Sittwe economic zone in limbo as international investors get cold feet

Plans for a proposed economic zone on the outskirts of Sittwe are in limbo, after international investors pulled out over sectarian violence in Rakhine and wider political concerns about Chinese businesses in Myanmar.

In August 2013 the then-state minister for planning and economics U Mra Aung, told The Myanmar Times that a feasibility report was being carried out on creating an economic zone at Ponnagyun township, some 60 kilometres (37 miles) outside Sittwe. The zone was a separate project from the widely publicised Kyaukpyu SEZ off the Rakhine coast, and ministers hoped the Ponnagyun project would provide a financial boost that could bring stability to the troubled region.

But a source close to the study told The Myanmar Times earlier this month that the original plan had fallen through because the South Korean firm decided violence in the state meant the Ponnagyun project posed too great an investment risk.

And he said a major Chinese firm which was also looking at backing the project had pulled out amid uncertainty about the position of Chinese business in Myanmar, after several high-profile China-backed projects were halted by the government.

“The South Koreans didn’t want to go ahead because of the trouble and the Chinese were worried about the politics,” said the source. He added that although he believed the situation regarding China was beginning to improve now, the last two years had seen little government incentive for Chinese companies seeking to invest in Myanmar.

Sean Turnell, an economist at Macquarie University in Australia, who focuses on Myanmar, said, ” “This is a very specific example of how the violence in Rakhine is now yielding very tangible economic costs.”

He said the issue could be “a wake-up call” for the Union and Rakhine governments. “Vested interest – the loss of material advantage – is always more effective than moral exhortation,” he added. Rakhine is Myanmar’s second poorest state, and communal conflict between ethnic Rakhine and the minority Rohingya Muslim population there has left over 250 people dead and around 120,000 homeless.

According to the U Mra Aung, the proposed zone would have provided up to 100,000 jobs in light industry. A key aim of the project, he said, was to re-dress some of the economic fallout of violence in the state.

“Due to the crisis, investors from foreign countries are not brave enough to come. And because of that finances of Rakhine State are a little bit not okay,” he told The Myanmar Times last year.

The new SEZ would provide reassurance to potential investors he added.

However continued violence in the state – which as recently as March saw international aid and development workers forced to evacuate Sittwe after attacks on their properties – has done nothing to improve the state’s reputation in the international circles.

The UN and numerous international organizations have raised serious concerns about major human rights violations against the Rohingya population in Rakhine, who are more commonly referred to as Bengali in Myanmar.

“I have been concerned for a while of how this [sectarian violence] has had an impact on the broad reform ‘narrative’, hitherto somewhat uncritically accepted by the international community, but this demonstrates the dangers of a momentum fast developing in the other direction,” said Mr Turnell.

China has traditionally been seen as more likely than many countries to invest in areas with poor human rights records. But concern over projects such as the massive China-backed Myitisone dam – which provoked so much public outrage that the current government suspended it just six months after taking power in March 2011 – has increasingly put off Chinese investors.

Figures from Myanmar’s Central Statistical Organisation show approved Chinese investment between April 2013 and January this year was just $46 million, compared to $407 million in the previous fiscal year and $4.3 billion in the year through March 2012.

For already-troubled areas such as Rakhine, that appears to be having a significant knock-on effect.

However Mr Turnell suggested Chinese investors were unlikely to stay away in the long term.

“I am less concerned about the Chinese investment – which was always opportunistic, and always willing to leverage any relative advantage. The fundamentals of China’s voracious energy and resource needs, and an episodically supine Myanmar right next door, won’t go away. They will be back,” he said.

U Mra Aung last week said the feasibility study had been abandoned after international investors had pulled out. However he insisted the Rakhine state government had not given up on the project, and the government would push ahead on its own to draw investment to the site at Ponnagyun which remained earmarked for development as an SEZ.

“We’ve already planned this and are going to announce the tender for development soon,” he said, though he said he did not know exactly when the tender would be made public. He did not comment on how the state hoped to draw international investors given the continued troubles.


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