Myanmar Thilawa Special Economic Zone (SEZ): Mitsubishi (8058) And Other Japanese Companies Set To Begin Infrastructure Development

A Japanese joint venture will undertake infrastructure development in Myanmar, Asia’s last frontier and one of the region’s poorest nations.

Japan earlier this year showed interest in Myanmar when Prime Minister Shinzo Abe visited the nation. During the visit Abe agreed to cancel the $1.74 billion debt Myanmar owed Japan and he also pledged more than half a billion dollars devoted to developing infrastructure and power projects in the country. The latest debt cancellation follwed an earlier $3.5 billion Japansese writeoff of Myanmar debts.

Japanese companies Mitsubishi Corp (TYO:8058), Sumitomo Corp (TYO:8053) and Marubeni Corp (TYO:8002) formed a joint venture last week to develop the Thilawa Special Economic Zone near Myanmar's commercial hub Yangon, the Wall Street Journal reported on Tuesday. The SEZ represents Japan’s largest investment in Myanmar to date and will notably increase Japanese presence there.

The new venture will transform an expansive pasture into about 17 billion yen ($170 million) worth of roads, sewage systems, waterworks and power distribution networks. Construction is expected to begin by year end and to be finished in 2015, ahead of Myanmar’s next general election. Successful development of the SEZ is seen as crucial for President Thein Sein’s re-election.

In the short term the SEZ will seek to attract light-industry manufacturers such as shoe and clothing makers with the aim to export to China, Japan and other Asian nation's by taking advantage of Myanmar’s inexpensive labor force, said Toru Kabeya, infrastructure project manager at Marubeni.

Myanmar has the lowest average annual industry wage in Asia at $1,100, less than one sixth of that in Thailand at $6,704, where Japan has invested in heavily. The SEZ could signify a shift of focus for Japanese companies and see Japanese investment leave Thailand for Myanmar.

In the longer term, the SEZ is also expected to attract automakers as domestic Burmese demand starts to grow with per capita income, which is currently around $800. Experts say that demand for consumer durables will start to take off when per capita income reaches around $2,000 to $3,000, the Wall Street Journal reported.

Despite the formation of the joint venture, obstacles remain for the SEZ’s actualization. The government has yet to reach an agreement with local farmers for compensation of their loss of farmland on which the SEZ will be built. Providing power, water and transport access to the SEZ will also need to be established prior to development.