Key Facts About Three SEZs

With more than 5,000 special economic zones (SEZ) across 140 economies today, The World Investment Report 2019 says SEZs perform as a new wave of industrial policy and as a response to an increasing competition for internationally mobile investment. Under the presidency of National League for Democracy, the Republic of the Union of Myanmar, one of the poorest countries among South East Asian countries, is confidently thriving at the fastest rate, with vowed strategic plans and multifaceted business reforms. Accelerated foreign direct investments through new settings of special economic zones have begun in recent years, creating triangle win situations to domestic industries, investors and government. Though the country is in its nascent stage of enjoying high potentials from SEZs, it is committed to develop two more SEZs worth billions of dollars namely ‘Dawei SEZ’ and ‘Kyauk Phyu SEZ’ in addition to Thilawa SEZ which is already operational.

Thilawa SEZ

Thilawa will be the first international standard SEZ of Myanmar and is developed by a Myanmar-Japan joint venture Company. Some 110 companies have invested in the Thilawa SEZ; attracting investments of over $1862.671 million as of September 2019, according to the data released by Directorate of Investment and Company Administration (DICA). The Myanmar Thilawa SEZ Holdings Public Limited’s annual report for 2017-2018 stated that 97% of Zone A and 61% of Zone B have been sold. Over 60% of businesses in Thilawa are domestic-oriented manufacturing enterprises, while 40% are export-oriented manufacturers. 

A total of 113 projects have been approved during a four-year time. “The more expansions of projects and capital increases in the four years after the first company went into operation in 2015 shows investors’ confidence in Thilawa SEZ and Myanmar workers,” says Yoichi Matsui, Chief Advisor to Thilawa SEZ Management Committee from JICA. Currently, Japanese automotive companies Suzuki and Toyota have set up operations in Thilawa SEZ and parts production companies are expected to follow in their footsteps, becoming an attractive location for auto-business investments. Investors into SEZ form a wide range of sectors including apparel, building materials, packaging, food and beverage. 

As one of the benefits of developing SEZs, prolific employment opportunities are felt since the development of basic infrastructure. The Thilawa SEZ has provided over 20,000 jobs to workers including over 9,000 permanent workers at factories. It is expected to provide some 200,000 jobs until 2030. Over 90 wholly foreign owned firms and 13 foreign-Myanmar joint ventures have set up in the special economic zone since its opening in 2015. The Zone B has been implementing phase by phase and 18 business firms have been approved for this area, according to Myanmar Japan Thilawa Development (MJID). The MJTD is set to further expand on the fourth phase of Zone B with an area space of 490,000 sq metres in 2020. 

The Thilawa SEZ is receiving greater interest and investments from more than 18 countries. Japan ranks first at the top of investors occupying 36% of all investment value under special economic zone law followed by Singapore, and Thailand during 2018-2019 FY (as of September). The factory set-up of Vietnamese steel company, PEB Steel Myanmar, in 2017 recognizes the gaining acceleration of ASEAN countries’ investment in Myanmar. Thilawa SEZ is receiving new applications from large manufacturers and working on a multi-modal transportation system, as shown in industry interview with the Chairman of Myanmar Thilawa SEZ Holdings in the Oxford Business Group 2019 Myanmar report.

Dawei SEZ

Unlocking potentials of aquaculture and ample availability of natural resources with technology advancements and international standards of doing business, Dawei Special Economic Zone (DSEZ) worth around $50 billion comes up with a local and regional integration to the government’s 30-years Myanmar Sustainable Development Plan (MSDP) due to its close proximity to the Eastern Seaboard and its completion of the GMS southern economic corridor. Deputy Minister for Ministry of Electricity and Energy and chair of the Dawei Special Economic Zone Management Committee, Dr. Tun Naing, pledges that the investment inflow from both locals and internationals will ensure full phase of project to complete to the fullest extent.

Italian-Thai Development Plc. (ITD) is working as the project contractor with a grant of 60 years concession. The total designated area for the SEZ is 196 sq km and the initial phase occupies 27 sq km. The initial project covers an industrial estate and an initial township plus supporting infrastructures to materialize the launch. The industries expected to be attracted to the Initial Phase are labor-intensive industries, such as textiles and garment manufacturing, food / fish processing, wood products (e.g. furniture) manufacturing and electrical goods production, according to the report 2018 for DSEZ. 

