RANGOON — Japan will lend Burma US$504 million and will cancel $1.74 billion of Burmese debt as part of a series of weekend deals that included a pledge to push development of a proposed port and commercial zone at Thilawa, a half-hour drive from downtown Rangoon, Burma’s commercial capital.
Making the first visit by a Japanese prime minister since 1977, Shinzo Abe arrived on Friday and spent three days in Burma. He led a 40-strong business delegation that included heads of some of Japan’s biggest companies—another signal that Asia’s second-biggest economy wants a lead role in Burma’s fast-opening economy. Over the past year, Burma President Thein Sein and National League for Democracy (NLD) leader Aung San Suu Kyi visited Japan, while Abe’s Finance Minister Taro Aso was in Burma in January.
Key to Japan’s growing engagement with Burma is the proposed Thilawa Special Economic Zone, a 2,400-hectare site likely to include manufacturing and textile operations, says Masaki Takahara, director of JETRO, Japan’s overseas trade mission in Rangoon.
“Construction should start in the fall this year at Thilawa,” Takahara told The Irrawaddy. “We hope that it will be operational by early 2015.”
Building industrial zones is central to attracting large-scale Japanese investment, said Takahara, who cited Burma’s on-again, off-again electricity supply as another deterrent to doing business. “For now, there is a lack of infrastructure in Myanmar. Power shortages make it difficult to establish large-scale manufacturing for now, but we are hoping these issues can be solved.”
During her recent trip to Japan, opposition leader Suu Kyi fretted that Japanese investment to Burma could stall unless Burma upgrades its antiquated road and telecommunications networks.
Japan’s new half-billion-dollar loan to Burma is aimed at addressing some of these infrastructure gaps, Takahara added.
As well as boosting aid and loans to Burma, Japan is writing off $1.74 billion in debt arrears owed to it by Burma—the weekend announcement coming just over a year after Tokyo said it would cancel the bill if Burma continued to reform.
“Since both governments acknowledged continuation of Myanmar’s reform efforts, the Government of Japan has decided to clear said overdue charges,” said a Japanese Foreign Ministry press release. In January, Japan and other creditors canceled or softened repayment terms for much of the total $15 billion debt that Burma owed to donor countries and institutions.
Prior to Abe’s visit, Japanese firms announced several deals in Burma in recent weeks, including one high-profile infrastructure deal—with Japan’s Sumitomo and NEC saying they would work on improving Burma’s telecommunications network.
And although large-scale Japanese manufacturing operations have yet to come to Burma, Japanese businesses see an untapped consumer goods market in Burma and want to establish a foothold ahead of Western competitors.
“More and more are thinking of entering the market in Myanmar and establishing a dominant position ahead of everyone else,” Takahara said.
Japan is moving fast to establish itself in Burma ahead of Western investors, now relatively free to set up shop in Burma after the US and EU governments removed most of the sanctions that had curtailed investment in recent years.
Yuki Akimoto, director of BurmaInfo Japan, told The Irrawaddy that the scale and breakneck pace of Japan’s re-engagement with Burma is an attempt “to make up for lost time,” after Japanese investment stalled in the latter years of military rule in Burma.
During that time, investment in Burma from other Asian economies, particularly China and Thailand, raced ahead of Japan, but now Tokyo sees an opportunity to boost foreign investment in a long-lost market and, perhaps, help jump-start Japan’s own sluggish economy.
Chinese investment has largely been in Burma’s natural resources sectors that, no matter how profitable, do not typically provide large-scale employment.
And overall, foreign investment into Burma jumped almost five-fold in 2012, compared with 2011, President Thein Sein said recently, with much of the increase said to be in the labor-intensive garment sector.
With high youth unemployment in an estimated 50-60 million population, Burmese politicians such as Suu Kyi have said that the country needs to attract investment that provides jobs, and Japan’s aid and investment could contribute to job generation, says a Rangoon-based business consultant, who asked that his name be withheld. “By developing light and light-heavy industries with Japanese assistance, Myanmar hopes to increase exports and jobs,” he told The Irrawaddy.
With Japan and China at odds over disputed islands in the East China Sea, Japan’s blossoming business-based relations with Burma mean that Tokyo can push back against Beijing, in the Southeast Asian nation that until recently was increasingly looking like a Chinese satellite state.
The United States seems to have similar unspoken ambitions in Burma, and the recent thaw in relations between the United States and Burma—with Thein Sein visiting Washington, D.C., last week—has given Japan the go-ahead to re-establish its own dormant ties with Burma, said Akimoto.
“During military rule, however, the Japanese government felt it had to suppress that desire because it was under pressure from the US government and it wanted, to a certain degree, to go along with the sanctions regime. Now it is like a dam broken.”
Akimoto warned, however, that “local communities in Burma still lack concrete legal tools to prevent or mitigate negative impacts by development projects,” something she says Japanese investors should be mindful of.
Japan’s drive to invest in Burma is being watched closely in neighboring Thailand, where Japanese auto manufacturers are a mainstay of an economy that also relies on Burma’s gas for power generation, and depends on 2-3 million low-wage Burmese migrant workers. The Thilawa SEZ is one of three large-scale industrial zones planned for Burma in the coming years, with the others slated for Maday Island and Kyaukphyu in Arakan State—the starting point for oil and gas pipelines that will cut across Burma into China’s Yunnan province, and in Dawei/Tavoy in Burma’s south.
The Dawei project, if it goes ahead, will link a huge SEZ on Burma’s coast with Thailand’s capital Bangkok.
Speaking in Japan last week ahead of Abe’s visit to Burma, Thai Prime Minister Yingluck Shinawatra pitched for additional Japanese investment into Thailand, with Thai Foreign Minister Surapong Tovichakchaikul saying Japan would benefit from Dawei, due to the proposed “linkage of the Indian and Pacific Oceans through the East-West Economic Corridor, which would lower logistics costs and allow tighter supply chains,” according to a Thai government press statement.
Yingluck’s brother, former Prime Minister Thaksin Shinawatra, recently visited Burma and met with Army chief Gen Min Aung Hlaing, prompting speculation that Dawei was one of the issues discussed.
However Japan’s and Burma’s focus on the Thilawa project has likely increased concerns in Thailand about Dawei, an $8 billion project for which Thailand is seeking large-scale Japanese and other private foreign funders.
“The Abe visit to Myanmar and Japan’s intensifying interest in developing Thilawa as opposed to Dawei should prompt the Thai government to rethink its strategy,” said Thitinan Pongsudhirak, a Thai political analyst from Bangkok’s Chulalongkorn University.