Course:GEOG352/2019/The Transition Economy in Yangon, Myanmar

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Map of Myanmar, showing Yangon in the south, and bordering states

Decades of military rule and civil war in the south-east Asian nation of Myanmar (formerly Burma) left the largely agriculture-based economy of the nation lagging behind that of others in the region. In 2011, after years of isolation, a new government came into power under President Thein Sein and established a more liberalized economy in order to create more robust industries and to bring greater foreign direct investment into the nation. Efforts have been made to improve public infrastructure, and to strengthen sectors such as manufacturing, tourism and mining to complement the agricultural sector, which remains the largest contributor to the GDP of Myanmar today.[1] Most of the state’s economic activity is centred around the largest city, Yangon (formerly Rangoon), which continues to be the centre of commerce and culture despite the establishment of a new capital, Naypyidaw, in 2005. The civil war in Myanmar has been going on since 1949, shortly after the country gained independence from Britain in 1948. This makes it the longest running civil war in history, and makes the process of economic transformation all the more difficult for Myanmar.[2] This article will focus on the economic revitalization of the country thus far through three broad lenses: the development of urban infrastructure, the role of China and Japan and their investment in major trade and infrastructure projects as well as the continued role of the informal economy on the process. This new wave of revitalization is being spurred on by the creation of Special Economic Zones (SEZs) throughout the country, the largest and most established one being the Thilawa SEZ in Yangon, which are presenting a plethora of opportunities as well as challenges for Myanmar during this delicate time of economic transition.

Overview

The internal conflict in Myanmar is regarded as one of the longest running and bloodiest civil wars in recent history. This conflict started when members of the Karen National Liberation Army (KNLA) launched an insurgency against the Burmese government in a bid for self-determination. The Karen are a group of people found mainly in southern and southeastern Myanmar, who had a different language, culture and interactions with British colonial authorities than that of ethnic Burmese people. A group of nationalists emerged in Karen State in the 1930s, and they formed the Karen National Union, from which the KNLA came from. Other major groups include the Kachin independence Army (a political group of ethnic Kachins in Northern Myanmar), the Communist Party of Burma as well as the Tatmadaw, the national armed forces of the country. The war has taken many shapes and has had several combatants since then, with varying degrees of impact throughout the country. It is estimated that over 130,000 people have lost their lives to the conflict, and more than one million have been displaced.[3][4]

Even though the war did not have as dire a set of consequences in Yangon as it did in more rural areas (especially in terms of loss of life and displacement of civilians), it did have a dreadful impact on the economic hub of the country. The succession of unstable military regimes meant that Myanmar was a hermit state for most of the second half of the 20th century. Development was slow in the country compared to that achieved by other countries in the region such as Thailand, India and Bangladesh.[5] However, population growth rates steadily increased in the city, and Yangon has seen a sharp rise between 2000 and 2010.[6][7] This can largely be attributed to rural to urban migration, which has seen an exponential rise since the change of government in 2011 as well as with the diversification of Yangon's economy. As it was a city with existing infrastructure issues, the overwhelming population growth of the Yangon has resulted in insufficient sanitation measures as well as a housing shortage that has led to surge in slums sprouting throughout the city.[8][9][10] In tandem, luxury hotels and exported cars are rapidly appearing in the city, which has made the income inequalities in Yangon more apparent than ever before. The rise in population has also led to the growth of the informal economy, with professions such as street vending, garbage collecting and bus conducting seeing a much larger uptake. [11] The country has only recently opened up to the world after several years of reclusive military governments, and so more foreigners and tourists are coming into the country. However, as was the case in 2018, most of these tourists were from the south-east Asia region and bought "“zero-dollar” pre-paid packages that yield nothing for existing tourist infrastructure." [12]

