein Sein show he is creating jobs ahead of high-stakes elections
Japan's Finance Minister Taro Aso, in stone-colored suit, and Myanmar's Vice President Nyan Tun, to his left, visit a factory after the opening ceremony of the Thilawa Special Economic Zone at Thanlyin township outside Yangon Sept. 23. PHOTO: REUTERS
Updated Sept. 23, 2015 7:11 a.m. ET

THILAWA, Myanmar—A major Japanese-backed investment zone officially started operations in this Southeast Asian country Wednesday with more than 40 companies, lending a boost to the economic reform credentials of President Thein Sein ahead of crucial elections this November.

The Thilawa special economic zone, a joint project of the Japanese and Myanmar governments lying 20 kilometers south of Yangon, has for years been billed as an example of what would be possible in Myanmar since decades of military rule ended in 2011 and the economy became unconstrained by sanctions. The government hoped that the zone, the country’s first, could quickly grow from years of under-development to join other Asian economies that evolved to manufacturing centers.

But despite grand ambitions, Thilawa’s success is unlikely to be replicated elsewhere, analysts say. Another economic zone at Dawei, close to the Thai border but 600 kilometers further south, has ambled along in fits and starts for the past eight years will little actual development. Japan has pledged support and a new concession agreement at Dawei has been signed with a consortium of private developers, but no specific timeline has been set for progress and investors remain doubtful it will take off.

Another economic zone in the western Rakhine state, close to where China has twin oil and gas pipelines running across Myanmar to its southern Yunnan province, is also stalled after multiple delays in announcing the company responsible for developing the promising but impoverished area, which lies in the Bay of Bengal.

The opening ceremonies Wednesday for Thilawa came amid Myanmar’s most important election campaign ever, as the ruling Union Solidarity and Development Party, a grouping composed largely of former military officers, faces Nobel Prize winnerAung San Suu Kyi and her National League for Democracy. Getting Thilawa into operation enables President Thein Sein to demonstrate to an electorate hungry for jobs that some of the development promised for Myanmar is going forward.

“Thilawa SEZ fits snugly into that USDP message and provides important and high-profile evidence of the changes they’ve ushered into Myanmar,” said Christian Lewis,an analyst on Southeast Asia at the Eurasia Group. “But when votes are cast on 8 November, it remains likely that Aung San Suu Kyi’s personal brand will outshine any economic achievements the USDP can tout.”

The opening of Thilawa’s first phase came with an electoral-style fanfare. Hundreds of suited executives from Japanese and Myanmar companies huddled under a tent watching cheerleaders and a marching band, marking the grand opening of the manufacturing zone’s first phase. Flags of both countries fluttered high on poles and brand-new cars—from Toyota SUVs to a white Rolls Royce—lined the newly paved roads.

Much of the infrastructure has been provided by Japan, whose government has a long history of development aid in Myanmar and has been determined to compete with China for influence and investment in this strategically positioned frontier market. The Japanese government has a 10% stake in the project, with a consortium of Japan’sMitsubishi Corp., Marubeni Corp. and Sumitomo Corp. taking on an additional 39%.

The roughly 400-acre plot of land will host 48 companies from 13 countries setting up factories in former rural farmland. Companies locating here include American container producer Ball Corp. and 23 Japanese companies, including Koyo Radiator Co., which produces car parts.
More than 2,000 jobs have been created by factories now operational at the economic zone, with an additional 10,000 expected by 2017, according to the area’s development committee.

Myanmar Vice President Nyan Tun and Japan’s Deputy Prime Minister Taro Aso signed a memorandum of understanding pledging to develop a further 700 hectares at Thilawa after the first phase. The project has “expanded the visible and invisible friendship between Japan and Myanmar,” Mr. Nyan Tun said.

Despite the celebrations, the manufacturing zone was initially met with skepticism. Teething problems included getting electricity and water to the area and complaints from villagers about the potential environmental impact. In an earlier interview,Takashi Yanai, president of Myanmar-Japan Thilawa Development Ltd., the company that manages the zone, said that firms have only leased small plots of land for now and are building modest-sized factories, awaiting more political stability in Myanmar before they expand their operations.

Companies who have set up in Thilawa say they were won over by Myanmar’s lower wages and growing consumer market in a nation of 51 million. Myanmar set its daily minimum wage at 3,600 kyat (US$2.80) earlier this year, which has pushed incomes up slightly, but remains three times lower than in far-more-developed neighbor Thailand.

Chinese fabric maker Luthai textile, a large garment maker, is setting up at Thilawa. Hongwei Dong, an executive at the company’s international business department, said that the operations will produce primarily for the Myanmar market, where consumers are getting richer.

Businessmen and officials from both governments credited the success of the zone to President Thein Sein. He has embarked on a campaign to credit his leadership with new roads, dams, apartments and other infrastructure and candidates of his USDP are urging voters continue on a path of economic progress.

In a speech, Win Aung, a businessman who heads the Myanmar chamber of commerce, said the zone and others like it are a “symbol of Thein Sein’s visionary leadership.”

Though Myanmar’s economic reforms have disappointed some, particularly American companies who remain subject to lingering U.S. government sanctions and reporting requirements, most in the business community believe Thein Sein’s government and his cabinet have made things easier for foreign investors and spearheaded important economic reforms. Foreign direct investment surpassed US$8 billion last year, double what the government had expected.

Mr. Thein Sein has remained coy about his intentions, though he is widely seen as a frontrunner for the presidency to be selected in March by the newly elected parliament, particularly after the purge of USDP chairman and his political rival, Shwe Mann, who was seen as being too close to Ms. Suu Kyi. She is prohibited by the constitution from standing for president because she has family members who are foreign. Her two sons are British, as was her late husband.

Write to Shibani Mahtani at