Risks loom for Myanmar’s Kyaukphyu Economic Zone

The end of 2015 saw a series of major announcements and decisions regarding Myanmar’s latest special economic zone (SEZ) in Kyaukphyu township of Rakhine State. In late December, Myanmar’s government approved the demarcation of land for the SEZ and awarded tenders to develop the SEZ to a CITIC Group-led consortium.


The Kyaukphyu SEZ is a key part of Myanmar’s drive to attract foreign direct investment. It is one of three such zones set up since the military-backed USDP took over power from the Tatmadaw military junta via elections in 2011. Kyaukphyu’s SEZ includes three projects: a deep-sea port, an industrial park, and a housing project.

Optimistic projections suggest the SEZ may boost Myanmar’s GDP by as much as 10 billion USD annually. Failure, on the other hand, could undermine confidence in similar investment projects throughout the emerging economy.

The CITIC-led consortium chosen to develop the SEZ’s port and industrial park is composed of five additional firms, four of them Chinese: China Merchants Holdings Co. LTD, China Harbor Engineering Company Ltd., TEDA Investment Holding, Yunnan Construction Engineering Group, and Thailand’s Charoen Pokphand Group Company Limited.

Despite their initial success in the bidding, however, the consortium firms (and other investors interested in the future of the SEZ) face a series of formidable political risks.


First, Rakhine State’s ethno-religious tensions put the new SEZ at risk. Conflict between the Rakhine Buddhist majority and the state’s Muslim minorities has escalated into mob violence in the past.

During riots in 2012, for instance, inter-ethnic conflict led to the destruction of the Muslim quarter of Kyaukphyu township. In the event of further riots, mob violence could cause collateral damage to consortium property or personnel. Ethno-nationalist extremists might even intentionally target Chinese managers or workers given mounting anti-Chinese sentiment throughout the region.

Another set of risks stem from disputes with local landowners and civil society organizations (CSOs). Most of the township is populated by poor fishermen and farmers whose property and livelihoods will be significantly disrupted by the SEZ.

Environmental and rights-focused CSOs are already mobilizing locals and pressing for changes to SEZ plans over possible environmental impacts, the share of the project to be managed by Myanma firms and staffed by local workers, and the proper compensation for the land to be acquired for the SEZ. Disagreements over these issues – particularly land compensation – have held up similar projects, including the Dawei SEZ and Myitsone dam.

Kyaukphyu landowners are requesting a particularly high rate of compensation for their property – as much as five times what has been paid in other SEZ cases – and their demands are unlikely to be met.

In addition, resource nationalism and anti-Chinese sentiment is on the rise throughout Myanmar, particularly in Kyaukphyu where a number of gas extraction and pipeline projects have triggered protests in the past. Given the dominant role of Chinese firms in the consortium, and Kyaukphyu’s proximity to these gas projects, resource nationalism will likely intensify local resentment toward the SEZ.

As a consequence of these discontents, CSOs and local landowners could create problems for the new SEZ. There is a distinct possibility that these actors could orchestrate protests or broader unrest that could disrupt operations, escalate into limited violence, and generate bad press for Chinese businesses who already face an uphill battle in terms of public relations in Myanmar.

Additionally, these groups will likely lobby the incoming National League for Democracy (NLD) to revise, delay, or abandon the project which provides its own set of challenges.

Myanmar’s ongoing political transition to NLD-rule following November’s democratic elections poses potential political risks for the consortium.

Investors are still somewhat uncertain as to how competent the former opposition party will prove as it assumes power. The party has little experience governing, but will need to choose an effective replacement from among its ranks to replace the retiring chair of the Kyaukphyu SEZ committee, U Myint Thein.

There are also questions about how friendly the NLD and its leader Daw Aung San Suu Kyi (DASSK) will be toward the consortium and the SEZ. NLD lawmakers – including the head of the NLD’s economic team, Han Thar Myint – opposed the parliamentary authorization for the SEZ, arguing it was conducted without sufficient consultation with the NLD. DAASK and the NLD were also opponents of the Chinese-backed Myitsone dam project that was suspended by the USDP amid protests by environmentalists, local landowners, and resource-nationalists.

The NLD’s activist roots may also make it more sympathetic toward local activists and CSOs. Furthermore, the NLD is not nearly as close with China as the Tatmadaw and its USDP affiliates.

Nevertheless, recent developments indicate that the consortium may fare well under the NLD. The party has made economic success one of their foremost priorities. The NLD’s resounding electoral victory should give it a powerful mandate, reducing its vulnerability to political pressure from local groups and activists opposed to major economic projects like the SEZ.

Recently, DASSK seems to have warmed to China and has also adopted a more pragmatic stance on Chinese-backed investments. In 2012, for instance, she supported a controversial Chinese copper mine despite major protests by local activists.

These signposts indicate that while the potential impact of NLD opposition to the SEZ is quite formidable, the probability of this risk may be diminishing.

Moving forward, the CITIC consortium and prospective investors in the Kyaukphyu SEZ need to monitor local and national politics closely.

It will be important to monitor 1) ethnoreligious tensions in the region, 2) local protests’ traction in national politics – particularly among former-activists in the NLD, and 3) the development of Sino-Myanmar relations under the new NLD government. Any one of these dynamics could create obstacles to the successful development of the otherwise promising Kyaukphyu SEZ.

Source: Global Risk Insights

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