The plans for economic reformation initiated by the Sein government in 2011 provide the type of ambitious and diverse plans required to to generate a robust economy in Myanmar, and Yangon is at the centre of these developments. The country is making the effort to shift away from aid-based and agriculture-funded development, and to foster better ties with international partners to bring foreign direct investment into the country, as evidenced by the establishment of the SEZs. Whereas there will be less pressure on the agricultural sector and rural areas to be the breadbasket of the nation, this economic shift may be a trying time for Yangon, which has an estimated population of more than six million people. This number is growing rapidly. Urban planners and economists need to be brought into the fold to solve issues such as the increasing traffic congestion and the quality of road infrastructure, which will all have an impact on the labourers an business people leaving the city centre to work in Thilawa Special Economic Zone daily.[13] The drainage systems are also not sufficient for a city with a population of six million and which experiences heavy annual monsoon rains. The location of the Thilawa SEZ on the periphery of the city still has a massive impact on the populations of the urban city, and a multidimensional approach needs to be taken to mitigate the possible challenges that could come with its establishment, and to maximize the gains of this ambitious project.

Case Study: Thilawa Special Economic Zone in Yangon

Thilawa Special Economic Zone during construction (2014)

The Thilawa Special Economic Zone (SEZ) located within the regional bounds of Yangon, was formally launched by Myanmar’s government in 2011 as a part of a wider economic reform within the country. The project is one of the key pillars of Myanmar’s adoption of the government’s new economic plan intended to increase not only foreign direct investment, but also to drive an export-oriented economy. The strategy emulates that of the prominent ‘Four Asian Tigers’. In tandem with the government’s position of promoting an export-led economy by use of SEZs, academics have theorized that the most favourable method of economic growth would be for Myanmar to focus on manufacturing goods for export.[14]

Yangon’s urban population has benefited through the increase in skilled jobs and opportunities that the SEZ has created. Initial estimates have suggested that when fully operational, the SEZ will create some 70,000 jobs.[15] However, the Thilawa SEZ has yet to reach full operational capacity. Suzuki is one example of the many foreign companies that has established a presence within the SEZ and created skilled jobs for the urban population in Yangon. It has invested millions of dollars in setting up a production facility and began assembly of vehicles within the SEZ in 2017. Suzuki has created 200 jobs through its operations within the SEZ.[16] The company has plans to establish a second plant within Myanmar as a result of the success it has had with this existing plant.[17]

Despite the promoted success of the Thilawa SEZ, critics have cautioned that the resources directed toward the Thilawa SEZ could have been better used in refining existing improvements for its urban population, including such areas as infrastructure development.[18] Proponents against the project have argued that incentives being offered to attract foreign investment into the SEZs such as tax holidays, no customs duties and others, come at the expense of being able to attract foreign investment without giving away these freedoms. Another at risk demographic are existing business owners outside the SEZ who are at risk of losing out to foreign companies setting up within the bounds of the SEZ.[18]  However, despite these criticisms, the Thilawa SEZ has continued to attract investment despite the overall amount of foreign direct investment decreasing; cumulative foreign investment into Myanmar fell by 14% while investment into the Thilawa SEZ was up by 50%.[19]

Urban Infrastructure

The first development phase in 2013 of this SEZ, 68 households in Thilawa were forced to relocate, proclaiming poor infrastructure conditions.[20] These conditions include inadequate “roads, drains, sewages, wells, pumping water, waste management, and greenery area.”[21] In 2017, 90 households were relocated, and the Myanmar government negotiated improved infrastructure standards with those affected.[20] Through processes of formal complaints and NGO human rights supportive efforts, a ‘structured community grievance management system’ was set in place, reinforced by JICA.[20] This example of consequences inflicted upon local citizens due to the SEZ demonstrate an initial loss in their livelihoods. In time however, these issues have been addressed and advocates have been put in place to regulate infrastructural concerns regarding those displaced.

Many different projects have manifested in Thilawa through the investments of Japanese development groups such as JICA (Japan International Cooperation Agency) and JOIN (Japan Overseas Infrastructure Investment Corporation for Transport & Urban Development), including a gas-fueled power station of 50 MWs, a road connecting Yangon City and Thilawa, and a bridge between Yangon and Thanlyin.[22] Aside from equipping the SEZ region for foreign investment, these same international corporations have developed projects affecting communities outside of the region. Collaborating parties YCDC (Yangon City Development Committee) and JICA  began The Greater Yangon Water Supply Improvement Project in 2014, expecting to improve water supply through developing more treatment plants and distribution systems by 2022.[23] This project will supply water to four new Dagon townships, Thilawa SEZ, and residents of Greater Yangon, servicing 93,000 house connections.[24]

Water services in Yangon are documented as being insufficient and outdated, unable to reach a large majority of the urban population in the Yangon region which has led to low-quality water consumption.[25] Rising populations from internal migration are straining the existing infrastructure,[25] a feature that is not attractive to foreign investors in the region. With the Greater Yangon Water Supply Improvement Project, local citizens will benefit from access to acceptable water sources, and a new model in the Yangon region for urban infrastructure will be in place.