Basic infrastructure such as roads connecting the SEZ to Thailand and necessities like electricity will be prioritised and carried out simultaneously according to the Ministry of Electricity and Energy. Earlier this year, the Officials tried to seek low interest loan from the contribution of Asian Development Bank for allocating sufficient electricity access to the regions and construction sites. The townships, Ye and Dawei, are intended to connect to the National Grid as a first step of project launch. 

In parallel to the Initial Phase, a Full Phase master plan has been developed including future target industries, spatial planning of the zone and financial forecasting. Social and environmental Deep sea port and power supply are those among most critical infrastructure for SEZ and regional development. The Data Collection Survey for Development Planning in Tanintharyi Region and Dawei SEZ (DPTD) is going to be taken by JICA. As of February 2018, seven out of 10 environmental impact assessments (EIAs) and  social impact assessments (SIAs) have been approved, while three were still under consideration. 

Kyauk Phyu SEZ

Kyauk Phyu is endowed with a natural deep sea harbour and abundant natural resources such as oil and gas and marine resources. It also has sufficient land and labour for industrial development and the expansion of residential areas. Kyauk Phyu Special Economic Zone (KP SEZ), serving as a trade corridor connecting big three economies across Asia- China, India and ASEAN, is uniquely positioned in the Rakhine state of the eastern Myanmar. Under the construction of Kyauk Phyu special economic zone, a deep-sea port, an industrial park, and a residential area are to be implemented as main projects. 

China has mainly backed the Kyauk Phyu Industrial Estate in a newly negotiated stake ratio of 70:30. The 1736-ha project includes an industrial park and a deep-sea port. Much of the works are carried out by the China state-owned group CITIC, through several of its subsidiaries such as China Harbor Engineering Company Ltd, China Merchants Holdings, TEDA Investment Holding and Yunnan Construction Engineering Group. The Thai conglomerate Charoen Pokphand Group (CP Group) is also involved in the project. The construction of two jetties forming a phase 1 is agreed to implement at $1.3 billion. 

This July, CITIC Group Corporation started a legally required EIA, SIA and preliminary geological survey several months after signing MoU with government. The term of the project was initially agreed at 50 years. Once the seaport and SEZ are in operation, thousands of employments are expected for local people. The government will earn $7.8 billion in revenue from the SEZ and $6.5 billion from deep seaport, according to CITIC.

Looking forward to paving the KP SEZ to link the trade with India and towards the West and to give China access to the Indian Ocean, the development of supporting transport facility as well as rail line potentially cut costs and save time for China’s trade with South Asia, the Middle East, Europe and elsewhere. According to reported news by international media, Myanma Railways expects the Kunming-Ruili railway, which is now under construction and is designed to connect to the Muse-Mandalay route, to be completed by 2021.

One Step at a Time

The Government is picking up momentum in its investment promotion plans in 2019 through more liberalization and providing e-government services, which are all enabled by strategic friendship with the countries, who put trust in the potential of Myanmar. Accordingly, the investment environment has become more favourable for different kinds of investors whether they are permitted under SEZ law or Myanmar Investment Law (MIL).   

In light of SEZ, One Stop Service Center (OSSC) facilitates the incorporation and registration under the jurisdiction of the DICA, a secretariat of the Myanmar Investment Commission (MIC), easing out the documentation and slashing incorporation time of several months to three months at least depending on levels of investor. SEZ also offers free trade regulations and tax incentives for labor-intensive industries as briefly shown in the table. The withholding tax rates range from 35% to 15% on the type of income being paid. Given that the probability of millions of lives of three generations getting changed due to all SEZs which are in operation with at least 50-year project timeline and other proposed projects catering to China’s Belt and Road Initiative, hopefully the country will never fail again with rebirth of an investor-friendly environment in making a best trade-off between risk and return for residents under the Myanmar Sky. 

Foreign Investment of Permitted Enterprise by Sector