DESPITE the foreign investments brought into Myanmar thanks to Thilawa Special Economic Zone, the SEZ’s purported mission to transform into a manufacturing hub has not gained momentum, partly because of the lack of power supply. In fact, the design of the SEZ is at odds with the current government’s top priority of developing exports and reducing the country’s reliance on imports.
Within the Thilawa SEZ, a total of 82 companies have invested in Zone A and 66 companies have started constructions. Among them, 33 companies are already able to manufacture products. More than US$1.1 billion investments have been brought into the SEZ.
However, most businesses operating in the SEZ do not manufacture products with raw materials in the country. Instead, they distribute imported goods, pack them, and sell them. This approach results in the opposite effects of reducing the country’s imports.
On September 19, Ajinomoto from Japan inaugurated their factory. The factory, despite its $45 million investment, does not manufacture goods from raw materials. It is designed to manage the packing and distribution channels. The company imports already-manufactured seasoning power from the Ajinomoto factory in Thailand. It then distributes the goods after packing them in Thilawa SEZ.
Ajinomoto told The Myanmar Times that they are proceeding as such because they face difficulties in obtaining raw materials and the electricity required for the whole manufacturing process is insufficient in Thilawa.
Electricity is one of the difficulties … We need to resolve the issue of power supply in the SEZ before the manufacturing sector can develop robustly.
– Takashi Yanai, MJTD
“We studied materials available in the Myanmar’s market and found that it lacks the quality necessary. There is also not enough electricity to supply the whole production.
“Therefore, we cannot do whole production stages, but only the cleaning, packing and distribution,” Satashi Ogawa, managing director of Ajinomoto, remarked.
On November 8, 2016, South Korean company CJ Foods inaugurated its factory in the SEZ and produces a range of kitchen utensils. However, the required raw materials are imported from Korea instead of sourcing in the country. Quality-assurance and packaging are done in Myanmar, and then the products distributed out of the SEZ.
Yanmar Myanmar, a joint venture between Japan-based Yanmar and Mitsui, joined the SEZ in February this year, importing and selling agricultural and farming machineries. Only $6 million was invested.
“The company does not manufacture the machines. We will import them from Japan and distribute them here. We also made an education program on how to find ways to develop Myanmar’s agriculture sector,” Takesi Terada, managing director of Yanmar Myanmar told The Myanmar Times during the firm’s opening.
Given that these companies focus on distribution and packaging, not manufacturing, they offer employment opportunities to the local workforce, but are not supporting Myanmar’s reorientation away from imports and towards exports.
The trade deficit for the country in 2016-17 fiscal year amounted to more than $5 billion. In 2017-18, up until September 15, import reached over $8 billion and export was over $5 billion, resulting in a trade deficit of over $2 billion.
There is a need for governmental support in the production sector to render more attractive production from raw materials in Myanmar, explained Takashi Yanai, then-president of Myanmar-Japan Thilawa Development Ltd.
“Electricity is one of the difficulties. But we hope the situation will improve as the government is providing support.
“We need to resolve the issue of power supply in the SEZ before the manufacturing sector can develop robustly. We will sell the land plots in Zone B as soon as possible, depending on the demand,” Mr Yanai told The Myanmar Times on May 20.
Chapter 9, section 51 of the SEZ rules states that “the Management Committee may allow trading goods after storage to distribute in accordance with the instruction of the cargo owner with or without trademarks by the accountability of the overseas supplier, packaging and repackaging of the goods without producing, within the Special Economic Zone.”
Under this framework, some firms are working in the zone on import and distribution services without manufacturing, while enjoying more tax relief than other industrial zones.
Deputy director-general of Directorate of Investment and Company Administration (DICA) U San Myint said that export-oriented businesses will be prioritised under this government’s term. For manufacturing, only the businesses which manufacture in Myanmar will be prioritised in receiving authorisations, he said.
“The impact and support are not yet visible because the SEZ is still in construction phase. In the next two years, when the factories start operating, it will support import reduction,” he said.
As Thilawa SEZ is running with the approval of the SEZ’s management committee, the condition of job opportunities should also be reviewed, deputy director-general of DICA U Than Aung Kyaw added. The SEZ employs more than 20,000 Myanmar citizens.