Foreign Direct Investment by Japan

Foreign direct investment (FDI) in Myanmar is dominated largely by Chinese projects, as between 2004–2017 FDI from China totalled US$18 billion, while Japanese investment totalled US$489 million-placing Japan behind Singapore and Thailand, and many other countries. While Thailand is Myanmar’s third largest investor, many of the investors are likely from Japan, as Thailand hosts a large number of Japanese companies and Thailand-Japan joint companies.[26]

The official opening of the Thilawa Special Economic Zone in March, 2017.

Japan’s recent investment in projects in Myanmar include the Thilawa SEZ. In recent years, Japan has enthusiastically invested in Myanmar’s economy for reasons such as the historic ties between the two nations (Myanmar went through a period of Japanese occupation between 1942 and 1945), competition with Chinese investment projects that have dominated Myanmar’s FDI, as well as to capitalize on the strategic importance of the region.[26] As East Asia becomes more interconnected, Myanmar’s position as a crossroads point has drawn interest from China, who have invested in oil, gas, and hydropower connectivity projects largely in the northeast, and Japan investing largely in the Thilawa SEZ in the south.[26]

In May of 2013, a three-stage agreement and plan between Japan and Myanmar was announced that would clear Myanmar of all debts collected before 2003, cancel all debts collected after 2003 using a grant, and cancel 20 years’ of overdue charges which resulted in a US$3.3 billion grant from Japan.[26] The 2013 grant was issued for debt-forgiveness in order to produce more loans and is part of Japan’s foreign policy.[26]

Japan’s economic investment in Myanmar is largely specific to development of the SEZs of Thilawa and Dawei.[26] Historically, Japan’s foreign investment follows a pattern of initial investment in creating economic structures that can then be used and leveraged for future projects.[26] This technique can be seen in the construction of the Thilawa SEZ which will be a site of productive investment in the future.[26] Thilawa is 51% owned by Burmese companies and government, and 49% owned by Japanese-style organizations and government.[26] The project was funded by three of Japan’s largest corporations - Mitsubishi, Marubeni, and Sumitomo.[27] Thilawa’s position just south of Yangon is important as Japan is interested in improving Yangon’s connection to and relationship with Bangkok, where Japan holds a lot of influence.[26] In a country where tourism has been experiencing a slump, the recent opening of a branch of the Japanese hotel chain Super Hotels in Thilawa, signifies the confidence that investors have in the viability of the SEZ, and its impact on business tourism in Yangon.[28] While Japan largely funded the construction of Thilawa, they also funded the construction of the Sakura Tower in Yangon as a central base of operations for Japanese public and private members.[26]

Informal Economy

Special economic zones within Myanmar have also had an impact on the informal economy through the indirect results of instigating financial reform within the country. Business owners in Myanmar often cite the lack of access to credit as one of the major hindrances to formalization.[29] Stop-gap measures like peer to peer lending, micro insurance, and other forms of microfinance sprung up to fill this niche.[30][31] However, as firms entered into SEZs, they demanded more access to capital with one studying saying that ‘access to finance’ was the second biggest hindrance for domestic firms entering SEZs, and the fifth biggest obstacle for foreign firms.[32] These challenges were recognized by the government and further improvements led to a more formalized and improved financial sector. One example has been that foreign insurance companies were allowed to enter the country, thereby increasing the flow of potential capital available to the Yangon, and wither Myanmar economy.[33] Presently, it is estimated that only about 20% of Myanmar’s population is connected with a formal banking establishment. This number is expected to grow as banking reforms initiated by the government give banks the opportunity to physically expand their presence, and formalizing the mostly informal sector.[34]  

Lessons Learned

Our study on the impact of the Thilawa Special Economic Zone in Yangon was challenging, as the infancy of the project as well as the lack of coverage on it outside of the region meant that information was more difficult to come by. However, the benefits and challenges that this project presents are significant in understanding the various dynamics that countries in the Global South have to navigate in trying to modernize and diversify their economies in the post-colonial era.

