Moving Forward in Myanmar, Finally

After months of haggles and delays, a consortium of Japanese companies has finally started to fill in the details of a massive infrastructure project in Myanmar, amid heightened enthusiasm in Japan for Asia’s last economic frontier.

A joint venture was formed last week to begin Mitsubishi Corp.8058.TO -0.20%, Sumitomo Corp.8053.TO +1.37%, and Marubeni Corp.

Successful development of the Thilawa SEZ is crucial for President Thein Sein‘s military-led government, which has to address economic discontent among Yangon’s urban population and faces a political challenge from opposition leader Aung San Suu Kyi in the next general election scheduled for 2015.

The stakes are also high for Japan, which has actively supported Myanmar’s transition to civilian rule as Japan seeks to expand its presence in emerging Asian economies like Myanmar — in part as a counterweight to China, which had long dominated the Southeast Asian nation.

The project, a symbol of the emerging bilateral partnership, was marred from the outset by revelations of a dispute between Myanmar and local communities in the site over their relocation and compensation, forcing Japan to intervene in the negotiations. While development of a small section of the program is now set to move forward, the broader plan, produced in March, is now back on the drawing board, and is expected to take at least a year to complete.

According to the details put out last week, the new JV will develop roads, sewage systems, waterworks and power distribution networks in what is now a huge expanse of pasture, for a cost of ¥17 billion (about $170 million).

The construction will begin by the end of the year and is slated for completion by 2015 – in time for the general election.

The lots are initially targeted at light-industry manufacturers, such as shoe- and clothing makers, looking to take advantage of Myanmar’s inexpensive labor force, for exports to China, Japan and other Asian markets, said Toru Kabeya, infrastructure project manager at Marubeni.

In the future, the industrial estate is expected to attract car and motorcycle makers, as domestic demand starts growing with a rise in per-capita income, which now stands at around $800. Development experts say that demand for consumer durables start emerging as per-capita income reaches $2,000-$3,000.

Despite the announcement of the plan, obstacles remain. Myanmar’s government has yet to reach an agreement with local communities over compensation for taking the farmland they use within the SEZ.

Providing power, water and transport access to the SEZ is also an urgent task, which Japan has pledged to undertake with aid programs.

Building backup power supply within the SEZ will also be necessary to deal with frequent power outages. A plan for backup power supply is still in the works, including how to secure fuel.

Whether Myanmar will be able to live up to its hype isn’t a foregone conclusion.

“If your economy is facing very soft markets in the U.S. and Europe, it’s going be harder to follow the export-led growth model (of China) unless China does become an engine of growth in terms of its own consumers,” said Joseph Zveglich, assistant chief economist with the Asian Development Bank. “There’s a lot of uncertainty” as to how quickly Myanmar will be able to grow in the current economic environment, he said.

source: WSJ
http://blogs.wsj.com/japanrealtime/2013/11/05/moving-forward-in-myanmar-in-fits-and-starts/