The economy of Myanmar is carried by the agricultural sector that is based mainly in the rural areas of the country. However, environmental patterns as well as the decisions that are made in Yangon in regards to the economic trajectory of the country inextricably link the urban landscape to the rural one. Urban populations swell during the agricultural off-season as people flood into the city to find work in manufacturing, construction and as domestic workers.[35] This connection between the rural and the urban makes it all the more important to ensure that urban developments in cities like Yangon do not come at the total expense of improvements to be made in rural areas. This could include improving access to irrigation apparatus and other modern farming equipment, as well as ensuring fair wages and decent living conditions for seasonal workers both in the city and in rural areas.

The Special Economic Zone in Thilawa has produced a strong partnership between the government of Myanmar and Japanese groups, providing opportunity for local citizens within the SEZ, and in the Yangon region to benefit from their urban infrastructure initiatives. Through learning from experience, available data points to international corporations investing in advocacy for affected local people, attracting foreign investment and benefitting locals.

While Japan’s heavy involvement in the construction of the SEZ has strengthened economic ties between the two countries, it may be beneficial to limit Japan’s investment percentage within Myanmar. This may check Japan’s influence over the country’s economy and in turn reduce the possibility of exploitation taking place. Poorer nations are more vulnerable to the dependency trap and Myanmar, being in a time of economic and political transition, is even more so. Actively branding Yangon and the Thilawa SEZ as the centre of commerce in Myanmar, open to countries across the world, would attract a more diverse group of investors and combat the current dependency on Chinese and Japanese business.

The Special Economic Zone project would go a long way in providing Yangon with the economic revitalization that it, and Myanmar in general, need. In expanding the SEZs, it is imperative to ensure that dwellers of the city not be pushed further into the periphery of developments, but that they reap the direct benefits of improved urban infrastructure (such as sanitation provision and road network development) as well as the broader benefits of the diverse economic opportunities that the SEZs will present.

References

  1. ↑ "FAO in Myanmar". Food and Agriculture Organization of the United Nations.
  2. ↑ "Myanmar's hidden war". CNN.
  3. ↑ "Modern Conflicts Database: Alternative Estimates for Death Tolls" (PDF). Political Economy Research Institute. line feed character in |title= at position 28 (help)
  4. ↑ Hampton, Janie (2012). Internally Displaced People: A Global Survey. London: Routledge. ISBN 978-1-136-54705-8.
  5. ↑ "Myanmar Poverty Assessment 2017: Part Two". The World Bank.
  6. ↑ "Yangon Population 2019". The World Population Review.
  7. ↑ "Census report projects population growth over 35 years, and supports long-term planning". United Nations Fund for Population Activities.
  8. ↑ "Solving the Yangon housing shortage". The Myanmar Times.
  9. ↑ "The Yangon of The Future? Slums and Gated Communities Side By Side". Myanmar Business Today.
  10. ↑ Nwe, Than Than (April 1998). "Yangon: The Emergence of a New Spatial Order in Myanmar's Capital City". The Journal Of Social Issues in Southeast Asia.
  11. ↑ "Trash for cash: Yangon's freelance garbage collectors". Frontier Myanmar.
  12. ↑ "The gloom about Myanmar's economy". The Interpreter.
  13. ↑ Heijmans, Phillip (12 April 2014). "Strangled by traffic in Myanmar". Al Jazeera.
  14. ↑ Han, Si Thu; Haq, Ihtisham ul (2017). "CAUSAL NEXUS BETWEEN ECONOMIC GROWTH, EXPORTS AND IMPORTS IN MYANMAR". Aktual'ni Problemy Ekonomiky = Actual Problems in Economics: 102–108 – via ProQuest.
  15. ↑ "Let a million factories rise". The Economist. October 18, 2014. Retrieved April 7, 2019.
  16. ↑ Kotani, Hiroshi; Nitta, Yuichi (October 16, 2018). "Suzuki releases top seller in Myanmar, looking to Indian success". Nikkei Asian Review. Retrieved April 7, 2019.
  17. ↑ "SMC - Thilawa Car Production Factory - Myanmar - Project Profile". Progressive Media Group. June 26, 2018. Retrieved April 7, 2019.
  18. ↑ 18.0 18.1 Wood, Josh (2017). "Special Economic Zones". In Crouch, Melissa (ed.). The Business of Transition (PDF). Cambridge University Press. p. 195.
  19. ↑ Nitta, Yuichi (April 26, 2018). "Myanmar struggles to sustain foreign investment". Nikkei Asian Review. Retrieved April 7, 2019.
  20. ↑ 20.0 20.1 20.2 “UN FORUM ON BUSINESS & HUMAN RIGHTS SESSION.” MULTI-STAKEHOLDER PERSPECTIVES ON ACCESS TO REMEDY FOR PEOPLE AFFECTED BY THE THILAWA SPECIAL ECONOMIC ZONE IN MYANMAR, 2017.https://www.business-humanrights.org/sites/default/files/documents/Thilawa%20SEZ%20description_Nov%202017_Final_0.pdf
  21. ↑ Myanmar, “General Information on Myanmar Special Economic Zones.” General Information         on Myanmar Special Economic Zones.
  22. ↑ Mori, Nobuyuki, et al. 2016 Progress Survey Report of Infrastructure Projects in CADP 2.0. ERIA Research Project FY2016 No.01, 2017, 2016 Progress Survey Report of Infrastructure Projects in CADP 2.0.
  23. ↑ “Ground-Breaking Ceremony for ‘The Greater Yangon Water Supply Improvement Project (MY-P5)".” JICA, 10 May 2018, www.jica.go.jp/myanmar/english/office/topics/press180510.html.
  24. ↑ Greater Yangon Water Supply Improvement Project (Phase-1). JICA, www.jica.go.jp/myanmar/english/office/topics/c8h0vm0000cr4dap-att/press180510_01.pdf.
  25. ↑ 25.0 25.1 Asian Development Bank. “Urban Development and Water Sector Assessment, Strategy, and Road Map: Myanmar.” Asian Development Bank, Asian Development Bank, 18 May 2018, www.adb.org/publications/myanmar-urban-development-water-strategy-roadmap.
  26. ↑ 26.00 26.01 26.02 26.03 26.04 26.05 26.06 26.07 26.08 26.09 26.10 Hartley, Ryan (2018). "Japan's rush to rejuvenate Burma relations: A critical reading of post-2011 efforts to create "new old friends"". South East Asia Research. 26(4): 367–415.
  27. ↑ Than, Tin Maung Maung (2015). "Myanmar's Economic Reforms: Hard Choices Ahead". Social Research. 82(2): 453–480.
  28. ↑ Nitta, Yuichi (4 April 2019). "Japanese business hotel opens in Myanmar economic zone".
  29. ↑ Amin, Mohammad (2016). "Informal Firms in Myanmar" (PDF). World Bank. Retrieved April 7, 2019.
  30. ↑ Turnell, Sean (2017). "Microfinance in Myanmar". The Business of Transition. Cambridge University Press. pp. 122–144.
  31. ↑ Aung, Htin Lynn (January 12, 2018). "Myanmar takes small steps towards providing greater liquidity for SMEs". Myanmar Times. Retrieved April 7, 2019.
  32. ↑ Khandelwal, Amit; Teachout, Matthieu (2016). "Special Economic Zones for Myanmar" (PDF). The International Growth Centre. p. 37. Retrieved April 7, 2019.
  33. ↑ Gilmore, Steve (March 27, 2017). "Myanmar opens Thilawa SEZ to foreign insurers". Nikkei Asian Review. Retrieved April 7, 2019.
  34. ↑ "Ongoing financial reforms in Myanmar strengthen oversight of financial sector". 2017. Retrieved April 7, 2019.
  35. ↑ "Labour Migration in Myanmar". International Labour Organization.
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